This dropped late after the close yesterday... in the PR business, if you want something to be overlooked in the news cycle, it is well known you release it late on a Friday after COB...
They don't want to address this question: "Under very similar conditions, why didn't you do this same regulatory modification in September 2008?".... this is what they are trying to avoid hence the Friday evening news dump... because 1. they would have no answer and 2. it would demonstrate that they themselves caused the GFC in 2008 by rapidly increasing Reserve Assets at the Depositories...
Which is what they are trying to avoid doing again hence this regulatory modification...
In any event, putting aside the absent lessons-learned for now, this time it looks like they finally got the FDIC and OCC on board, so if the systemically important banks adopt this regulatory modification, then looks like no GFC2 redux until March 2021 at least...
We will have to see some statements out of the big banks as to whether they are going to employ this regulatory modification to be sure... the new regulation seems to establish a new approval authority for dividend payments which may be considered restrictive... we'll have to see for sure... but I'd have to think it was probably greased with the banks...
@federalreserve @FDICgov @USOCC temporarily change supplementary leverage ratio to increase banking organizations' ability to support credit to households and businesses in light of coronavirus response: https://t.co/GGE3JOmLrp— Federal Reserve (@federalreserve) May 15, 2020
From the .pdf explainer you can see that they have finally figured it out:
The ability of depository institutions to hold certain assets, most notably deposits at a Federal Reserve Bank and Treasuries, is essential to market functioning, financial intermediation, and funding d funding market activity, particularly in periods of financial uncertainty.
In response to volatility and market strains, the Federal Reserve has taken a number of actions to support market functioning and the flow of credit to the economy. The response to COVID-19 has notably increased the size of the Federal Reserve’s balance sheet and resulted in a large increase in the amount of reserves in the banking system.
The agencies anticipate that the Federal Reserve’s balance sheet may continue to expand in the near term, as customer deposits continue to expand, and recently announced facilities to support the flow of credit to households and businesses begin or continue operations. In addition, market participants have liquidated a high volume of assets, and customers have drawn down credit lines and deposited the cash proceeds with depository institutions in recent weeks, further increasing the size of depository institutions’ balance sheets.
Absent any adjustments to the supplementary leverage ratio, the resulting increase in the size of depository institutions’ balance sheets may cause a sudden and significant increase in the regulatory capital needed to meet a depository institution’s leverage ratio requirement.4
This is particularly the case for many of the depository institutions subject to the supplementary leverage ratio, which are significant participants in financial intermediation services, including as clearing banks for dealers in the open market operations of the Federal Open Market Committee and as major custodians of securities.
In order to facilitate depository institutions’ significant increase in reserve balances resulting from the Federal Reserve’s asset purchases and the establishment of various programs to support the flow of credit to the economy, as well as the need to continue to accept exceptionally high levels of customer deposits, the agencies are issuing this interim final rule to provide depository institutions subject to the supplementary leverage ratio (qualifying depository institutions) the ability to exclude temporarily Treasuries and deposits at Federal Reserve Banks from total leverage exposure through March 31, 2021.
At least I will be sleeping a bit better now knowing that at least they know what NOT to do this time.... this is at last a positive development imo...
Not a recommendation in any way, shape or form.
34 comments:
The SLR prevents private banks from competing with sovereign spending for the general welfare - unless they raise more capital.
So the Supplemental Leverage Ratio is not a bad thing given our obsolete, inherently corrupt Gold Standard banking model.
And if the banks don't like it, then let them lobby to be 100% private with 100% voluntary depositors so they can leverage all they dare - rather than continue to be the shameless hypocrites they are.
there is no competition... banks are regulated by the central bank... they are not in competition with each other...
Depositories have about 2T in Residual to leverage right now... so if CB direct intervention in the credit system in this time of real pandemic creates more assets in the Depository system than that 2T amount allows Depositories to legally possess then some sort of regulatory adjustment is required...
Otherwise the credit system operated by Depositories has to shut down like happened in September 2008 with cascading bankruptcies and associated chaos...
The late Friday drop seems deceptive on surface...
We need an overt lessons learned action out of this ....and the past failure well documented and revealed ... or it is just going to happen again when new regulatory people come in the future...
... or it is just going to happen again when new regulatory people come in the future... Franko
Government-privileged private depository institutions have been an endless source of injustice and instability for centuries and will continue to be until it's recognized that the instability is CAUSED by the injustice.
And does it not occur to you, Franko, that attempting to regulate, rather than abolish, injustice makes you a party to it?
Sure, there's an emergency (the 2nd in less than 15 years!) but there had better be some fundamental reform implemented after this one or why shouldn't "Strike three!" mean we're out?
Its not an "emergency"...
thats like saying flying an aircraft at 10,000 ft when there is a 13,000 ft mountain range between you and your destination could lead to an "emergency"....
