Go Ahead, You Do It For Us

Wayne A. Abernathy

Rule of Law or Rule of Experts?  Almost exactly 9 years ago, I spoke to this question, posed by the erosion of the Constitution’s separation of powers.  At a legal symposium in Philadelphia, I raised the problem of concentration of say-so in federal financial regulators.

Stressing Banks and the Economy

Wayne A. Abernathy

This blog post discusses to what extent the Federal Reserve’s models test for the real world problems of the Fed’s monetary policy.

Deep Dive Episode 170 – Engine of Inequality: The Fed and the Future of Wealth in America

Wayne Abernathy and Karen Shaw Petrou discuss Petrou’s new book, the problems she identifies in Fed policies, and how she sees her proposals rising above partisanship to achieve the goals she sets out.

Replacing Too Big to Fail with Safe to Fail

Wayne A. Abernathy

Rejection of the idea that any bank is too big to fail (TBTF) is currently universal among U.S. policymakers. Yet some apprehension persists that this policy consensus may be fragile. That apprehension may continue until worries of too big to fail are replaced with confidence that U.S. banks are safe to fail.

Relax, a Capital Idea

Wayne A. Abernathy

The Federal Reserve Board began the second quarter of the year by relaxing part of its capital rules for bank holding companies. In particular, its interim final rule would exclude from some capital calculations the investments that banks have in funds placed with the Fed and holdings of U.S. Treasury securities.

Quarles’ Conundrum of Bank Supervision

Wayne A. Abernathy

Without subpoenas, bank examiners routinely poke through the books, records, premises, and operations of chartered banking firms.  In fact, examiners are resident—as in, have permanent offices—in the headquarters of the larger banks.  They essentially live there.  Intrusive examination is the core of bank supervision.

The FDIC Refinery

Wayne A. Abernathy

The FDIC took several actions to refine proposed and existing banking regulations, each with a focus on better achieving their purpose by making them easier to administer and less of a weight on economic activity.

Deep Dive Episode 56 – Loan Shark Prevention Act

This podcast examines the economics of interest-rate ceilings on consumer credit and the historical experience with such proposals, and discusses a proposal to create a Post Office bank.

Herring Does Capital

Wayne A. Abernathy

Richard J. Herring, professor at the Wharton School, is well known for his insightful commentary on the financial system. His paper on “The Evolving Complexity of Capital Regulation” is a good example of why. Professor Herring presents a readily accessible and remarkably concise history of the development of global standards for bank capital, starting with the first Basel Capital Accord (Basel I—regulators are now looking at the implementation of Basel IV). Then he walks through additions and amplifications under the Dodd-Frank Act and various regulatory innovations, each regulatory round designed to address perceived problems of previous standards.

May I Offer You Some Guidance?

Wayne A. Abernathy

Guidance from regulators to the regulated can be valuable when kept within the bounds of genuine guidance. When it moves toward compulsion, it moves onto ground obnoxious to the rule of law. The joint statement of five financial regulators reinforces that understanding.

Anyone Know a Good Tailor?

Wayne A. Abernathy

It is difficult to find a public statement by a financial services policymaker these days where the policymaker does not invoke the importance of tailoring bank regulation and supervision.  This is major progress from the days of one-size-fits-all programs.  A fundamental characteristics of the U.S. banking system is its diversity of business models, developed over the years to match the diversity of financial services customers.  Can bank supervision be tailored to accommodate that diversity?

The Consumer Bureau Asks Congress to Fix It

Wayne A. Abernathy

Mulvaney’s basic argument is cogent and refreshing.  In short, he says “the Bureau is far too powerful, and with precious little oversight of its activities.”

Finding the Value in Financial Failure

Wayne A. Abernathy

Title II of Dodd-Frank—written in law as secondary, a recourse to the bankruptcy process—has been criticized by some for being punitive, prone to destroy value, and by others as too vulnerable to use in propping up failed firms that should be removed from the financial playing field.

Deep Dive Episode 13 – Discussion on U.S. Treasury Reports

J. W. Verret (Antonin Scalia Law School) and Wayne Abernathy (American Bankers Association) discuss the Treasury Department’s recent report to President Trump on Core Principles for Financial Supervision.

The Bureau Shrinks the Supply of Smaller Dollar Loans. What About the Demand?

Wayne A. Abernathy

These days the financial regulators are engaging in a careful but high priority regulatory reform process, looking at regulations of recent years to see how they may be revised and refined to promote economic growth. Except for the Bureau of Consumer Financial Protection. The Bureau is still in the business of adding new regulations.

What Can a Sandbox in Arizona Do for Financial Innovation?

Wayne A. Abernathy

History demonstrates that innovation is one of the things that a free society does best. Fostering innovation was one of the goals of the Founders who created a federal system of government, since centralization of power tends to discourage new thinking, creativity, and new ways of doing things. This is particularly true for new ways of doing things that can challenge “old ways.” Some “old ways,” such as freedom and individual rights, are timeless. Others are more temporal and in need of adjustment to remain relevant to evolving societies and conditions.