Posts filed under “Think Tank”
Release Date: November 10, 2009
For immediate release
The Federal Reserve Board on Tuesday announced the availability of a collection of brief articles that examine ways to improve the availability of housing options for low-income renters.
The publication, commissioned in conjunction with the Community Affairs staff at the Federal Reserve Bank of St. Louis, focuses on opportunities to strengthen the Low Income Housing Tax Credit (LIHTC) program. Since its creation in 1986, this program has been a major source of capital for the development of rental housing. However, the recent economic downturn has significantly reduced investor interest in this tax credit.
“Innovative Ideas for Revitalizing the LIHTC Market” contains six articles by practitioners and experts. Each author presents an idea for bolstering the LIHTC market. Ideas range from policy changes to the creation of more-sophisticated financial products that would attract additional investors.
The Federal Reserve System has long had an interest in the LIHTC as a means for fostering economic stability and opportunity in low-income communities. Adverse conditions in the U.S. housing and mortgage markets underscore the importance of producing and rehabilitating affordable rental units–not only to provide homes for families, but also to help stabilize neighborhoods.
The publication is available online: Innovative Ideas for Revitalizing the LIHTC Market (979 KB PDF).
Governor Daniel K. Tarullo
At the Institute of International Bankers Conference on Cross-Border Insolvency Issues, New York, New York
November 10, 2009
Proposals for the creation of a special resolution process for large financial firms have rightly assumed prominence in the wake of the financial crisis. Some events during the crisis have also focused attention on the difficult problems often created by the failure of a large, internationally active financial firm. In my remarks this afternoon I want to elaborate a bit on the relationship between resolution processes and an effective overall system of financial regulation and supervision in both the international and domestic spheres.1
At the risk of some oversimplification, I would state that relationship as follows: First, an effective domestic resolution process is a necessary complement to supervision that would bring more market discipline into the decisionmaking of large financial firms, their counterparties, and investors. Second, the high legal and political hurdles to harmonized cross-border resolution processes suggest that, for the foreseeable future, the effectiveness of those processes will largely depend on supervisory requirements and cooperation undertaken before distress appears on the horizon. I would further suggest that the importance of proposed requirements that each large financial firm produce a so-called living will is that this device could better tie the supervisory and resolution processes together.
A Resolution Regime for Large, Interconnected Firms
During the financial crisis, serious distress at a large financial firm presented authorities in the United States and many other countries with only two realistic alternatives. First, they could try to contain systemic risk by stabilizing the firm through capital injections, extraordinary liquidity assistance, or both. Second, they could allow the firm to fail and enter generally applicable bankruptcy processes.
Faced with the possibility of a cascading financial crisis, most governments selected the bailout option in most cases. Yet this option obviously risks imposing significant costs on the taxpayer and supports the notion that some firms are too-big-to-fail, with consequent negative effects on market discipline and competitive equality among financial institutions of different sizes. Indeed, too-big-to-fail perceptions undermine normal regulatory and supervisory requirements. However, as the Lehman Brothers experience demonstrated, permitting the disorderly failure of a large, interconnected firm can indeed unleash just the systemic consequences that motivated the bailouts.
The desirability of a third alternative is thus obvious–a special resolution process that would allow the government to wind down a systemically important firm in an orderly way. As compelling as the case for such a process is, the debate around resolution proposals has shown how challenging it is to craft a workable resolution regime for large, interconnected firms that will effectively advance the complementary–but at times competing–goals of financial stability and market discipline. Still, I think there are certain key features that are essential.
