From Jeanna Smialek in the NYT today:
Randal K. Quarles, who was the Fed’s vice chair for supervision from 2017 to 2021, carried out a 2018 regulatory rollback law in an expansive way that some onlookers at the time warned would weaken the banking system.
Mr. Powell typically defers to the Fed’s supervisory vice chair on regulatory matters, and he did not vote against those changes. Lael Brainard, then a Fed governor and now a top White House economic adviser, did vote against some of the tweaks — and flagged them as potentially dangerous in dissenting statements.
“The crisis demonstrated clearly that the distress of even noncomplex large banking organizations generally manifests first in liquidity stress and quickly transmits contagion through the financial system,” she warned.
Mr. Quarles served in the GW Bush administration; he was nominated by Donald Trump to the Board of Governors, and to be vice chair for supervision. He served in that post from 2017-21.
Once again – thanks, Trump!
Anybody notice how active the troll choir has become now that the interests of the rich are directly at stake? They have been blessedly quiet most of those year, but they have popped again now that increased bank regulation is mentioned.
CoRev has offered the kind of stupid stuff that could only be taken seriously at a Bircher meeting: “Biden’s inflation and Biden’s Fed!” And self-financing tax cuts and a list of the names of 500 Communists in the State Department. Stevie tells us bank failure isn’t a management problem because no bank could manage its way through those Fed hikes, when so far, 4,155 out of 4,157 FDIC-insured bank have managed OK. Apparently, two failures out of 4,157 banks could not possibly be the fault of the two banks.
So here’s the problem from the troll point of view. They stoke populist outrage because it serves their masters’ interests, but populist outrage can get out of hand. Regular, working stiff populists have no use for rich bankers, but rich bankers are among the troll choir’s masters. This populism stuff has to be controlled. No biting the hand that feeds trolls.
Heck, even pretend progressive Johnny got into the act. I suggested locking up banking executives’ pay until it’s clear they’ve haven’t needed government intervention, and Johny immediately changed the subject. Never mind those bankers. Moral hazard among depositors is the problem, Johnny tells us. Never let those depositors off the hook. (Let’s never mention bankers’ compensation again.)
These were the “Yay! Recession!” guys ahead of the election. The “Climate is weather until I say otherwise!” guys. The “Just give Russia whatever Putin wants!” guys. Same guys. For now, their orders are to save the bankers. Pretty soon, they’ll tell us government default ain’t so bad.
You left Princeton Steve out. OK he is so all over the map I don’t blame you.
The moral hazard argument goes to how the banks – not the depositors – undertook excessive risks. Of course Jonny boy has never uenderstood the actors in any economic issue he opines on. After all he is defending Whirlpool’s exercise of oligopoly power via Trump’s tariff by saying it was Lowe’s not Whirlpool that reaped huge profits. Yea – Jonny boy is incredibly dumb.
“defending Whirlpool’s exercise of oligopoly power?” pgl needs to go back to first grade for remedial reading. Whirlpool and Maytag set the price umbrella so high that everyone could mark up retail prices, not just to pass along costs, but to even maintain margins.
In fact, it was pgl and his ilk who ignored the monopolistic pricing and chose to blame it all on increased tariffs, thereby covering for bad corporate behavior…par for pgl and other mainstream economists, who go ballistic at tariff increases but go silent when oligopolies use their market power to increases prices. Apparently that’s part of a Democratic partisan hack’s job description.
Why do you insist on doubling down on your usual stupid statements? There is not a word in what you wrote that has any empirical support or even any basis in reality. Look Jonny boy – we all get you are a Know Nothing. So relax and enjoy the World Baseball Classic final tonight.
“Whirlpool and Maytag set the price umbrella so high that everyone could mark up retail prices”
First this twit tries to lecture us on value chain analysis (I’m sure the Harvard MBAs had a great laugh at how Jonny boy described this concept) and then he wants to pretend Whirlpool is the parent corporation of Lowe’s. Then again little Jonny boy first told us Lowe’s did not increase its prices that margin as if it suffered a profit margin squeeze (which Jonny boy never documented).
Yea – that is what one gets when one has to deal with the ultimate moron God ever created.
