Taking the handcuffs off the American banking system will do more to stimulate the economy than another round of money-printing, analyst Dick Bove said.
As the Federal Reserve contemplates a third round of quantitative easing to spur the slumping U.S. economy, Bove, the vice president for equity research at Rochdale Securities, asserted that removing capital and liquidity requirements for banks would get lending rolling again and stimulate
It seems clear that the United States economy’s growth is slowing and that the global economy is facing major challenges. This suggests a need for some action by the Federal Reserve and other central banks," Bove said in a note to clients. "It also appears to be just as evident that lowering interest rates to zero and printing more money are not effective options."
The Fed is winding down its most recent stimulus action, a $400 billion program nicknamed Operation Twist in which the central bank sells short-dated notes and buys an equal amount of longer-dated debt.
While the Fed is ostensibly a nonpolitical body, congressional leaders have expressed opposition to more balance sheet expansion and money-printing. Some on Wall Street, meanwhile, have begun to clamor for more easing.
Relaxing the bank regulations instituted after the financial crisis of 2008 would be a way to avoid the pitfalls of QE3.
The Dodd-Frank rules seek to make sure banks have enough cash on hand to buffet any dramatic losses such as those suffered when the subprime mortgage industry collapsed. That left banks with hundreds of billions of toxic assets on their balance sheets and necessitated a costly government bailout.
Jamie Dimon, CEO of JPMorgan Chase, which expanded during the crisis largely because of its strong capital position, has criticized portions of Dodd-Frank as regulatory overreach.
"It is possible that the regulators are beginning to understand that by taking the banks out of the financial system they are crippling the economy and pushing unemployment rates higher," said Bove, long a critic of increased bank regulation. "If they do understand this they might reverse the absurd actions they have taken and assist the economy."
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As the Federal Reserve contemplates a third round of quantitative easing to spur the slumping U.S. economy, Bove, the vice president for equity research at Rochdale Securities, asserted that removing capital and liquidity requirements for banks would get lending rolling again and stimulate
It seems clear that the United States economy’s growth is slowing and that the global economy is facing major challenges. This suggests a need for some action by the Federal Reserve and other central banks," Bove said in a note to clients. "It also appears to be just as evident that lowering interest rates to zero and printing more money are not effective options."
The Fed is winding down its most recent stimulus action, a $400 billion program nicknamed Operation Twist in which the central bank sells short-dated notes and buys an equal amount of longer-dated debt.
While the Fed is ostensibly a nonpolitical body, congressional leaders have expressed opposition to more balance sheet expansion and money-printing. Some on Wall Street, meanwhile, have begun to clamor for more easing.
Relaxing the bank regulations instituted after the financial crisis of 2008 would be a way to avoid the pitfalls of QE3.
The Dodd-Frank rules seek to make sure banks have enough cash on hand to buffet any dramatic losses such as those suffered when the subprime mortgage industry collapsed. That left banks with hundreds of billions of toxic assets on their balance sheets and necessitated a costly government bailout.
Jamie Dimon, CEO of JPMorgan Chase, which expanded during the crisis largely because of its strong capital position, has criticized portions of Dodd-Frank as regulatory overreach.
"It is possible that the regulators are beginning to understand that by taking the banks out of the financial system they are crippling the economy and pushing unemployment rates higher," said Bove, long a critic of increased bank regulation. "If they do understand this they might reverse the absurd actions they have taken and assist the economy."
Continue Reading here
