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American Financial Reform Reports Big Banks Aren't As Strong As You Think

Big Banks
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EDITOR NOTE: The largest US banks are not in a position to withstand further strain should the pandemic send our country toward an economic tailspin. Right now, their robustness is a matter of paper perception, boosted by “accounting and capital-relief measures,” according to the article. In other words, the difference between their health and fragility is paper thin--not the kind of strength regulators sought to achieve, considering the years of “stress testing” following the 2008 financial crisis. The quote from the director of Americans for Financial Reform also spotlights a very subtle contradiction. You can’t say these banks are not risking a scenario of collapse when the measure of that risk is “uncertainty.” Uncertainty isn’t a metric. Yet it shrouds our economy like a dark cloud, now and moving forward.  

(Bloomberg) -- The largest U.S. banks are less healthy than they appear, boosted by temporary accounting and capital-relief measures as well as massive market support from the Federal Reserve, an advocacy group said. Although the six biggest banks’ leverage ratios reported at the end of June averaged almost 2 percentage points above the regulatory minimums, the actual average would have been only 0.84 percentage points above without the relief measures, Americans for Financial Reform said in a report Monday.

Regulators have allowed banks to delay the hit to their capital ratios from billions of dollars in loan-loss provisions they’ve put aside this year. Massive increases in their holdings of cash and Treasuries are also temporarily excluded from the calculation of the leverage ratio, which has become the binding constraint for the largest banks during the pandemic.

Even if firms wouldn’t be on the precipice of insolvency without the support measures, the allowances have let most banks continue paying dividends, according to the advocacy group. “We’re not in a 2008 situation where major banks are facing collapse, but we’re going into an uncertain future due to the pandemic, and the big banks aren’t in as good a shape as they appear,” Marcus Stanley, policy director at Americans for Financial Reform, said in an interview.

Read more at Bloomberg Quint

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