Financial Services

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Treasury Secretary Jack Lew (standing) takes his seat for a meeting of the Financial Stability Oversight Council at the Treasury Department in Washington October 6, 2014. Also pictured are U.S. Federal Reserve Chair Janet Yellen (seated, 2nd L) and Federal Deposit Insurance Corporation Chairman Martin Gruenberg (R). REUTERS/Jonathan Ernst

A new Congress is arriving, and it is time to reform FSOC, the “Financial Stability Oversight Council.”

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Federal policy often tilts the playing field, picks winners and losers, and rewards well-connected insiders, contributing to the public perception that the ‘game’ is rigged and harming economic growth. AEI scholars have identified a few policy changes that lawmakers can pursue if they want to combat cronyism and corporate welfare.

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Analysis of the CBO report reveals that the top 20% of American households finance 100% of the transfer payments to the bottom 60% as well as almost 100% of the tax revenue collected to run the entire federal government.

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Photo Credit: Leader Nancy Pelosi/Flickr

Three easy financial reforms could be quickly enacted by the incoming Congress to reduce unnecessary and unproductive regulations and stimulate economic growth. One simple repair: Congress can rescind the designation of any nonbank financial firms as ‘systemically important.’

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The failure of the largest banks will not generally endanger the solvency of their parent bank holding companies (BHCs), preventing the secretary of the Treasury from using single point of entry (SPOE).  However, many large BHCs would face bankruptcy if their subsidiary bank failed, and here SPOE expands the government safety net thereby reinforcing TBTF.  On balance, the evidence suggests that SPOE has not solved TBTF.

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Economic tensions overseas have affected US investment portfolios, and we are seeing populist backlash due to small growth. According to Conard, the Fed should have stopped quantitative easing a while ago.

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Shape up or break up. That’s the message Federal Reserve Bank of New York President William Dudley gave to Wall Street yesterday. Too much risk taking and law breaking means government will have to take action without some big changes by the megabanks.

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Though the Federal Reserve now publishes the Federal Reserve Board members’ forecasts for the future path of a key Fed-set interest rate, historically, these Fed forecasts have not predicted the rate especially well. This suggests that the Fed’s new push towards transparency should be met with at least some measure of skepticism.

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Treasury Secretary Jack Lew | Reuters

According to discussions with insiders at multiple institutions designatated as systemically important financial institutions (SIFIs), the Financial Stability Oversight Council has never outlined the steps that these institutions need to take to remove their designation.

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A woman walks past the Fannie Mae headquarters in Washington February 11, 2011.

After a federal judge’s ruling against some hedge funds, Fannie Mae and Freddie Mac’s stocks dropped. What happens next?

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