Yale School of Management

Posts by Macroprudential Policies

Largest Banks' Capital Set to Moderate, Payouts to Triple

January 26, 2021
After the Federal Reserve released the results in December of its first mid-cycle stress test, designed to test large banks’ resilience against downside pandemic scenarios, it allowed large banks to resume share buybacks starting in the first quarter of 2021, subject to limits. Fed Governor Lael Brainard cast the lone dissenting vote, noting the risks to bank capitalization and lending of raising payout limits to a level that “nearly doubles the amount of capital permitted to be paid out relative to last quarter.” In the case of the six largest banks on the heels of strong trading and investment banking revenues, however, aggregate payouts are set to triple. Continue reading “Largest Banks' Capital Set to Moderate, Payouts to Triple”

Short-Selling Restrictions During COVID-19

January 12, 2021
Financial regulators restricted short selling in March 2020 after global stock markets declined in response to the COVID-19 pandemic (Otani 2020). As market participants grappled with uncertainty about quarantine measures, travel restrictions, and other impediments to commercial activity, authorities identified short-selling as a potential threat to market stability. By limiting the trading strategy, authorities attempted to keep financial markets fair, orderly, and efficient. Though scholars argue that short-selling restrictions can exacerbate market turbulence, policymakers banned short-selling for several months in a row. Continue reading “Short-Selling Restrictions During COVID-19”

A New Index of Bank Resolution Reforms

September 3, 2020
A New Index of Bank Resolution Reforms
This guest blog post comes to us from Matteo Aquilina, Krishan Shah, Costas Stephanou and Jonathan Ward. At the end of June, the Financial Stability Board (FSB) published a consultation report on its evaluation of the too-big-to-fail (TBTF) reforms for systemically important banks. The TBTF reforms  were endorsed by the G20 in the aftermath of the 2008 financial crisis and have been implemented in FSB jurisdictions over the past decade. The report examines the extent to which the reforms are reducing the systemic and moral hazard risks associated with global and domestic systemically important banks (G-SIBs and D-SIBs), as well as their broader effects on the financial system. Continue reading “A New Index of Bank Resolution Reforms”

Banks’ Second-Quarter Results Boosted by Non-Interest Income and Official Support

July 24, 2020
In the midst of the COVID-19 lockdown, earnings beat expectations for most large US banks in the second quarter, as a surge in non-interest income offset rising loan-loss provisions, and banks benefitted from Federal Reserve liquidity programs and regulatory forbearance. Continue reading “Banks’ Second-Quarter Results Boosted by Non-Interest Income and Official Support”

No bank should be paying dividends right now

July 14, 2020
This blog was published today in the American Banker . In the midst of one of the fastest and deepest economic declines in U.S. history, the largest banks are expected to pay out about $14 billion in dividends in the third quarter, while remaining under a cap imposed by the Federal Reserve in response to the coronavirus pandemic. Continue reading “No bank should be paying dividends right now”

U.S. Banks to Maintain Dividends for Now, Following Pre-COVID Stress Test

July 1, 2020
Most of the largest U.S. banks announced Monday that they will continue to pay dividends in the third quarter at the same level as the second quarter. This news comes just two business days after the Federal Reserve announced the results of its annual stress test and an unprecedented “sensitivity analysis” estimating the potential impact of different economic recoveries from the COVID recession on bank performance. Based on these scenarios, the Fed announced a number of temporary restrictions on dividends and other corporate actions.  Continue reading “U.S. Banks to Maintain Dividends for Now, Following Pre-COVID Stress Test”

COVID-19 and Insurance (3 of 3): Capital Conservation and Countercyclical Regulation

June 17, 2020
Insurance supervisors around the world outside the U.S. have urged companies they supervise to conserve capital during the COVID-19 crisis by limiting payouts to shareholders and bonuses to executives.  At the same time, many supervisors have sought to help insurers avoid procyclical behavior by mitigating the impact of volatile market swings on the value of insurance company assets and, in turn, on measures of their capital adequacy.  Continue reading “COVID-19 and Insurance (3 of 3): Capital Conservation and Countercyclical Regulation”

COVID-19 and Insurance (2 of 3): Operational Regulatory Relief

June 16, 2020
Many insurance supervisors have provided temporary relief to help companies manage during the COVID-19 crisis. Most of this relief comes in the form of extended deadlines for submitting various reports or provisions that make remote compliance easier. Regulators have also suspended supervisory activities and loosened accounting rules. Continue reading “COVID-19 and Insurance (2 of 3): Operational Regulatory Relief”