Thursday, June 25, 2009
Bernanke: I Didn't Pressure BofA Into Merrill Merger
Maybe so. But he essentially created a "bank run" on Wachovia, causing it to fail even though it wasn't insolvent. The Fed said that Wachovia didn't have "enough collateral," so it didn't lend it money. This caused a run that forced the bank to be sold to Wells Fargo. Shareholders of Wachovia ought to be outraged. One of the Fed's main responsibilities--and the reason for its creation--was to prevent bank runs.
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2 comments:
Even without collateral, the Fed's own policy is to provide overdrafts at a penalty (albeit a substantial penalty). See page VI-2 of the Account Management Guide for banks at http://www.frbservices.org/files/regulations/pdf/amg.pdf In fact, the Fed considered a few years ago limiting banks' uncollateralized overdrafts in some instances but due to outcry from banks decided not to. Amazing.
What's the public purpose in demanding collateral if the regulators have been approving the assets all along? Just leads to a bank run, as happened here.
Scott
Is this an artificial bank run caused by bad policy, or is it similar to the classic ones as well ?
Of course the classic examples happened when there was no Fed.
Maybe there is no place for regulation anyhow in these matters.
Regulation when "they" want it
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