Jay Powell outsources monetary policy
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For those watching the Federal Reserve, there’s an acronym that’s about to gain popularity: SLOOS.
The Senior Loan Officers Opinion Survey, released quarterly by the Fed, provides a high-level indication of the extent to which banks are holding back on lending. It is now a central question how high the Fed ultimately raises interest rates, Chair Jay Powell confirmed on Wednesday. The next survey release should come in April.
Many Fed officials expect the recent bank failures to restrict credit in a way that essentially serves as another rate hike. Powell told reporters after the Fed raised rates for the ninth time in a row, “I’ve heard a large number of people say they expect some tightening of credit conditions.” “If that didn’t happen, then in theory, you would need more rate hikes.”
Translation: How much more will the Fed raise rates? It depends on what the banks do.
Speaking of banks, Powell didn’t have good news for them. Both the regional lender and the megabank were already worried about the extent to which Vice Chairman Michael Barr could push for tightening rules before that happened. Now, it looks like Barr has been given much of a leash following the SVB review of Fed regulation and supervision (expected by May 1), and Powell won’t stand in the way.
“It is clear that we need to strengthen supervision and regulation,” the Fed chief said. “And I think … there will be recommendations from the report. And I plan to support them and support their implementation.”
Of course, this is only comforting to the voices calling for an external review, worried that the Fed will only go so far in criticizing itself. But the political dynamics here have changed so fast that you may be shocked.
Your MM co-host has a list of takeaways from Powell’s presser. But it’s also worth touching on another point he made: The shrinking of the central bank’s massive balance sheets has yet to materialize. This is notable because, as former top Fed staffer Bill Nelson wrote on Tuesday, “structural demand for reserve balances is rapidly increasing, with bankers and bank examiners re-evaluating the amount of cash they can prepare for outflows.” Increasing.” More demand for bank reserves means an early end to the so-called quantitative easing.
watch this space. The big outstanding question is whether banks will feel pressured to increase the amount of interest they pay on deposits. After all, there’s a whopping $2 trillion in reserves they could get if they did: the money that money market funds are parking in the Fed’s overnight reverse repo facility instead.
Nelson, who is now chief economist at the Bank Policy Institute. Said the Fed could make it easier to reduce its bond holdings if it lowered the rate it pays money market funds to lend cash to the central bank.
“It could also slow down the pace of QT, a move that may make additional sense given the stress in Treasury markets,” he said. “Stopping QT altogether would send a much stronger signal that the cycle of monetary policy tightening is coming to an end.”
This is “Ok Day” (seriously, But it’s going to be great. Thanks for keeping MM in the loop this week. As always, you can send suggestions [email protected],
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The House will vote to nullify President Joe Biden’s ESG rollback veto … US Trade Representative Catherine Tai testifies in Senate Finance at 10 a.m. … House Financial Services hearing on China’s role in fentanyl trafficking at 10 a.m. … Treasury Secretary Janet Yellen testifies with OMB Director Shalanda Young and White House CEA Chair Cecilia Rouse at a 3 p.m. House Appropriations …
First in MM: McHenry & Hill press Yellen and Gruenberg for bank rescue details – House Financial Services Chairman Patrick McHenry and Vice Chairman Andrew Hill asked Treasury Secretary Janet Yellen and FDIC Chairman Martin Gruenberg over the weekend of March 10-12 to give a detailed account of their actions to stabilize the banking system, as well as Also asked whether there are any warning signs about Silicon Valley Bank and Signature Bank.
In the letters sent Wednesday, Republicans asked for a specific timeline of events as well as the rationale for key decisions.
Among them: The committee wants to know how Gruenberg evaluated bidders for Silicon Valley Bank and Signature Bank before officials chose to let the government guarantee their deposits. The MP asks whether he was involved in assessing the SVB bids from PNC and RBC before March 10 and what were their criteria for evaluating them.
McHenry told the American Bankers Association conference on Wednesday that he wanted to know whether a private sector solution was a viable option for SVB and Signature “or did the administration allow its ideological lens to color its decision.”
Coinbase vs SEC: It’s On One of the most anticipated regulatory battles in crypto is underway, our Declan Harty reports.
America’s largest digital currency exchange Coinbase revealed on Wednesday that the SEC warned the company of pending charges following an investigation into its trading platform, crypto staking service and wallet product.
A Coinbase crackdown has long been a question in light of SEC Chairman Gary Gensler’s position that many crypto products are unregulated securities if not more.
Coinbase and the wider industry have said for years that the claim is false, and so for them the SEC case is a do-or-die moment with huge ramifications.
,[W]e are correct on the law, believe in the facts, and welcome the opportunity for Coinbase (and by extension the wider crypto community) to appear before the Court,” said Coinbase Co-Founder and CEO Brian Armstrong. said on twitter,
Yellen unilaterally breaks deposit guarantee – The Treasury secretary is trying to end speculation that the Biden administration and regulators may go around Congress to provide a nationwide guarantee for uninsured deposits.
Yellen told a Senate committee, “It’s not something we’re considering.”
The comment came as a blow to mid-sized banks that had sought a two-year backstop to make further runs.
But, as we’ve reported, other banking groups have shied away from such inquiries and may be relieved that Yellen indicated the idea will be on the shelf.
deposit politics Top legislators continue to refine their positions as reforming federal deposit insurance follows SVB as a top legislative goal.
, Sen Elizabeth WarrenOne of the first policy makers to call for increasing deposit insurance following the collapse of SVB, said that guaranteeing all deposits would create “real problems”.
He said that billions of dollars of depositors are like investors, and that when a bank blows up “they should be treated like investors.”
, Senate Banking Chair Sherrod Brown Expressing skepticism over a temporary, universal deposit backstop, he said on the sidelines of the ABA convention that “these kinds of things are often permanent.”
But he said long-term deposit changes were a possible target for bipartisan cooperation, including raising insurance caps for businesses to “deal with the payroll issue.”
, McHenry took a dig at MPs – including those from his own party – who are eager to propose a bigger deposit safety net.
He told the ABA conference that “some policymakers on both sides of the aisle are already jumping to conclusions with incomplete information.”
yes, tim scott appears to be running — Politico reports that preparations for the presidential election are “well underway” by the top Republican on the Senate Banking Committee, formally setting him up as the next candidate to launch a White House bid.
House Republicans Warn CFPB On Auto Lending Four House Financial Services Republicans demanded CFPB director Rohit Chopra provide details on how the agency is monitoring auto lenders after the bureau and New York’s attorney general sued Credit Acceptance Corporation for deceptive practices.
Reps. Mike Lawler, Andrew Garbarino, Andy Barr and Bill Huizenga said the CFPB has “attacked the auto finance market” and overstepped the bounds of its authority.
Wall Street watchdog calls for Fed transparency in SVB review Americans for Financial Reform Advocacy and Legislative Director Renita Marcellin said the Fed would have to take “extraordinary steps” such as releasing documentation of deliberations about supervision and regulation of SVBs, rather than what went wrong In presenting the public only with the findings.
Lindsay Lohan gets caught up in SEC crypto fiasco — Declan reports that the SEC charged cryptocurrency entrepreneur Justin Sun with offering unregistered securities and running a celebrity token-toting ring involving Lohan and Soulja Boy.
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