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New ‘endgame’ bank rules promise greater financial stability, lower returns on December 29, 2023 at 11:00 am Business News | The Hill

Published

11 months ago

December 29, 2023

The banking sector is bracing for a major set of regulations prompted by the 2007-2008 financial crisis, but whose origins extend as far back as the termination of the gold standard and the introduction of freely floating international currencies.

Bank regulators around the world are poised to finalize the third Basel Accord, an international set of bank capital rules born from a summit that began in 1974.

Experts say the new regulations, known as the “Basel III Endgame,” are still necessary and will help to stabilize an international financial system that is prone to periodic collapse.

Meanwhile, banking industry groups and lobbies are firing on all cylinders to water down the proposed rule changes ahead of a January 16 deadline for public comment.

The new international rules compel banks to hold more capital and rely less on their own internal modeling. While the risk of traditional bank runs like the ones that brought down Silicon Valley Bank (SVB) and Signature Bank earlier this year likely won’t be substantially mitigated by Basel III Endgame, experts say it could reduce the risk of a deeper, industry-wide failure like in 2008.

“There’s a vast body of academic research that presents … a very broad consensus to say that from the current level an increase in capital requirements is probably a good idea – that’s viewed from the perspective of the system as a whole, not from that of an individual bank,” Nicolas Véron, a senior fellow with the Peterson Institute for International Economics, told The Hill.

What will Basel III mean for banks?

The central feature of the new banking rules is higher requirements for capital, which is a measure of the resources banks have to withstand losses. The Federal Deposit Insurance Corporation (FDIC) estimates an aggregate 16-percent increase in common equity requirements for affected banks.

The rules would also broaden out these requirements for banks worth $100 billion or more, pulling the threshold for more capital down from the $250 billion mark to apply to banks of the size of SVB and Signature.

Banks and their advocates tend to oppose increasing capital requirements, arguing that the Dodd-Frank reforms following the 2007-08 crisis were sufficient and stricter rules will mean fewer loans into the economy.

Higher capital requirements also limit banks’ ability to leverage their capital and extend their balance sheets with borrowed money to distribute more profits to shareholders.

But the Bank of International Settlements (BIS), the international coordinating body for central banks like the Federal Reserve, says that too much leverage was a driving force behind the 2007-2008 financial crisis.

“An underlying cause of the global financial crisis was the build-up of excessive on- and off-balance sheet leverage in the banking system,” a BIS write-up of the Basel plan reads.

“At the height of the crisis, financial markets forced the banking sector to reduce its leverage in a manner that amplified downward pressures on asset prices. This deleveraging process exacerbated the feedback loop between losses, falling bank capital and contracting credit availability.”

More transparency on leverage ratios

Having banks use a more standardized risk model is another key feature of the new rules. The last round of Basel regulations allowed banks to do their own risk assessments.

“This was a very easy system to game,” financial writer and researcher Nathan Tankus told The Hill in an interview.

“You would have a risk modeler who would come in from the compliance department, model the activities that a trading desk was doing, let them do that for a few weeks. Then you would kick the compliance person out, make sure they weren’t allowed at your desk anymore, and then you’d play around with the model and figure out what risk you can take to earn more money without the risk model realizing it,” he said.

The BIS has also called out this operational duplicity and suggested it needs to be amended.

“In many cases, banks built up excessive leverage while reporting strong risk-based capital ratios,” the BIS wrote in 2017.

The proposed rule changes include replacing banking organizations’ internal models for credit risk and operational risk with standardized approaches, the Federal Reserve says.

Disputed effects of higher capital requirements

Bankers say that having to keep more capital on their books means they will decrease lending to households and small businesses or increase the interest rates on their loans, making them more expensive.

“When capital requirements are set excessively high, it makes it much harder to secure a loan or credit — this is especially true for working families and small businesses,” the Bank Policy Institute, a trade group for the banking industry, says on its website.

“If we go too far in terms of burdening US banks with regulations, it is absolutely going to negatively impact a specific subset of people that rely on those institutions, not only for business loans but personal loans, agricultural loans, that type of thing,” financial services director Dana Twomey of consultancy West Monroe told The Hill.

But some research says otherwise.

One frequently cited paper from 2009 found “that there would likely be relatively small changes in loan volumes by U.S. banks as a result of higher capital requirements on loans retained on the banks’ balance sheets.”

