Category: Credit, Federal Reserve, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

2 Responses to “Banks, Shadow Banking, and Fragility”

  1. DeltaV says:

    For perspective, the primary contention underlying the “shadow banking” issue is that shadow banks perform bank-like functions but are not regulated by central banks. In the US, most of these “shadow banking” organizations have been regulated by the SEC, which has been bitterly defensive over the allegation that their (provable) failure to do their job exacerbated the financial crisis of 2007-2008. So it is less that “shadow banking” is not regulated than a power struggle between the central banks (e.g., the ECB and the Federal Reserve) and other regulatory agencies.

    My personal view is that the Federal Reserve is a more effective regulator (though also provably irresponsible in setting up the initial conditions for the recent financial crisis) and even more important more effective in bandaging up the wounds once they become obvious. It is not clear to me what if anything the SEC did to help heal the economy during or following the financial crisis.

    • Frwip says:

      In fairness to the SEC, which is doing its best with shadow banking (meaning that it’s doing an incredibly poor job and actively making things worse, see here for the latest horror), it’s really up to the Fed to step in and assert its authority, something it has full leeway to do for any financial institution that purports to provide liquidity.

      And in that regard, the Fed’s track record is not pretty.

      The Fed had full authority to supervise real-estate mortgages. And in 1998, it very consciously decided it didn’t want to do its job, concerning subprime lending. The Fed simply washed its hands of the problem and never looked back (except Ed Gramlich, but even he woke up too late to the problem). As they say, the rest is history.

      There’s a bit of a culture within the Fed that they should not sully themselves with too lowly matters of a pedestrian nature, such as regulatory enforcement not explicitly spelled out in its statuses. So, rather than a power struggle between agencies, it’s more a matter of agencies not wanting to have the stinker land on their lap and very happy to leave it to whoever touched it last.