Incompetence is not an "emergency"... its incompetence...
" instability is CAUSED by the injustice."
No its not .... Instability in this case of conflicting regulatory functions is caused by incompetence...
The RESULT of the regulatory error can exhibit 'injustice' I suppose but it doesnt have to...
We can regulate these systems in any manner we want to...
Youre as dumb as Minsky with his stupid "stability creates instability!" schtick... "the apex creates the nadir!" .... nobody technically competent would ever say something like that..
Real incompetence is supporting a Gold Standard banking model when needlessly expensive fiat has long been abolished. Why then aren't citizens allowed debit accounts at the Central Bank where they can deal with inexpensive fiat, just like the banks do?
You and Warren Mosler (and his toadies - you know who you are) think an inherently unjust system can nevertheless be made STABLE.
If I'm dumb, that sure beats a raving lunatic who thinks he can be a Christian while despising the Bible.
You can get a debit account not at the central bank but at the central bank regulated Depository Institutions or just join a Credit Union they offer the same Depository services usually at better rates with no minimum balance required...
Central Bank doesnt have all the personnel and systems and physical customer service branches necessary to deal with depository needs of a nation with > 300M citizens... they can barely do what they are supposed to do with regulation without screwing it all up...
Depository system is fine we just need better qualified people running it...
Depository system is fine we just need better qualified people running it... Franko
No, because the banks also create deposits when they lend ("Bank loans create bank deposits" - and not for the general welfare either.
The fundamental error is attempting to mix what should be inherently risk-free deposits with what are fundamentally at-risk deposits and using government privilege to do so.
You dont exhibit a mature understanding of the Bible....
The specific configuration and details of how we administer our numismatic system is not what "the Bible!" is all about...
The operation of our numismatic system is not a profound concept...
This leverage ratio these geniuses couldnt even figure out for over 10 years is an applied 8th grade algebraic function...
Justice is a MAJOR theme of the Bible and if you don't think government privileges for usurers, whereby they loot their own fellow citizens, is contrary to that theme, then it's pretty obvious where the lack of understanding is.
How are banks “looting the people!” when their incompetent regulators bankrupt all of them 10 years ago?
How does that square?
LOL pretty hard to “loot!” anybody when you’re bankrupt...
Then I suppose all the dividends they paid up till then were clawed backed? And what about the stock buybacks - another way to distribute loot?
Besides, banks don't just loot on behalf of their shareholders but also for the so-called "credit worthy" of what has been, for centuries, the public's credit but for private gain.
Besides, nothing says a thief may not ruin himself too.
”when their incompetent regulators bankrupt all of them 10 years ago?”
Oh so they all when bankrupt. Then there weren’t any banks. Your are sitting on a scoop.
Central Bank doesnt have all the personnel and systems and physical customer service branches necessary to deal with depository needs of a nation with > 300M citizens... Franko
Then it should acquire them since the cost would be trivial compared to the problems (not the least of which are ethical) we'd solve by separating what should be inherently risk-free deposits from those that are inherently at-risk.
Besides, simple debit accounts with instant clearing would be highly automated with little need for human interaction. Not to mention the problem of the un-banked would be solved along with the problem that the Federal Government cannot instantly distribute fiat to all citizens.
Not to mention that Central Banks themselves have floated the idea as worthy ...
"simple debit accounts"
Its not that simple... you keep saying this is all so simple ... well it apparently is not... they keep screwing it up...
Like the MMT JG... govts have been shown to be incompetent even just trying to administer regular old Unemployment Insurance schemes... there are STILL people waiting for unemployment...
$1200 checks STILL havent even gone out... that just sending out munnie... how hard can TAHT be????
Well apparently it is harder than you think...
The current crop of people in these govt institutions are not competent...
Look at the Fed people here and they are alegedly our top people... have a big conference in Jackson Hole! morons cant even apply 8th grade algebra.... but "lets go to Jackson Hole!"...
so youre going to have to first deal with the real issues of personnel before you can start to recommend systemic modifications ,,,
"Oh so they all when bankrupt."
They did... n response TARP added 350B of additional system Residual and then they could resume operations...
Even with that the chaos caused by this initial bankruptcies did most of them in...
There used to be over 10,000 institutions before this and now there are less than 5,000 and falling....
Who would want to get into that business when your regulator reserves the right to bankrupt you at amy moments notice...
NO THANKS!!!
Anderson
What was before such injust banking debt?
It was 20% interest rates and debt slavery.
So, this unjust banking credit have replaced the very much more unjust system of lending.
DO you want to return to debt slavery, litereal one? Do you want to provide only payday loans to people that are not satsfiying FEDs critereia for acount at them?
That is what you would get, many more would have to rely on more unjust system then it is now.
