Wednesday, August 9, 2017

Federal Bank Regulator Drops a Bombshell as Corporate Media Snoozes

Know wonder the Chinese economy is zooming ahead while Western economies stagnate, US banks are starving the economy of cash while using it to buy back their own shares to boost CEO's bonuses. So, private banking is strangling the economy and the so called 'free market' is eating itself. Perhaps more public banks is the solution if the private sector can't get it right, but that would be Chinese, wouldn't, it, Communists don't know how to run a capitalist society? But they are doing so well that Washington wants to take them down. Never mind, war is always good for business too and another way to fatten bonuses. Why work for a living?

Last Monday, Thomas Hoenig, the Vice Chairman of the Federal Deposit Insurance Corporation (FDIC), sent a stunning letter to the Chair and Ranking Member of the U.S. Senate Banking Committee. The letter contained information that should have become front page news at every business wire service and the leading business newspapers. But with the exception of Reuters, major corporate media like the Wall Street Journal, Bloomberg News, the Business section of the New York Times and Washington Post ignored the bombshell story, according to our search at Google News.

What the fearless Hoenig told the Senate Banking Committee was effectively this: the biggest Wall Street banks have been lying to the American people that overly stringent capital rules by their regulators are constraining their ability to lend to consumers and businesses. What’s really behind their inability to make more loans is the documented fact that the 10 largest banks in the country “will distribute, in aggregate, 99 percent of their net income on an annualized basis,” by paying out dividends to shareholders and buying back excessive amounts of their own stock.

Hoenig writes that the banks are starving the U.S. economy through these practices and if “the 10 largest U.S. Bank Holding Companies were to retain a greater share of their earnings earmarked for dividends and share buybacks in 2017 they would be able to increase loans by more than $1 trillion, which is greater than 5 percent of annual U.S. GDP.”


Ralph Musgrave said...

Martin Wolf (chief economics commentator at the Financial Times) and Anat Admati (economics prof at Stanford) have called for bank capital ratios to be about 25%, i.e. about ten times higher than they currently are. But even better would be a 100% ratio, as advocated by Milton Friedman and others.

Reason is that it is precisely the fact of funding bank loans via deposits that enables private banks to create or “print” money. In contrast, under a 100% capital ratio they can’t. And money printing amounts to robbing the community at large.

Everyone has heard of the TBTF subsidy. Unfortunately very few people have got to grips with the “money printing” bank subsidy.

Matt Franko said...

The banks are over capitalized by 100s of $B against their risk assets due to govt policy creating unprecedented multiple $T of non risk bank assets....

Matt Franko said...

Why do you guys keep running down economists and then in the next breath cite the work of economists to make your political points?

Are you stupid?

Ralph Musgrave said...

Coincidentally Lars Syll today attacks the idea that higher capital ratios significantly increase banks capital ratios. See: