The Fed Is Ready to Redefine 'Big Bank'
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What is the main topic discussed in this episode?
With your money briefing, I'm J.R. Whalen at The Wall Street Journal in New York. The Federal Reserve is poised to redefine what a big bank is, and it has sparked a debate. We'll have details in a moment. First, these money and market headlines you should know. Economists have long believed that inflation rises as unemployment falls and vice versa. And although the nation's unemployment rate stands at a near record low of 3.9%, Federal Reserve Chairman Jerome Powell does not foresee prices rising significantly in response. And coupled with those comments, economic projections released after last week's Fed policy meeting envisioned an unusually favorable set of conditions in which the unemployment rate holds below 4% over the next three years, but inflation never rises far above 2%.
What does the Federal Reserve plan to change about how it defines a 'big bank'?
And here's some good news. U.S. companies are putting savings from the corporate tax cut to use. But then there's some bad news. Only a fraction of it is flowing to employees' wallets. And while Amazon says it plans to raise the minimum wage it pays all U.S. workers to $15 an hour, a poll of 1,500 companies by the consulting firm Mercer showed 4 percent are redirecting tax savings to budgets for bigger paychecks in the coming year. And in a separate survey of more than 1,000 companies, 99 percent said the tax cuts weren't prompting them to increase minimum wages. With a 3.9% unemployment rate, U.S. employers are grappling with one of the tightest labor markets in decades. And Labor Department data shows that private sector hourly wages grew 2.9% in August compared with a year earlier, but the consumer goods prices have risen at nearly the same rate, eating away most of those gains.
As part of the Trump administration's push to revisit bank rules it believes are overreaching, the Federal Reserve is considering revising its definition of a big bank. Wall Street Journal financial regulation reporter Ryan Tracy joins us from Washington with details. So, Ryan, this has been talked about by President Trump going back to the 2016 campaign.
Yeah, that's right. President Trump talked about on the campaign and soon after taking office his desire to revisit the rulebook for Wall Street, for big banks, and really banks of all sizes, including community banks as well. And the way you can think about it is under the Obama administration, there was a lot of turning up of the volume knob in terms of adding rules to the rulebook, making rules tighter and tighter on banks. And the Trump team is figuring out ways that they can start turning that down.
Now, to be clear, these changes are still in the development stage. But one of the ways the Fed might loosen the regulatory constraints, as you pointed out in your article, would be to reduce the amount of money a bank would have to have on hand.
Yes. So one of the specific things that we talk about in the story today is a rule governing liquidity. In other words, does the bank have enough cash on hand to pay its bills on in the short term.
How could revising liquidity rules affect regional banks like PNC or Capital One?
And this grew out of 2008 when we had even well-capitalized strong banks who were on the brink of collapse because all of a sudden they were relying on short-term volatile sources of funding that evaporated in the crisis. This rule applies equally to a lot of big banks, including those that aren't really global in scale. For example, banks like PNC or Capital One or U.S. Bank. And those banks have been arguing for a long time that the rule is too harsh on them and that they shouldn't have to follow the same liquidity rule as, say, a Goldman Sachs. And that's something that, as we report, the Fed's looking at.
In addition to those banks you mentioned, regional and even smaller banks have cried foul about these rules.
Which liquidity and capital requirements date back to the 2008 crisis and why do they matter now?
Yeah, that's right. So the Fed's really taking a broad approach to this. They are looking at all of their rules, not only the liquidity rules, but their capital rules as well, which regulate how much the bank can grow without raising new capital from investors. And what they're saying is, how do we define where the toughest rules apply?
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:51
2
What does the Federal Reserve plan to change about how it defines a 'big bank'?
0:51–3:08
3
How could revising liquidity rules affect regional banks like PNC or Capital One?
3:08–3:55
4
Which liquidity and capital requirements date back to the 2008 crisis and why do they matter now?
3:55–5:21
5
What arguments are banks and community lenders making for looser regulations?
5:21–6:09
6
How might changes to the Volcker Rule alter banks' trading and risk-taking activities?
6:09–7:46
7
What is the Fed balancing between financial stability and regulatory relief?
7:46–7:50
Speakers
2 identifiedMore from WSJ Your Money Briefing
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