This Week in Financial Regulation, July 15th

This Week in Financial Regulation, July 15th

News and Commentary

Sheila Bair and Thomas Hoenig write in a Bloomberg Opinion piece that the Federal Reserve’s recent stress tests omitted the necessary results to understand the financial sector’s ability to endure the risk posed by the COVID-19 economic crisis. The authors specifically cited the the Fed’s failure to publish enhanced sensitivity analysis results for specific banks as well as its omission of banks’ leverage ratio.

An article in The Economist argues that Americans need more guidance from the Fed and that communication from the Fed Chair will be essential in guiding the country’s recovery from the COVID-19 pandemic.

A VoxEU column discusses new research that reveals the importance of political economy factors on legislative and regulatory actions related to financial policy and on the overall stability and efficiency of the financial system.

The American Action Forum recently submitted comments for the record regarding recently finalized regulation from the Federal Housing Finance Agency that sets capital requirements for Fannie Mae and Freddie Mac, the nation’s two government-sponsored enterprises that operate in the secondary mortgage market. The comments argue that the proposed capital requirements remain “far too low to adequately reflect the risk that the Enterprises pose to the economy”.

James A. Dorn writes in the Cato Institute blog about the risks associated with the Fed’s recent intervention in the market for corporate credit.

The ownership structure of a bank is an important determinant of a bank’s new stock issuance during a crisis, says a VoxEU column by Martin Götz, Luc Laeven, and Ross Levine. The authors find that, “US banks with greater insider ownership are found to have had significantly less common stock sales following the onset of the 2008 Global Crisis”.

IESE Business School economics and finance professor Xavier Vives was interviewed on VoxTalks. He discussed with host Tim Phillips about a new report from the Centre for Economic Policy Research (CEPR) that found that the banking sector faces a “deep restructuring” because of low profitability, non-performing loans, and competitions from technology companies.

Manuel Alcalá Kovalski and David Wessel write in a post for the Brookings Institution blog Up Front about the effects of post-Great Recession financial reforms on the market for municipal bonds.

A column by Marco Buti published in VoxEU discusses how lessons from the 2008 financial crisis can be applied to the ongoing COVID-19 recession to prevent what Buti calls “the Great Fragmentation” in which EU member states drift further apart economically and politically. The author argues that, “a more consensual narrative, the lower risks of moral hazard and the rising political awareness that Europe has to count on ‘indigenous’ growth drivers provide a better chance of adopting an ambitious EU policy response” to the ongoing economic crisis.


New Research

A new working paper from the National Bureau of Economic Research (NBER) finds that “the housing boom was not accompanied by a shift towards more high [combined loan-to-value ratio] loans, and instead favor models that rely on changes in collateral values or broad changes in house price expectations”.

Vahid Saadi writes in a Cato Institute research brief about the role of the Community Reinvestment Act in the U.S. housing boom and mortgage supply.

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By |2020-07-15T16:07:57-07:00July 15th, 2020|Blog, Financial Regulation|