“Never let those depositors off the hook. ”
i have never really understood why there is a populist angst that says to punish the depositors. other than perhaps jealousy that some depositors have more than others, and this is a chance to even the score? but why in the world should a depositor lose money before a shareholder or a bondholder? those are investors. depositors are not really investors, unless you have an axe to grind against them. even large depositors. our banking system should have an insurance program that insures against the largest deposit possible. the $250k limit is arbitrary, and as we saw, foolish. the purpose of deposit insurance is to eliminate a bank run. if we need to increase the coverage, so what? if we cannot raise the limit high enough to stave off a bank run, then the insurance was not working anyways. this griping against depositors is simply a distraction away from the real problems at hand.
Exactly – the essential society interest is to prevent a systemic contagious bank run. The cost to society and innocent people are too high.
We protect innocent people from problems in the transportation sector, having rules, inspections and demanding insurance to keep them as safe as possible and then cover their loses if all else fails. Banking should be no different, and the only reason the predatory capitalists in banking have managed to avoid being held accountable, is that they have bribed the politicians.
The griping against depositors is another deception from the TBTF banks. Since few depositors have the ability to judge how solid a bank is, they would all have to go to the TBTF institutions to be sure their money is not at risk. Guess who would like that.
Ducky…Obama already showed us what happens to suggestions to jail bankers: give them get out of jail free passes. And he was reported to have said that he was all that was standing between them and the pitch forks (and facing justice.) But at least the management at SVB got wiped out, along with share holders and bond holders…so there is clearly some progress.
Ducky thinks that all depositors are created equal, whether they deposited $50 or $50 million (like Thiel)! Over a decade ago, it was settled to protect depositors up to $250K. That was a progressive stance…which Ducky opposes, regardless of how many preferential rates and loans the wealthy receive. Ducky must also love Republican tax cuts, which primarily benefit the 1%.
Damn – you are in a roll for the most pathetically comments ever written. BTW – how in eff do you think SVB failed not because of its risk taking but the alleged risk taking of people who hold deposits with fixed inteerest rates. Oh wait – you have no clue what moral hazard even is.
In fact, Quarles was the first vice chair for supervision, after a near decade-long vacancy. Wonder why a job meant to expand the Fed’s regulatory powers took so long to fill? Me, too. And the first guy who could get past whatever was holding up appointment to that job was Quarles.
From Quarles’ Wikipedia bio:
“He specialized in financial institutions law, eventually becoming co-head of the (Davis Polk & Wardwell’s) Financial Institutions Group and advising on transactions that included a number of the largest financial sector mergers ever completed.”
“After his departure from the Treasury, Quarles joined the Carlyle Group…to help the firm develop a focus on transactions in the financial services sector.”
This is a routine situation for those holding upper-level government positions in financial oversight. You either come from finance or from academia, and mostly finance. The Fed chair is often an academic, the Treasury Secretary almost never. Fox guarding the hen house is the standard state of affairs. Even Larry Summers is part fox, though he pretends otherwise on TV.
Given that Quarles was a Shrub appointee and a Trump appointee, it’s amazing he was as good as he was. He had an impressive run of service at Treasury. Not so great at the Fed.
Maybe also worth noting is that the vice chairmanship for supervision remained empty until just before a regulatory rollback, removing some of the teeth from that chairmanship. Quarles was essentially hired to defang himself. Probably explains the timing.
Moses,
Two things: A) Thanks for the CAMELs link, and; 2) Purdue was SLOW.
Hahaha, I still like Zach Edey. I believe you, alas, I listened to it on CBS radio as I do not have cable. But, I am watching the highlights on YT as I make this comment. I’m not even trying to be funny here, to be clear, I was/am amazed how often Purdue had THREE white kids out on the court playing at the same time (not counting Edey, which would make it “four” white kids on court at once, however he defines himself, I would presume Edey defines himself as Asian because of his closeness to his Mother). I mean, even Duke and Kansas have given up on trotting out the white kids yeah?? Not good. I would say 1/2 step slow, yup Agree. But I still like Zach Edey for NBA. Even speed can be taught, up to a point, studying efficiency of body motion with video.
The 4 white kids got to play 4 on 3 as two defensive players were draped all over Edy all the time. They should have done more scoring but they failed. Edy got 21 points all by himself with 40% of the defense dedicated to him.
