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Pam and Russ Martens: The Fed did a lot of talking yesterday about a big bank failure -- should we worry?
By Pam and Russ Martens
Wall Street on Parade
Wednesday, October 21, 2020
Turns out the federal government's plan for dealing with a mega-bank failure on Wall Street is no better conceived than the federal government's plan for dealing with the worst pandemic since 1918.
The Federal Reserve issued two press releases yesterday about "large banks." One read: "Agencies finalize rule to reduce the impact of large bank failures." The other read: "Agencies issue final rule to strengthen resilience of large banks."
... Dispatch continues below ...
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Wait. What? Fed Chairman Jerome Powell has been telling anyone who would listen this year -- from Congress to viewers of the "Today" show -- that the large banks have been a "source of strength" during the worst economic downturn since the Great Depression. If that were true (which we've questioned from the first time Powell said it), why is the Fed now worrying about a "large bank failure" and the need to "strengthen" large banks?
The first press release from the Fed yesterday deals with the fact that the biggest banks on Wall Street remain interconnected to one another. If you recall, in 2008 the interconnections of Lehman Brothers, Citigroup, and AIG to the biggest banks on Wall Street created a daisy chain of rapid meltdowns across Wall Street.
So federal regulators had this plan: They would make the largest banks issue TLAC debt -- "Total Loss-Absorbing Capacity" debt. The idea, according to the regulators, was that this "debt could be used to recapitalize the holding company during bankruptcy or resolution if it were to fail," rather than putting the taxpayer on the hook for another massive bailout like 2008. ...
... For the remainder of the report:
https://wallstreetonparade.com/2020/10/the-fed-did-a-lot-of-talking-yest...
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