{"id":1576950,"date":"2024-03-27T12:41:58","date_gmt":"2024-03-27T12:41:58","guid":{"rendered":"https:\/\/jacobin.com\/2024\/03\/jerome-powell-federal-reserve-banking\/"},"modified":"2024-03-27T12:55:22","modified_gmt":"2024-03-27T12:55:22","slug":"jerome-powells-fingerprints-are-on-the-next-banking-crisis","status":"publish","type":"post","link":"https:\/\/radiofree.asia\/2024\/03\/27\/jerome-powells-fingerprints-are-on-the-next-banking-crisis\/","title":{"rendered":"Jerome Powell\u2019s Fingerprints Are on the Next Banking Crisis"},"content":{"rendered":"\n \n\n\n\n

One year after the collapse of Silicon Valley Bank, Federal Reserve chair Jerome Powell is obstructing the finalization of tougher capital requirements for banks \u2014 and increasing the chances of more turbulence.<\/h3>\n\n\n
\n \n
\n US Federal Reserve chair Jerome Powell speaking at a press conference in Washington, DC, on March 20, 2024. (Sha Hanting \/ China News Service \/ VCG via Getty Images)\n <\/figcaption> \n<\/figure>\n\n\n\n\n \n

It\u2019s been roughly a year since the collapse of Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank \u2014 the second-, third-, and fourth-largest bank failures by assets in US history \u2014 and yet very little<\/a> has changed. Not only did Federal Reserve chair Jerome Powell\u2019s post-2016 regulatory rollbacks<\/a> and supervisory blunders contribute<\/a> significantly to the 2023 banking crisis, his current opposition<\/a> to stronger capital requirements is setting the stage for the next crisis.<\/p>\n

The number of banks on the Federal Deposit Insurance Corporation (FDIC)\u2019s \u201cProblem Bank List\u201d grew<\/a> by nearly 20 percent in the final quarter of 2023 (from forty-four to fifty-two), the largest uptick since the failure of SVB. In addition, credit card and commercial real estate loan delinquencies reached<\/a> their highest level in nearly a decade, portending additional turmoil. Indeed, during his semiannual testimony before Congress a few weeks ago, Powell predicted<\/a> that \u201cthere will be bank failures\u201d generated by commercial real estate losses.<\/p>\n

Despite that, Powell is actively hindering<\/a> the Biden administration\u2019s effort to strengthen capital requirements for approximately three dozen of the nation\u2019s biggest banks. At issue are draft rules proposed<\/a> in July by the Fed, FDIC, and Office of the Comptroller of the Currency (OCC) that would require banks with at least $100 billion in assets to increase their capital reserves to protect against losses.<\/p>\n

Those rules, part of an international standard-setting process called Basel III <\/a>Endgame<\/a> (which sounds like the most boring Avengers<\/em> movie yet), are designed to help prevent future financial crises. Powell, however, seems hell-bent on courting disaster. During the aforementioned congressional hearings held earlier this month \u2014 the same venue where he told lawmakers that trouble is brewing \u2014 Powell advocated<\/a> for \u201cbroad, material changes\u201d that would weaken the robust proposal he professed to support<\/a> when it was unveiled last summer.<\/p>\n

The Fed chair\u2019s about-face marks a victory for the big banks that have been lobbying against<\/a> a strong rule, backed<\/a> by dozens<\/a> of congressional Republicans and a few<\/a> Democrats. Experts have called<\/a> it the most intense fight against a proposed regulation since the Great Depression. As the American Prospect<\/em>\u2019s Robert Kuttner explained<\/a> recently, Wall Street and its lawmaking allies claim that \u201chigher bank capital standards will reduce lending and be bad for small businesses,\u201d when in reality, \u201cthe standards would reduce bank speculative activities and modestly cut into exorbitant bank profits and executive bonuses.\u201d<\/p>\n

Notably, Powell has not ruled out re-proposing a watered-down framework, calling<\/a> it a \u201cvery plausible option.\u201d If he goes that route, it would almost certainly push the process into a new presidential administration. According to<\/a> Powell, such a move may be necessary to achieve an outcome that has \u201cbroad support at the Fed and in the broader world.\u201d Powell is now portraying that unattainable standard \u2014 as opposed to the 4-2 majority vote with which the original proposal passed \u2014 as tantamount to maintaining the Fed\u2019s vaunted political independence.<\/p>\n

