A group of senior advisors to the Center for Financial Stability – Sheila Bair (Chair), Joyce Chang, Charles Goodhart, Lawrence Goodman, Barbara Novick, and Richard Sandor – undertook an assessment of the root causes of recent bank failures.
The work was done with a keen eye on present and future financial system stresses. For instance, bond market losses continue; bank earnings remain under pressure; cumulative Fed rate hikes are now 525 basis points; the fiscal deficit is now $600 billion deeper in the red than last year; and bank stocks remain at or near post crisis lows.
The group represents a wide array of backgrounds in government, academia, and industry and a full range of policy views. While there were differences of opinions on some specific proposals, there was also strong consensus on the main drivers of the failures and key issues related to proffered reforms.
Later in the week, Randal Quarles (CFS Advisory Board Chair) will lead panel discussions with the authors on the reports’ findings.
We look forward to any comments you might have.
To view
“The Role of Monetary and Fiscal Policies in Recent Bank Failures”
www.CenterforFinancialStability.org/research/CFSMonPaper101623.pdf
“Supervision and Regulation after Silicon Valley Bank”
www.CenterforFinancialStability.org/research/CFSRegPaper101623.pdf
Category Archives: Extraordinary Monetary Policy
Markets and Volatile Monetary Policy: Empirical Lessons from Banking Instability
Ahead of the upcoming FOMC meeting, the Fed is dealing with another problem of its own creation. The stock market is elevated and the economy and inflation are on the descent.
Monetary policy meaningfully contributed to the distress at the Silicon Valley Bank and recent swings in financial markets.
“Markets and Volatile Monetary Policy: Empirical Lessons from Banking Instability” offers a solution for officials and an opportunity for investors to profit.
We look forward to any comments you might have.
To view the full article:
https://centerforfinancialstability.org/research/Markets_Volatile_Monetary_061123.pdf
Last week, we released “A Story of Money, Inflation, and the CFS.”
A Story of Money, Inflation, and the CFS
At the Center for Financial Stability (CFS), we see the world differently. We see the world through monetary goggles – not at the exclusion of other variables, but from a different perspective.
Since 1) inflation proved to not be transitory after the post-pandemic fiscal and monetary response and 2) inflation remained negligible after the big money supply increases in 2009 to 2010, our perspective is essential for:
- Officials to strengthen the financial system while more effectively promoting growth and
- Investors to safeguard assets, manage financial institutions, or seek profits.
We look forward to any comments you might have.
Next week, CFS will release a paper on “Empirical Lessons for the Fed from Banking Instability.”
To view the full article:
https://www.centerforfinancialstability.org/research/Money_Story_060623.pdf
FT: Bair on Volcker and the Fed
Today, the Financial Times published Sheila Bair’s Opinion piece “The Fed must emulate the tactics of Volcker’s fight against inflation.” Sheila notes that:
- US Federal Reserve chair Jay Powell has expressed deep admiration for the legendary Paul Volcker, yet Powell is deviating from Volcker’s methods.
- Volcker fought inflation by restraining growth in money supply to keep monetary policy tight through two recessions to finally beat inflation.
- For many years, the Fed has unwisely paid little attention to the huge volume of money its accommodative polices have created. It now needs to follow Volcker’s example and attack excess money supply head-on.
We look forward to any comments you might have.
To view the full article:
https://www.ft.com/content/b82082c9-d26a-47a5-8b1a-34121f572645
Sheila Bair is a former chair of the US Federal Deposit Insurance Corporation and a senior fellow and Advisory Board member at the Center for Financial Stability.
Barnett Outlines Why Fed Was Caught Unawares by Inflation
The KU Economist reported on my recent Op Ed in the Kansas City Star.
Barnett Op Ed Outlines Why Fed Was Caught Unawares by Inflation (Summer, 2022)
You can read the Op Ed in the Kansas City Star here.
Barnett on “Why were the Fed’s inflation forecasts so wrong?”
Professor William A. Barnett – CFS director of Advances in Financial and Monetary Measurement (AMFM) – questions “Why were the Fed’s inflation forecasts so wrong?”
He then addresses limitations in the modeling approach at the Federal Reserve and – more importantly – offers ideas for the future.
To view Bill’s opinion piece…
https://www.kansascity.com/opinion/readers-opinion/guest-commentary/article260903877.html
Video: President Harker of the Federal Reserve Bank of Philadelphia…
Thanks to Patrick Harker (President, Federal Reserve Bank of Philadelphia) for thoughtful remarks and engagement with CFS members and friends.
The full video starts at 3 minutes and is now available… https://www.youtube.com/watch?v=99zqumz3Pyg
Money in The Wash Post
Congratulations to David J. Lynch at The Washington Post for being the first in a major news outlet, as far as we are aware, to ask the question “why does the Fed ignore the money supply”?
The piece covers much ground, references Bill Barnett’s work as CFS director of Advances in Monetary and Financial Measurement (AMFM), and quotes Steve Hanke, CFS special counsellor and Johns Hopkins professor.
Yet, misconceptions exist. Lynch frames monetarists versus “all but the monetarists” and “conservative critics” versus others. He is correct. Sadly, this is the narrative.
However, CFS Divisia monetary aggregates and liability measures vividly illustrate how Fed policy transmits through the financial system and into the real economy. That’s it. They have been exceedingly helpful at analytically and dispassionately identifying trades and how the economy responds to policy.
CFS monetary data and optimal uses are vehemently non-partisan.
We look forward to any comments you might have.
To view the full article in the Washington Post:
https://www.washingtonpost.com/business/2022/02/06/federal-reserve-inflation-money-supply/
Brace Yourself: Mass Inflation Warning
CFS Chairman of the Advisor Board William R. Rhodes was interviewed by Trish Regan of American Consequences. They discussed the dangers of inflation, and the need to tackle it rapidly so it doesn’t turn into a more serious problem of stagflation or hyperinflation as the US experienced in the late 70s and early 80s. Bill also points out that the inflation problem is not unique to the US; it is also a problem for the UK, continental Europe and other countries as well. He states that the time for action on reducing inflation and rising prices is now, before it becomes embedded in the expectation levels of the population.
FRB Governor Randal Quarles Offers Parting Thoughts
Commentary by Steven Lofchie
Former Vice Chair for Supervision Randal K. Quarles covered a broad range of topics in his farewell remarks. He celebrated the overall strength of the banking system and suggested areas where there is latitude for regulatory change or recalibration.
“But I did at the time, and still do, have concerns about the possible precedents that have been created by the novel [credit] facilities that we [the Federal Reserve] created [as a reaction to the pandemic].”
Federal Reserve Board Vice Chair for Supervision Randal K. Quarles
Read his remarks, Between the Hither and the Farther Shore: Thoughts on Unfinished Business.