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I can& #39;t stop thinking about this misguided op-ed by @bankpolicy& #39;s Greg Baer.
So here& #39;s a thread about why it& #39;s wrong, and why policymakers should absolutely suspend bank dividends. https://www.ft.com/content/182e8048-09f0-45bc-8365-0c0ba63a92ac">https://www.ft.com/content/1...
So here& #39;s a thread about why it& #39;s wrong, and why policymakers should absolutely suspend bank dividends. https://www.ft.com/content/182e8048-09f0-45bc-8365-0c0ba63a92ac">https://www.ft.com/content/1...
1. The crux of Baer& #39;s argument is that regulators should not prohibit bank dividends because doing so would hurt banks& #39; market values.
But why should regulators care about market value? Regulators should focus on solvency - which suspending dividends would bolster.
But why should regulators care about market value? Regulators should focus on solvency - which suspending dividends would bolster.
2. Baer contends that banks should be entitled to pay dividends if they pass the Fed& #39;s stress tests.
Not so. When economic conditions are far worse than the stress test& #39;s assumptions, the tests are no longer relevant.
Not so. When economic conditions are far worse than the stress test& #39;s assumptions, the tests are no longer relevant.
3. Baer cherry-picks data suggesting that U.S. banks are highly capitalized.
The op-ed conveniently omits that BPI& #39;s very first reaction to COVID-19 was to urge the Fed to gut binding capital requirements, which the Fed has, in fact, done.
https://bpi.com/actions-the-fed-could-take-in-response-to-covid-19/">https://bpi.com/actions-t...
The op-ed conveniently omits that BPI& #39;s very first reaction to COVID-19 was to urge the Fed to gut binding capital requirements, which the Fed has, in fact, done.
https://bpi.com/actions-the-fed-could-take-in-response-to-covid-19/">https://bpi.com/actions-t...
4. Baer treats bank dividends as inviolable.
But as I& #39;ve noted, if banks MUST pay dividends, then common stock looks a lot like debt - and maybe doesn& #39;t warrant favorable capital treatment. https://twitter.com/Jeremy_Kress/status/1264916921805344768?s=20">https://twitter.com/Jeremy_Kr...
But as I& #39;ve noted, if banks MUST pay dividends, then common stock looks a lot like debt - and maybe doesn& #39;t warrant favorable capital treatment. https://twitter.com/Jeremy_Kress/status/1264916921805344768?s=20">https://twitter.com/Jeremy_Kr...
5. Banks should be doing everything in their power to conserve capital. We know defaults and write downs are coming. Every dollar paid out in dividends today is a dollar less to absorb losses tomorrow.
For more, see @FinGregg: https://www.americanprogress.org/issues/economy/reports/2020/05/12/484722/bank-capital-coronavirus-crisis/">https://www.americanprogress.org/issues/ec...
For more, see @FinGregg: https://www.americanprogress.org/issues/economy/reports/2020/05/12/484722/bank-capital-coronavirus-crisis/">https://www.americanprogress.org/issues/ec...
6. As @STOmarova has said, it& #39;s disheartening that we even have to fight on this issue. In a well-governed financial system, the Fed would& #39;ve suspended dividends months ago, and we& #39;d be on to fighting bigger battles. /end https://twitter.com/STOmarova/status/1263520412690010112?s=20">https://twitter.com/STOmarova...