Something is very, very wrong when your 7’4” future NBA guy rarely touches the ball during a game’s most crucial time. Especially when the opposition is quite small by D1 standards and had lost its tournament final to Merrimack (which was tournament ineligible because still transitioning to D1! What would Merrimack have done to the Big Ten champs?)
Perhaps missed was the “elitist” takeover over a portion of the weekend by , egads, , Princeton! That wouldn’t have happened if Trump was still president. Woke basketball? Hold that Tiger!
“What would Merrimack have done to the Big Ten champs?”
That may be the single meanest thing ever written about NCAA tournament teams.
Debate and conjecture is part of what makes sports fun. If I was an NBA GM I would definitely take Zach Edey in the draft though. When would depend on draft projections of other teams. I’d take him wherever the pick would be before some other team might draft him, and I would never signal interest in Edey until we had made the pick. Ideally we’d get him in free agency, but if I had to use a draft pick to get him I would do it.
Two words – double teamed. They did get him a few touches and he did score 21 points.
Coach’s job: how to counter double teams, especially double teams from far smaller opponents. Edey barely touched the ball in the latter part of the second half. He DID score and rebound near career averages BUT this game demanded more. Great players rise to the occasion. Great coaches too. Neither showed up.
The same guy who torched Michigan State for 38 was JUST average against FDU. Hard to imagine many super star big guys—or their coach— doing the same.
“Noneconomist
March 20, 2023 at 11:51 pm
Coach’s job”
Amen brother. That was bad coaching at so many levels.
Some off-color comments I am soooooooo tempted to make about Mr. Quarles here. Just read his Wiki page. Is everything there about Quarles 100% true?? Hard to say, but I would say a large portion of it seems well-documented to my eyes.
Menzie, at least in this moment, seems to be willing to see some of the fallacies of the Federal Reserve (Which are there. Does that mean the institution does more harm than good??~~NO, it means the Federal Reserve has problems and if you really have affection to the Fed, just like talking to your best friend over a couple of beers, you want to be honest to them and tell them when they are doing something wrong, so they can be better). Does this mean I have been too harsh to Menzie’s and other professional/academic economists not being critical enough of “the Fed”?? Me?!?!?!?~~Make an error or be too cutting in my remarks??? Whaaaaaaht?!?!?!?!?!?!?!!!
It is immensely interesting to see the polarities between Lael Brainard’s very cerebral observations and Mr Quarles’ bastardized idea of free markets side-by-side and realize they both inhabited the same duties at the Fed. It shows the potential greatness of the institution of the Fed vs the inhabiting corrupt elements always present, whether those corrupt elements might be small or big in any moment.
I have learned so much from comments here since SVB went splat. I have learned that the reason that two U.S. banks have failed, two out of 4,157 insured by the FDIC, is the rapidity and extent of Fed rate hikes and NOT bad management. I know it’s true because Stevie said so, and he’s an all-knowing petroleum consultant. Banks fail because of interest rates, not bad management – Stevie said so.
Well, except this one:
https://www.barrons.com/articles/bank-of-america-earnings-stock-price-51673550028
Here’s the headline: “Bank of America Tops Estimates. Revenue Driven Up by Higher Rates.”
That must be a fluke, right? I mean, Stevie wouldn’t tell us banks are in trouble because of higher rates without…evidence…would he? We’ll look further. Here’s a write-up of 4 big banks, which says Q4 was mostly better than expected for them:
https://www.insiderintelligence.com/content/cautiously-optimistic-us-banks-report-mostly-better-than-expected-q4-earnings
Some nuggets from the story –
JPM: Net interest income boomed at $20.3 billion, an increase of 48% YoY, driven by higher interest rates.
BOA: Net interest income increased 29% YoY to $ $14.7 billion, powered by higher interest rates and significant loan growth.
CITI: The higher interest rates helped Citi beat net interest income estimates of $12.7 billion, coming in at $13.27 billion. This was an increase of 61% YoY.
Wells Fargo: The bank reported a 45% increase YoY in net interest income at $13.4 billion, generated through higher interest rates and higher loan balances.
Uh, Oh… Maybe it’s a fluke for just the U.S? Maybe Stevie is so cosmopolitan that he had the whole world in mind, and wasn’t fooled by one measly quarter in one measly country.
