#TrumpAdministration

20 10, 2025

Karen Petrou: Say Bye-Bye to the Banking/Commerce Barrier

Shane Smith2025-10-20T09:11:24-04:00October 20th, 2025|The Vault|

In his comments last week about stablecoins, FRB Gov. Barr worried aloud about cracks in the banking/commerce barrier. How quaint. This barrier has been crumbling for years, but two decisions last week knocked it down. The big issue these days isn’t keeping commercial firms out of banking – give it up, they’re in. Instead, the big question is whether this nation also wants relationship-focused, regulated banks insulated from conflicts of interest and buffered against market shocks. If it does, then traditional banks need new powers, fast.

The most impermeable barrier between banking and commerce was supposedly erected in the 1956 Bank Holding Company Act along with the narrow set of permissible BHC powers allowed in 1970. These laws sought to keep insurance and commercial firms from controlling insured depositories much as the Glass-Steagall Act did in 1933 when it came to securities firms. However, Sears Roebuck took advantage of gaping loopholes, opening a bank in the early 1980s. Congress did little but legitimize these charters, allowing a class of “nonbank banks” in 1987 and broadening bank/nonbank affiliation in 1999.

FDIC Acting Chair Hill has now made it clear that he will go even farther. Next time a bank fails, look for a private-equity company or other nonbank to pick up the pieces. Mr. Hill stated that the FDIC will now not only cotton to these acquisitions, but even facilitate them with “seller financing” and a pre-qualification program akin to one established in 2024 by the OCC.

Would these nonbank owners …

8 09, 2025

Karen Petrou: What Treasury Wants from the Fed and Why It Should Get it

Shane Smith2025-09-08T09:29:11-04:00September 8th, 2025|The Vault|

With all the bandwidth absorbed by the Miran and Cook dramas, insufficient attention was paid late last week to Secretary Bessent’s Wall Street Journal article laying out a new monetary-policy model. I like it a lot and not just because Mr. Bessent quotes my book. As he says, we need a different monetary policy model, one that the Fed is clearly unable to develop on its own judging by the five years of work that went into the ultra-cautious 2025 fiddles with the 2020 model. Most of what Mr. Bessent wants will make the Fed better at its core mission and a more independent guardian of the public good, overdue reforms that Democrats should support.

What does reform entail? First, the Fed would adhere to its statutory mandate, not the truncated “dual” one recent Fed leadership selects in defense of its legitimacy. Secretary Bessent and Stephen Miran read all the law, not just selected passages, correctly observing that the mandate is a triple-header of maximum employment, price stability, and “moderate long-term interest rates.” Mr. Miran’s testimony cites the 1946 Full Employment Act as one source of this mandate along with the 1978 law. Current law also implores the Fed to act in concert with the federal government to further the “general welfare.” The FRB and FOMC thus have an affirmative, express duty to do all they can to reduce economic inequality, not inadvertently but significantly worsen it as has long been the case. Mr. Bessent seconds this view …

2 09, 2025

Karen Petrou: How to Redesign the Federal Reserve Banks

Shane Smith2025-09-02T09:19:51-04:00September 2nd, 2025|The Vault|

“U.S. President Donald Trump’s radical shift in economic approach has already begun to change norms, behaviors, and institutions globally. Like a major earthquake, it has given rise to new features in the landscape and rendered many existing economic structures unusable,” or so says Adam Posen at the Peterson Institute. After last week, it looks as if the Federal Reserve as it came to be known over recent decades is also on the scrap heap. It may not be “unusable,” but the uses to which it will be put are to serve Mr. Trump’s political interests, not necessarily those also of the long-term economy’s resilience, equality, or stability. The Fed deserves this due to its geriatric monetary-policy model and persistent contributions to economic inequality. I’m not so sure about the rest of us.

The transformation already under way is not just the result of the President’s unprecedented effort to dismiss a member of the Federal Reserve Board and, if the courts rule in his favor, anyone else he doesn’t like. Another profound change could come next March, when the Board must ratify the appointments of Federal Reserve Bank presidents. With a majority of members of the Board on his side, Mr. Trump could block reappointment of all twelve Reserve Bank presidents in March of next year.

The Federal Reserve Act places a rolling list of five Reserve Bank presidents on the FOMC in an effort to balance what congress feared in 1913 would be undue Wall Street influence on monetary …

14 07, 2025

Karen Petrou: How the For-Cause Firing Squad Lines Up

Arezou Rafikian2025-07-14T10:13:23-04:00July 14th, 2025|The Vault|

Due to the din of demands from the Trump Administration, many observers disregarded Thursday’s letter on behalf of the President from OMB Director Vought to Fed Chair Powell. They shouldn’t. Mr. Trump is not one to let his enemies off lightly. Even as he continued his anti-Powell vendetta on Friday, his officials are readying a way to rid the President of his Fed chair in a way they hope the Supreme Court must accept.

The OMB letter built on accusations that first surfaced at a Senate Banking Committee hearing late last month. These concern renovations at the Fed’s Eccles Building, a dump of grim brutalist architecture that never saw better days but was at least once in reasonable repair. Over the last decade or so, one couldn’t even say that. It is in fact a prime example of the awful architecture the President wants to blot from the face of the nation’s capital.

The Senate GOP inquiry and the OMB letter thus do not question the need for renovation but accused Mr. Powell of allowing gross over-budget spending on luxuries such as “Italian” – not all-American – beehives, “water features”, oodles of high-end marble, and a secluded art gallery. Mr. Powell acknowledges over-spending but said it wasn’t the Fed’s fault and denied any undue expenses for high-end appurtenances. But, questioned in a follow-up GOP letter, Mr. Powell promised only a staff briefing, doubtless hoping to bury the issue but in fact giving his enemies an open field. Realizing this, the …