News and Commentary
The New York Times reports that the forthcoming stimulus bill from Senate Republicans may include a provision relaxing capital requirements on the nation’s biggest banks by allowing regulatory bodies to exclude certain items on banks’ balance sheets from capital requirement calculations. The effort is being supported by the Federal Reserve as well as lobbyists for the banking sector. Proponents argue that the change will enable banks to increase lending while critics like Senators Sherrod Brown (D-OH) and Elizabeth Warren (D-MA) say that the change could be abused by big banks leading to the same risky practices that causing the 2008 financial crisis.
Zahid Amadxarif, Paula Gallego Marquez, and Nic Garbarino write in Bank Underground about new research from the Bank of England that finds that UK regulators might have favored addressing financial sectors risks in a proportionate manner over reducing regulatory complexity.
In a new paper, Manish Jha, Hongyi Liu, and Asaf Manela find that there are persistent differences in sentiment towards finance across countries. Notably, sentiment declines after some natural disasters like epidemics and earthquakes but increases after disasters such as droughts and floods. The authors conclude that the differences in sentiment after various forms of natural disasters reflect differences in realization of insured versus uninsured risks. The authors also predict that the COVID-19 pandemic will reduce sentiment towards finance and exacerbate ongoing economic decline.