Bair and Goodhart: Bank failures are looming. Let’s make sure executives have skin in the game

Sheila Bair and Charles Goodhart penned an opinion piece in The Washington Post – “Bank failures are looming. Let’s make sure executives have skin in the game.” Key themes are:

  • Serious challenges remain for the U.S. banking system.
  • Lessons from three high-profile regional bank failures have been forgotten.
  • Accountability for executives of failed banks should increase. Passage of the Recoup Act would help.

The Washington Post piece is at
https://www.washingtonpost.com/opinions/2024/02/20/sheila-bair-pass-banking-reform-accounability/

For more on lessons from regional bank failures, please find papers where Sheila (Chair) and Charles contributed in their role as CFS Advisory Board members.

“Supervision and Regulation after Silicon Valley Bank”
www.CenterforFinancialStability.org/research/CFSRegPaper101623.pdf
“The Role of Monetary and Fiscal Policies in Recent Bank Failures”
www.CenterforFinancialStability.org/research/CFSMonPaper101623.pdf

CFS Monetary Measures for December 2023

Today we release CFS monetary and financial measures for December 2023. CFS Divisia M4, which is the broadest and most important measure of money, fell by 0.4% in December 2023 on a year-over-year basis, following a decrease of 1.0% in November.

For Monetary and Financial Data Release Report:
https://centerforfinancialstability.org/amfm/Divisia_Dec23.pdf

For more information about the CFS Divisia indices and the data in Excel:
https://centerforfinancialstability.org/amfm_data.php

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) ALLX DIVM
2) ECST T DIVMM4IY
3) ECST –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) ECST S US MONEY SUPPLY –> From source list on left, select ‘Center for Financial Stability’

CFS Monetary Measures for November 2023

Today we release CFS monetary and financial measures for November 2023. CFS Divisia M4, which is the broadest and most important measure of money, fell by 1.0% in November 2023 on a year-over-year basis, following a decrease of 1.1% in October.

For Monetary and Financial Data Release Report:
https://centerforfinancialstability.org/amfm/Divisia_Nov23.pdf

For more information about the CFS Divisia indices and the data in Excel:
https://centerforfinancialstability.org/amfm_data.php

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) ALLX DIVM
2) ECST T DIVMM4IY
3) ECST –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) ECST S US MONEY SUPPLY –> From source list on left, select ‘Center for Financial Stability’

The Experience of Free Banking

Much of what economists tell each other and the public about the nature and necessity of central banking lacks historical grounding. The Experience of Free Banking, just issued in a free, enlarged second edition by the Institute of Economic Affairs in London, discusses the extensive historical experience of monetary systems with competitive provision of currency. Such systems spanned more than 60 countries and hundreds of years up until the mid 20th century. Most were stable and showed no inherent tendency toward or need for establishing a central bank.

The first edition of the book was issued in 1992 by an academic publisher, and was priced accordingly. This expanded edition, in which I have three chapters, will be available in hard copy for those who prefer physical books, and is free in PDF here.

No free banking systems exist today, but the experience of free banking is relevant to today’s debates about privately provided cryptocurrencies, central bank digital currencies, and financial regulation. It presents a challenge both to economic theory and to the way economists and historians have continued to write financial history. They have generally ignored rather than addressed the ideas and facts that research in free banking has raised over the last generation. A notable exception is CFS Advisory Board member Charles Goodhart, whose 1988 book The Evolution of Central Banks remains the most serious and comprehensive answer on the pro-central banking side.

Readers who find want to know more about free banking can start with the bibliography by Elizabeth Qiao, here. The introduction contains a short list of suggested readings. At the time she compiled the bibliography, Qiao was a student of CFS Special Counselor Steve Hanke.

CFS Monetary Measures for October 2023

Today we release CFS monetary and financial measures for October 2023. CFS Divisia M4, which is the broadest and most important measure of money, fell by 1.0% in October 2023 on a year-over-year basis, following a decrease of 1.7% in September.