To quantify the fall off in volume seen over the past week of trading, assuming current trends persist to day’s end, today will be the 4th day in a row of total consolidated NYSE volume below 5b shares for the first time since mid July. I’m not going to give a technical prediction based on…Read More
The Federal Reserve’s Lame Attempt To Defend Itself Against Bubble Creation The Financial Times – Frederic Mishkin: Not all bubbles present a risk to the economy There is increasing concern that we may be experiencing another round of asset-price bubbles that could pose great danger to the economy. Does this danger provide a case for…Read More
~~~ The Financial Commentator: Special Update November 5, 2009 As promised in the October 18, 2009 letter, this is a Special Update for gold and the gold stocks. As gold broke out of the triangle discussed in the August letter in early September, it made progressive new highs above the May 2009 peak in September,…Read More
Category: Think Tank
If you sell it, will they come? So far, yes with respect to the ability of the US Treasury to sell debt to fund the ever growing deficits of the US government. With continued falls in the US$, coincident rise in gold and growing inflation expectations, today’s 10 year auction and Thursday’s 30 year will…Read More
Governor Daniel K. Tarullo
At the Money Marketeers of New York University, New York, New York
November 9, 2009
Systemic crises typically reveal failures across the financial system. The crisis that unfolded over the past two years is no exception, with fundamental problems apparent in both the private and public sectors. There were massive failures of risk management in many financial firms and serious deficiencies in government regulation of financial institutions and markets. But the breadth and depth of the financial breakdown suggest that it has much deeper roots. In many respects, this crisis was the culmination of changes in both the organization and regulation of financial markets that began in the 1970s. An appropriately directed response must build on an understanding of this history.
In my remarks this evening I will begin by reviewing the origins of the crisis, as a prelude to discussion of the elements of a reform agenda that I believe to be reasonably clearly established. I will close with some thoughts on the very important question of whether additional regulatory methods will be necessary to provide the foundation for a stable and efficient financial system.1
The Origins of the Crisis
Shortly after President Franklin Roosevelt’s inauguration in 1933, Congress enacted sweeping new measures that would define financial regulation for decades. The creation of the Federal Deposit Insurance Corporation (FDIC) countered the problem of bank runs and panics by insuring the bank accounts of the vast majority of Americans. Along with preexisting restrictions in the National Banking Act and state laws, the Glass-Steagall Act established a regulatory system that largely confined commercial banks to traditional lending activities within a circumscribed geographic area. At the same time, the Securities Act of 1933 and the Securities Exchange Act of 1934 brought increased transparency and accountability to the trading and other capital market activities that were now essentially separated from commercial banking.
This regulatory approach fostered a commercial banking system that was, for the better part of 40 years, quite stable and reasonably profitable, though not particularly innovative in meeting the needs of depositors and borrowers. The new FDIC insurance, the 1933 statutory prohibition of interest payments on demand deposits, and the Fed’s Regulation Q upper limit on interest rates paid on savings deposits had together suppressed competition for deposits among banks and made retail deposits a highly stable source of relatively attractive financing.
The turbulent macroeconomic developments of the 1970s, along with technological and business innovations, helped produce an increasingly tight squeeze on the traditional commercial banking business model. The squeeze came from both the liability side, in the form of more attractive savings vehicles such as money market funds, and from the asset side, with the growth of public capital markets and international competition. The large commercial banking industry that saw its lending to large and medium-sized corporations threatened by their increasing access to public capital markets sought removal or relaxation of the regulations that confined bank activities, affiliations, and geographic reach. While supervisors differed with banks on some important particulars, they were sympathetic to this industry request, in part because of the potential threat to the viability of the traditional commercial banking system.
With the FOMC last Wednesday reiterating the continuation of their extraordinary accommodation, followed by the G20 over the weekend saying fiscal policy will also stay the same having lit fire again to the anti US$/reflation trade today, the fed funds futures can help us quantify the markets belief of what is “exceptionally low” and how…Read More
On the heels of the status quo G20 meeting over the weekend that has hit the US$ today and buoyed commodities, the implied inflation rate in the 5 year TIPS is rising 8 bps from Friday to 1.86% (vs 1.72% one week ago), matching the highest level since Sept 1st ’08 and expectations 10 years…Read More
These are the papers presented at the conference discussed earlier: Session 1: Services Offshoring Chair: Kenneth Ryder (NAPA) “Measuring the Impact of Trade in Services: Prospects and Challenges,” J. Bradford Jensen (Georgetown University and Peterson Institute for International Economics) “Measuring Success in the Global Economy: International Trade, Industrial Upgrading, and Business Function Outsourcing in Global…Read More