Fed Holds Rates Steady and Signals Continued Wariness

Federal Reserve Chair Jerome H. Powell said today that the labor market’s recovery was only halfway completed and that more government support would likely be needed to return the economy to full strength, calling the recent rise in virus cases “particularly concerning,” the New York Times reported. In remarks after the central bank’s November meeting, Powell reiterated that the economic outlook is “extraordinarily uncertain” and pledged to continue supporting growth for as long as needed. Economic progress has exceeded initial expectations amid state and local reopenings, but the recovery remains incomplete, progress is moderating and risks loom ahead. Mr. Powell noted that the U.S. is “a long way from our goals, and we’re halfway there on the labor market recovery, at best.” The Fed is trying to coax the economy back to full health. It left interest rates unchanged at its November meeting, having slashed them to near-zero in March, and it reiterated that it plans to keep them low for the foreseeable future. The central bank has also been buying huge quantities of government-backed bonds — about $120 billion a month, recently — in an attempt to keep markets functioning smoothly and to stimulate demand. Low rates do seem to be powering a recovery, but government spending programs have also been an important driver of the rebound so far, keeping money flowing to businesses and households. Now further economic progress is teetering on a precipice as U.S. coronavirus cases rise and those government support programs run dry.

Analysis: Biden Transition Chief Proposed Limiting Size of Biggest U.S. Banks

A decade ago, Ted Kaufman sought to rein in big banks. Now, he will have a significant role in picking the people who supervise them, according to an analysis in the Wall Street Journal. In 2010, during a brief stint in the Senate, Kaufman led a push to limit the size of U.S. lenders — a move that would have led to the breakup of the biggest banks had it been successful. Kaufman is leading President-Elect Joe Biden’s transition team, giving him a voice in choosing appointees to fill positions across the government, including the Consumer Financial Protection Bureau and the Securities and Exchange Commission. A longtime friend of Biden, Kaufman is seen as a bridge between moderate Democrats and more liberal members of the party, who applaud his long history of seeking tough new rules on the financial-services industry. Even if he doesn’t take a formal role in the administration, Kaufman is likely to continue to have the ear of Biden, people who know him say. Kaufman has taken aim at the revolving door between Wall Street and Washington and was an early critic of the high-frequency trading that he said contributed to the May 2010 stock-market “flash crash.” Yet with Republicans likely to maintain control of the Senate, banking-industry officials are hopeful that Kaufman will refrain from recommending progressive nominees for roles that require Senate approval.

Federal Reserve’s Emergency Loan Programs at Center of Political Fight

A political fight is brewing over whether to extend critical programs that the Federal Reserve rolled out to help keep credit flowing to companies and municipalities amid the pandemic-induced recession, the New York Times reported. The dispute has the potential to roil financial markets, which have calmed significantly since the Fed announced in March and April that it would set up backstops in response to market turmoil spurred by the coronavirus pandemic. Those programs expire on Dec. 31, and it is unclear whether the Trump administration will agree to extend them. Federal Reserve Chair Jerome H. Powell and Treasury Secretary Steven Mnuchin must together decide whether they will continue the programs — including one that buys state and local bonds, another purchasing corporate debt and another that makes loans to small and medium-size businesses. The officials will probably make that decision by early to mid-December, according to a senior Treasury Department official. The Fed might be inclined to keep the efforts going, but Mr. Mnuchin, whose Treasury Department provides the funding backing up the programs, has signaled that he would favor ending the one that buys municipal bonds. And he is under growing pressure from Republicans to allow all five of the Treasury-backed programs to sunset. The programs’ expiration could come at exactly the wrong moment, however, as the U.S. faces an expected surge in coronavirus cases this winter and as fiscal stimulus measures that Congress passed in the spring fade. While lawmakers have toyed with passing a new relief bill before next year during the lame-duck session of Congress, President Trump’s election loss makes the outcome highly uncertain.

