Fed Weekly Balance Sheet since 1914 Now Available

With several current or former undergraduate students of CFS Special Counselor Steve Hanke, I have converted the Fed’s weekly balance sheet from its beginning into spreadsheet form. The data should prove useful for anyone concerned with the quantitative study of monetary policy in the United States over the last 100+ years. Our working paper, “The Federal Reserve System’s Weekly Balance Sheet since 1914,” is available here.

The working paper is based on three earlier papers that I have previously written about; all are available at the link above:

“Insights from the Federal Reserve’s Weekly Balance Sheet, 1914-1941” by Justin Chen and Andrew Gibson,” January 2017 (post)

“Insights from the Federal Reserve’s Weekly Balance Sheet, 1942-1975” by Cecilia Bao and Emma Paine, May 2018 (post)

“Insights from the Federal Reserve’s Weekly Balance Sheet, 1976-2017” by Nicholas Fries, July 2018 (post)

The Fed’s Weekly Balance Sheet since 1976

Students of CFS Special Counselor Steve Hanke have previously written two papers digitizing the weekly balance sheet of the Federal Reserve System from 1914-1941 and 1942-1975 and analyzing developments in the Fed’s balance sheet. I wrote about them in previous posts. Now a third paper completes the data and the analysis by bringing the story up to the present. The author is Nicholas Fries and the paper is called “Insights from the Federal Reserve’s Weekly Balance Sheet, 1976-2017.”

The most recent paper is no. 114 (currently the latest paper) in this working paper series that Hanke edits. The earlier papers were nos. 70 and 104 in the series. The data files can be viewed from links under the paper.

The Fed has made digitized weekly data of its weekly balance sheet available since 1996, but not earlier, and from 1996-2002 the data were only previously available as individual files on the Fed’s Web site, not in a spreadsheet. From 2002 downloadable spreadsheet data are available. Besides appreciating the service Fries has done making the data available, readers will appreciate his balance sheet analysis, which is simple and to the point.

One more paper is left in the series on the Fed’s balance sheet. I will post about it within the next month.

The Fed’s Balance Sheet, 1942-1975

Two students of CFS Special Counselor Steve Hanke have digitized the Federal Reserve System’s weekly balance sheet from 1942 to 1975, accompanying the data with some basic analysis of how assets and liabilities changed over the period. Particularly noteworthy is the behavior of the Fed’s gold reserves, since the period includes the establishment, operation, and end of the Bretton Woods version of the international gold standard.

Two of Hanke’s previous students digitized the balance sheet from its start in 1914 to 1941. The recent digitization, by Cecilia Bao and Emma Paine, is part of their working paper, “Insights from the Federal Reserve’s Weekly Balance Sheet, 1941-1975,” no. 104 in the Studies in Applied Economics series that Hanke edits. The earlier paper, which I blogged about in a previous post, is no. 73 in the series. Both papers and their accompanying spreadsheet workbooks can be accessed from this page. A third paper to be released later this summer will bring the data and analysis up to the present. I read and commented on drafts of all three papers.

Paul Tucker interview on central banking and “Unelected Power”…

The Center for Financial Stability (CFS) thanks Sir Paul Tucker – Former Deputy Governor, Bank of England and Chair, Systemic Risk Council, and Harvard Fellow – for “Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State.”  “Unelected Power” is broad and deep.  It is a joy to read – with priceless quotes and footnotes.

We are grateful to Paul for sitting down with CFS to discuss:

– Governance and central banking,
– A “Money – Credit Constitution” with emphasis on “inside” and “outside” money,
– Division between fiscal and monetary activities,
– Examples of central banking excellence,
– Prospect for normalizing monetary policy,
– Regulatory policy – ten years after the crisis,
– Surprises and motivation for writing “Unelected Power.”

The following are excerpts from the conversation.
http://centerforfinancialstability.org/research/Tucker_Unelected_Power.pdf

FRB Announces Chair and Deputy Chair Appointments for Federal Reserve Banks

The Board of Governors of the Federal Reserve System (“FRB”) appointed chairs and deputy chairs of all Federal Reserve Banks for 2018.