Even if banks restructure their balance sheets to optimize returns on stock, such moves “appear unlikely to be large enough, even in the aggregate, to significantly discourage customers from borrowing or move them to other credit suppliers in a major way,” the researcher found.

Another BIS paper found that “loss-absorbing capital is only a small proportion of banks’ balance sheets. Increasing this proportion to 10 to 15 percent does not materially affect a bank’s average cost of funding.”

Even assuming diminished lending as a result of higher capital requirements, the Fed could very well offset this stinginess with lower inter-bank interest rates, which could have a more broadly stimulative effect on the economy even despite tighter private lending standards.

“A bug here can also be seen as a feature,” Tankus told The Hill.

What are lawmakers saying?

Some Democrats have been trumpeting the new rules, arguing they’re needed to stabilize the economy against the next inevitable crisis.

“The Fed’s rules for stronger capital requirements for big banks are crucial to protect the economy and taxpayers when banks take risky bets and lose money,” Sen. Elizabeth Warren (D-Mass.) said in a statement to The Hill.

“Wall Street executives are fighting tooth and nail against these rules because they threaten their multimillion-dollar bonuses — but regulators must reject the Big Bank lobby’s efforts and finalize strong capital requirements swiftly,” she said.

Key Republicans on the Senate Banking Committee and House Financial Services Committee have largely backed the banking industry.

“This proposal could limit, and frankly I think will limit, the following: availability of credit for housing for those who need it most, severely restrict lending for small businesses,” Sen. Tim Scott (R-S.C.) said during a hearing on Wall Street oversight earlier this month.

In a letter to financial regulators sent in September, House Republicans bemoaned the increased capital requirements and said the whole plan should be scrapped.

“The proposal .. would force the U.S. to overcapitalize financial institutions, compromising our global competitiveness,” they said.

Just how stable is the financial sector now?

The financial sector teetered in March after SVB and Signature tanked due to clumsy management and basic interest rate exposure — something regulators could have caught but didn’t.

This resulted in the Fed’s extending a line of credit backed by taxpayer money to the banking industry, as well as a private-sector bailout from other big banks to rescue First Republic, another lender that was about to go under.

“The failure of two regional banks in Spring 2023 underscored that activities of non-global systemically important banks can pose a risk to financial stability,” the Treasury Department’s Financial Stability Oversight Council (FSOC) said in its annual report, released last week.

Despite fears of wider failures on the scale of 2007, governmental and private-sector bailouts were able to prop up the industry up, further buttressed by the roaring post-pandemic recovery, leading FSOC to deem the U.S. banking system in December “resilient overall.”

But some substantial risks for FSOC remain, notably in securities related to residential real estate and the $6-trillion commercial real estate sector. They’re risks that raise the specter of the predatory securitized mortgages that tanked big banks starting in 2007 and led to a legislative rescue of the industry.

Maturing loans and expiring leases amid weak demand for office space have the potential to strain the sector further, Treasury officials told The Hill, encouraging market participants to keep a close eye on the sector.

Failures there could spread beyond that segment of the market, they said.

Despite the warnings, the financial sector doesn’t want any more interference in how they securitize mortgages or other types of loans.

“Capital requirements play a key role in the ability of banks to participate in securitizations to fund lending. Higher capital requirements would force banks to hold less inventory leading to lower [asset-backed security] liquidity and higher spreads which in turn raises costs for consumers and businesses,” financial trade group SIFMA said in a November statement.

Market commentators say that changing the way securitization markets work and reining them in is precisely the point of the new regulations.

“Whatever you think about the [impact of these rules on securitization] and how true that is, there’s a certain point of view that says ‘Well, good. That’s a feature, not a bug. Securitization has all sorts of potential pathologies … and so much the better for our financial markets,” Tankus told The Hill.

Business, banking regulator, banking system, basel III, basel III endgame, Elizabeth Warren, Tim Scott The banking sector is bracing for a major set of regulations prompted by the 2007-2008 financial crisis, but whose origins extend as far back as the termination of the gold standard and the introduction of freely floating international currencies. Bank regulators around the world are poised to finalize the third Basel Accord, an international set…

Business

The Cities Bracing for Trump’s Immigration Crackdown

Published

2 weeks ago

November 8, 2024

Bolanle Media Staff

In the wake of Donald Trump’s recent election victory and his promise of “the largest deportation operation in American history,” several major U.S. cities are bracing for potentially seismic shifts in their economic and social landscapes. As the nation grapples with the implications of this proposed policy, urban centers that have long been havens for immigrant communities find themselves at the epicenter of a looming storm.

