By Karen Petrou
- Economic inequality and ultra-low interest rates create a vicious cycle in which rates drive down savings, financial intermediation becomes less profitable, unequal households have still more difficulty preserving income and accumulating wealth, banks drop equality-essential services, consumers are made still more unequal, and it all starts all over again.
- Breaking this cycle requires hard decisions about which retail-banking services genuinely enhance economic equality and quickly developing effective, measurable delivery channels to promote widespread adoption.
- There is no shortage of commitments from high-level federal officials supporting equitable finance; what’s missing are specific, near-term action steps.
- This post thus provides a step-by-step roadmap for quick public- and private-sector innovation, regulation, and inclusion.
Almost a decade to the day after the “Occupy Wall Street” movement crystalized the populist politics that now characterizes U.S. debate, the Acting Comptroller of the Currency announced that his agency’s top priority is reducing inequality. This echoes the Biden Administration’s emphasis on equality and racial equity, but all of these high-minded goals are more hortatory than clear directives. They are thus unlikely to advance equitable banking, exacerbating not just economic inequality, but also America’s discontent and resulting disfunction. Reducing economic inequality is clearly essential, with banks and other financial companies sure to face mandates or even public-finance competitors if vital needs are not quickly and equitably met.
Continue reading “Equality Banking: A Roadmap”
By Karen Petrou
- Judging U.S. rulemaking by its benefits to the public good, not just by its impact on private wealth, is transformational and, with a new CBA methodology, also more than possible.
- Equitable rules can be both effective and efficient.
- Maximizing the public good is not synonymous with redistribution or reverse discrimination.
In 1993, President Bill Clinton issued Executive Order (EO) 12866, creating hurdles ahead of federal rules that are “economically significant.” This was measured by a cost of $100 million or more. On January 20, President Biden began a long-overdue rewrite, stipulating that federal rules are henceforth to be judged not just by their impact on private wealth, but also by what becomes of the public good.
Continue reading “Rules We Can Really Live By”
By Karen Shaw Petrou
- CCAR now tries to make big banks a shadow U.S. central bank.
- Result: more systemic risk and still less economic inequality.
How do you make the financial system less stable and increase U.S. economic inequality at the same time? It’s not easy, but if you’re the Fed, then you accomplish this frightening feat by toughening up the annual CCAR stress test for the biggest banks without an eye to its systemic or market impact. Stress testing is fine – indeed an important addition to the post-crisis supervisory arsenal. But, CCAR itself is founded on two flawed premises: big BHCs are the heart of financial stability and nothing the central banks does adversely affects economic inequality. Continue reading “Caught in CCAR’s Cross-Fire”
By Karen Shaw Petrou
At its October meeting, the IMF’s economists pronounced that global economic prospects are “benign,” with financial risks well within acceptable bounds, at least for now. But, as Martin Wolf said the following Friday in the Financial Times, the meeting’s mood was anything but calm and confident. Why?
Continue reading “Why Liberal Economics is to Growth and Systemic Risk as the Clinton Campaign was to Winning the White House”