This Week in Financial Regulation, April 7th

This Week in Financial Regulation, April 7th

News and Commentary

President Neel Kashkari of the Minneapolis Fed published an article on the CARES Act and how relief bills should be structured in the light of the 2008 recession. He emphasizes the necessity of speed and recommends policymakers to err on the side of more rather than less spending on relief.

Over at VoxEU, several new posts discuss the coronavirus epidemic and recession. Harvard’s Ignazio Angeloni writes about actions taken by the European banks and why they don’t go far enough. Another blog post discusses the limits of analogies between 2008 and the current economic crisis. Due to the crisis occurring from the shutdown and not the financial sector, many different policies will have to be considered. Yet concerns over liquidity are also paramount and will demand some attention to the financial sector all the same. This is especially true as long term growth will require trust in financial institutions. Evidence from the previous recession suggests that distrust of banks following a banking crisis can deter future deposits and thus limit the credit banks can offer in a recovery period.

Pro-Market has pointed to three lectures by Sir Paul Tucker on the legitimacy of central banks in democracies, a topic worth noting in the light of broad monetary policies taken around the world in response to our new recession. His lectures at a conference can be found in part 1, part 2, and part 3.

The Fed is allowing banks to take on additional leverage, reports Jesse Hamilton in Bloomberg. This change (the press release by the Fed can be found here) will undo a critical policy adopted in the wake of the 2008 financial crash to prevent too much risk from being taken on by these institutions. However, the change is set to expire in a year and will allow greater liquidity in light of the current recession. This news should also be considered in the context of 400 billion in new commercial loans being made to American businesses in the first quarter of 2020 alone.

New Research

A new paper from the New York Fed looks at transparency and the economic behavior. The authors found that when New York state bank regulators stopped publishing balance sheets of state-charter banks for two years in 1933, those same banks initially saw significantly less deposit outflows than national-charter banks. A blog post by the authors summarizing the paper’s findings can be found at Liberty Street Economics.

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By |2020-04-10T09:57:09-07:00April 10th, 2020|Blog, Financial Regulation|