News and Commentary
In a Pairagraph discussion, Oren Cass and Howard Marks debate whether the financial sector has become a drag on the real economy. Cass argues that financial firms add little to the real economy and instead primarily facilitate speculative, circular asset trading. Marks concedes the point that the financial sector may be unnecessarily large, but maintains that the industry serves numerous essential purposes that benefit American households.
In Bloomberg, Peter Coy writes on the increasingly large sum of money investors have placed at the Fed despite a 0.00% interest rate. Since January, this sum has grown from almost nothing to nearly $500 billion and is only expected to grow larger. Coy explains how regulatory policies have created the incentives leading to this investor behavior.
In an article from The Brookings Institution, Daniel Tarullo makes the case for increased SEC supervision of non-bank financial intermediaries (NBFIs) in the wake of the COVID-19 pandemic and its economic tolls. He argues that NBFIs’ increased importance and implicit support from the Fed creates the same sort of moral hazard and risk that was the basis for financial regulatory changes after the Great Recession. Tarullo also proposes an initial agenda for the SEC’s role in overseeing these institutions.
New Research
A new report by the Bank Policy Institute analyses the policy implications and risks associated with newly proposed guidelines by the Fed on how it would evaluate requests for its accounts and payment services by “novel charters.” In short, the Fed and the Bank Policy Institute are concerned about novel charters having access to certain banking activities without the regulations and supervision applied to ordinary banks. The Bank Policy Institute has also released a short primer outlining the arguments made in the full report.
A new paper from NBER by Nuno Coimbra, Daisoon Kim & Hélène Rey uses a model and balance sheet data to extract a distribution of banks’ risk-taking parameters. Using time series data, this model allows for estimation of systemic risk and its concentration in the banking sector over time.
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