By Karen Petrou
Starting in 2010, U.S. regulators erected a pyramid of complex, costly, and stringent safety-and-soundness, resolution-planning, and conduct regulations for the largest U.S. banking organizations that have come to be called SIFIs (i.e., systemically-important financial institutions). Starting in 2018, the agencies began to demolish the still-incomplete SIFI pyramid, issuing on October 31 two sweeping proposals (here and here) not only to implement new U.S. law, but also to go farther. Bankers say this is nice, but not enough; critics lambast the proposals as forerunners of the next financial crisis. Either could be right – the proposals repeat the most fundamental mistake of post-crisis financial regulation: rules piled upon rules or, now, rules subtracted from rules without even an effort to anticipate how all of the revised rules work taken altogether in the financial marketplace as it exists in the real world, not in a set of academic papers or political edicts. Continue reading “SIFIs and Sisyphus: The Latest Bank-Regulation Rewrite”
By Basil N. Petrou and Karen Shaw Petrou
At a recent meeting with senior White House and Congressional budget experts, we revisited the benefits of using federal guarantees to drive private capital to public need. Much of the discussion centered on taxpayer protection, a significant challenge due to risk-taking incentives baked into the federal budgeting process. There are many reasons – billions of them in fact – to reject the budgeting approach mandated by the Federal Credit Reform Act (FCRA) in favor of a fair-value methodology. Less known and not discussed is an issue of equal importance: getting guarantees right not just for taxpayers, but also for the regulated financial companies from which the private capital for successful guarantees must come. Here, we lay out principles for equality-enhancing guarantees that meet needs ranging from sound mortgage lending to translational biomedical research. Continue reading “Guarantees that Deliver the Equality Goods”
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 and Basil N. Petrou
Last Thursday, the Senate Banking Committee considered the confirmation of Brian Montgomery to be the Trump Administration’s Federal Housing Administration (FHA) Commissioner, allowing him to step back in to the shoes he filled in the George W. Bush Administration. But, times are different now – as we’ve noted before, the U.S. is far less economically equal than it was even in 2007 and the residential-mortgage market largely serves only the most creditworthy, wealthiest households.
Continue reading “Home Ownership, Wealth Accumulation, and the FHA”