Tuesday, November 21, 2017

Trump Dual-hats Mulvaney at CFPB


Something else to keep an eye on as part of changes to bank regulation.

Doesn't understand the QE effects causing the GFC and subsequent credit contraction but not too bad otherwise; gets the direction right anyway:

One large downside to Dodd-Frank was that in order to hold the required capital, all banks decreased lending to shore-up their liquid holdings and meet the regulatory minimums. 
Without the ability to borrow funds, small businesses have a hard time raising money to create business. Growth in the larger economy is hampered by the absence of capital. 
Another downstream effect of banks needing to increase their liquid holdings was exponentially worse. Less liquid large banks needed to purchase and absorb the financial assets of more liquid large banks in order to meet the regulatory requirements. 
That’s the underlying problem for a Glass-Steagall type of regulation now. 
The Democrats created Dodd-Frank which: #1 generated constraints on the economy (less lending), #2 made fewer banking options available (banks merged), #3 made top banks even bigger. 
This problem is why President Trump and Secretary Mnuchin are working to create a parallel banking system of community and credit union banks, individually less than $40 billion in assets, that are external to Dodd Frank regulations and can act as the primary commercial banks for small to mid-sized businesses.

So they might be foregoing the current proposed policy change of elimination of risk-free assets in the computation of the Leverage Ratio for the big banks and instead creating a parallel small banking system with that regulatory feature.

Have to keep an eye on this going forward... imo this area of policy adjustment is more important in scale to the economy short-term than the current tax reform proposals which seem to be getting all the attention.




4 comments:

Unknown said...

I would read this as a plan to unleash another wave of predatory financial shenanigans with small business the latest juicy prey. Another wave of wealth transfer from them to the banksters. If it was any other administration, I might consider it in good faith. With this bunch? Not a chance.

Matt Franko said...

Unk,

My 20+ years experience was that the smaller banks were better at business lending...

Eventually they all got bought up and merged and it got so bad by before the GFC if you went in for a business loan all they would do is slide a $100k Visa Business credit card application over the table for you to fill out...

There was a time when they did their own underwriting and you could go in and get a term loan against a piece of equipment with serial numbers, etc...

Those days are long gone... maybe Trump is trying to bring that back..

Or he hates the big bank assholes and doesnt want to give them a break on the capital requirements for risk free assets and instead is going to create a bunch of little banks with that advantage to start nipping at the big bank assholes ankles just to piss them off...

He probably hates bankers everybody in real business cant stand those MFers...

Michael Norman said...

As you say, gotta watch this.

Matt Franko said...

Mike hard to tell if Trump is holding out on the big banks to get something out of them ....... or if he’s not ever going to do it to screw them as paybacks are hell and he’s getting even with them...

If he succumbs to the bigs imo highly bullish short term ... if he ends up screwing them and doing this small bank thing it’s imo positive but just reinforcing the current slow grind higher as it will take some time for those new small banks to crank it up...