CERF Blog

In late 2008, U.S. banks accelerated consolidation driven by intense Federal government pressure (many failing banks were “saved” by being acquired by a larger bank). This yielded a banking structure where today the largest five U.S. banks control over 44 percent of the nation’s banking assets. The five largest U.S. banks held assets of $6.7… Read more

Bloomberg has a report on an IMF study.  Here is the key sentence: “The U.S. financial system remains fragile and banks subjected to additional economic stress might need as much as $76 billion in capital, according to the results of International Monetary Fund stress tests.” We at CERF have been long concerned about the strength… Read more

A brief update of a blog of about a month ago regarding banking: The FDIC reports that 83 banks have been closed so far this year. While there were 140 bank failures in 2009, we are on track (based on a simple extrapolation of current trends) to experience at least 160 bank failures in 2010.… Read more

How are banks doing? We discuss a few measures. We closed 16 banks in May so far, with 73 so far this year according to the FDIC. There were only 36 bank failures through May of 2009. While there were 140 bank failures in 2009, we are on track (based on a simple extrapolation of… Read more

When thinking about regulation, it is helpful to have some regulatory principles. Here are my proposals: Keep it simple. Simple regulation is cost-effective regulation. Simple regulation minimizes both regulatory costs to the government and compliance costs to the regulated firms, costs eventually borne by consumers or taxpayers. Complicated regulation invites lawsuits and encourages efforts to… Read more

Almost everybody pontificating about financial regulation seems to be recommending increased capital ratios, increasing the ratio of firm’s capital to assets. It is also true that financial regulation around the world includes minimum capital ratios. The reasoning seems to be that if you increase a financial institution’s capital, it is less likely to fail, but… Read more

I recently gave a talk and itemized my principals for bank regulation. They are: • Keep it simple • Preserve correct incentives • Minimize political influence • Maximize market feedback • Minimize moral hazard issues • Regulation is not protection Our friends at KERN Economics have come up with a plan that meets all of… Read more

Vince Reinhart released a fascinating piece on February 25, 2010. I highly recommend reading it in its entirety. Here, I’d like to talk about two paragraphs: How will the Fed raise the short-term market interest rate? The old-fashioned way of tightening monetary policy is to shrink the amount of reserves outstanding by selling assets. Over… Read more

I ran across this Robert Scheer piece in The Nation. Sheer laments the fact that the Obama administration seems determined to not bring back the Glass-Steagall Act, while McCain is trying to reinstate the regulation. Apparently, Larry Summers supported the repeal of the Glass-Steagall when he was with the Clinton administration. Scheer believes that Summers… Read more

There has been a fair amount of chatter lately saying that the Feds are keeping banks from lending. The story goes something like this: Banks can borrow from the Fed at rates near zero. Then, they can purchase Treasuries for about three percent. Voila, banks have a three percent risk-free return, and no incentive to… Read more