Each Reserve Bank has a nine-member board of directors, three of whom are appointed by the FRB. For each bank, one appointee is designated as the chair, and one appointee is designated as the deputy chair. The following is a list showing the chair and deputy chair for each Bank:

  • New York: Sara Horowitz (Chair), Denise Scott (Deputy Chair);
  • Boston: Gary L. Gottlieb (Chair), Phillip L. Clay (Deputy Chair);
  • Philadelphia: Brian McNeill (Chair), Phoebe Haddon (Deputy Chair);
  • Cleveland: Dawne S. Hickton (Chair), Dwight E. Smith (Deputy Chair);
  • Richmond: Margaret G. Lewis (Chair), Kathy J. Warden (Deputy Chair);
  • Atlanta: Michael J. Jackson (Chair), Myron A. Gray (Deputy Chair);
  • Chicago: Anne R. Pramaggiore (Chair), E. Scott Santi (Deputy Chair);
  • St. Louis: Kathleen M. Mazzarella (Chair), Suzanne Sitherwood (Deputy Chair);
  • Minneapolis: Kendall J. Powell (Chair), Harry D. Melander (Deputy Chair);
  • Kansas City: Rose M. Washington (Chair), Steve Maestas (Deputy Chair);
  • Dallas: Matthew K. Rose (Chair), Greg L. Armstrong (Deputy Chair); and
  • San Francisco: Alexander M. Mehran (Chair), Barry M. Meyer (Deputy Chair).

Global Markets into 2018

The Center for Financial Stability (CFS) hosted a small private workshop for leaders in finance to delve into issues that will shape the future of asset values and investment management on December 6.

CFS Special Counselor Jack Malvey set the stage with an essay “Toward the Mid-21 st Century Global Financial System” –
www.CenterforFinancialStability.org/research/MalveyGlobal_Dec_2017.pdf

Workshop topics included:

– Geopolitics and Big Picture Challenges through 2020 – AI, cyber, etc;
– Global Macro, Quantitative Tightening, and Financial Stability;
– Financial Industry Transitions – Active versus Passive Management, etc; and
– Opportunities and Risks (a selection follows).

OPPORTUNITIES

– Buy cash today – the rate of return will be extraordinarily high.
– Central banks will more actively incorporate financial stability into actions and mandates.
– Emerging markets will outperform.
– The Fed desires to move further away from the zero lower bound.
– NPLs in China are overstated / bank earnings mitigate and neutralize risks.
– Global macro investment opportunities via uneven tightening.

RISKS

– I will buy cash – but tomorrow.
– Bitcoin correction.
– Limited attractive equity names based on valuation / similar to Tokyo in 1989.
– Geopolitical tensions will increase with North Korea, China, Russia, and Saudi Arabia.
– Inflation surprise / data may be misread.
– Artificial intelligence channeled for ill.

Best wishes into the Holiday Season and 2018!

President Trump Nominates New Fed Chair

President Donald J. Trump nominated Jerome H. Powell to be the next Chair of the Federal Reserve System. Pending Senate confirmation, Mr. Powell – a current member of the Board of Governors of the Federal Reserve System (“FRB”) – will replace current Chair Janet Yellen when her term expires in February 2018. Mr. Powell vowed to use his position to pursue the FRB goal of “stable prices and maximum employment.”

Mr. Powell has been an FRB Governor since 2012. He also served as Assistant Secretary and Undersecretary of the Treasury under President George H.W. Bush, and was a visiting scholar at the Bipartisan Policy Center in Washington, D.C.

Chair Yellen has served in her position since February 2014.

FRB Governor Describes Impact of FinTech on Banking and Payment Services

In remarks at the 41st Annual Central Banking Seminar in New York, Board of Governors of the Federal Reserve System (“FRB”) Governor Jerome H. Powell described the effect of FinTech on retail banking and payment services, and the role of the Federal Reserve in facilitating responsible innovation in those areas.

