Group items tagged

stimulus spending, as prescribed by mainstream economic theory, to create jobs and promote growth."

Obama intends to ignore the path for getting the economy back to full employment that most economists advocate.

vast amounts of excess capacity.

theory as to how budget cuts could boost growth

lower deficits in the present and/or near future will reduce fears that government spending will be crowding out private economic activity. This would lead to lower interest rates. Lower interest rates will provide a boost to investment and consumption. Also, lower interest rates in the United States will make dollar assets less attractive to investors. This will cause the dollar to decline against other currencies, improving our trade balance.

no part of this story makes sense in the current economic environment. US interest rates are already at ridiculously low levels,

interest rates did fall, it is difficult to believe that it would have much impact on either investment or consumption

policy will be determined by people with no knowledge of economics whatsoever.

Consumers remain heavily indebted due to the collapse of house prices.

The dollar continues to be a safe haven in uncertain times.

keep the dollar from falling too much against their currencies no matter how low interest rates fall.

unlikely that cutbacks in government spending will do much to lower the dollar and reduce the trade deficit.

Obama is apparently not listening to economists anymore, so he wouldn't care, in any case.

politicians who think that biology has no place in teaching the origins of species, we now have politicians who think that economics has no place in designing economic policy.

tens of millions of lives stand to be ruined.

Keynes's basic insights have been supported by a vast amount of economic research over the last seven decades. And we have solid evidence showing (pdf) that the limited stimulus pushed through by Obama in 2009 worked pretty much as predicted in generating growth and jobs.

doesn't matter at the White House any more.

evidence,

Robert Shiller

Columbia

Peter Diamond

Santa Fe Institute

Brian Arthur

sceptics of the efficiency of markets in all circumstances

Three of the participants

being a study of complex human behaviour, in which the world is created by human understand and motivations, economics is hard

orthodox economics had, in the years leading up to the crisis, become more a cult than a science

talking to political scientists and even sociologists. They also recommended looking at the causes of inequality, the economics of happiness, the role of institutions, the importance of culture, and the effects of power.

the sociology of the profession

militates against such heterodoxy

human beings are not rational calculating machines

time matters in economic processes

economics suffers from physics envy. It seeks to be an exact science, which is impossible.

the world is not computable

There cannot be just one general model of the economy or just one approach to economics

in theory it is right and proper to abstract in order to focus on a specific phenomenon. In addressing policy, this is irresponsible.

even though economists get much wrong, they still have much to offer to non-economists who tend to assume that economic problems are far more simple than they actually are.

great danger that in rejected the most simplistic pro-market mantras, economists and policymakers will embrace even more dangerous and naïve statism.

challenges from an enhanced regulatory regime that has evolved in the wake of the crisis.

The ultimate focus of examination and supervision is the safety and soundness of the bank, as well as compliance with laws and an assessment of the bank's ability to withstand risks and shocks.

how the Federal Reserve's monetary policy aims to increase the availability of credit to foster economic growth, and how we are tailoring our examination and supervision of community banks to ensure that we are not inadvertently constraining lending. 

examination and supervision of community banks is a timely and important topic. Why do I say that? Because, as I will discuss shortly, lending by community banks plays an important role in the ongoing economic recovery, especially by providing credit to small businesses. And it is absolutely critical that examination and supervision do not produce outcomes that are barriers to small business expansion.

potential effects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

Supervision and Examination of Large and Community Banks

good examiners will help them to be proactive and identify problems early, and because a strong and durable banking system is in everyone's best interest.

They are relatively diversified, but also tend to be more highly leveraged than smaller institutions, and often rely on more volatile wholesale funding. These organizations often are tightly interconnected, raising the prospect that the failure of one institution could rapidly destabilize the wider financial system, giving rise to the "too-big-to-fail" problem.7  

the examination and supervision of the lender should not hinder the ability of creditworthy businesses to access credit.

I am encouraged that community banks are faring better in the current environment.

