Photo: ihtatho / Flickr
Two remarkable items in the news this morning which demonstrate how little progress we have made in reining in the Too Big To Fail banks and limiting the political might of their CEOs.First, the Wall Street Journal reports on ongoing tension between the banks and their primary regulator, the Federal Reserve, over the so-called stress tests. These tests are vitally important, among other things they determine how much of the banks’ all important loss-absorbing capital can be frittered away through stock repurchases and dividends. While these payouts are undoubtedly a windfall for the stock-owning executives and shareholders, by definition they increase the risk of failure and eventual bailout.
Of course no such capital drains should be permitted in the near future for the chronically undercapitalized big banks, but because the Fed is committed to such action, it is vitally important that the numbers provided by the banks to the Fed for the tests are correct. But at the end of the article the reporters reveal that the Fed recently “backed off” a requirement that the CFOs of the banks actually confirm that the numbers they are providing are accurate. The reason? The banks argued, and the Fed apparently agreed, that providing data about what’s going on in the banks is simply too “confusing for any CFO to be able to be sure his bank had gotten it right.” In other words, rather than demand personal accountability, the Fed seems to be content with relying on unverified and potentially inaccurate data. If this does not prove both the inherent unreliability of these tests and that the banks are still so hopelessly complex that their executives do not know what’s going on inside of them (See Whale, London), I’m not sure what would.
Second, Politico explains that the CEOs of those same banks are getting ready to once again flex their political muscle and tell Congress to act on the upcoming fiscal cliff so as to avoid a broader economic slowdown. I’m not sure what is more striking about this article, the CEOs’ arrogance that presumes that once they snap their fingers more than a year of bipartisan bickering will magically melt away, or that their presumption may prove to be correct. Regardless, have no doubt where the perceived balance of power lies these days between the banks and their overseers; it remains housed on Wall Street.