Receiving Wide Coverage ...
Blast from the Fed's Past: Newly released transcripts from the Federal Reserve's 2009 policy meetings offer fresh insight in the mindsets of central bank officials during the rocky aftermath of the financial crisis. The New York Times' Neil Irwin condemns the Fed for worrying so much about the consequences of their actions that they hesitated to adopt stronger measures at the time. "By 2009 virtually the entire committee had a clear understanding of the economic disaster that was underway," he writes. "That clear understanding just did not always carry over to a sense of great urgency." Janet Yellen is exempt from his criticisms, having urged the Fed to expand its bond-buying program (which it eventually did starting in November 2010). The Wall Street Journal zooms in on Yellen's foreboding views of the economy in 2009: "Things are now so bad that I actually open [Fed's staff] economic projections with greater trepidation than my 401(k)," she said at a March 2009 meeting. The Financial Times notes Yellen tempered her calls for more stimulus by urging the committee to work out a plan for unwinding it before getting started. Then-Fed chair Ben Bernanke, meanwhile, was "hobbled by doubts" about how the Fed should respond to grim economy of 2009, according to the Times' Binyamin Appelbaum. He says the transcripts portray Bernanke as a "perceptive judge of economic conditions and a consultative leader who rarely pushed to impose his perspective on his colleagues." A separate Times article pulls out some of the more colorful moments from the transcripts, including some gallows humor from Dallas Fed president Richard Fisher.
Wall Street Journal
A Fed panel run by governor Daniel Tarullo has taken on much of the responsibility for overseeing Wall Street banks over the last five years, displacing the New York Fed's authority, the paper reports. The change is part of an internal restructuring in which "Washington is at the center of bank supervision, exercising control over the Fed's 12 reserve banks, much as the State Department exerts control over embassies," according to the paper. This news comes from a previously undisclosed Fed paper known as the Triangle Document. Anonymice tell the Journal of clashes between Washington Fed officials and New York Fed examiners, with the New York Fed contingent occasionally "shut out of policy meetings and even openly disparaged by Tarullo for failing to stem problems at the banks."
Bank of America's risk profile is changing in response to new regulatory requirements, but that may work out for investors, according to John Carney of "Heard on the Street." The bank's "long-term earnings power may be diminished, it is taking on less risk for each dollar earned," he writes.
Recent minimum wage increases by states and large retailers may provide some reassurance to the Fed as it considers the timing of its interest rate increase, according to "Heard on the Street." The Fed has been hesitant to raise rates while wages remain stagnant.
Nonbanks are set to cast a shadow over traditional financial institutions' annual profits, according to a Goldman Sachs report. The report predicts shadow banks could snatch more than 7% of U.S. banks' $150 billion annual profits.
The Fed's plan to impose extra capital buffers on the eight biggest U.S. banks is a recipe for disaster, according to University of San Diego professor Frank Partnoy. The problem lies not in the rules' goal but in their "hopelessly complex" design, he writes: they will "create incentives for banks to manipulate their financial statements, hide risks, and engage in dysfunctional strategiesmuch like those that doomed Lehman Brothers and brought the financial system to the brink of collapse seven years ago." A better idea would be to offer big banks a trade, he suggests: regulatory relief in exchange for tough capital requirements.
New York Times
Post-crisis financial reforms haven't done enough to change the way banks do business, according to Jesse Eisinger. He argues banks still rely too much on short-term funding and that their resolution plans remain unfeasible. But the biggest problem, he says, is the financial industry "has become a money-extraction machine, enriching itself while endangering society as a whole." He suggests lowering the fees that bankers charge their clients would help address the issue, but otherwise doesn't go into specific ideas for further reform.
Stress test day is finally upon us or at least part one of the stress tests, in which the Fed announces the results of its capital ratio review. The Times has a handy guide to help readers interpret the results.