For Monetary and Financial Data Release Report:
https://centerforfinancialstability.org/amfm/Divisia_Oct23.pdf

For more information about the CFS Divisia indices and the data in Excel:
https://centerforfinancialstability.org/amfm_data.php

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) ALLX DIVM
2) ECST T DIVMM4IY
3) ECST –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) ECST S US MONEY SUPPLY –> From source list on left, select ‘Center for Financial Stability’

CFS Monetary Measures for September 2023

Today we release CFS monetary and financial measures for September 2023. CFS Divisia M4, which is the broadest and most important measure of money, fell by 1.7% in September 2023 on a year-over-year basis, following a decrease of 2.4% in August.

For Monetary and Financial Data Release Report:
https://centerforfinancialstability.org/amfm/Divisia_Sep23.pdf

For more information about the CFS Divisia indices and the data in Excel:
https://centerforfinancialstability.org/amfm_data.php

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) ALLX DIVM
2) ECST T DIVMM4IY
3) ECST –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) ECST S US MONEY SUPPLY –> From source list on left, select ‘Center for Financial Stability’

FT: “Learning British Financial Stability Lessons. Seriously!”

Today, the Financial Times‘ Robin Wigglesworth released a well-researched article “Learning British Financial Stability Lessons.  Seriously!” – which covered CFS reports – https://on.ft.com/3ZZ8Rpc

CFS will put a finer point on on aspects of the reports in two upcoming events.

Please take a look at this article and our papers, which can be found on CFS’ website- www.CenterforFinancialStability.org.

CFS Releases New Reports on Banking Stress and Monetary Policy

A group of senior advisors to the Center for Financial Stability – Sheila Bair (Chair), Joyce Chang, Charles Goodhart, Lawrence Goodman, Barbara Novick, and Richard Sandor – undertook an assessment of the root causes of recent bank failures.

The work was done with a keen eye on present and future financial system stresses.  For instance, bond market losses continue; bank earnings remain under pressure; cumulative Fed rate hikes are now 525 basis points; the fiscal deficit is now $600 billion deeper in the red than last year; and bank stocks remain at or near post crisis lows.

The group represents a wide array of backgrounds in government, academia, and industry and a full range of policy views. While there were differences of opinions on some specific proposals, there was also strong consensus on the main drivers of the failures and key issues related to proffered reforms.

Later in the week, Randal Quarles (CFS Advisory Board Chair) will lead panel discussions with the authors on the reports’ findings.

We look forward to any comments you might have.

To view
“The Role of Monetary and Fiscal Policies in Recent Bank Failures”
www.CenterforFinancialStability.org/research/CFSMonPaper101623.pdf

“Supervision and Regulation after Silicon Valley Bank”
www.CenterforFinancialStability.org/research/CFSRegPaper101623.pdf

CFS Monetary Measures for August 2023

Today we release CFS monetary and financial measures for August 2023. CFS Divisia M4, which is the broadest and most important measure of money, fell by 2.2% in August 2023 on a year-over-year basis, following a decrease of 1.9% in July.

For Monetary and Financial Data Release Report:
https://centerforfinancialstability.org/amfm/Divisia_Aug23.pdf

For more information about the CFS Divisia indices and the data in Excel:
https://centerforfinancialstability.org/amfm_data.php

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) ALLX DIVM
2) ECST T DIVMM4IY
3) ECST –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) ECST S US MONEY SUPPLY –> From source list on left, select ‘Center for Financial Stability’

Extinguished Consumer Surpluses: CFS money supply measures

Wall Street Journal reporter, Rachel Louise Ensign, wrote a terrific piece on the consumer yesterday – “Americans Finally Start to Feel the Sting from the Fed’s Rate Hikes.”  The story highlights how:

– “Consumers… are discovering that, because of the Federal Reserve’s rate increases, their money gets them a lot less than it would have a few years ago.”

– “Consumers are carrying much higher [credit card] balances than they were two years ago.”

Interestingly, CFS Divisia M2 reveals another core issue regarding the sting from higher rates and tighter policy.  Swollen consumer surpluses in the aftermath of the essential post-Covid fiscal and monetary response are now extinguished.

To view “Extinguished Consumer Saving Balances – CFS Divisia M2, actual and predicted
www.CenterforFinancialStability.org/research/Extinguished_Balances_20230927.pdf

Note: The CFS Divisia M2 measure of consumer liquidity includes currency, demand deposits, other liquid deposits, and retail money market funds.