Word: nonbanks
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Dates: during 2000-2009
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...complacency." But normalcy is leading to complacency. Consider the financial reforms that Obama's Administration wants to push through Congress: the big ones are creating a Consumer Financial Protection Agency, giving the Federal Reserve the job of systemic-risk regulator and establishing a "resolution regime" to wind down troubled nonbank financial institutions (like Lehman) and complex bank holding companies. Steps in the right direction? Probably. Truly major reforms? Not so much--and even they may not win congressional approval...
...breeding complacency - perhaps because complacency is normal. Consider the financial reforms that the Obama Administration wants to push through Congress before year-end - creating a Consumer Financial Protection Agency, giving the Federal Reserve the job of systemic risk regulator, and establishing a "resolution regime" to wind down troubled nonbank financial institutions (like Lehman) and complex bank holding companies in an orderly fashion. Steps in the right direction? Probably. Truly major reforms? Not so much...
...deceptive practices. Geithner also wants to consolidate the work of some of the regulators, in particular giving broad new authority to the Federal Reserve to police Wall Street. He would like to impose new oversight on hedge funds and derivatives and give government the power to close large failing nonbank financial institutions before they can threaten the entire system, as happened with AIG less than a year ago. (See who's who in Barack Obama's White House...
...interest margin is partly a product of interest rates: banks borrow short term and lend long term, so when long-term interest rates drop below short-term rates (as happened three times in the past 15 years), margins are squeezed. But another big factor has been the rise of nonbank competitors. The barely regulated shadow-banking system of securitization, investment banks and hedge funds took lots of business away from banks. Banks responded by relying more on fee income to pay the bills, getting in on shadow banking themselves and offering easier terms on loans - the latter two with sometimes...
...dramatic drop in demand could be either very good or very bad for traditional banks. It could mean that the nonbank, or "shadow bank," system is less appealing to borrowers than traditional banks in uncertain times, and so they are going to regular banks for loans instead. Or more ominously, it could mean there is an overall dramatic drop in borrowing, which would hurt everybody...