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”
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”