The Michael Barr holistic capital review is a fascinating speech for what it says and what it doesn't say. Link here, thread below /1

federalreserve.gov/newsevents/spe… A theme from VCS Barr is that we need to approach complexity with humility, a theme he repeats here. That humility is on display - this is no revolution in capital, but an evolution. /2

One anecdotal point in favor of the view that small business depositors aren’t aware of cash management strategies (a view I thought was wrong before, maybe still on aggregate):

A close friend meets a weekly payroll requiring $1 mn. 15 employees. /1 He keeps this in a regional bank checking account. It pays zero percent and rarely dips below $500k /2

This is a really beautiful thread from a gay ex-Mormon who deals frankly with the good, the bad, and ugly of prejudice and bigotry along the different parameters of his identity, inside and outside of Mormonism. /1

https://twitter.com/tracewoodgrains/status/1637206970305241089

My main conclusion on these topics is just to accept people as they come and not backfill their identities with all the heavy loads we have gathered from interacting with others through long and complex lives. /2

Let’s stipulate that the 2018 law & the changes that followed made the last week worse than it would have otherwise been. Does Powell bear the responsibility here? Or better Congress? Randy Quarles? The SF Fed?

A thread on why I think Powell critics have it mostly right /1 One caveat: Randy Quarles is a personal friend. I still think highly of his talents and integrity. I haven’t spoken to him this week and you’ll see I don’t exculpate him below. /2

On the recent survey suggesting that Latter-day Saints are the only universally despised religious minority, some anecdotes from the academy for why that resonated so much for this Mormon /1 One of my most beloved mentors who has only ever wanted every good thing for me, after learning years into our relationship of my religious affiliation, told me to keep that secret before tenure. /2

One place where the monetary originalists/hipsters and I agree is that the Federal Reserve Banks are clearly and absolutely franchises of the government. It’s right there in the name: they are the local McDonald’s of the big McDonald’s corporation /1 But in my view we should eliminate the franchise, not expand it. The Federal Reserve Banks have no business pretending not to be a part of our government. The old canard that they are “government instrumentalities with a public purpose” wreaks such mischief /2

One point to make here is that the law seems deliberately written to (1) shove the Fed in a specific deregulatory direction and (2) create plausible deniability for the legislators. /1

https://twitter.com/PeterContiBrown/status/1636823426055716873

And the first Powell Fed passed regs that were (1) explicitly deregulatory, (2) pushed desupervision hard, and (3) left supervisors with authority so that they too had plausible deniability. /2

Expanding on this a bit. Suppose Barr performs this task with stunning competence, thoroughness, and transparency and turns every stone with perfect objectivity. Sounds good, right? Wrong /1

https://twitter.com/PeterContiBrown/status/1636795847471153156

No one will believe it. Not the public, not the experts, not the Republicans (Barr is a Democrat), not the Democrats (Barr is a Fed insider now) /2

I agree with @MorganRicks1 - this is a brutal assessment.

I disagree that those who don’t share the view that we should guarantee wealthy uninsured depositors are defending this status quo.

A system that causes regulators to sprint for crisis tools is badly broken.

https://twitter.com/MorganRicks1/status/1636548523033329665

Also, to Morgan’s point that assuming deposit limits for GSIBs is “unserious”, I mostly agree if the current regulatory ethos persists. But let’s be clear that this means Dodd-Frank - at least Titles I and II, maybe more? - is unserious. /2

A good thread from @MorganRicks1 on what he calls a “meta thought” that I think is an important, intellectual, methodological difference in our approach to financial history /1

https://twitter.com/MorganRicks1/status/1636396337355960321

First, I agree completely that the best way for scholars to disagree is via publications. Morgan and fellow travelers like @LevMenand have done their part; it’s a bit unfair to them to to fly-by critiques on Twitter. /2

My biggest Fed critique is the immediate use of 13(3) emergency facilities - clunky, blunt, politicized tools (as well they should be) - rather than a more robust use of the discount window. Let me elaborate, including with what I wish the Fed had done instead. /1 The discount window is the original lender of last resort function. It was what put the "central" in central bank. Over many years, that functionality atrophied until the point of near uselessness. /2

