By Bill Watkins – Previously Published in the Pacific Coast Business Times In popular culture, there are “good” industries and “evil” industries. Oil has held the most hated position of the evil list for generations and is likely to hold it until there is no more oil. Farming, once solidly on the good list, is… Read more

In late 2008, U.S. banks accelerated consolidation driven by intense Federal government pressure (many failing banks were “saved” by being acquired by a larger bank). This yielded a banking structure where today the largest five U.S. banks control over 44 percent of the nation’s banking assets. The five largest U.S. banks held assets of $6.7… Read more

I am worried that societies and/or their governments have chosen to commit taxpayers to underwriting the solvency of banks. Economic research has shown clear benefits to financial intermediation. The collection of savings creates a pool of funds that can be used to finance business expansion. Banking is very important to economic activity. The United States… Read more

The headline is “AP: Wells Fargo customers soon will pay $7 checking account fee.”  It’s accompanied by a picture of Wells Fargo’s CEO, a picture that makes him look like he eats babies for breakfast.  The first paragraph reads: Customers in California and six other Western states soon will pay a $7 checking account fee,… Read more

Interest rate spreads are returning to higher levels, levels that indicate financial and economic instability. This could indicate that an economic regime shift may occur this year. The normalized TED, which is the 3 month LIBOR minus the 3-month Treasury divided by the 3-month Treasury, has reached a level not seen since the fall of 2008.… Read more

Previously published in the California Economic Forecast, March 24, 2011 If you are looking for a summary statistic on the United States economy, I recommend you consider bank charge-offs. These are the loans that banks have written off their books, because the probability of collecting them is so low. It doesn’t mean that the borrowers… Read more

Finally, people are starting to see the problem with the United States economy.  This piece is typical.  For over a year now, we have been warning that the United States could be facing a long period of slow economic growth, similar to what Japan has seen for the past couple of decades. Seeing a problem… Read more

Bloomberg has a report on an IMF study.  Here is the key sentence: “The U.S. financial system remains fragile and banks subjected to additional economic stress might need as much as $76 billion in capital, according to the results of International Monetary Fund stress tests.” We at CERF have been long concerned about the strength… Read more

When thinking about regulation, it is helpful to have some regulatory principles. Here are my proposals: Keep it simple. Simple regulation is cost-effective regulation. Simple regulation minimizes both regulatory costs to the government and compliance costs to the regulated firms, costs eventually borne by consumers or taxpayers. Complicated regulation invites lawsuits and encourages efforts to… Read more

Almost everybody pontificating about financial regulation seems to be recommending increased capital ratios, increasing the ratio of firm’s capital to assets. It is also true that financial regulation around the world includes minimum capital ratios. The reasoning seems to be that if you increase a financial institution’s capital, it is less likely to fail, but… Read more