Unscheduled Fed meetings raise eyebrows as regulators warn JPMorgan threatens U.S. financial stability
Whats the Federal Reserve been up to lately? Well, for one, the notably secretive central bank has held several unscheduled closed meetings of its top policymakers in the past two weeks.
The Fed announced these meetings on its Web site under expedited procedures. The topics the bankers discussed purportedly included a bank supervisory matter (April 6, April 12); a review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks (April 11); and a periodic briefing and discussion on financial markets, institutions, and infrastructure (April 13).
Yellen meets with Obama, Biden: Why are these significant? Because the last time such a meeting took place was on November 21, less then a month before the Feds historic first rate hike in years, Zero Hedge noted. With recessionary signs building in the U.S. and the presidential elections generating huge controversies, the Fed could have been discussing some major policy actions to launch if the economy continues to soften.
Even more interesting was another closed meeting on April 11 held after the Feds conclave this one between Fed Chairwoman Janet Yellen and none other than BOTH President Barack Obama and Vice President Joe Biden. Thats almost unprecedented.
President pleased with Yellen: According to the White House, The President and Chair Yellen met this afternoon in the Oval Office as part of an ongoing dialogue on the state of the economy. They discussed both the near and long-term growth outlook, the state of the labor market, inequality, and potential risks to the economy, both in the United States and globally. They also discussed the significant progress that has been made through the continued implementation of Wall Street Reform to strengthen our financial system and protect consumers.
Meanwhile, Obamas spokesman issued a statement saying that the president is pleased with the job Yellens been doing, and that the meeting would give them a chance to discuss the economy. Its an opportunity for them in some ways to trade notes on something theyre both looking at quite carefully, Josh Earnest said.
5 big banks fail living will test: But maybe these unprecedented meetings have something to do with an issue thats never quite gone away since the 2009 financial crisis: too big to fail banks.
According to The New York Times, the Fed and the Federal Deposit Insurance Corp. (FDIC) just warned five of the nations eight largest banks, which are now bigger than they were during the financial crisis, that they are still too big to fail. In other words, the five did not have credible plans for how they would wind themselves down in a crisis without sowing panic. That suggests that if there were another crisis today, the government would need to prop up the largest banks if it wanted to avoid financial chaos.
The crisis plans (or living wills) submitted by JPMorgan, Bank of America, Wells Fargo, State Street, and Bank of New York Mellon are not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, the regulators said.
Letter to JPMorgan heavily censored: Only Citigroup passed the muster of both agencies, while both Goldman Sachs and Morgan Stanley were OKd by only one of the agencies.
The goal to end too big to fail and protect the American taxpayer by ending bailouts remains just that: only a goal, said FDIC Vice Chairman Thomas Hoenig.
The Fed and FDIC also released a heavily redacted letter they sent to JPMorgan, which just announced declining profits and revenue for the first quarter, with the stark warning that the deficiencies in its emergency plan could pose serious adverse effects to the financial stability of the United States.
JPMorgan does not have an appropriate model and process for estimating and maintaining sufficient liquidity at, or readily available to, material entities in resolution, the letter read. JPMCs liquidity profile is vulnerable to adverse actions by third parties.
In other words, the biggest U.S. banks especially JPMorgan still remain highly interconnected and vulnerable to contagion if another debt/liquidity crisis erupts. The fact that so much of the banks business had to be censored before publication should raise eyebrows about the relationship of the big banks and their overseers.
Monetary policies at their limit: Moreover, the very regulator overseeing the biggest banks appears dangerously out of bullets to revive the economy without majorly aggressive action. Former Fed chief Alan Greenspan warned that monetary policy has done everything it can unless you want to put additional QEs on. Meanwhile, Greenspans successor at the Fed, Ben Bernanke, just posted an article calling for the radical idea of highly inflationary helicopter money to stimulate the economy, if necessary.