Courtesy of Pam Martens
Dennis Kelleher, Co-Founder, President and Chief Executive Officer of Better Markets
Dennis Kelleher, the co-founder, President and CEO of the nonpartisan Wall Street watchdog, Better Markets, has issued a scathing rebuke of the Federal Reserve’s so-called “stress tests” of the mega banks on Wall Street, calling them “toothless.”
Kelleher’s criticisms revolve around two key points. The Fed is preordaining the outcome of the tests by (1) pumping up the banks’ capital with financial handouts prior to the tests and (2) by removing key aspects of the stress tests that would negatively impact the outcome.
Kelleher writes that the Fed’s “unprecedented” support to financial markets and the economy since last March was $4 trillion and “has materially helped to bolster bank balance sheets and capital levels.” But Kelleher is overlooking the more than $9 trillion in cumulative repo loans that the Fed showered on the trading units of these mega Wall Street banks, at far below market interest rates, from September 17, 2019 through early July of 2020, the month that the Fed simply stopped reporting this handout to the Wall Street banks.
This is also how the Fed has ginned up the tests, writes Kelleher:
“Making matters worse, the stress test program has been seriously weakened under the Powell chairmanship by, among other things, the removal of two key components: the inclusion of dividend payouts and a growing balance sheet. If those factors were included, as they should have been, the banks would have had materially lower post-stress capital ratios.”
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