News and Commentary
Diego Zuluaga is on the Cato Daily Podcast to discuss changes to the Community Reinvestment Act and how shortcomings in the design and implementation of the CRA have created perverse incentives to gentrify, as loans tend to go to the comparatively well-off residents of otherwise struggling neighborhoods.
The Bank Policy Institute examines how the Fed’s annual stress tests could be influenced by COVID-19. The banking sector remains highly leveraged, and the stress tests could demonstrate the risk of systemic or individual bank failure posed by the current crisis, but BPI still finds that reductions in dividend payments likely won’t be necessary even if a second outbreak occurs.
New Research
A paper finds that, by examining the monetary transmission mechanism, the market power of banks has comparable effects on lending to those of increased capital regulation.
At the outset of the COVID-19 pandemic, banks were used as the “lenders of first-resort” for firms in desperate need of liquidity. Sufficient capital, plus injections from the Fed and depositors, allowed banks to remain afloat while accommodating the increased demand for liquidity.
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