{"id":67216,"date":"2024-04-05T09:28:42","date_gmt":"2024-04-05T14:28:42","guid":{"rendered":"https:\/\/olduvai.ca\/?p=67216"},"modified":"2024-04-05T09:28:42","modified_gmt":"2024-04-05T14:28:42","slug":"proposal-to-move-bank-regulation-goalposts-signals-underlying-problems-in-financial-system","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=67216","title":{"rendered":"Proposal to Move Bank Regulation Goalposts Signals Underlying Problems in Financial System"},"content":{"rendered":"
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Proposal to Move Bank Regulation Goalposts Signals Underlying Problems in Financial System<\/a><\/h3>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n
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If a formula spits out a number you don’t like, just change the formula so you get a better number!<\/em><\/p>\n

That\u2019s exactly what the Bureau of Labor Statistics did to the Consumer Price Index formula in the 1990s. Because the CPI kept indicating price inflation was too high, the BLS tweaked the formula to\u00a0spit out a lower inflation number<\/a>.<\/p>\n

Now the International Swaps and Derivatives Association (ISDA) is trying to talk the Federal Reserve into changing the formula for the supplementary leverage ratio (SLR) to make bank balance sheets look better.<\/p>\n

This proposal sends some alarming messages about the stability of the banking system and confidence in U.S. government debt.<\/p>\n

What Is the SLR and Why Do They Want to Change It?<\/strong><\/p>\n

The SLR is calculated by dividing the bank\u2019s\u00a0tier 1 capital<\/a>\u00a0(capital held in a bank’s reserves and used to fund business activities for the bank’s clients) by all assets on the bank\u2019s balance sheet, including U.S. Treasuries and deposits at Federal Reserve Banks.<\/p>\n

Banks use the SLR to calculate the amount of equity capital they must hold relative to their total leverage exposure. Regulations imposed after the 2008 financial crisis require category I, II, and III banks to maintain an SLR of 3 percent. \u201cGlobally Systemically Important Banks\u201d are required to keep an extra 2 percent SLR buffer.<\/p>\n

During the pandemic, the Fed temporarily altered SLR requirements, allowing banks to exclude Treasuries and reserves from the formula\u2019s denominator. This made it easier to maintain the required SLR ratio.<\/p>\n

As\u00a0a Federal Reserve note explained<\/a>, the banking system \u201cexhibited considerable strains\u201d during the reign of COVID-19. As the pandemic unfolded and governments began shutting down economies, banks quickly liquidated risky assets and increased their cash holdings. This resulted in a \u201csharp increase in bank deposits.\u201d<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Proposal to Move Bank Regulation Goalposts Signals Underlying Problems in Financial System If a formula spits out a number you don’t like, just change the formula so you get a better number! That\u2019s exactly what the Bureau of Labor Statistics did to the Consumer Price Index formula in the 1990s. Because the CPI kept indicating […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[5038,63,926,3279,303,20219,17726,13351,1056,2084,3650],"class_list":["post-67216","post","type-post","status-publish","format-standard","hentry","category-economics","tag-banking-industry","tag-banks","tag-bls","tag-bureau-of-labor-statistics","tag-fed","tag-mike-maharrey","tag-monetary-metals","tag-price-inflation","tag-statistical-manipulation","tag-statistics","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/67216","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=67216"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/67216\/revisions"}],"predecessor-version":[{"id":67217,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/67216\/revisions\/67217"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=67216"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=67216"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=67216"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}