The exercise of drawing up a living will has been cause for consternation at the big financial institutions, and I understand their concerns. A discussion of end-of-life issues, whether in regard to a beloved family member or a bank of systemic significance, can bring all kinds of uncomfortable questions to the surface.
After becoming parents, my husband and I were eager to make sure we had all of our affairs in order. We did the research. We shared our intentions. We sat at a table with a stack of papers we had gotten professionally prepared for us. And I froze.
After a few minutes, my pen finally started moving across the signature lines on the pages; it's a little hazy to me now, but I remember thinking there at the lawyer's office that while I trust that my family members know me well and will have my back, ultimately there are some decisions I just prefer to make for myself.
Luckily I can't tell you yet whether it all turned out for the best. But there's someone else who can vouch for the value of planning ahead, in detail, for bad scenarios.
Nine years ago this month, Ben Bernanke, then a Federal Reserve governor, delivered a speech to the National Economists Club in which he described the many tools that would be available to the central bank in a potential fight against deflation.
At a time when so much of our policy feels like it's being formulated ad hoc, it's comforting to know that a playbook exists for at least some of what's happening. Consider what Bernanke said in November 2002 about the Fed's options for trying to stimulate aggregate demand when short-term interest rates already are at zero. The Fed could "expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys." Check. Or it could "find other ways of injecting money into the system—for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities." Check and check.
Next he discusses strategies for lowering rates for on long-dated Treasury debt to encourage spending. One approach, he says, "would be for the Fed to commit to holding the overnight rate at zero for some specified period," which is exactly what the Fed did this summer when it announced its intention to keep rates low through at least mid-2013.
In the footnotes to the text of his speech, Bernanke even references Operation Twist, the 1960s effort to move short-term yields higher and long-term yields lower by selling securities on the short end of the curve and buying on the long end. The episode, Bernanke notes, "was rather small in scale, did not involve explicit announcement of target rates, and occurred when interest rates were not close to zero." Nonetheless, he's trying it again now.
What else is in store for the Fed and our macroeconomic future? I won't spoil it—the text of the 2002 speech still is available on the news and events tab of the Fed's website—but just maybe it will involve explicit ceilings announced for yields on long-dated Treasurys, or purchases of foreign government debt.
Speaking of the Fed, our cover story this month takes an in-depth look at how all the major U.S. bank regulators are adjusting to the demands of Dodd-Frank, and how that's affecting banks. The piece includes compelling data on the shifting resources at each agency.
In Metrics & Measures, we look at the hot-button issues of headcount and home equity exposure. And in Commentary, a bank director has advice for boards interested in operational risk. There's much more inside, and as always, I encourage your feedback.
Heather Landy, Editor in Chief