The new Cato Institute 2017 Financial Regulation national survey of 2,000 U.S. adults released today finds that Americans distrust government financial regulators as much as they distrust Wall Street. Nearly half (48%) have “hardly any confidence” in either.
Americans have a love-hate relationship with regulators. Most believe regulators are ineffective, selfish, and biased:
- 74% of Americans believe regulations often fail to have their intended effect.
- 75% believe government financial regulators care more about their own jobs and ambitions than about the well-being of Americans.
- 80% think regulators allow political biases to impact their judgment.
But most also believe regulation can serve some important functions:
- 59% believe regulations, at least in the past, have produced positive benefits.
- 56% say regulations can help make businesses more responsive to people’s needs.
However, Americans do not think that regulators help banks make better business decisions (74%) or better decisions about how much risk to take (68%). Instead, Americans want regulators to focus on preventing banks and financial institutions from committing fraud (65%) and ensuring banks and financial institutions fulfill their obligations to customers (56%).
Americans Are Wary of Wall Street, But Believe It Is Essential
Nearly a decade after the 2008 financial crisis, Americans remain wary of Wall Street.
- 77% believe bankers would harm consumers if they thought they could make a lot of money doing so and get away with it.
- 64% think Wall Street bankers “get paid huge amounts of money” for “essentially tricking people.”
- Nearly half (49%) of Americans worry that corruption in the industry is “widespread” rather than limited to a few institutions.
At the same time, however, most Americans believe Wall Street serves an essential function in our economy.
- 64% believe Wall Street is “essential” because it provides the money businesses need to create jobs and develop new products.
- 59% believe Wall Street and financial institutions are important for helping develop life-saving technologies in medicine.
- 53% believe Wall Street is important for helping develop safety equipment in cars.
Wall Street vs. The Regulators: Public Attitudes on Banks, Financial Regulation, Consumer Finance, and the Federal Reserve
Only 17 percent of Italy’s money supply (M3) is accounted for by State money produced by the European Central Bank (ECB). The remaining 87 percent is Bank money produced by commercial banks through deposit creation. So, Italy’s banks are an important contributor to the money supply and, ultimately, the economy.
The long-awaited audit of the Corporate Commercial Bank’s (KTB’s) assets has been released by the Bulgarian National Bank (BNB). In its wake, a debate has arisen about the future of the KTB: Should it be recapitalized? And if KTB is recapitalized, should the Bulgarian or the European authorities be responsible? However, it is clear from the results of the audit that, once the obscurity of the technocratic arguments is stripped away, there can be no debate. KTB should be liquidated as soon as possible, and whatever proceeds can be obtained in liquidation should be used to reimburse guarantees to depositors paid from the Bulgarian Deposit Insurance Fund (BDIF).
KTB should be liquidated because it is not, and apparently never has been, a commercial bank. Had KTB been operated according to commercial banking principles, it would be virtually impossible for KTB to destroy value on the scale witnessed by the independent auditors. As of September 30, 2014, the auditors estimate that 76% of the asset value in KTB’s non-financial loan portfolio, which accounts for 80% of KTB’s assets, has been lost.
Losing 76% on a commercial loan portfolio must be put into perspective. In making loans, commercial banks generally require a senior secured position. This means that in the event of default, the bank may take collateral from the borrower and use the proceeds from selling the collateral to recover the bank’s principal, prior to any other creditor. From 2003 to 2012, Standard and Poor’s found that European lenders recovered 78% of their principal, on average, from defaulted loans with these characteristics. Even where defaulted loans were not secured by collateral, European lenders averaged a 48% recovery rate. Compare these recovery rates to KTB’s pathetic implied recovery rate of 24%, and it becomes clear that KTB was not operating as a real bank.
The KTB audit report tells a story in which KTB blatantly ignored the basic pillars of commercial lending. According to the report, there is little evidence that initial loan underwriting and subsequent credit monitoring ever took place at KTB.
If KTB’s management were just grossly incompetent, it would be bad enough. But it appears they were also criminals. The BNB is forwarding the audit results to the Sofia City Prosecutor’s Office. The auditors state that KTB lied to and misled BNB banking supervisors, and engaged in transactions with no evident commercial purpose. The suspicion of criminal activity is just another reason why KTB should be liquidated, now.
Last November, Arthur Long and I released a policy study on the likely impact of the Federal Reserve’s 2012 “Foreign Banking Organization” proposal.
U.K. Chancellor of the Exchequer George Osborne has resumed his saber-rattling over raising capital requirements for British banks. Most recently, Osborne has fixated on alleged problems with banks’ risk-weighting metrics that, according to him, have left banks undercapitalized. Regardless of Osborne’s rationale, this is just the latest wave in a five-year assault on the U.K. banking system – one which has had disastrous effects on the country’s money supply.
Recently on Leno, President Obama compared some financial products to an exploding toaster. His words:
When the Basel I accords, mandating higher capital-asset ratios for banks, were introduced in 1988, they were embraced by the administration of President George H.W. Bush. With higher capital-asset ratios came a sharp slowdown in the money supply growth rate and—unfortunately for President George H. W. Bush and his re-election campaign—a mild recession from July 1990 through March 1991.
On August 29th, I penned “Lagarde Confused, Again.” In it, I argued that Christine Lagarde, the new managing director of the International Monetary Fund, misdiagnosed Europe’s banking crisis.