Posts Tagged ‘Fed’
As banks rush to repay TARP money, driven by the desire to remove government control rather than any reflection of improved financial standing, here is a sobering statement from Elizabeth Warren. Just as GM didn’t ‘get it’ in terms of the world will look like on the other side of this recession, many banks appear to have similar blinders. Instead of arguing that they are not in bad shape and that they are secure, why not make changes now that display the recognition that the future is not going to be anything like the past. I say again, and blame the politicians for the use of the word recovery – recovery does not mean a return to 2007.
Repeat stress tests right now | MSNBC
The Congressionally-appointed panel overseeing the Troubled Asset Relief Program (TARP) recommends running again the stress tests on US banks, as economic conditions have worsened, its chair, Harvard University professor Elizabeth Warren, told CNBC Tuesday.
“We actually make recommendations to do it all over again right now,” Warren told “Squawk Box.”
“We’ve already blown past the worst-case scenario on unemployment,” she added.
Yahoo Japan notes the expected repayment of $68 Bn from 10 banks.
Reported by Nobuyo Henderson
President Kohn of the Kansas City Fed speaks at the ECB/De Nederlandsche Bank Conference conference in Frankfurt. He argues for greater control by the Fed over the payments system. While his outline of problems makes sense, they also describe the failure of the current system, and the lack of foresight from the existing controls, and its unclear that the proposed solution from them will have any impact other than exacerbating those problems. The problems he describes are real and more importantly consumer facing. They are also imho problems that large banks could address given their scale and the opportunity for customer loyalty. I am thinking of BofA and Wells specifically, but that is for another post.
The Future of Retail Banking and Payments – President Thomas H. Hoenig
In light of the trend toward greater industry concentration and the existence of important payments system externalities, the Federal Reserve should play a larger and more active role in electronic retail payments if it wants to promote the efficiency and integrity of the payments system.
There are two broad categories of problems that he identifies with the payments networks
- lack of competitiveness: In 2007 81% of the payments volume went over three networks, compared to 46% just few years earlier. In addition the number of networks are down from 43 to 14.
- integrity of the system(s): He sees single point of failure and prominence of non-banks as issues of concern. The variety of systems introduce externalities that undermine the entire system. His example is the continued use of mag stripe and the security implications of not shifting to chip card as the rest of the world has done.
On that last point I would add that the fact of holding on to the mag stripe is influencing the rest of the world with counter productive results. For example in Canada banks are issuing cards with stripe and chip which makes no sense. So long as the stripe exists the flaws associated with strip exist. But the sheer size of the American market pressures the issuers to continue with stripe for the forseeable future.
Then he makes this statement:
Historically, the Federal Reserve’s role in both checks and ACH reflects a preference to operate within the market rather than as a pure regulator. We are well aware that industries can – and do – quickly develop methods to exploit any regulatory loopholes and avoid the intended outcome. By competing with the private sector on a level playing field, the Federal Reserve can encourage efficiency and integrity from an “on the ground” position.
That statement reads to me as rationalisation of inaction and continuation of the status quo. His conclusion is that the best form of regulation and solution to the aforementioned problems is to compete with the other networks.
Thus, in my view, the Federal Reserve’s future role in retail payments should be built around its current position in ACH. For example, in its operator role, the Federal Reserve could augment its ACH products and services, with the aim of enhancing competition and safety within the ACH industry.
… … …
Finally, the Federal Reserve could enhance competition in payment card markets by positioning ACH services as an alternative to debit card payment networks.
It certainly is a strategy and we can debate whether government ought to be engaged in payments systems directly, as regulators, or not at all. All I know is that consumers (and banks) will suffer from the real problems he identified at the outset, and its not at all clear that the Feds 14th network will address those problems at all. This reads as a recipe for disaster in American payments. For example the very issue he outlined of underinvestment in security and integrity will only accentuate as the other 13 networks work to compete with the Fed, and protect profits. Expect continued data leakages, network outages, and identity theft.
The only word for this document is breathtaking. It is breathtaking because it touches a large amount of the US economy, and the largest businesses in the economy. It deals with:
- Auto sector
- executive compensation
- Executive replacement
- ‘luxury’ purchases, (eg corporate jets)
- SIGTARP administration
And the detail contained in the 247 pages is work that is substantially net new since January this year. I say this in defence of Geithner, and his quiet approach at first. He has been rather busy. But to the report to Congress today.
Summary of Geithners testimony at FT. He descirbes the Stress test results as mixed. A quick review of the report tells me that the answer is not captured in a sentence, so have to dig further to find out what mixed means.
Tim Geithner acknowledged that evidence of improved liquidity as a result of the bank bail-out was “mixed”, but defended the $700bn troubled assets relief programme against charges that it gave an easy ride to the financial sector.
Appearing before a Congressional oversight panel on Tuesday, the Treasury secretary said interbank lending, corporate issuance and credit spreads showed signs of a thaw in credit. “To date, frankly, the evidence is mixed,” he said.