Governor Powell asserted that technological innovations, and the increased availability of data and analytics tools, have challenged traditional banking models. Governor Powell described the ability of FinTech to facilitate access to credit through alternative lending platforms that analyze non-traditional metrics to evaluate the financial health of a loan applicant. At the same time, he said, techniques such as “screen scraping” accentuate the necessity of heightened vigilance and raise questions about data security and consumer protection.

In the area of retail payments, FinTech developments now allow for instant payments via smartphone applications. Governor Powell said that enhancements such as integration with mobile messaging and increased security through two-factor authentication, biometrics, IP address verification, and geolocation data offer “tangible” benefits to consumers. He also examined the role of banks in payment innovations, noting that the ability to hold and transfer funds means that cooperation between banks and FinTech companies remains important. He encouraged a collaborative effort to ensure wide-scale improvement to retail payment systems.

Governor Powell suggested that the U.S. lags behind other countries in creating an advanced payment system, and emphasized the FRB’s role as a “leader and catalyst for change.” He explained that the Faster Payments Task Force recently made several recommendations for implementing “safe, ubiquitous, faster payments capabilities,” and that the FRB followed up on the recommendations by identifying several key strategies to achieve the stated goal. Governor Powell also said that the FRB formed a team to develop a proposal for a governance framework, and is considering providing settlement services for real-time retail payments. Finally, Governor Powell committed to the continued support of the Secure Payments Task Force. He shared that the FRB will (i) commission a study to analyze payment security vulnerabilities, and (ii) form work groups to explore approaches to reduce the cost of specific payment security vulnerabilities.

Lofchie Comment: On the one hand, Governor Powell insists that banks continue to be important to the financial system. On the other hand, he says that FinTech firms are racing ahead using technology to perform traditional banking tasks better and faster than banks (or most banks, at least).

These messages are not entirely contradictory. Banks, of course, are essential to the financial system. Individual banks, however, are not. Challenges from new technology providers, combined with materially increased regulatory costs, put individual banks in the midpoint of a rock and a hard place. Technology businesses tend to favor firms that can scale up. How will the banking regulators deal with the challenges to small banks? Proclaiming the significance of small banks in the payment system is well and good, but it won’t keep the doors open, as competition from nonbanks increases and the costs of being a regulated bank rise. How do the regulators think that banks, particularly small banks, will make money and survive? Should the regulators do more to relieve the cost pressure on small banks? Should regulators prepare for the possibility of bank closures?

From China / Market Implications from Unconventional Monetary Policies…

The Shanghai Development Research Foundation (SDRF) recently hosted a superb dialog on issues stretching from China, the international monetary system, re-thinking the nature of money, among others.  I had the pleasure of presenting on “Market Implications from Unconventional Monetary Policies.”

My remarks centered on:

The need to assess the normalization of monetary policies through the lens of major macro shifts over the last 10 years.

Specifically, three “never befores” need to be resolved.  For instance, “never before” has there been such 1) large scale intervention by central banks and governments; 2) growth in the financial regulatory apparatus and labyrinth of rules governing markets; and 3) distortions across a wide range of financial markets.

Here, CFS monetary and financial data illustrate why goods price inflation has remained subdued and – in contrast – asset price inflation has not.

Evaluation of long-term stock and bond market valuations reveal market distortions.

Speculative positioning has been actively influenced by the patterns of rise and restraint in balance sheet operations in recent years.

Going forward, officials would benefit by seeking balance among these three “never before” forces.

For slides accompanying the presentation:  http://www.centerforfinancialstability.org/speeches/ShanghaiDRF_090517.pdf

On a parenthetical note, I left China excited with advances in mobile pay.  It will redefine the nature of money.

Economists Say Fed Report Shows Improved Bank Loan Portfolio Performance

In an article posted on the Liberty Street Economics blog of the Federal Reserve Bank of New York (“NY Fed”), authors James Vickery and April Meehl concluded that the latest NY Fed Report Quarterly Trends for Consolidated U.S. Banking Organizations demonstrates significant improvement in the performance of bank loan portfolios over the past few years.