Analysis: Covid Crisis Brings Regime Change for World’s Central Banks

Just eight months after they swung into action to avert a crippling depression and credit crunch, central banks are in the uncomfortable position of relying on governments to power fragile economic rebounds, according to an analysis in the Washington Post. The decisions their counterparts make will affect not just the growth outlook for the next few quarters, but could shape central banks’ policy options, and even their credibility, for years to come. Monetary authorities entered the COVID-19 crisis with the least conventional policy space — namely, interest-rate cuts — of any postwar downturn. After pulling down borrowing costs to near or even below zero and deploying massive asset-purchase programs, they are now practically begging governments to step up. Without aggressive fiscal stimulus now, the danger is that economies will develop deep scars that hobble growth over the longer term. That could then leave central banks unable to reset and prepare for the next shock or recession. Monetary policy and fiscal policy are now interdependent. For now, government aid is present, helping to preserve jobs and production capacity. The worry is that it will be withdrawn too soon out of concern to repair public finances, even as the virus continues to rage.

Commentary: How the White House Rolled Back Financial Regulations*

On the campaign trail in 2016, Donald J. Trump promised to roll back regulations he said were stymying American businesses and Wall Street. Once elected, he chose agency heads willing to carry out those promises. For banks and other financial firms, that brought a cast of characters including Treasury Secretary Steven Mnuchin, Federal Reserve Vice Chair Randal K. Quarles and Comptroller of the Currency Joseph Otting, according to a commentary in the New York Times. Working from a blueprint drawn up early in the administration, they and other regulators eased restrictions on the finance industry, including those that had been put in place by the Obama administration after the 2008 financial crisis. Some of the changes were small, but together they amount to a significant regulatory shift. Financial firms now face lesser consequences for taking too much risk or abusing customers, which could pave broader paths to a new financial crisis, critics say. Here’s a look at some of the changes under President Trump. Payday lending: In late 2017, the Consumer Financial Protection Bureau finalized tough new restrictions on payday lending, but a director appointed by Trump, Kathleen Kraninger, took over the bureau in 2018 and delayed the new restrictions from taking effect. This year, she rescinded them. Rent-a-bank rules: Many states have caps on the interest rate that lenders can charge on loans, but lenders can skirt the rule by partnering with a bank in another state — one without rate caps — and having that bank issue its loans. The bank then sells the loan to the lender. Fiduciary rule rollback: The Obama-era Labor Department imposed a rule that would have forced financial advisers and brokers handling retirement and 401(k) accounts to act as “fiduciaries,” but in 2018, a federal appeals court ruled that the agency had overstepped its authority, and the Trump administration didn’t challenge the decision, which killed the rule.



* The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

U.S. Unemployment Claims Slip but Hold at High Levels

New applications for unemployment benefits fell sharply last week, suggesting that layoffs are easing as the broader economy flashes signs of improvement, the Wall Street Journal reported. Initial claims for jobless benefits, a proxy for layoffs, declined to 709,000 last week from 757,000 a week earlier, the Labor Department said Thursday. While weekly claims have fallen from a peak of near 7 million at the end of March, they remain well above levels of about 200,000 seen before the coronavirus hit this spring. The number of people collecting unemployment benefits through regular state programs, which cover most workers, dropped to 6.8 million for the week ended Oct. 31 from 7.2 million a week earlier. Continuing claims are down significantly from their spring levels, reflecting that many laid-off workers have been recalled to jobs or hired elsewhere. Others, though, have exhausted state benefits, a sign that many are facing long periods of joblessness.

ABI's International Insolvency Forum Next Week to Feature Conversation with President Bill Clinton, Sessions Examining the Implications for Global Restructurings During COVID-19 Pandemic and More

Insolvency experts from around the world will virtually gather to provide their insights on key issues and timely topics pertaining to international practice at ABI’s 2020 International Insolvency Forum. The three-day online conference brings together ABI’s annual International Insolvency & Restructuring Symposium partners — International Insolvency Institute (III), American College of Bankruptcy, TMA Europe, INSOL and IWIRC — and ABI's annual Cross-Border Insolvency Program. Highlighting the event will be President Bill Clinton, 42nd President of the United States, discussing the current political landscape with Bill Brandt of Development Specialists, Inc. Experts will be examining the global restructuring landscape and provide an outlook on the year ahead. The Forum will be a "one-stop shop" for attendees looking for technical sessions covering current international insolvency issues and light-hearted networking opportunities — all from the comfort of their home or office! This program is eligible for up to 10.75/12.5 hours of general CLE/CPE credit. Click here to view the sessions and register.

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