Is the New York Fed Making a Big Mistake? - Simon Johnson/NYT

[WillyT]

Is the New York Fed Making a Big Mistake?
By SIMON JOHNSON
Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”
March 3, 2011, 5:00 AM

<snip>

An uncomfortable dissonance is beginning to develop within the Federal Reserve. On the one hand, current and former senior officials now generally agree with the proposition that our leading banks need more capital – that is, more equity relative to what they borrow. (The argument for this has been made most forcefully by Prof. Anat Admati and her distinguished colleagues.)

The language these officials use is vaguer than would be ideal, and they refuse to be drawn out on the precise numbers they have in mind. The Swiss National Bank, holding out for 19 percent capital, and the Bank of England, pushing for at least 20 percent capital, seem to be further ahead and much more confident of their case on this issue.

But an important split appears to be emerging within the Federal Reserve, with the Board of Governors (perhaps) and some regional Feds (definitely) tending to want higher capital levels, while the New York Fed is – incredibly – working hard to enable big banks actually to reduce their capital ratios (in the first instance by allowing them to pay increased dividends).

Officials at the New York Fed with whom I and others have spoken appear to be hardening their position against requiring big banks to maintain more capital (beyond the insufficient increases in the Basel III agreement), though no formal position has yet been taken. These officials will not speak on the record nor provide any details about their arguments or whatever evidence they have developed to support them.

So it is hard to know if any analytical basis exists for their evolving position. They have certainly put up no meaningful counterarguments to the powerful points made by Professor Admati and her colleagues – both in general and against allowing United States banks to increase their dividends now (see also this letter published in The Financial Times).

<snip>

More: http://economix.blogs.nytimes.com/2011/03/03/is-the-new-york-fed-making-a-big-mistake/?partner=rss&emc=rss

:kick:

[mike_c]

1. gee, New York, where Wall Street resides-- what a remarkable coincidence!

Not. The greed machine is beginning to exceed specs, methinks.

[WillyT]

2. Masturs Of The Universe

:evilgrin:

:hi:

[PA Democrat]

3. Because the New York Fed is controlled by New York banks.

Of the total 9 board members, 6 are appointed by member banks, 3 appointed by the Federal Reserve Board of Governors.

http://www.newyorkfed.org/aboutthefed/org_nydirectors.html

Class A elected by member banks to represent member banks


Richard L. Carrión (bio) 2013
Chief Executive Officer and Chairman
Banco Popular de Puerto Rico



Charles V. Wait (bio) 2011
President, Chief Executive Officer and Chairman of the Board
The Adirondack Trust Company



Jamie Dimon (bio) 2012
Chairman of the Board and Chief Executive Officer
JPMorgan Chase


Class B elected by member banks to represent the public


Jeffrey R. Immelt (bio) 2011
Chairman and Chief Executive Officer
General Electric Company



James S. Tisch (bio) 2013
President and Chief Executive Officer
Loews Corporation



Vacant


Class C appointed by Board of Governors to represent the public


Lee C. Bollinger (bio) Chair, 2012
President
Columbia University




Kathryn S. Wylde (bio) Deputy Chair, 2013
President and Chief Executive Officer
Partnership for New York City



Emily K. Rafferty (bio), 2011
President
The Metropolitan Museum of Art

[DCKit]

4. Do they honestly believe the taxpayers are going to allow another bailout...

when they bankrupt the system again?

"Fool me once..." Other than W* and a minority of similarly challenged individuals, I believe most Americans understand the gist of the saying.

[WillyT]

5. Kick !!!

:kick: