Bill Black — Trump Models His War on Bank Regulators on Bill Clinton and W’s Disastrous Wars

Tom Frank aptly characterized the Bush appointees that completed the destruction of effective financial regulation as “The Wrecking Crew.” It is important, however, to understand that Bush largely adopted and intensified Clinton’s war against effective regulation. Clinton and Bush led the unremitting bipartisan assault on regulation for 16 years. That produced the criminogenic environment that produced the three largest financial fraud epidemics in history that hyper-inflated the real estate bubble and drove the Great Financial Crisis (GFC). President Trump has renewed the Clinton/Bush war on regulation and he has appointed banking regulatory leaders that have consciously modeled their assault on regulation on Bush and Clinton’s ‘Wrecking Crews.’

New Economic Perspectives
Trump Models His War on Bank Regulators on Bill Clinton and W’s Disastrous Wars
William K. Black | Associate Professor of Economics and Law, UMKC

Stephen G. Cecchetti and Kermit L. Schoenholtz — Understanding Bank Capital: A Primer

“It is clear that the banks have too much capital.” Jamie Dimon (CEO, JPMorgan), Annual Letter to Shareholders, April 4, 2017.

“If JPMorgan really had demand for additional loans from creditworthy borrowers, why did it turn those customers away and instead choose to buy back its stock?” Neel Kashkari (President, Federal Reserve Bank of Minneapolis), Jamie Dimon’s Shareholder (Advocacy) Letter, April 6, 2017

Money & Banking
Understanding Bank Capital: A Primer
Stephen G. Cecchetti, Professor of International Economics at the Brandeis International Business School, and Kermit L. Schoenholtz is Professor of Management Practice in the Department of Economics of New York University’s Leonard N. Stern School of Business

Gregg Gelzinis — Treasury wants to weaken a crucial post-crisis capital requirement

A proposal by the Treasury Department that would allow large banks to exclude certain assets in calculating the leverage ratio is not only a misguided recommendation that would undermine post-crisis capital requirements for Wall Street. The recommendation also appears to be in direct contradiction with the leverage ratio principles outlined in the Treasury report’s own appendices.

On June 12, the Treasury released the first in a series of financial regulatory reports in accordance with an executive order signed by President Trump in February. Among the report’s worrisome recommendations is to modify the denominator in the Supplementary Leverage Ratio, or SLR. Specifically, Treasury recommends removing certain assets — cash held at central banks, U.S. Treasury securities and initial margin for centrally cleared derivatives — from what top-tier holding companies must include in maintaining a 5% SLR. This essentially makes it easier to meet the SLR requirement.

Here’s why that’s a problem.…

American Banker
Treasury wants to weaken a crucial post-crisis capital requirement
Gregg Gelzinis | special assistant for the economic policy team at the Center for American Progress

Bloomberg — Berkshire's Munger: Fellow Republicans 'bonkers' on bank-regulation view

Charles Munger, the vice chairman at Warren Buffett's Berkshire Hathaway, said the leaders of his political party risk going too far in their efforts to reduce oversight of banks.

"My fellow Republicans — the ones taking away all this regulation of major finance — I think that's bonkers," Munger, 93, said Monday on CNBC....

American Banker
Berkshire's Munger: Fellow Republicans 'bonkers' on bank-regulation view

Bloomberg

Pam and Russ Martens — President Trump, This Is No Way to Drain the Swamp

Just what did Candidate Trump mean by "swamp"?

Wall Street On Parade
President Trump, This Is No Way to Drain the Swamp
Pam Martens and Russ Martens

Pam and Russ Martens — U.S. Quietly Drops Bombshell: Wall Street Banks Have $2 Trillion European Exposure

Wall Street On Parade
U.S. Quietly Drops Bombshell: Wall Street Banks Have $2 Trillion European Exposure

Pam Martens and Russ Martens

Eric Tymoigne — Money and Banking – Part 9: Banking regulation

It may surprise you to know that the banking sector is one of the most regulated industries in the United States with a bank having to file regulatory documents with several agencies. These regulations determine how banks should and should not operate their business in terms of many aspects; from disclosure of information to potential customers, to means of determining creditworthiness of a potential client, to the amount of reserves to hold, to management issues, among others.…

New Economic Perspectives
Money and Banking – Part 9: Banking regulation
Eric Tymoigne | Associate Professor of Economics at Lewis and Clark College, Portland, Oregon; and Research Associate at the Levy Economics Institute of Bard College

Mike Mariathasan and Ouarda Merrouche — Capital adequacy and hidden risk

The regulation of bank capital has recently come under renewed scrutiny. This column argues that the way we implement capital regulation needs to be reconsidered because banks under-report risk, thereby escaping government intervention and maintaining market access. One possible way forward, something already implemented under Basel III, is to ask banks to satisfy a capital requirement relative to total (rather than risk-weighted) assets. Overall, simple, transparent, workable rules are what we should be aiming for.

VOX.eu
Capital adequacy and hidden risk
Mike Mariathasan, Postdoctoral Research Fellow, University of Oxford, and Ouarda Merrouche, Senior Economist, ESMA; and External Advisor, World Bank

John Carney — Citigroup and Blackstone's Capital Requirement Workaround

One of the effects of capital requirements is that they encourage banks to do a lot of things they otherwise might not.

The entire banking sector, for example, is heavily exposed to mortgage risk because capital rules favor mortgages over other types of loans. Similarly, banks bought lots of credit protection from AIG and bond insurers in part because this was a good way of reducing the amount of capital they had to hold against their assets.

Michelle Wiese Bockmann, Liam Vaughan and Ben Moshinsky have a nice story today that illustrates that financial engineering to skirt regulation is still alive and well.

CNBC NetNet
Citigroup and Blackstone's Capital Requirement Workaround
John Carney | Senior Editor

John Carney — Basics of Banking: Loans Create a Lot More Than Deposits

When someone says "loans create deposits," usually that means at least that the marginal impact of new lending will be to create a new asset and a new liability for the banking system. But in our system it's actually a bit more complicated than that.

CNBC NetNet
Basics of Banking: Loans Create a Lot More Than Deposits
John Carney | Senior Editor

John Carney — Boston Fed President: Banks May Not Have Enough Crisis Capital

John analyzes capital requirements. More about bank funding.

CNBC NetNet

Boston Fed President: Banks May Not Have Enough Crisis Capital

John Carney | Senior Editor

Fed's Fisher and TBTF. The one thing he understands.

Federal Reserve Bank of Dallas President Richard Fisher extended his long-running effort to break up the biggest banks Wednesday at a time when the idea is gaining currency with policymakers on both sides of the aisle. Long a critic of letting financial firms grow "too big to fail," Mr. Fisher detailed in a prepared speech Wednesday an approach he said would prevent banking firms from growing so large and complex that their failure could undermine the entire financial system. The Dallas Fed chief spoke to the Committee for the Republic at the National Press Club.

Fed's Fisher: Limit Government Aid to Traditional Bank Unit
Kristina Peterson and Victoria McGrane
(h/t Ryan Harris in the comments)