Maybe Europe?:
https://www.reuters.com/business/finance/boom-european-bank-earnings-hints-rally-with-legs-2023-02-23/
I am simply at a loss. Looks like many banks have not only survived a rapid increase in rates, but are thriving. But Stevie said:
“But no one rans the numbers to check of the banks could actually handle that rate increase at that pace. Clearly, they cannot, which even a pretty basic stress test (scenario analysis) should have told them.”
Banks “Clearly…cannot”…”handle that rate increase at that pace.” The evidence says they can.
By the way, I got to looking at Q4 bank earnings stories because Moses linked to a bit of research entitled “Earliest Indicator of Bank Failure is Deterioration in Earnings”. Anybody who wants to understand the current situation, and how banking works in the wild, should read it. And ignore Stevie.
“BOA: Net interest income increased 29% YoY to $ $14.7 billion, powered by higher interest rates and significant loan growth.”
True but before Stevie freaks out that pretax income fell a yea bit – note net noninterest income fell a yea bit. Let’s see if Stevie can tell us why that happened. This should be fun.
“European bank shares are trading at just 0.73 times their price-to-book value, according to Refinitiv Datastream. This is below their 20-year average of closer to 1.0 and much cheaper than their U.S. peers, which are trading at around 1.1 times.”
OK – some banks may have seen their market value of equity decline relative to book value but even at 73%, this is far from insolvency. Wait – that was Europe. Here bank’s market value of equity actually exceeds book value.
Something else little Stevie told us could not happen! Stevie dear – the real world is so much more complicated than your uninformed babbling.
Menzie Chinn,
You seem to be confused, or your bias is showing again. You know perfectly well that BOG members are not pieces of legislation where the executive branch is the final step before their appointment. The Senate is much more responsible for any eventual appointment of a Fed governor then POTUS. Your regurgitation of another’s work should’ve been followed by “thanks, 115th Congress!”
Econned has once again allowed his Menzie-derangement lead him Into spouting nonsense.
The president nominates Fed.governors. Senators do not. Senators can only stop an appointee from being confirmed. When the Senate majority is of the same party as the president, nominees rarely fail to win confirmation. In a civil Senate, nominees are routinely confirmed, regardless of party difference.
Econned is generally among those who are unreliable because of ignorance or because of dishoneaty. This is another example.of that problem. It is hard to imagine any reason to write what Econned has written here, other than his irrational need to attack our host.
I bet Econned is still upset that Stephen Moore never made it on the FED.
Macroduck,
1) the bulk of your comment just restates what I already said but did so as to not upset Menzie and in a (poor) attempt to make yourself look like you one-upped me.
2) where was I dishonest?
3) I wrote what I wrote because it’s all true
We have been through this before. You are a total waste of time. NO ONE gives a damn about your little emotional problems. So why are you still here? Go away and never come back.
@ LovesMultipleBlogMonikers
As per usual, you are the one confused. The President makes the appointment. The appointment is confirmed or blocked by the Senate. Most of the time, unless the choice is utterly horrendous, (i.e. Stephen “Deadbeat Dad” Moore, Judy “Spends Gold Shavings at 7-11” Shelton) even the opposing party lets the President have his preference.
Econned, are we going to have to get you a pocket-sized reference book for commonly used civics terminology, or would that only cause you more “confusion”??
Have you noticed that Econned cannot bring himself to anything you or I write. I guess he is a little coward who just throws temper tantrums for no reason.
Econned is like Rick Stryker, no worries, he’ll rear his ugly dragon head again.
” “The crisis demonstrated clearly that the distress of even noncomplex large banking organizations generally manifests first in liquidity stress and quickly transmits contagion through the financial system,” she warned. ”
That’s a fact demonstrated many times over – go back 100 years, 150 years… longer.
One airplane goes down and the regulators and engineers are all over the situation. One bank goes down… temporary panic and then set the stage for the next one. Short memory.
Stevie says he reads 10Ks but it is clear he has no clue what they tell us. So let’s help little Stevie out with key data from the BofA 10-K. Yes interest expense rose from $4.74 billion in 2021 to $20.1 billion.
Now Stevie insists that interest income cannot rise by it rose from $47.67 billion in 2021 to $72.57 billion in 2022. Huh net interest income rose by almost $10 billion. Something little Stevie told us could not happen.