Los Angeles, often dubbed the “City of Angels,” stands to lose more than its celestial nickname suggests. As a primary gateway for immigrants, the city’s vibrant tapestry of cultures and its economic engine could face significant disruption. From the bustling streets of Koreatown to the sun-drenched orchards of the Central Valley, the absence of undocumented workers could leave gaping holes in the city’s workforce and cultural identity.

Across the country, New York City, with its iconic skyline and melting pot reputation, faces its own reckoning. The Big Apple’s 5.9 million immigrants, many of whom are undocumented, form the backbone of industries ranging from construction to healthcare. The potential exodus could transform neighborhoods like Jackson Heights and Flushing, altering the very essence of what makes New York a global city.In the Sunshine State, Miami’s tropical allure belies the turbulent times ahead. Home to 2.5 million immigrants, the city’s economy relies heavily on sectors like tourism and hospitality – industries where undocumented workers often fill crucial roles. The potential deportation of these workers could send shockwaves through Miami’s economic ecosystem, from South Beach’s glitzy hotels to the agricultural heartlands of South Florida.

Chicago, the “City of Big Shoulders,” may find those shoulders significantly weakened. With 1.7 million immigrants in its metropolitan area, the Windy City’s diverse neighborhoods and industries face an uncertain future. From the meatpacking plants to the tech startups, Chicago’s economic resilience could be tested like never before.

In the Lone Star State, Houston and Dallas stand as twin testaments to the complexities of immigration policy. These Texas titans, each home to large immigrant populations, could see their booming economies stumble. The construction sites that dot their ever-expanding skylines and the service industries that keep these cities humming could face unprecedented labor shortages.

Out West, the San Francisco Bay Area’s reputation as a bastion of innovation and progress could be challenged. The region’s tech industry, often reliant on immigrant talent, might find itself grappling with a new reality. From Silicon Valley’s coding campuses to the agricultural expanses of the Central Valley, California’s economic powerhouse could face a reckoning. Phoenix, rising from the Sonoran Desert, could see its growth trajectory altered. As Arizona’s urban center, it stands at the forefront of the immigration debate, potentially facing not just economic impacts but social and political upheaval as well.

These cities, along with others like San Diego and Las Vegas, are not just facing potential economic disruptions. They are staring down the barrel of profound social change. Family separations, community fragmentation, and the erosion of cultural enclaves built over generations are all possible consequences of mass deportations. Moreover, the fiscal implications are staggering. Undocumented immigrants contribute billions in taxes annually, often without receiving the full benefits of their contributions. Their sudden absence could leave gaping holes in city budgets, potentially affecting public services and infrastructure projects.

As these urban centers brace for impact, the debate rages on. Supporters of stricter immigration policies argue for the need to enforce laws and protect American jobs. Critics warn of economic devastation and the unraveling of America’s urban fabric. What’s clear is that America’s cities stand at a crossroads. The coming months and years will likely reshape urban landscapes in ways both visible and invisible. From the foods we eat to the services we rely on, from the neighborhoods we call home to the very character of our cities, the impacts of this proposed immigration crackdown could be far-reaching and long-lasting. As the nation watches and waits, these cities – vibrant, diverse, and economically vital – find themselves on the front lines of a policy that could redefine what it means to be an American city in the 21st century.

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Business

How Trump’s Deportation Plans Could Reshape Major Cities

Published

2 weeks ago

November 8, 2024

Bolanle Media Staff

In the wake of Donald Trump’s recent election victory, his ambitious plans for mass deportations have thrust America’s urban centers into the spotlight. As the nation grapples with the potential implications of what Trump calls “the largest deportation operation in American history,” cities across the country are bracing for significant changes that could reshape their economic, social, and cultural landscapes.

The stakes are particularly high for metropolitan areas like New York, Los Angeles, Houston, Dallas, and Miami, which host the largest populations of unauthorized immigrants. These cities, along with other major urban hubs such as Chicago, Washington D.C., and San Francisco, stand at the forefront of a looming transformation that could reverberate throughout the nation.

Economic Tremors

Economists warn that the proposed deportations could send shockwaves through urban economies. Mark Zandi, chief economist at Moody’s, cautions that businesses would face “significant challenges” if a substantial number of immigrants were removed. Industries such as construction, hospitality, and healthcare—pillars of urban economies—could face severe labor shortages.

