Just in Time Stimulus: Fed Proposes Looser Rules for Large U.S. Banks

  I do not support this writer ideas, but the news is important.  Regional banks will revert back to mostly 2007 rules.  Recall that those banks and in fact the banks outside the too big to fail group did fine with few going bust.  Our rules were really good enough then.

Our serious banking problem is that we must breakup the big ones as soon as possible and demand as much overseas for USA access.  This is not a slight danger.  What happened in 2008 is that the larger players converted their overseas placing power into dumping garbage assets they knew were garbage.  Where they smaller they would have focused on competing with each other instead.

That role needs to be firmly in the hands of investment banking lacking the capital to self fund their own product.   The banks need to be small enough that they are not tempted to sway turkeys either.

Just in Time Stimulus: Fed Proposes Looser Rules for Large U.S. Banks

by Mike Mish Shedlock3

https://moneymaven.io/mishtalk/economics/just-in-time-stimulus-fed-proposes-looser-rules-for-large-u-s-banks-oiBUa_vNwE62LE4JKMTx6A/

The Fed's proposal marks one of the most significant rollbacks of bank regulations since Trump took office.

The Wall Street Journal reports Fed Proposes Looser Rules for Large U.S. Banks

The Federal Reserve announced one of the most significant rollbacks of bank rules since President Trump took office with a proposal for looser capital and liquidity requirements for large U.S. lenders.

The changes would affect large U.S. lenders including U.S. Bancorp , Capital One Financial Corp. , and more than a dozen others. The largest U.S. banks, including JPMorgan Chase & Co., wouldn’t see any significant rule changes, and some in the industry thought the proposal didn’t go far enough.

The draft proposal, approved by a 3-1 vote at a Wednesday meeting of the Fed’s governing board, would divide big banks into four categories based on their size and other risk factors. Regional lenders would be either entirely released from certain capital and liquidity requirements, or see those requirements reduced. They could also, in some cases, be subject to less frequent stress tests.

The proposals received a mixed reaction from banks. While some trade groups praised it, Greg Baer—president of the Bank Policy Institute, which represents large banks—said the proposal “does not do enough to tailor regulations.” He said, for instance, the plan doesn’t include changes to the Fed’s primary stress tests for big banks or to rules affecting foreign-owned banks with U.S. footprints. Fed officials said they were planning future proposal in those areas.

The plan divided the Fed, with Trump-appointed regulators and the Fed’s lone Obama-appointed official taking opposite sides. Fed Chairman Jerome Powell said the proposal would cut the regulatory burden “while maintaining the most stringent requirements for firms that pose the greatest risks.”

Fed governor Lael Brainard dissented. The Obama appointee said the policy changes “weaken the buffers that are core to the resilience of our system” and raise “the risk that American taxpayers again will be on the hook.”

Less Regulation Needed3

My "Just in Time Stimulus" headline was meant as sarcasm, in case anyone missed it.

Yet, I am all in favor of less regulation. This is what we need.

1. End the Fed
2. End fractional reserve lending
3. End the bailouts
4. End deposit insurance
5. Let the free market select what is money

Failure of Regulation

All five points above are failures of regulation, not failures to regulate.

If we are to enact my plan, by all means let banks lend however the hell they want. The free market will take care of what's needed. 

If banks make poor lending choices, they will fail. And that's a good thing. 

As it sits, looser lending standards coupled with the current credit bubble, housing bubble, equity bubbles, and a junk bond bubble is not the best thing to do right now.

Lowering capital standards is downright idiotic in light of the need for point number two above.

Mike "Mish" Shedlock

Comments (3)

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No. 1-3

shamrock

What do you propose the banks do with their deposits instead of lending it out? No matter what it is, there is no way they can make good on a guarantee to have everyone's deposits available for withdrawal from any location in the world on demand.

Sechel

This is just further proof that giving the Federal Reserve multiple mandates confuses and muddies the water. This is also nothing new. And it was widely expected. While Powell and Yellen hold similar monetary policy views Powell is much more bank friendly on the regulatory side.

While banks may appear healthier now, its illogical to be backward looking. It's only at the Minsky moment the risk is apparent and its too late. Right before that banks have taken on more risk and because the economy is doing well, with bad loans able to be rolled over that there doesn't seem to be a problem.

Get rid of the multiple mandates and we'll be in much better shape. The Fed will lose the incentive to play fast and loose with regulation because that won't be under their influence. Fed should have two jobs, be lender of last resort and maintain stable prices. Everything else causes problems.
The Fed should not be in charge of growing the economy. That's for the Executive and Legislative branches to do by promoting god policies.