While profitability remains below long-run historical norms, returns on equity and assets have reached their highest post-crisis levels.3

we must continue to think about how we can improve the examination and supervision of community banks. One issue that we constantly must evaluate is the appropriate balance in the allocation of responsibilities between banks and examiners.4

community bankers typically welcome effective and appropriate examination and supervision.

there are key differences between these two sets of institutions, and these differences have implications for our supervisory framework.

over at least the past decade indicates a trend toward greater concentration. Ninety-nine percent of banks in the United States are community banks, with most of these holding less than $1 billion in total assets. The remaining 1 percent of banks together hold more than 80 percent of the assets in the banking system, with much of this concentrated at a handful of the very largest banks. The four largest commercial banks, each of which has more than $1 trillion in consolidated assets, collectively hold just under half of all U.S. banking assets.6   

The largest commercial banks are characterized not only by their size, but also by their scope of operations and complexity.

we must always think about whether the allocation of responsibilities should be different depending on whether the supervision is of a community bank rather than a large bank,

The characteristics of the largest commercial banks stand in contrast with those of community banks.

community banks are not immune from taking on excessive risk. But there are reasons why risks at community banks are likely to be less dangerous to the financial system. First, community banks generally are less complex and more easily understood. Second, community banks tend to be more traditional in approach.

our supervision of these firms has become arguably much more intensive, which I believe is perfectly appropriate given the effect that problems at the largest firms had on the financial system and the broader economy. 

All of these characteristics have implications for how large and complex banks should be supervised, as compared with community banks. Notably, our supervision of large banks reflects the scope and complexity of their activities as well as their interactions with other firms and possible effects on financial markets, and incorporates systemic risk considerations that could arise from the failure of these banks.

In recognition of their systemic importance, the largest firms also are required to plan for their own orderly resolution in the event that they should fail. 

Because of their complexity and risk characteristics, these firms require intensive and continuous on-site supervision;

examiners also understand local market conditions to be able to put the bank's management and credit decisions in the proper context.

What does this have to do with community banks?

The community banking model is very different from that of the largest banks. Community banks are local by their very nature. They have deep roots in their communities.

This trait is particularly important when it comes to small business lending, where a local community bank may understand things about a prospective customer that cannot be captured in a more quantitative credit-scoring model that might be used by a larger institution.

these characteristics call for a very different model of examination and supervision than what is required for the largest banks.

Third, community banks are less interconnected, so when a community bank fails, the effects are less widespread. 

Strong lines of communication between examiners and community banks are vitally important.

Examiners need to listen carefully to management to understand their perspective where views may differ

We encourage our examiners to be responsive to questions from bankers and help banks understand new regulatory requirements, and they take this responsibility seriously.

the risk-management system of a healthy bank can be pictured as a series of concentric circles. The inner circles consist of the systems and functions that keep the bank healthy and allow it to meet the credit needs of its community while remaining financially sound and compliant with its legal and regulatory obligations. Moving outward, additional circles include processes and checks such as internal audit, executive management committees, risk-management and internal controls, and appropriate governance by the board of directors. The outermost circle is effective supervision. The critical element of this model is that problem identification is first and foremost the responsibility of the bank, while banking supervisors kick the tires of the bank's risk-management and internal control systems. The examiners are, in this sense, a last line of defense and do not substitute for a bank's own processes for risk identification and mitigation. They are not a guarantee of the bank's ultimate success or failure. 

this model of concentric circles generally holds true for banks of all sizes, the complexity of the largest institutions requires far more complex inner circles.

the outer circle that is necessary at a systemically important bank should be far more layered than what is needed at a small community bank. 

think about the effects these policies are likely to have on community banks and the areas they serve.

Federal Reserve are working to ensure that our supervisory program is properly tailored to the wide array of institutions

considering the effect that these policies might have on smaller institutions

we consider not only whether specific policies are appropriate for community banks, but also whether these policies could have the effect of reducing the availability of credit to sound borrowers.

Community Bank Supervision at the Federal Reserve

I hope my remarks will at least continue our conversation about how best to structure a regulatory and supervisory framework for the banking system that effectively supports the real economy and encourages sound and sustained lending to creditworthy borrowers. In order to sustain the economic recovery, we need strong, well-run community banks that operate in a framework of smart and effective supervision

Jobs for low-skilled workers in manufacturing

lost to international competition

The path to recovery now lies

in upgraded skills, increased exports and public investments in infrastructure and low-carbon energy.