The real injustice here in the present lays with higher interest rates for porer people. Credit scorring is set up so low income people get lower scores no matter credit history. It is that presently rich people get credits at low interestwhile poor get it expensively.
It would be easily fixed by gving poor peope better scores that provide better cost to loans.
The banking credit system is very beneficial to the people so just allowing lower interest rates for poorer people would cut down on injustice.
Without present banking system there would be no capitalism. Before modern banking the enterepeneurs had to wait for money to ccuulate in order to borrow nd invest, alos the high interest rates allowed only for high risk/ high reward investment.
Just think about how unjust the system was replaced by modern banking and tweek it some more in the line.
It was 20% interest rates and debt slavery. Critical Tinkerer
We can lower interest rates as desired in a just manner by:
1) Equal fiat distributions to all citizens.
2) Negative interest on large and non-individual citizen accounts at the Central Bank with individual citizens exempt from negative interest up to a reasonable account limit.
So yes, we can have low interest rates and 100% private banks with 100% voluntary depositors. It is obsolete, Gold Standard thinking to think otherwise.
“ Without present banking system there would be no capitalism”
Well you better wake up Marx and tell him because Marx invented Capitalism in the 1800s and back then we didn’t have the present banking system...
so youre going to have to first deal with the real issues of personnel before you can start to recommend systemic modifications ,,, Franko
1) The monetary sovereign can outbid the private sector for the necessary IT talent.
2) The need is clear and present (e.g. the stimulus check disgrace).
3) The morale and motivation of those tasked to finally curb the power of the banks should not be underestimated, e.g. “The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” ― Lord Acton
“ Residual and then they could resume operations...”
So they didn’t go bankrupt. No scoop, just disinformation from you when you say: “
bankrupt all of them”.
yeah there were no problems in 2008....
What are you 20 years old?
You and Greta...
Either they ALL went bankrupt or they didn’t. You said they ALL went bankrupt. So which is it?
You can’t have it both ways cause that’ll make you an art degree wannabe.
I think Matt is exaggerating when he says ALL would have been bankrupt but, as I understand it, right after Lehman every bank was in need of using the Fed facilities in a way that they had either never had to use or rarely had to use simply because of the Feds own actions and the way all banks are linked financially. They all were closer to being in violation of stated ratios if not in fact in violation. That’s when all that “stress testing” started being done to try and use computers to simulate different financial scenarios for each bank and see which ones would stay solvent under which conditions. I think is Matt is using bankrupt where he should be using insolvent.
A bank can be insolvent and not bankrupt but not vice versa
BTW using bankrupt when you should be using insolvent is the type of mistake Art degree morons make in financial articles all the time😉
https://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers
I could waste a few minutes of my time and go back up and make a literary correction/adjustment or two and then it would all be aok...
But you guys would STILL be dumb as rocks along with the Fed people....
https://en.wikipedia.org/wiki/List_of_banks_acquired_or_bankrupted_in_the_United_States_during_the_financial_crisis_of_2007%E2%80%9308
“ I could waste a few minutes of my time and go back up”
So you can’t handle the type of nit picking you yourself do several times a day.
The double standard is the system you’re trained in.
Matt
No one questioned whether Lehman went bankrupt, and if ALL did no list of banks bankrupted would be necessary.
I love how you call getting the concept of bankruptcy and insolvency incorrect a “literary correction/adjustment”....... words are not literature.
Can anyone explain this SLR a little more,
I'm trying to understand based on this thread and previous comment ones how adding reserves causes banks to breach leverage ratio.
If the formula is:
(Asubrisk + Asubnonrisk - L) / (Asubrisk + Asubnonrisk) =. 0.095
I don't see how adding non-risk reserves would cause breach.
To use real numbers:
(90 + 10 - 90) / (90 + 10) = 10/100 = 0.1 = 10%
If reserves (non risk assets) are increased by 10 by Fed or Treasury:
(90 + 20 - 90) / (90 + 20) = 20/110 = 0.1818 = 18.2%
Based on this it seems the leverage ratio (capital/assets) is better if reserves are increased. It would seem like adding reserves a non-risk asset automatically creates additional capital. I must be missing some obvious detail though in the numbers. The only thing I can think of is if Liabilities change as part of reserve add, but my understanding was that Fed/Tsy add reserves and there is no liability change for banks.
Hoping someone who gets this second nature like some on here do can explain where I'm wrong.
Thx
The only thing I can think of is if Liabilities change as part of reserve add, but my understanding was that Fed/Tsy add reserves and there is no liability change for banks.
You're confusing an asset swap with the Fed which does NOT change liabilities with spending by the US Treasury which DOES create new liabilities - one-for-one with the new reserves; e.g. the stimulus checks.
Digital Greenbacks [from Naked Capitalism links 5/19/2020]
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