Dennis Kelleher, the co-founder, President and CEO of the nonpartisan Wall Street watchdog, Better Markets, has issued a scathing rebuke of the Federal Reserve’s so-called “stress tests” of the mega banks on Wall Street, calling them “toothless.”
Kelleher’s criticisms revolve around two key points. The Fed is preordaining the outcome of the tests by (1) pumping up the banks’ capital with financial handouts prior to the tests and (2) by removing key aspects of the stress tests that would negatively impact the outcome....
Wall Street On Parade
Wall Street Watchdog Assails Fed’s Stress Tests of Mega Banks as “Toothless” – Provides a Wakeup Call to Biden AdministrationPam Martens and Russ Martens
Completely false: “ Kelleher writes that the Fed’s “unprecedented” support to financial markets and the economy since last March was $4 trillion and “has materially helped to bolster bank balance sheets and capital levels.”
ReplyDelete100% false he would be flunked out of a science curriculum…
This is just more Monetarist ramblings…
ReplyDeleteGet a watch cat, they know what they're watching.
ReplyDeleteMeanwhile in Canada..
ReplyDelete'Be patient' on bank dividend, buyback limits: OSFI chief
The new head of Canada’s banking watchdog is preaching patience when it comes to loosening restrictions on share buybacks and dividend increases.
In an interview Tuesday, Superintendent of Financial Institutions Peter Routledge said the regulator plans to wait before easing those restrictions, which were instituted at the onset of the pandemic, until it is certain the major risks to financial stability are firmly in the rearview mirror.
“[The Office of the Superintendent of Financial Institutions] has long stated, and I repeat, that we’ll continue to err on the side of being a little late in lifting the restrictions as opposed to a little early,” he said “We judge the level of financial uncertainty as diminishing, but not to a level where returning discretion for capital distribution increases to boards of directors is prudent as of yet. So we’ll just going to monitor that uncertainty and act accordingly.”
“Please, I’d ask folks, be patient. OSFI does have track record of having reasonably good judgment in that regard.”
Before taking the top job at OFSI, Routledge had a long career in the financial services industry, most recently as head of the consumer banking backstop Canada Deposit Insurance Corporation (CDIC). Before that, he was a financial services analyst at National Bank Financial.
Routledge said his time as banking analyst helped inform his cautious approach to unwinding pandemic-era restrictions.
“We said consistently that we view these restrictions as credible, necessary and fit for purpose as long as uncertainty remains elevated,” he said. “As a former analyst, I can tell you one can’t judge market and financial uncertainty with perfect precision. I have a few scars that bear that out.”
I realize it’s a waste of time asking fundamental questions because 99.99% of the population would rather talk about the weather, sport etc, but what exactly is the logic behind “stress tests”? The argument is that if banks’ freedoms are maximised, long as that doesn’t involve too many risks, bank turnover (i.e. the amount of lending they do) will be maximised which will therefor maximise GDP.
ReplyDeleteThe obvious flaw in that argument is governments still stand behind banks in the form of state run deposit insurance and bank bailouts where needed. And that amounts to a subsidy of banks, and GDP is not maximised where any sector of the economy is subsidised unless there are clear social reasons for doing so.
Ergo, to TOTALLY DISPENSE with bank subsidies, governments should keep right out of anything that resembles a subsidy for lenders, whether banks or other lenders. Governments do not stand behind or subsidise mutual funds (which do a significant amount of lending). Likewise they should not subsidise banks.
And the latter “no subsidy” set up equals full reserve banking: i.e. anyone who wants their money lending out (via a bank or any other entity) gets no state backing at all. As for those who want a totally safe form of money, central banks can provide that, but not on a subsidised basis: that is, anyone with an account at the central bank (e.g. a CBDC account0 should pay the full costs of maintaining their account.
The Chairman of the main UK investigation into banks in the wake of the 2008 crisis, John Vickers, made comments much like the above "toothless" comments a few years ago:
ReplyDeletehttps://www.express.co.uk/finance/city/752968/Financial-disaster-looming-banks-NOT-prepared-Sir-John-Vickers
Ralph the “stress tests” (Art degree moron figurative language for what is literally the Comprehensive Capital Assessment and Review CCAR) requires the banks to provide an accounting illustration of how they would maintain compliance with minimum regulatory ratios based on hypothetical reductions in the prices of bank financed assets…
ReplyDeleteRight now they have to show how they could withstand a 55% drop in equities for instance…. So recently with the big reduction in some shares that wiped out the hedge fund Archegos the US banks finincing Archegos were fine.. they have been working…