Despite claims from financial regulation critics, capital rules and the Volcker Rule have not decreased capital markets trading. Foreign exchange trading and Over-the-Counter interest rate derivatives just reached historic highs. In a low interest rate environment, trading growth will continue.
Not only are Federal Reserve officials not ‘boneheads’, Trump’s insults are dangerous to the economic well-being of Americans and to financial stability. Trump needs to disclose any financial gain conflicts that might explain his obsession with low interest rates. Accountability is imperative.
The slowing global economy, along with low interest rates, trade tensions, and intensifying Brexit uncertainty will weigh on banks’ profitability. What worries me is that these factors, coupled with increasing deregulation in the US, will embolden banks to take excessive risks and hurt taxpayers.
Since American taxpayers bailed out banks, surely it is our right to ask banks whether they lend to firearm manufacturers, ammunition producers and gun retailers. California and New York are in the vanguard of gun control legislation and in pressuring banks to cut ties with the firearm industry. here
The Trump bank deregulatory train is speeding at a breakneck pace. We have not even gone through a credit cycle to test how well the Volcker Rule would work in an economic downturn, and it has already been gutted, endangering depositors and taxpayers. here
U.S. nonfinancial corporate debt continues to rise. Credit protections for investors of high yield bonds are at record weak levels. Sophisticated investors, as well as ordinary citizens, stand to be adversely affected when a global recession arrives. here.
Bond markets in the U.S., U.K. and Europe are signaling rising odds of a global recession. However, we are in unchartered territory. Financial institution risk managers urgently need to evaluate their risk models in order to mitigate credit, market, liquidity, and operational risks.
Trump’s trade wars are exacerbating problems in the U.S. agricultural sector. The downturn is being felt in state revenues, agricultural loan performance and corporate earnings. Banks with loan exposures to the Midwest need to review their portfolios closely.
Consumer advocates fear that an OFR working paper ‘The Effects of the Volcker Rule on Corporate Bond Trading: Evidence from the Underwriting Exemption’ will be used by Volcker Rule opponents to weaken this important post-financial crisis rule written to protect bank depositors and taxpayers.
In an economic or market downturn, ratings downgrades and rising illiquidity of collateralized loan obligations (CLOs), will compel banks to increase their Basel III regulatory capital to sustain unexpected losses. If they cannot increase capital, this could lead to fire sales of their other assets.
The Federal Deposit Insurance Corporation released its 2019 risk review report with key credit risks to banks. Given that this is the regulator that has to take banks into receivership when they fail, its analysis and warnings are very important to market participants, regulators, and legislators.
Republican senators from the Senate Banking, Housing, and Urban Committee sent a letter to the chairs of the Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. I have several concerns with this letter, because these senators continue to push for weaker regulations for big banks so late in the credit cycle. Last summer, a similar letter was sent by Republicans to the same bank regulators.
Last year I wrote several pieces about the potentially negative effect of Trump’s trade wars on companies, the agricultural sector, workers in every U.S. state, and on banks. Unfortunately, recent Gross Domestic Product data are now the negative effect of Trump’s multiple front trade war. Imports increased which exports decreased by over 5%; this increased the trade deficit he claimed that he wanted to decrease. Also worrisome is that business investment declined by 0.6 percent; this is the first such decline since the first quarter of 2016.
In the last couple of weeks, a number of legislators, journalists and I have written about what the rapid rise of private equity investments means to Americans. I welcome the introduction of the ‘Stop Wall Street Looting Act of 2019,’ because we need to analyze seriously what the positive and negative effects are of private equity to ordinary Americans. Earlier this week, I highlighted balanced, as well as pro and con points about private equity. Since the Federal Reserve is likely to cut rates this coming week, I believe that the chase for yield will only intensify. Private equity will continue to look for deals, and private equity executives will have an easier time loading up companies with debt from both banks and non-banks.
A few weeks ago, I wrote about how highly leveraged zombie companies threaten the global economy. After spending the last few days analyzing data and reports from the Federal Reserve, the Institute of International Finance, Fitch Ratings, Debtwire, and S&P Global Market Intelligence, unfortunately, I am even more worried.
Global bank rating outlooks are skewing negative primarily due to UK and Latin American banks. Given this late in the credit cycle, the direction of ratings is even more important to monitor.