Posts filed under “Regulation”

The Fed Wants To End Too Big to Fail (Treasury, not so much)

Quite a few people are discussing the speech given by Federal Reserve Chairman Ben Bernanke last week, titled The Crisis as a Classic Financial Panic. (See this, this and this).

But while everyone is looking at the big dog, the rest of the pack has been out making very interesting noises. Indeed, if you pay attention to Federal Reserve speeches, you might notice a pattern: Specific themes seem to run throughout the commentary of different Federal Open Market Committee members. This is not an accident; there is broad institutional agreement at the Fed about specific ideas.

The one that I have been watching over the years has been the theme of ending “Too Big To Fail” (TBTF). What reminded me of this was a speech last week by New York Federal Reserve President William C. Dudley, titled Ending Too Big to Fail.

Ordinarily, one speech is not such a big deal. But it’s not just one speech. Dudley gave a similarly themed discussion this time last year, Solving the Too Big to Fail Problem.

And its not just Dudley: Thomas C. Baxter Jr., General Counsel for the New York Fed, presented this over the summer at Columbia University Law School, titled Resolving the Unresolvable: The Alternative Pathways to Ending Too Big to Fail.

Its no surprise that the New York Fed, which oversees so many financial local entities, has this as a concern. But the same theme has appeared in dozens of speeches from various Federal Reserve Governors and Regional Federal Reserve Banks throughout the country. Fed Governor Jerome H. Powell’s gave a speech Ending “Too Big to Fail” this year that reflected a similar presentation by Fed Governor Daniel K. Tarullo in 2009, Confronting Too Big to Fail.

Its not just the New York Fed. Charles Plosser, president of the Federal Reserve Bank of Philadelphia, asked Can We End Too Big to Fail? At a conference at the Federal Reserve Bank of St. Louis, Harvey Rosenblum presented The Pathology of Too Big to Fail. And in 2012, the Federal Reserve Bank of Chicago held a conference looking at The Social Value of the Financial Sector: Too Big to Fail or Just Too Big?

Perhaps most notable is Dallas Federal Reserve Bank President Richard W. Fisher’s remarks, Ending ‘Too Big to Fail,’ earlier this year. A conservative who dislikes government intervention in markets and despises bailouts, Fisher is concerned that TBTF will eventually require more of both. His full proposal was aptly titled Ending ‘Too Big to Fail’: A Proposal for Reform Before It’s Too Late (With Reference to Patrick Henry, Complexity and Reality).

You don’t need to be an expert in pattern recognition to see that the Fed has a deep institutional interest in ending Too Big to Fail. When things collapse catastrophically, the Fed is the institution of last resort that is charged with cleaning up the mess.

This spring, I discussed how an unlikely pair of senators — Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican — had introduced a non-binding resolution calling for the end of the implicit subsidies that “too big to fail” (TBTF) banks enjoy. The Senate voted 99-0 in support of the measure. (Can two senators end ‘too big to fail’?)

With the Federal Reserve, regional Fed banks and the Senate all supporting ending TBTF, why has nothing been done on this front? Why hasn’t all of this jawboning from across the ideological spectrum resulted in legislation that tangibly reduces the risks posed by TBTF?

Perhaps we should be asking that of our Congress-critters . . .

Category: Bailouts, Federal Reserve, Regulation

Ending Too Big to Fail

Ending Too Big to Fail William C. Dudley, President and CEO, NY Federal Reserve Global Economic Policy Forum, NYC, November 8, 2013     It is a great pleasure to have the opportunity to speak here today.  My remarks are going to focus on what is called the “too big to fail” problem.  As you…Read More

Category: Bailouts, Federal Reserve, Regulation, Think Tank

Banks to Be Hit With Rate Fines

Click for giant graphic. Source: WSJ

Category: Legal, Regulation

Meet Uncle Sam, Your Partner in Crime

The news leaked over the weekend: Hedge-fund baron Steve Cohen and SAC Capital Advisors were about to pay a monster fine for a decades worth of insider trading and failed supervision of traders. Some prefer the term “expert networks,” but – po-TAY-to, po-TAH-to. The rules have changed, and so have the penalties. The lessons of…Read More

Category: Legal, Really, really bad calls, Regulation

The Myth of Financial Reform

Party On Garth: Click to enlarge Source: Time, Monday, Sept. 23, 2013

Category: Financial Press, Regulation

What Do Hedge Funds Spend On Regulatory Compliance?

Every now and then, I read an article that is factually accurate, technically correct — and utterly misleading. Items like this are “accurate but false” as they leave the reader with an impression of something that is incorrect. Because the world is nuanced and not black and white, the sum of many facts, statistics and…Read More

Category: Bad Math, Hedge Funds, Regulation

US Bank Fines = $95 Billion Dollars

In less than 5 years, these 5 banks have amassed nearly $100 Billion dollars in fines n 81 settlements:     click for ginormous graphic Source: Economist via Washington Post  

Category: Bailouts, Corporate Management, Really, really bad calls, Regulation

Greenspan on Cap Requirements, Self Regulation

Greenspan discusses many of the ideas he had reversed himself on regarding the financial requirement.

Note he has adopted my Partner’s Joint & Thesis Liability explanation (from BN) that states the move to Corporate structure from a Partnership radically reduced the focus on risk management.

Read More

Category: Federal Reserve, Really, really bad calls, Regulation, Video

The Bank War

Click to enlarge     A previous discussion on the founding and dissolution of the First Bank of the United States (BUS) which existed from 1791 to 1811.  After the First BUS recharter was defeated, the United States suffered defeat in the War of 1812, and suffered from a lack of fiscal order and an…Read More

Category: Credit, Legal, Regulation

Household Debt-to-Income Ratio, USA vs Canada

click to embiggen Source: BCA     I have been meaning to get to this since I was in Toronto last week, where I saw my friend (and fishing partner) Martin Barnes of BCA give an excellent presentation at the Toronto CFA Prediction Dinner. One of that charts that really stood out to me was…Read More

Category: Credit, Financial Press, Real Estate, Regulation