I think @DanEricRohde makes good points here. It’s worth an elaboration for why I don’t ascribe to the sovereign money view that @MorganRicks1 and others have developed. A long thread. /1

https://twitter.com/DanEricRohde/status/1636058238029295618

I think the view that money is a public good commits the is-ought fallacy. It’s clear the proponents think money should be controlled exclusively by the government. It’s clear too that it isn’t today (hence the motivation for their project). /2

What I would like to see in this review:

1. Publication of excerpted examination reports highlighting the explosive growth in uninsured deposits, the aggressive marketing and incentives SVB paid to get those deposits, and what supervisors told the bank about these practices. /1

https://twitter.com/ByKyleCampbell/status/1635371224175116289

2. Publication of excerpted examination reports in 2020, 2021, 2022, and 2023 (if applicable) of SVB's asset non-diversification in MBSs and why when the Fed began signaling rate hikes in Q1 2022 diversification did not occur and what, exactly, supervisors told SVB about this /2

What is so frustrating with the pushback from the administration and others on “bailouts” isn’t about SVB necessarily is the fact that this is a bailout of the other banks that should have failed this week because they were poorly run. /1

https://twitter.com/vtg2/status/1635253719297306624

The only difference is that we don’t see the headline “First Republic Bailed Out With $65 Billion Rescue” or whatever even though that is happening (with FR or with others) /2

Thanks to @jasonfurman for engaging. He may well be in the majority in viewing depositor discipline as illusory. But these two arguments are convincing to me, my reasons below /1

https://twitter.com/jasonfurman/status/1635400945755619328

(1) It takes an extremely low level of sophistication that we expect for people when they consume much more sophisticated products and services. For such wealthy people as this, it’s very good to build on that expectation. /2

I like this piece from Sen Warren and agree with much of it. One question and one counterpoint: /1

nytimes.com/2023/03/13/opi… The Q: how confident are we that there’s a causal link between S 2155 and these tragicomic SVB risk management practices? By my lights the combination of 90%+ uninsureds and asset non-diversification tipped the run - would the liquidity buffers under 2010 have prevented? /2

I want to push back on the idea that shareholders, bondholders, and management were “wiped out” in this. /1 It’s true that the Treasury, FDIC, and Fed moves today - together and separately - will not provide *more* to these parties, but the guarantees now on tap make the bonanzas to these parties in the preceding years possible in the first place. /2

My predictions, with low-to-medium confidence given the tumult:

1. There is no buyer tonight - the asset quality and commitments on deposits are too onerous. Insureds will leave tomorrow and uninsureds will take haircuts and process as assets sell. /1 The FDIC won’t pull its systemic risk or adverse economic levers, in part because…/2

On the list of vital but forgotten figures in financial and political history is James J. Saxon, Comptroller of the Currency under JFK and LBJ. @SeanVanatta and I have a chapter about him in our history of bank supervision, but he deserves a full-dress bio /1 On pure drama alone, he is fascinating - stationed in Corregidor with Macarthur during WW2, he was responsible for successfully moving all American gold out of the Phillippines /2

A thread on the announcement today that Federal Reserve Governor and former Vice Chair for Supervision Randy Quarles will resign /1

federalreserve.gov/newsevents/pre… Quarles was the first Vice Chair for Supervision, a position created by Dodd-Frank but left vacant until 2017. I discuss some of the dynamics around the end of his term in this @BrookingsEcon piece /2

brookings.edu/opinions/where…

First in what may be an intermittent thread on former President Obama’s memoir, focused on what he says about finance, the crisis, etc. First, I’ve never heard this view of the Countrywide acquisition—Lewis was the instigator, not the Fed. /1 Also, next paragraph down, the speech he mentions is worth reading—it will infuriate Obama’s critics on left and right, for different reasons. But I would not call his tone “decrying”. It’s here:

nytimes.com/2007/09/17/us/…