Posts filed under “Think Tank”
Chairman Ben S. Bernanke
At the Federal Reserve Bank of Boston 54th Economic Conference, Chatham, Massachusetts
October 23, 2009
The theme of the Federal Reserve Bank of Boston’s Economic Conference this year–reevaluating regulatory, supervisory, and central banking policies in the wake of the crisis–is certainly timely. Not much more than a year ago, we and our international counterparts faced the most severe financial crisis since the Great Depression. Fortunately, forceful and coordinated policy actions averted a global financial collapse, and since then, aided by a range of government programs, financial conditions have improved considerably. However, even though we avoided the worst financial and economic outcomes, the fallout from the crisis has nonetheless been very severe, as reflected in the depth of the global recession and the deep declines in employment both here and abroad. With the financial turmoil abating, now is the time for policymakers to take action to reduce the probability and severity of any future crises.
Although the crisis was an extraordinarily complex event with multiple causes, weaknesses in the risk-management practices of many financial firms, together with insufficient buffers of capital and liquidity, were clearly an important factor. Unfortunately, regulators and supervisors did not identify and remedy many of those weaknesses in a timely way.1 Accordingly, all financial regulators, including of course the Federal Reserve, must take a hard look at the experience of the past two years, correct identified shortcomings, and improve future performance.
Sept Existing Home Sales totaled 5.57mm annualized, 220k more than expected as the window started to close on the first time home buying tax credit. Every region was up and both single family and condo’s/co-ops rose. Months supply fell to 7.8 from 9.3 to the lowest level since March ’07 and were lower in both…Read More
The UK economy remained in the doldrums in Q3 as it unexpectedly fell .4% q/o/q, the 6th quarter in a row of contraction for the first time since at least the 1950′s. Expectations were for a rise of .2%. The pound is down sharply in response but the FTSE is higher as is the rest…Read More
Stock markets are up 60% plus. How does this rally stack up with previous ones? Here are some key criteria of what previous 60% rallies have looked like when analyzed across 10 different key economic dimensions : Year over Year Retail Sales: 9.3% average in prior 60% rallies versus -5.3% in the current one Consumer…Read More
Category: Think Tank
The August FHFA home price index fell .3% m/o/m and is down for the first time since April and is down 3.6% y/o/y. From the record highs in April ’07 it’s down 10.7%. Hard to believe, I know. This index only measures those homes that have mortgages backed by FNM and FRE but is geographically…Read More
Earnings Season Is Underway The Financial Times – Upbeat start to US earnings seasonCorporate America issued a string of quarterly earnings results on Tuesday that exceeded Wall Street’s expectations, reflecting how big US companies have cut costs faster than revenues have fallen. However, stocks fell as investors focused on the lack of top-line improvement, with…Read More
Category: Think Tank
I’m not sure if this is the exact reason for the Euro bouncing off its early morning lows and is almost back to 1.50 vs the US$ in the last 10 minutes but a cnbc interview with Fed Pres Rosengren revealed his opinion that the US$ weakness is just a result of increased risk taking…Read More
Governor Daniel K. Tarullo
At the Exchequer Club, Washington, D.C.
October 21, 2009
The far-reaching financial crisis that has afflicted our country in the past two years has drawn attention to a raft of problems–from the concentration of commercial real estate exposures in some regional and community banks, to the risks associated with some forms of derivatives, to the need for more vigorous financial services consumer protection. Proposals for administrative and congressional responses are thus appropriately diverse. I would suggest, however, that the reform process cannot be judged a success unless it substantially reduces systemic risk generally and, in particular, the too-big-to-fail problem. This afternoon I will address my remarks specifically to the task of forging an effective response to this problem.1
The Current Form of the Too-Big-to-Fail Problem
The concern is hardly a new one. In one manifestation, too big to fail was an extension of the classic problem of bank runs and panics. If a large bank failed–whether because it was illiquid after a deposit run or insolvent after severe losses–the entire banking system might be endangered. In cases in which other banks held significant deposits in the distressed institution, the failure of a large bank might lead directly to the illiquidity or insolvency of other banks. The result could be a domino effect in the interbank lending market, with one bank’s failure toppling the next. Even where direct losses to other banks were thought manageable, the failure of a large bank might strike panic into depositors, especially uninsured depositors, of other large institutions. The result might be a far-reaching run on the entire banking system that could, in a worst case such as occurred in early 1933, freeze the financial system completely.
Faced with either variant of such a devastating impact on the system, government authorities often believe they have little choice but to intervene. The government may provide funds or guarantees to the bank in order to keep it functioning. Alternatively, the government may allow the bank to fail, but shield some or all of its depositors from loss, even those not covered by existing insurance programs. In 1984, for example, the Federal Deposit Insurance Corporation protected the uninsured depositors of Continental Illinois Bank, then the nation’s seventh largest depository institution, after a foreign depositor run that followed heavy losses.
As stocks and commodity prices move higher again in response to another move lower in the US$, at some point there will be some differentiation in stocks between those companies with a large % of overseas exposure (and don’t see a margin squeeze from rising commodity prices) that will benefit from the weak $ and…Read More