Banking crises seem to be occurring more and more frequently. And the federal government continues to expand insurance for bank depositors. We believe that these two trends are related.
bloomberg The Federal Reserve is reportedly withdrawing from its plan to require higher levels of bank capital, developed in response to the March 2023 banking crisis. Instead, the government plans to address the fundamental problems in American banking by: . . there is nothing:
Wall Street banks are on the verge of a landslide regulatory victory federal reserve Chairman Jerome Powell has indicated that officials may scale back plans to increase capital holdings.
The world's most powerful central bank chief told MPs flatly on Wednesday that the government's plans were set for „wide-ranging and significant changes“ and that a complete do-over was well within the realm of possibility. Mr. Powell's comments appeared to catch even veteran industry lobbyists off guard, immediately calling into question the signature regulatory effort of the Biden era.
Will a future President Trump revive this effort? Don't count on it.
With the November elections looming, political risks are rising. The effort will be further hampered if the Republican Party, which has largely accepted the industry's arguments, gains more power.
As usual, industry lobbyists won. The American banking system will continue to become increasingly dysfunctional, and banking crises will become more frequent.
PS. You may wonder why liberals like me support higher capital requirements. In fact, I support complete laissez-faire in the banking industry, with no deposit insurance or „too big to fail.“ But with a government backstop for bank depositors, banks have an incentive to hold too little capital. If a bank fails, taxpayers will be forced to bail out the failing bank's depositors.