Government policies reshape the banking industry: Changes, consequences, and policy issues

Hosted by the American Enterprise Institute.

On April 12, AEI’s Paul H. Kupiec hosted a panel discussion on recent changes in the banking industry and their consequences for the wider economy. He reviewed how the industry has consolidated, is lending less to the private sector, and is relying more on federal guarantees.

Richard E. Sylla of New York University summarized the history of the banking industry. Aside from a 50-year period of stability, US banking has trended toward a system characterized by a few large banks with extensive branch systems, branch systems that are now in decline themselves.

Charles Calomiris of Columbia University summarized more recent trends in the banking industry as a “three-legged stool”: extreme consolidation, extreme dependency on government support, and reliance on real estate lending. Alex J. Pollock of the R Street Institute added that the greater “banking credit system” is increasingly influenced by the Federal Reserve and government-sponsored enterprises.

Bert Ely of Ely & Company enumerated the industry risks. Depository institutions are intermediating deposits into government debt. Low interest rates have also squeezed bank margins and reduced the cushion to absorb losses that may arise from the pandemic.

— John Kearns

Event Description

The federal government response to the 2008 financial crisis, including new laws, prudential regulations, and Federal Reserve monetary policies, has left a lasting impact on the banking industry. Not only has the number of independent depository institutions almost halved since 2000, but the industry has also become much more concentrated in a few large “systemically important” institutions. Moreover, the characteristics of the largest banks have changed dramatically according to incentives established by heightened prudential regulatory requirements and the Federal Reserve’s long-lived zero interest rate environment.

Join AEI as a panel of banking experts discusses postcrisis changes in the banking industry and their consequences for the wider economy.

Event Materials

• Paul H. Kupiec: “20 years of banking history in 67 charts and tables”

• Richard Sylla: “From exceptional to normal: Changes in the structure of US banking since 1920”

• Alex J. Pollock, Hashim Hamandi, and Ruth Leung: “Banking credit system, 1970–2020”

• Charles W. Calomiris: “Introduction: Assessing banking regulation during the Obama era”

Agenda

10:00 AM
Introduction and opening remarks:
Paul H. Kupiec, Resident Scholar, AEI

10:15 AM
Panel discussion

Panelists:
Charles Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia University
Bert Ely, Principal, Ely & Company
Alex J. Pollock, Distinguished Senior Fellow, R Street Institute
Richard E. Sylla, Professor Emeritus of Economics, New York University

Moderator:
Paul H. Kupiec, Resident Scholar, AEI

11:30 AM
Q&A

12:00 PM
Adjournment

Pollock participates in a discussion with Professor Mark H. Rose

Hosted by the American Enterprise Institute.

R Street Distinguished Senior Fellow Alex J. Pollock took part in a March 27 panel at the American Enterprise Institute to discuss economic historian Mark Rose’s new book, “Market Rules: Bankers, Presidents, and the Origins of the Great Recession.” Other panelists were Rose himself, Richard Sylla of the National Bureau of Economic Research and moderator Paul H. Kupiec of AEI.

Global financial market risks: Entering unchartered territory

Hosted by the American Enterprise Institute.

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AEI Event: Eliminating Fannie Mae and Freddie Mac without legislation

Hosted by the American Enterprise Institute.

A panel of housing finance experts met at AEI last Tuesday to discuss how the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac could be eliminated without legislation.  Moderated by R Street’s Alex J. Pollock, the panelists detailed the distortions of the current housing finance system dominated by Fannie and Freddie, and proposed a reform plan that protects homebuyers and taxpayers and does not require Congress to act.

The Bubble Economy – Is this time different?

Hosted by the American Enterprise Institute.

Two decades after Alan Greenspan’s famous “irrational exuberance” speech at AEI in 1996, Dr. Greenspan spoke at AEI again, addressing record-high global stock and bond market prices following unprecedented central bank balance sheet expansions.  Following Greenspan’s keynote address, R Street’s Alex J. Pollock led an expert panel that discussed whether the world economy is now experiencing an asset market price bubble and what might be done about it.

AEI Event: Is the Bank Holding Company Act obsolete

Hosted by the American Enterprise Institute.

Most of America’s 4969 are owned by holding companies, so the Bank Holding Company Act of 1956 is a key banking law. But do the prescriptions of six decades ago may not still make sense for the banks of today. The act for most of them creates a costly and arguably unnecessary double layer of regulation. Its original main purpose of stopping interstate banking is now completely irrelevant. One of its biggest effects has been to expand the regulatory power of the Federal Reserve–is that good or bad? Does it simply serve as an anti-competitive shield for existing banks against new competition? Some banks have gotten rid of their holding companies–will that be a trend? This conference generated an informed and lively exchange among a panel of banking experts, including the recent Acting Comptroller of the Currency, Keith Noreika, and was chaired by R Street’s Alex Pollock.

Pollock before Oversight Subcommittee

Here’s more from R Street Distinguished Senior Fellow Alex Pollock’s testimony before the House Committee on Financial Services on the arbitrary and inconsistent non-bank SIFI designation process.

Pollock testifies on CHOICE Act before House Financial Services

Published by the R Street Institute.

R Street Distinguished Senior Fellow Alex J. Pollock testified July 12, 2016 before the House Financial Services Committee about the CHOICE Act, legislation that proposes to loosen regulatory controls on banks that choose to hold sufficient capital to offset their risk to the financial system. Video of Alex’s testimony, as well as Q&A about the Volcker Rules and other reforms to the Dodd-Frank Act, is embedded below.