But as historian Peter Conti-Brown, an expert on central banking and financial regulation, observed<\/a> recently: \u201cThrowing away regulatory reforms preferred by the party that won the last national election does not preserve Fed independence. It makes a mockery of it.\u201d In threatening to thwart a proposal put forth by President Joe Biden\u2019s Democratic appointees and initially approved with Powell\u2019s support, Powell is simply \u201cintervening in a way that Republicans and bankers prefer,\u201d Conti-Brown noted.<\/p>\n

The Fed chair\u2019s timing is remarkable. On March 7, the same day Powell warned of impending bank failures, it was announced that the floundering<\/a> New York Community Bancorp (NYCB) would receive<\/a> a $1 billion cash infusion from a group of investors led by Donald Trump\u2019s former Treasury secretary, Steven Mnuchin. But as Kuttner wrote, \u201cmore capital was needed before <\/em>the bank\u2019s speculative tailspin, not after.\u201d Ironically, because NYCB\u2019s recent acquisitions pushed<\/a> its total assets above the $100 billion threshold, the bank \u201cwould have had to proceed more prudently . . . had a stronger capital rule been in effect,\u201d Kuttner pointed out.<\/p>\n

It remains to be seen if Mnuchin et al.\u2019s privately organized buyout will save NYCB and at what cost to ordinary people, but what\u2019s clear is that \u201cif Powell succeeds in eviscerating the capital rule, there will be more public bank bailouts,\u201d Kuttner added.<\/p>\n

Powell\u2019s opposition to stronger capital requirements, let alone better regulation, is especially galling considering that when my organization urged<\/a> Biden not to reappoint Trump\u2019s Fed chair, Powell\u2019s supporters, including Matt Yglesias, insisted<\/a> that the former private equity executive<\/a> would defer to the Fed\u2019s vice chair for supervision (VCS) on regulatory matters. The Revolving Door Project never bought<\/a> this argument, and its wrongheadedness has only become clearer as Powell intensifies his campaign to sideline<\/a> VCS Michael Barr on Basel III Endgame.<\/p>\n

Many of Powell\u2019s supporters were willing to overlook what should have been disqualifying ethical failures<\/a> and regulatory weaknesses<\/a> because they swore<\/a> that he was a committed and uniquely capable dove on monetary policy. But that was also incorrect. The Fed chair has jacked up<\/a> interest rates and kept them high<\/a> despite ample evidence that rising prices are largely attributable to supply chain shocks<\/a> and corporate profiteering<\/a> amid the coronavirus pandemic, Russia\u2019s invasion of Ukraine, and other crises<\/a>, including climate change.<\/p>\n

So while Powell\u2019s elevated interest rates are undermining<\/a> green investment and exacerbating<\/a> the housing affordability crisis, along with other cost-of-living struggles<\/a> such as credit card debt, his long-standing penchant for deregulation is also jeopardizing the stability of the financial system.<\/p>\n

In effect, Biden\u2019s unforced error vis-\u00e0-vis Powell is imperiling<\/a> his reelection chances, not to mention US democracy and the planet\u2019s health. If he gets another chance, Biden must nominate a central bank leader who will pursue whole-of-government responses<\/a> to inequality, greenhouse gas pollution, and other elements of our worsening crises.<\/p>\n\n \n\n \n \n \n\n \n \n \n\n\n

This post was originally published on Jacobin<\/a>. <\/p>","protected":false},"excerpt":{"rendered":"

It\u2019s been roughly a year since the collapse of Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank \u2014 the second-, third-, and fourth-largest bank failures by assets in US history \u2014 and yet very little has changed. Not only did Federal Reserve chair Jerome Powell\u2019s post-2016 regulatory rollbacks and supervisory blunders contribute significantly [\u2026]<\/p>\n","protected":false},"author":1873,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"_links":{"self":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/1576950"}],"collection":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/users\/1873"}],"replies":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/comments?post=1576950"}],"version-history":[{"count":1,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/1576950\/revisions"}],"predecessor-version":[{"id":1576951,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/1576950\/revisions\/1576951"}],"wp:attachment":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/media?parent=1576950"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/categories?post=1576950"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/tags?post=1576950"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}