US and Europe have veered

consumption-oriented stimulus packages and austerity without a vision for investment.

good social policy does not mean running big deficits.

globalisation has not only hit the unskilled hard but has also proved a bonanza for the global super-rich

able to convince their home governments to cut tax rates on profits and high incomes

expand investments in human and infrastructure capital

First

cut wasteful spending, for instance in misguided military engagements

Second

Third

balance budgets in the medium term, in no small part through tax increases on high personal incomes and international corporate profits that are shielded by loopholes and overseas tax havens

projects will not add to net financial liabilities if they are repaid through future revenues.

Export-led growth is the other under-explored channel of recovery

through better skills and technologie

through better financial policies.

last missing piece for any recovery

clarity of purpose from the political class

Europe’s fate has been decided by German state elections and small Finnish parties

US has similarly devolved into a mélange of sector, class, and regional interests.

Obama is the incredibly shrinking leader

There is no growth strategy, only the hope that scared and debt-burdened consumers will return to buying houses they don’t need and can’t afford. Sadly, these global economic currents will continue to claim jobs and drain capital until there is a revival of bold, concerted leadership. In the meantime, the markets will gyrate in pangs of uncertainty.

didn't the Dodd-Frank Act of 2010 end "too big to fail," and won't its "living wills" provision nudge our largest banks to become smaller and simpler?

"I can be hopeful. I am an optimist at heart, but I don't see any evidence of that."

his plans to protect commercial banking from riskier forms of finance

realizes regulatory tactics and strategies must evolve as banks balloon in size and scope, George insists boots-on-the-ground supervision is crucial. She worries complex approaches are overshadowing common-sense judgments.

Stress testing is a "useful tool to gauge potential losses from different economic scenarios. It is no substitute for supervisory judgment and examination," she said.

helps calibrate capital,

"but to really know a bank's condition, you have to go in and examine those credits."

While the central bank has taken many steps in recent years to open its monetary policy decisions to more scrutiny by outsiders, its regulatory policy making has grown more opaque. Gone are the days when Fed governors debated policy decisions in open meetings. George would reverse that trend.

we have to apply the transparency pledge to everything we do

Part of what we have succumbed to is a sense of urgency. Things are moving fast."

time to "ponder the unintended consequences."

These rules have big import

her philosophy on regulation.

concern I have

You can make any rule as complicated or as simple as you want. The more complicated you make it, and I learned this watching Basel II get crafted, I don't think you ensure any chance of success."

I would like to see us go back to a time when examiners were required to use judgment. You gave them simple, clear rules and they had to make judgments."

I have watched over the years. It is an accumulation of compliance, and community banks do not have the scale to spread those costs, so they bear them disproportionately."

I worry about the burden on small banks,

Consumer compliance issues seem to cause the most friction among bankers and their examiners, she said.

due to prescriptive rules that tell the examiner that you don't get to apply judgment here. If it meets this, this and this test, then it's a problem. That's the frustration of bankers."

Forbearance drags things out,

I think about it pretty simplistically. Anytime you have an asset, a loan, that gets into trouble, somebody has to take the loss. The sooner you take the losses," the better.

George belongs to a growing cohort of folks who question some of the conventional wisdom growing up around community banks, namely that a massive wave of consolidation is coming and the average size must increase.

I don't think there has to be a wave of consolidation."

I don't think they all have to be $1 billion" in assets

worried about credit risk at community bank

both margin pressure and competition from larger banks that can use lower funding costs to undercut smaller rivals.

is they [banks] need more yield so they will go out for more risk," she said. "And when they do that in a low interest rate environment it can look OK. But those borrowers start looking worse when rates start ticking up.

it's all going to affect a lot of people.

I hear bankers saying

I am going to have to start making some credits that I wouldn't normally make because I have to generate earnings.'

community banks also are telling her about losing business to large banks.

but that big bank is coming in and pricing a loan in a way that I cannot and would not."

They say I am trying to compete with the big bank in my market

Community banks that survive will be the ones that hold the line on risk but continue to adapt, she said

community banks are core to the payments system and core to lending in these markets. I don't see that model being outdated. It's always got to be tweaked, but I worry the thing that is going to drag them down is regulation. That seems like something we could address and should address."