In our recent paper outlining the holistic-capital regime regulators should quickly deploy, we noted that current rules are often counter-productive to their avowed goal of bank solvency without peril to prosperity.  However, one acute problem in the regulatory-capital rulebook – procyclicality – does particularly problematic damage when the economy faces acute challenges – i.e., now.  None of the pending one-off capital reforms addresses procyclicality and, in fact, several might make [...]

As seems increasingly the case, I spent more time last week than hoped with airport personnel.  In the course of the economic-inequality discussion that prompted my travels, I mentioned that I had little confidence in the general-public inflation expectation data in which economists put such stock.  So, I asked my aide what she thought and was told that her biggest fear is the “rising price of the dollar” and whether [...]

Although a new paper by former FRB Gov. Tarullo and Fed staffers on the FHLB stirred considerable consternation across the Federal Home Loan Bank System, it’s a crushing and persuasive critique of a giant GSE that has long preferred to go unnoticed.  That’s not unreasonable since the System has evolved from an essential small-bank funding source for mortgages into a taxpayer-subsidized capital-markets investment option.  When public wealth is not allocated [...]