Banks have a dubious business model and markets have noticed

The tendency toward restriction that runs through the tone of the presentation seems to me to be quite problematic. It seems to me to support a wide variety of misguided policy impulses.

–Larry Summers, Jackson Hole 2005

You might think Summers had changed his mind in the eleven years since he called Raghuram Rajan a “Luddite” for daring to suggest the financial system had gotten riskier since the 1970s thanks to competition and the rise of performance-based pay. After all, in a new paper, Summers and graduate student Natasha Sarin not only cited Rajan’s work approvingly, they concluded lenders are still too vulnerable to panics. You would, however, be wrong.

Continue reading: Banks have a dubious business model and markets have noticed

The tendency toward restriction that runs through the tone of the presentation seems to me to be quite problematic. It seems to me to support a wide variety of misguided policy impulses.

–Larry Summers, Jackson Hole 2005

You might think Summers had changed his mind in the eleven years since he called Raghuram Rajan a “Luddite” for daring to suggest the financial system had gotten riskier since the 1970s thanks to competition and the rise of performance-based pay. After all, in a new paper, Summers and graduate student Natasha Sarin not only cited Rajan’s work approvingly, they concluded lenders are still too vulnerable to panics. You would, however, be wrong.

Continue reading: Banks have a dubious business model and markets have noticed

Banks should hire McKinsey, says McKinsey

McKinsey & Co. has published a tome on the Death of Banks.

Well, they don’t actually say the end is nigh, but they do think the ranks of global mega-banks will shrink by at least half by the time the dust has settled:

Continue reading: Banks should hire McKinsey, says McKinsey

McKinsey & Co. has published a tome on the Death of Banks.

Well, they don’t actually say the end is nigh, but they do think the ranks of global mega-banks will shrink by at least half by the time the dust has settled:

Continue reading: Banks should hire McKinsey, says McKinsey

The Fed’s slow march into collateral intermediation

The Fed sure seems to be getting comfortable with the idea of acting as a centralised counterparty for collateral transactions. It’s unclear whether the market’s quite as enamored with the idea.

This year’s Jackson Hole conference was on monetary policy implementation, which often serves as a shorthand for the following questions: how should the Fed control interest rates, and how big of a role should it play in financial markets?

While the topic seems arcane, it’s important to understand how thoroughly the Fed has changed its approach to controlling interest rates (and through that, its relationship with markets). The topic isn’t just for technocrats — the debate now is over whether that change should be a permanent one.

Continue reading: The Fed’s slow march into collateral intermediation

The Fed sure seems to be getting comfortable with the idea of acting as a centralised counterparty for collateral transactions. It's unclear whether the market's quite as enamored with the idea.

This year's Jackson Hole conference was on monetary policy implementation, which often serves as a shorthand for the following questions: how should the Fed control interest rates, and how big of a role should it play in financial markets?

While the topic seems arcane, it's important to understand how thoroughly the Fed has changed its approach to controlling interest rates (and through that, its relationship with markets). The topic isn't just for technocrats -- the debate now is over whether that change should be a permanent one.

Continue reading: The Fed’s slow march into collateral intermediation

Liquidity regulations could help Fed policy transmission, or maybe just non-bank lenders

Obvious statement: Banks are crucial for the transmission of monetary policy into the US economy.
Not-so-obvious theory: Bank lending might become more important in that transmission because of post-crisis liquidity requirements. This one is interestin…

Obvious statement: Banks are crucial for the transmission of monetary policy into the US economy.

Not-so-obvious theory: Bank lending might become more important in that transmission because of post-crisis liquidity requirements. This one is interesting because it comes straight from the blog of the New York Fed, the guys in charge of US monetary policy implementation.

But if reserves do return to normal levels, that means even more credit risk could be pushed off of banks' balance sheets. And that could leave an even bigger role for non-bank lenders and asset managers.

Continue reading: Liquidity regulations could help Fed policy transmission, or maybe just non-bank lenders