- Relief from supplementary leverage ratio expires March 31
- Central bank says it’s weighing permanent changes to SLR
Friday, March 19, 2021
Too Much Cash Sloshing Around > Fed Takes on Bloated Bank Reserves
With the Fed declaring banks to be well capitalized, there’s a chance it will no longer be able to justify its pandemic-spurred constraints on dividends. While the regulator already relaxed an earlier ban on stock buybacks, it’s still restricting shareholder payouts.
Fed Chairman Jerome Powell said this week that a decision is coming soon on dividends. . .
Fed to End Covid-19 Capital Break It Gave Wall Street Banks
By Jesse Hamilton Updated on
The Fed did provide another recent consolation, though, by more than doubling to $80 billion the maximum overnight reverse repo activity a participant can execute through the central bank’s facility. That could absorb some of the pressure of too much government stimulus cash sloshing through the system by giving money market funds a place to put it.
Bloated Coffers
U.S. bank reserves at the Federal Reserve ballooned last year amid SLR relief
Source: Wrightson ICAP, Federal Reserve
As Credit Suisse Group AG’s Zoltan Pozsar put it this week, the Fed is “foaming the runway” to deal with the stress of going back to the existing leverage rule by giving banks an additional ability to direct deposits into money market funds. Fed officials said Friday that move was a monetary-policy decision and not directly related to the leverage limit.
For the past year, that relaxed leverage cap had allowed the lenders to take on as much as $600 billion in extra reserves and Treasuries without bumping up their capital demand. The banks could now be under pressure to shed some of those assets or seek more capital.
JPMorgan has said it might consider turning away certain deposits as a result. And some Treasury market strategists expect a hit to the market as the biggest lenders potentially sell holdings.
The Fed faced intense political pressure from Democratic lawmakers, including Senate Banking Committee Chairman Sherrod Brown and Senator Elizabeth Warren, to let the capital break lapse March 31. While Democrats lauded Friday’s announcement, they will likely scrutinize the agency about its decision to propose permanent changes to the SLR. In a Feb. 26 letter to the Fed, Brown and Warren called it “one of the most important post-crisis regulatory reforms."
The leverage ratio, adopted as a key safety measure after the 2008 financial meltdown, has always been a three-agency effort. Though the Fed and OCC had proposed a wide-ranging overhaul in 2018, that project stalled. Fed officials said Friday they’ll work with the OCC and FDIC to determine what’s next. However, the Fed has been known to sometimes move independently on capital rules.
— With assistance by Michael McKee, Alex Harris, Liz McCormick, and David Scheer
(Updates with lawmakers’ responses from 19th paragraph, as well as chart.)
No More Happy Talk: Staggering? It was A Crash!
What it means: Including the global financial crisis, the 1973 oil crisis, the dot-com bubble burst and every other recession since 1967, only one week prior to the pandemic — the week ending Jan. 9, 1982 — now registers on the list of top 50 worst weeks for U.S. job losses, and it ranks 49th.
- For many weeks during the pandemic, initial jobless claims totaled more than twice what they did during the worst week of the Great Recession.
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A full year of staggering and unprecedented job losses
This week's initial jobless claims report marked a sobering milestone — it was the 52nd straight week that more than 1 million Americans filed for unemployment assistance.
Why it matters: The applications for traditional or pandemic-based unemployment benefits continue despite more than $5 trillion in dedicated government spending and $3 trillion added to the Federal Reserve's balance sheet.
What it means: Including the global financial crisis, the 1973 oil crisis, the dot-com bubble burst and every other recession since 1967, only one week prior to the pandemic — the week ending Jan. 9, 1982 — now registers on the list of top 50 worst weeks for U.S. job losses, and it ranks 49th.
- For many weeks during the pandemic, initial jobless claims totaled more than twice what they did during the worst week of the Great Recession.
Be smart: "Despite dramatically fewer cases, COVID-19 still is inflicting painfully high layoffs, and the latest week saw an unexpected surge in state unemployment claims," Robert Frick, corporate economist at Navy Federal Credit Union, said in an email.
- "State claims remain above 700,000, and combined state and federal claims remain above 1 million, as they have since the economy crashed one year ago."
Yes, but: Excluding applications for the Pandemic Unemployment Assistance program, numbers have been below 1 million since August, with the exception of one week in late January.
Yes, but, but: PUA is not the first recession-era jobless program. Following the Great Recession in 2008, Congress created similar programs through the Workforce Investment Act.
- In fact, Congress enacted additional temporary unemployment programs in response to recessions in 1971, 1974, 1982, 1991, 2002 and 2008, per the Bureau of Labor Statistics.
By the numbers: In 52 weeks, there have been more than 81 million first-time filings for jobless benefits.
- There were 18.2 million people receiving some form of unemployment assistance in the U.S. as of Feb. 27.
- A year prior, there were 2 million.
"This is evidence of the long-term scarring in the labor sector that, despite what is going to be a booming economy over the next two to three years, will not be repaired anytime soon and requires sustained policy attention," Joe Brusuelas, chief economist at tax advisory firm RSM, said in a note to clients.
On the bright side: "[A]s businesses reopen and vaccinations continue at an accelerating rate, we can expect steep drops in claims this spring," Frick said
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