Tag: Capital Rules

Profits, Purpose, and Payday Lending

~ Karen Petrou ~ 2 Comments

By Karen Shaw Petrou

On May 23, the Office of the Comptroller of the Currency (OCC) issued a bulletin allowing national banks into the short-term, small dollar lending often stigmatized as payday lending.  The policy shift is intended to spur regulated banks into a business prone to predatory practice, thus giving vulnerable borrowers a better way to tide them over short-term financial hardships.  Will banks start making short-term, small-dollar loans now that they have the OCC’s blessing?  Not if they can’t find a way to make money. 

Continue reading “Profits, Purpose, and Payday Lending” →

Guarantees that Deliver the Equality Goods

~ Basil Petrou ~ 1 Comment

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” →

Very, Very Safe Banks and a Very, Very Unequal Economy

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By Karen Shaw Petrou

On April 13, federal banking agencies released their plan to require regulatory-capital recognition of the FASB’s new current expected credit loss (CECL) accounting method.  Doesn’t it sound technical, dull, and irrelevant to economic equality?  The integration of capital regulation with CECL is indeed technical and often dull, but it’s absolutely critical to the ability of U.S. banks to make the long-term, higher-risk loans essential for reversing at least some U.S. income and wealth inequality. Continue reading “Very, Very Safe Banks and a Very, Very Unequal Economy” →

Caught in CCAR’s Cross-Fire

~ Karen Petrou ~ 1 Comment

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” →

How Equality Hangs in the Balance Sheet

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By Karen Shaw Petrou

As Thomas Piketty’s book and much other research show, economic equality is a cumulative-return construct – that is, absent engines of growth, the rich get richer and middle-income households fall ever farther behind.  Thus, when bank balance-sheet capacity shrinks and lending to core economic engines such as housing and small business falters, income distribution widens and wealth inequality grows inexorably worse.  Continue reading “How Equality Hangs in the Balance Sheet” →