The Wall Street Journal reports Fed Proposes Looser Rules for Large U.S. Banks
> The Federal Reserve announced one of the most significant rollbacks of bank rules since President Trump took office with a proposal for looser capital and liquidity requirements for large U.S. lenders.
> The changes would affect large U.S. lenders including U.S. Bancorp , Capital One Financial Corp. , and more than a dozen others. The largest U.S. banks, including JPMorgan Chase & Co., wouldn’t see any significant rule changes, and some in the industry thought the proposal didn’t go far enough.
> The draft proposal, approved by a 3-1 vote at a Wednesday meeting of the Fed’s governing board, would divide big banks into four categories based on their size and other risk factors. Regional lenders would be either entirely released from certain capital and liquidity requirements, or see those requirements reduced. They could also, in some cases, be subject to less frequent stress tests.
> The proposals received a mixed reaction from banks. While some trade groups praised it, Greg Baer—president of the Bank Policy Institute, which represents large banks—said the proposal “does not do enough to tailor regulations.” He said, for instance, the plan doesn’t include changes to the Fed’s primary stress tests for big banks or to rules affecting foreign-owned banks with U.S. footprints. Fed officials said they were planning future proposal in those areas.
> The plan divided the Fed, with Trump-appointed regulators and the Fed’s lone Obama-appointed official taking opposite sides. Fed Chairman Jerome Powell said the proposal would cut the regulatory burden “while maintaining the most stringent requirements for firms that pose the greatest risks.”
> Fed governor Lael Brainard dissented. The Obama appointee said the policy changes “weaken the buffers that are core to the resilience of our system” and raise “the risk that American taxpayers again will be on the hook.”
Less Regulation Needed
My “Just in Time Stimulus” headline was meant as sarcasm, in case anyone missed it.
Yet, I am all in favor of less regulation. This is what we need.
- End the Fed
- End fractional reserve lending
- End the bailouts
- End deposit insurance
- Let the free market select what is money
Failure of Regulation
All five points above are failures of regulation, not failures to regulate.
If we are to enact my plan, by all means let banks lend however the hell they want. The free market will take care of what’s needed.
If banks make poor lending choices, they will fail. And that’s a good thing.
As it sits, looser lending standards coupled with the current credit bubble, housing bubble, equity bubbles, and a junk bond bubble is not the best thing to do right now.
Lowering capital standards is downright idiotic in light of the need for point number two above.
Mike “Mish” Shedlock
If we got rid of deposit insurance, what protection would savers have?
None – But with 100% reserve requirements there would not need to be any, except to protect against theft and fraud. Banks would not be able to lend checking deposits. Savers take a risk on interest-bearing deposits, as they should.
Mish, what do you mean by letting the free market select what money is? If we got rid of deposit insurance, what protection would savers have?
Attempt to keep the debt bubble growing to get FAKE economic growth through excessive debt…
What do you propose the banks do with their deposits instead of lending it out? No matter what it is, there is no way they can make good on a guarantee to have everyone’s deposits available for withdrawal from any location in the world on demand.
You can’t completely eliminate fractional reserve lending, but you can force banks to hold more in reserves. The downside is they would have to pay less interest and/or charge more interest to compensate.
Fractional reserving in a sound money world, makes it impossible to lend out specie you don’t have. Since you cannot just print some up. It’s Gold. Once your vault is empty, it’s empty.
Of course, banks can print up claims to Gold they insist they have in their vaults. But then, those claims are only as good as a given bank’s credibility. No “full faith and credit of someone else who happen to be a tax payer we can stick a gun in the face of” nonsense. Just “full faith and credit of Lehman Brothers.” People can choose to accept that, or not. If not, they can demand Gold.
So, in a sound money world, some level of fractional reserving may occur, but it’s self limiting. There’s no need for a Godlike “system” tying everyone together, that must then supposedly be maintained at any and all cost. Instead, those who choose to play fast and loose by accepting payment in the form of Lehman claims rather than metal, sit with all the risk doing so entails.
Ditto for those who choose to hand their Gold to Lehman, with the understanding that Lehman can lend it out, as long as Lehman promises to pay them some interest on the deposit every year.
Anyone who don’t like that arrangement, can either hand it to someone for simple safe keeping in a vault, and pay a safekeeping fee; or they can stick it under their mattress. Again, no pointless tying of unrelated people into hairballs. Just individual deals between free people. No “system”, no mythological “we.” Just Individuals allowed to live as free men.
With global economic growth predicated on the continued expansion of credit, anything that facilitates that effort will be adopted, whether its the reduction of regulations, changes to the FICO scoring system, etc. Declining credit growth = economic collapse.
Financial collapse, not economic. Very different indeed. In fact, at our current stage of advanced decline into a financialized dystopia, pretty much exact opposites.