G-SIBs And Jay Powell

“I think that the overall level of our capital, particularly at the largest firms, is about right. I’m open to evidence that there are problems with that. I don’t see U.S. banks having difficulty competing, particularly internationally. They seem to be competing very well. They seem to be profitable…. Their stock prices seem to be fine. So, in terms of the surcharge, in particular, it’s one of a bunch of pieces. But I would say the overall level, I think, is just about right.”

– Federal Reserve Chairman Powell during his recent testimony before the House Financial Services Committee. Source: Capital Alpha Partners.

Twenty-nine Members of Congress have written to Powell, questioning the costs and capital requirements imposed on the large banks. In America, there are eight huge banks known as G-SIBs. The acronym means “globally systemically important banks.” Twenty-one additional huge banking enterprises that are non-US jurisdictions bring the worldwide total to 29 G-SIBs. The American G-SIBs are Bank of America (BAC), Bank of New York Mellon (BK), Citigroup (C), Goldman Sachs (GS), JP Morgan Chase (JPM), Morgan Stanley (MS), State Street (STT), and Wells Fargo (WFC).

Readers can learn more about G-SIBs here:

• “Global systemically important bank (G-Sib),” 
• “The G-SIB framework – Executive Summary,” 
• “2018 list of global systemically important banks (G-SIBs),” 

Here is why G-SIBs and rules applied to them contributed to the stock market crash and to money and bond market volatility at the end of last year.

The way the rules work, G-SIBs are encouraged to make market changes in their portfolios at certain reporting periods. One of those changes is to temporarily shrink the size of the bank in order to lower a regulatory cost. The technical details are described in the citations above. This rule is set to change in 2021. Numerous types of market transactions are used to accomplish a temporary size shrinkage. Repo is one of them.

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Disclaimer: The preceding was provided by Cumberland Advisors, Home Office: One Sarasota Tower, 2 N. Tamiami Trail, Suite 303, Sarasota, FL 34236; New Jersey Office: 614 Landis Ave, Vineland, NJ ...

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