By Pam Martens and Russ Martens: October 11, 2019 ~
There was an outcry in Washington yesterday over the latest move by the Federal Reserve. While the New York Fed is pumping hundreds of billions of dollars each week into Wall Street because of a liquidity crisis, the Washington, D.C. based central bank, the Federal Reserve Board of Governors, just changed its rules to lessen liquidity buffers at banks and rolled back other critical safeguards. The response from Gregg Gelzinis, policy analyst for Economic Policy at the Center for American Progress was swift. He released the following statement:
“Today, the Federal Reserve eroded several critical banking protections put in place following the 2007-2008 financial crisis, further putting the economy at risk. The final rule threatens the safety and soundness of the banking system from multiple angles. Reducing the stringency of bank capital requirements, liquidity rules, and stress testing makes large bank failures more likely—while watering down living wills requirements magnifies the economic devastation caused by such failures.
“The beneficiaries of these rollbacks are not small firms. Domestic regional banks, the U.S. operations of foreign megabanks, and even Wall Street banks all enjoy various levels of deregulation in this package…
“When unchecked risk-taking leads to instability in the financial system, the pain will be felt by working families and taxpayers.”
Federal Reserve Board Governor Lael Brainard strongly opposed the rule changes and released a detailed statement which noted the following:
“The LCR [Liquidity Coverage Ratio] was designed as a baseline requirement appropriate for all large banking firms that is already tailored to bank size and business model, and the compliance burden is relatively low. Although S.2155 does not require us to weaken this critical post-crisis safeguard for large banks, for domestic banks in the $250 to $700 billion size range, who account for $1.5 trillion in assets overall, today’s rule will reduce the LCR requirement by 15 percent or $34 billion. For domestic banks in the $100 to $250 billion size range, who account for $1.9 trillion in assets overall, today’s rule would eliminate entirely their current modified LCR requirement, a reduction of the LCR requirement by $167 billion.”
Despite the Federal Reserve’s highly publicized listening tour around America, it continues to feel like the nation’s central bank is deaf to the opinions of the taxpayers who were forced to bail out its hubris in the last financial collapse.