Joe Brusuelas, chief economist at RSM, emphasizes the potential ripple effects: “The native-born workforce cannot meet current labor demands.” This labor gap could lead to increased wages, potentially rekindling inflation—a concern that looms large over city planners and policymakers alike.

Community Fabric Under Strain

Beyond economic considerations, the social fabric of cities hangs in the balance. Elena, a Nicaraguan immigrant in Houston, voices a fear echoed in immigrant communities across the nation: “I’m scared… This is my home.” The threat of family separations, particularly in mixed-status households, casts a long shadow over urban neighborhoods.

Immigrant advocacy groups like FIEL are mobilizing, advising clients to prepare for “anything that can happen.” This atmosphere of uncertainty could lead to decreased community engagement and cooperation with local authorities, potentially impacting public safety and community cohesion.

Cities at a Crossroads

As the debate intensifies, cities find themselves at a crossroads. Some, like New York and Los Angeles, have historically positioned themselves as “sanctuary cities,” often at odds with federal immigration enforcement. The impending clash between federal policy and local governance promises to be a defining feature of this new political landscape.

Meanwhile, the logistical challenges of implementing such a massive deportation operation remain daunting. Questions abound regarding detention facilities, transportation networks, and the sheer manpower required to carry out Trump’s vision.

Looking Ahead

As America’s urban centers brace for potential change, the full impact of Trump’s deportation plans remains to be seen. Legal challenges are all but certain, and the resilience of America’s cities will be put to the test.

What is clear is that the coming months and years will be pivotal for urban America. As Jason Miller, a senior Trump adviser, puts it, the plan is to “immediately reinstate” immigration policies from Trump’s first term. For America’s cities, this could mean a period of unprecedented change, challenge, and, potentially, transformation.

As the nation watches and waits, the story of America’s cities in the face of this ambitious deportation plan is just beginning to unfold. The outcome will undoubtedly shape the future of urban life in America for years to come.

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Business

Donald Trump Wins 2024 USA Election

Published

3 weeks ago

November 6, 2024

Bolanle Media Staff

Based on the election results, Donald Trump has indeed won the 2024 U.S. presidential election, defeating Vice President Kamala Harris. Here’s an analysis of the key statistics and implications:

Electoral College Victory

Donald Trump has secured the presidency by winning crucial battleground states and flipping some key states that were previously held by Democrats. The final Electoral College tally is still being determined, but Trump has surpassed the 270 electoral votes needed to win.

Battleground State Performance

Trump’s victory was largely secured by winning several critical swing states:

Wisconsin: Trump’s win here was pivotal in securing his path to victory.
Pennsylvania: This state flipped back to Republican control.
Georgia: Another key state that Trump managed to win back.
Michigan: Trump successfully flipped this traditionally Democratic stronghold.

Popular Vote and Voter Priorities

While the final popular vote tally is still being calculated, exit polls provide insight into voter priorities:

Economy and democracy were top concerns for voters.
Abortion and immigration also played significant roles in voter decision-making.

Congressional Control

The election results extend beyond the presidency:

Republicans are set to take back the Senate majority, securing at least 51 seats.
Control of the House of Representatives remains undetermined.

Media Implications

The outcome of this election could be seen as a challenge to mainstream media narratives for several reasons:

Polling Discrepancies: Many pre-election polls suggested a tight race or even a slight Harris advantage in key states. Trump’s victory, particularly in battleground states, may indicate that polls underestimated his support.
Narrative Shifts: Throughout the campaign, much of the mainstream media focused on Trump’s legal challenges and controversies. His victory suggests that these issues may not have resonated with voters as much as economic and policy concerns.
Voter Priorities: The emphasis on issues like the economy and immigration in voter decision-making may indicate a disconnect between media focus and voter concerns.
Electoral Predictions: Many mainstream outlets were cautious about predicting a Trump victory, even as results began to favor him. This hesitancy could be seen as a reflection of broader media skepticism about Trump’s chances.
Underestimation of Trump’s Base: The results suggest that Trump’s core support remained strong and potentially grew, despite negative coverage in much of the mainstream media.

It’s important to note that while the election outcome may challenge some media narratives, it doesn’t necessarily invalidate all mainstream reporting. The complex factors influencing voter behavior and the challenges of accurate political forecasting remain subjects of ongoing analysis and debate.

As the dust settles on this historic election, both the media and political analysts will likely engage in extensive reflection on the factors that led to Trump’s victory and the implications for future political coverage and analysis.