Federal Reserve officials strongly signaled they will be toughening big-bank capital requirements even further than they have since the 2008 crisis, a move that will further increase pressure on the largest US banks to consider shrinking.
Fed governors Daniel Tarullo and Jerome Powell, in separate public comments Thursday, said the Fed will require eight of the largest US banks to maintain even more capital to pass the central bank’s annual “stress tests.”
Notice that they’re acting by rule and moving sharply away from their knitting, which is to concern themselves with maintaining price stability and full employment. With this rule, they’re nakedly broadening their interference in the free market place.
“Effectively this will be a significant increase in capital,” Mr Tarullo said on Bloomberg television. He recently said in an interview that he expected big banks to have to change their size, organization, or business model in response to the Fed’s regulatory moves.
Never mind that a business’ size, organization, or business model are solely the decision of the business’ owners—private citizen shareholders—and not the interest of any government in a truly free market economy.
“I have not reached any conclusion that a particular bank needs to be broken up or anything like that,” he said. The point is to “raise capital requirements to the point at which it becomes a question that banks have to ask themselves.”
This is disingenuous. When it’s government rather than owners forcing the question onto a business, it’s government dictating the answer. Especially when using this sort of tool for the forcing. Capital requirements and associated risk handling are solely the decision of the business’ owners—private citizen shareholders—and not the interest of any government in a truly free market economy. Assessment of the outcomes of those decisions are solely the province of the business’ owners, customers, and a free market; they are no concern of government.
Of course these two and their fellow Fed Governors know this. The move, though, is consonant with the Left’s general move toward ever larger government with ever larger intrusions into private affairs, driven by their ideology that Government is the answer, and where it fails the proper corrective action is to increase Government.