After we last year proposed “Equality Banks,” ideas flooded in on possible charters. We also heard from those who so distrust any venture involving private finance that they believe only a public bank suffices to ensure fair delivery of equality-essential deposit, loan, and payment products. In this blog post, we build on prior work to lay out an array of charter options suitable for different types of Equality Banks owned by different types of financial or private investors. We reiterate our worries about public banks, adding to our prior evaluation of state and municipal efforts with an analysis of “low-income” credit unions and of the only equality-focused federal public bank to date. Each of these well-intentioned initiatives in fact made U.S. inequality a little bit worse, providing important lessons as progressive Democrats ready a raft of proposals not only to craft public banks, but also even to make the Postal Service or Federal Reserve become one. Continue reading “More Ways to Make an Equality Bank Make a Difference”
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”
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 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”