This Week in Financial Regulation, May 26th

This Week in Financial Regulation, May 26th

News and Commentary:

American Action Forum has a helpful summary of the Federal Housing Finance Agency’s proposed GSE capital requirement rule. The proposal is modified from 2018 and sets a stricter standard for leverage, which would require Fannie and Freddie to hold an order of magnitude greater than their current assets in addition to capital buffers.

The Office of Comptroller of Currency released new changes to the Community Reinvestment Act.

John Cochrane writes in Chicago Booth Review on the Federal Reserve’s role in the economic recovery. He points out that if the recession lasts for more than a few months, firms will never be able to repay for consumption loans, and the trillions in loans will be turned into outright Treasury debt.

Diego Zuluaga writes at Cato about small business loans during the current recession. He argues excluding nonbank lenders from PPP loan set asides, as these lenders can more efficiently allocate smaller loans to struggling businesses.

A new episode of the podcast Macro Musings features Mercatus Center’s own Thomas Hoenig to discuss banking policy during this recession. He warns that negative interest rates have carried bad implications for Japan and Europe’s economic prospects and argues the United States should avoid such conditions as much as possible.


New Research:

A couple new NBER papers are out on financial policy. One discusses the Covid-19 bailouts and finds government intervention can help avoid a deeper recession. Another suggests that in the 2008 recession, uncertain economic conditions better explained tightening lending standards than the balance sheet for banks. Yet another paper looks at short-term nominal interest rates and finds a significant effect on the design and commitment to corporate loan contracts. All of these papers provide helpful insights into what policymakers must consider during a liquidity crisis.

A recent paper in Stanford Technology Law Review analyzing Google blogs and Twitter accounts finds that automated DMCA notices have a chilling effect on online activities. Automation isn’t always a way to maximize productivity, especially with broad IP laws!

A new CEPR paper looks at a major bank failure in Portugal and the effect of a bail-in policy (where the government requires the bank to cancel debts owed to it). The authors find tightening of credit and lower investment and employment at SMEs, suggesting this policy can’t really constrain all costs to simply the lending institution. You can find a Voxeu blog post co-authored by one of the paper authors looking at such bank resolutions here.

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By |2020-06-01T14:51:02-07:00May 26th, 2020|Blog, Financial Regulation|