Tag: Non-Banks

Dialing for Dollars: Solving CBDC’s Equality Conundrum

~ Karen Petrou ~ 1 Comment

By Karen Petrou

  • CBDC advocates tout its inclusiveness, but the digital divide is a profoundly exclusionary impediment to CBDC access for LMI, disabled, older, and rural households. 
  • Centralized deposit-taking and payments via the Post Office and/or Fed pose challenges to personal privacy and even freedom of expression that, if not averted in initial design, could come to pose significant political and governance risk.  Lack of private competition also presents discrimination risk based on pricing or other terms not subject to outside scrutiny.
  • If CBDC succeeds as some envision it, then lending will come either from the federal government – Big Brother problems of still more concern – or capital-markets sources outside the perimeter of safety-and-soundness and often also consumer-protection regulation and enforcement.
  • A CBDC in which the Fed acts as an open-source utility corrects for many current inclusion, governance, and intermediation obstacles to payment-system speed and efficiency. 
Continue reading “Dialing for Dollars: Solving CBDC’s Equality Conundrum” →

Bad Things about the Good Place and How to Pretty It Back Up

~ Karen Petrou ~ 2 Comments

By Karen Petrou

  • Pre-COVID inequality evidenced itself instantly in post-COVID consumer-finance extremis.
  • A unique construct of ground-up recovery policies is an essential, urgent response.
  • Regulatory revisions would help and long-overdue equitable liquidity facilities would do still more.
  • New public guarantees are critical.

Ever since the U.S. economy crept out of recession, the Fed has represented its slow, inequitable recovery as a “good place.”  Its own 2018 economic well-being survey contradicted this and the latest data released on May 14 are no better before COVID came and a lot worse thereafter.  These data make it still more clear that the Fed must quickly reorient its trickle-down rescues to move money starting at ground level, but even that won’t be sufficient given the magnitude of COVID’s economic impact.  The combination of macroeconomic harm and financial-system hurt also requires a reset in which new public guarantees for prudent private financing fully recognized by new rules play a major part. Continue reading “Bad Things about the Good Place and How to Pretty It Back Up” →

Wheelies on the Yield Curve:  Inequality, Disintermediation and the Hazards of New QE

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By Karen Petrou

Starting with our very first EconomicEquality blog post, we demonstrated the direct link between quantitative easing (QE) and the sharp rise in U.S. wealth inequality that differentiates this recovery from all that came before.  QE exacerbates inequality because, combined with post-crisis rules and ultra-low rates, it creates a market dynamic in which banks hold huge excess-reserve balances instead of making equality-essential loans and markets relentlessly chase yield, increasing equity valuations and driving credit to borrowers such as highly-leveraged companies.  In 2019, the Fed bulked up its portfolio in what is now known as QE-lite in hopes of rescuing the repo market, reinvigorating sputtering equity markets no matter the Fed’s ongoing insistence that this round of portfolio increases isn’t QE. Continue reading “Wheelies on the Yield Curve:  Inequality, Disintermediation and the Hazards of New QE” →

Economic Inequality, Financial Crises, and 2019

~ economicequality ~ 4 Comments

By Karen Petrou

As 2018 drew to a close, the Federal Reserve Board and the Financial Stability Oversight Council each pronounced financial-stability risk to be comfortingly “moderate,” much as Ben Bernanke and Hank Paulson did in August of 2008.  It remains to be seen if market turmoil just days after is more than a bad blip, but there’s a still more worrisome financial-crisis risk lurking beneath volatile financial markets:  U.S. economic inequality.  Here, we show how current, acute inequality makes 2019 particularly perilous even if markets stabilize, President Trump eschews Twitter, the federal government begins anew, and all seems somehow otherwise right with the world. Continue reading “Economic Inequality, Financial Crises, and 2019” →

This Little Equality Goes to Market

~ Karen Petrou ~ 1 Comment

By Karen Petrou

After crafting the initial features of the post-crisis bank-regulatory framework, global and U.S. policy-makers were dumbfounded to discover that costly new rules changed the competitive financial-market balance.  Mirabile dictu, when costs rose for banks, banks changed their business model to cling to as much investor return as possible instead of, as regulators apparently expected, taking it on the chin to ensure ongoing financial-service delivery at whatever pittance of a profit remained.  As markets rapidly and in some cases radically redefined themselves, global regulators dubbed the beneficiaries of this new competitive landscape “shadow banks.”  At the most recent meeting of the FSB Plenary, they changed   shadow banks to the less stealthy moniker of “non-bank financial intermediaries.”  A new BIS working paper shortens the scope of shadow banking to “market-based finance,” going on to assess a fundamental question:  does the transformation of financial intermediation from banks to non-banks alter the income and equality landscape?  The answer:  It’s complicated. Continue reading “This Little Equality Goes to Market” →