The Bank Policy Institute (BPI) has offered some "helpful" suggestions for the Federal Reserve in response to imminent economic fallout due to the coronavirus (COVID-19).
"Helpful" in this case means in favor of the big banks. To begin with, a recent article on the BPI website outlines the potential problem for the banks:
The COVID-19 epidemic is projected to reduce economic activity, may reduce market liquidity, and could generate a flight to quality from risk assets to federally insured deposits at banks.
So far, the Fed has officially decided to "lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1-1/4 percent." That didn't appear to satisfy the big banks, though. Here's why that seems to be the case...
After the 2008 financial crisis, according to Wolf Richter, a set of regulations "were imposed on banks in order to avoid a replay of the Financial Crisis."
The "helpful" suggestions from the BPI take aim at those regulations. It makes sense, because the board is fairly biased towards big banks:
BPI's board is comprised of bank CEOs, including the CEOs of the four largest banks in the US: Jamie Dimon (CEO, JP Morgan), Brian Moynihan (CEO, Bank of America), Michael Corbat (CEO, Citigroup), and Charlie Scharf (CEO, Wells Fargo). And they can't stand the limits that bank regulations impose on them.
The BPI article identifies topics like monetary policy, liquidity, regulatory policy, and capital regulation.
Their list of "helpful" suggestions for the Fed include (but are not limited to):
- The Fed could cut reserve requirements, currently set at 10 percent of transaction accounts, to zero.
- The Fed could revise its liquidity stress tests and (along with the FDIC) resolution planning requirements to eliminate arbitrary limits on assumed discount window borrowing.
- The Fed could also... enhance banks' ability to extend credit to businesses and households and liquidity to financial markets.
- The Fed could also... support the ability of banks to provide credit to the economy and be able to accommodate large amounts of deposit inflows in the event of a flight to safety.
The suggestions seem noble when taken at face value, but looking deeper into the potential motives behind the big banks' attempts to "get their way," any thought of nobility flies out the window.
COVID-19: Big Bank's Latest Lever to Weaken Fed Policy
First, Wolf Richter reported on allegations levied against the world's biggest banks that they refused to lend to the repo markets back in Q4 2019, when liquidity issues were causing panic.
Then the same article highlighted the BPI's suggestions and their convenient timing, right in the middle of the economic media circus surrounding the coronavirus.
Finally, we have a very pointed statement from Dennis M. Kelleher, President and Chief Executive Officer of Better Markets:
It is shameless but not surprising, that Wall Street's biggest banks would use the coronavirus to attack the financial rules they have been trying to weaken for a decade, including weakening critically important capital and liquidity requirements. It is even less surprising that they would direct their request to their favorite regulators at the Federal Reserve, which secretly doled out trillions of dollars bailing out Wall Street in 2008-2009 with virtually no public transparency, oversight or accountability. That was great for Wall Street's biggest banks, but a disaster for Main Street and should not be repeated now.
In the closing part of Mr. Kelleher's statement, he issued a challenge to big banks: "To the extent Wall Street's biggest banks are genuinely concerned about having enough capital and liquidity to support the real economy, then they should immediately stop making any additional distributions of capital via dividends or buybacks until there is certainty regarding the threat posed by the coronavirus."
The big banks' timing seems odd. Right after they allegedly refused to lend capital to add liquidity to freezing repo markets, they would then try to leverage the coronavirus to loosen Fed monetary policy.
"Having your cake and eating it too" seems fitting for the big banks in this case.
Don't Let ‘Banks vs. Fed’ Policy Wars Damage Your Portfolio
The big banks will likely keep lobbying for looser monetary policy, and the Fed will likely keep meddling with rates, all in response to the economic chaos linked to the coronavirus.
While they keep battling it out, examine your own savings, and think about how to minimize your risk exposure. Then, consider assets that can help preserve some measure of stability for the months to come.
Precious metals like gold and silver could help prevent your portfolio from succumbing to chaos caused by both the Fed and the big banks.
Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver. Discover more by clicking here now.
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