Powell calls for regulations on digital currencies


Elizabeth McLaughlin, Editor

Header Image: The Washington Times

On Wednesday, March 23, Federal Reserve Chairman Jerome Powell discussed the need for consumer protection when it comes to digital currencies. The Bank for International Settlements, an organization that includes central bankers from around the world, organized the panel at which Powell spoke. There are two kinds of new technologies that Powell is concerned with: stablecoins and central bank digital currencies.

The former are a kind of cryptocurrency tied to a commodity or the dollar; the latter are government-issued digital forms of currencies, like the U.S. dollar. Back in Jan., the Fed released a study on stablecoins that identifies the form of currency as “a possible breakthrough innovation in the future of payments.” The Fed understands that stablecoins have the potential to significantly impact the banking system, both on traditional banking and credit provision. As for digital currencies, the Fed is researching the topic but has not decided whether to issue their own.

Although Powell did not provide much detail as to the content of these regulations, he did say that these digital transactions should be regulated the same as other transactions executed by banks. Powell is particularly concerned with the perceived lack of consumer awareness of the risk associated with cryptocurrency: many popular investments lack government protection of losses. The rate of adult Americans who invest in cryptocurrency is 16 percent and it seems that the hype is only growing, meaning that more Americans are going to be exposed to unregulated risk by investing in crypto in the coming years. That is, however, unless the government develops more robust laws and regulations concerning digital currencies.

Besides personal loss and privacy concerns, Powell discussed how cryptocurrency assets have been used for “illicit activity,” such as money laundering. On top of that, Sen. Elizabeth Warren has expressed concern regarding crypto use and evading sanctions on Russia.

Powell discusses FOMC meeting, forward-guidance and economic recovery


Michael D’Angelo, Staff


Pictured above is Federal Reserve Chairman Jerome Powell. Powell led this week’s FOMC meeting, forward-signaling the Fed’s monetary policy strategy and lending clarification to eager market makers.

Since the Federal Reserve’s inception in 1913, the central bank has made a profound impact on the nation’s commercial banking sector, monetary policy and the world. The Federal Reserve, or the Fed, operates as our nation’s commercial banking regulator, monetary policy interventionist and financial stabilizer. The Fed is made up of 12 member banks which assist an assigned geographic area around the country and help with banking services and compiling data in the area. The Fed’s main goals are price stability, maximum employment and maintaining moderate long-term interest rates. 

The Fed meets eight times a year with members from other area banks known as the Federal Open Market Committee (FOMC). The FOMC consists of 12 members, which come from the Board of Governors of the Fed and Reserve Bank presidents. The FOMC is responsible for managing the country’s money supply.  

The current chairman of the Fed is Jerome Powell. Powell has served in this role since 2018. An alumnus of Princeton and Georgetown, Powell worked shortly in investment banking in his early career and later went on to start working in public service under Former President George H. W. Bush. Since his time at the Fed, Powell has neither been described as either a dove, which is a policymaker interested in low unemployment and low interest rates,  nor a hawk, which is a policymaker more concerned with stifling inflation. Instead, Powell has been described as a major mediator: one to find a consensus in monetary policy and the economy. He has been known to listen to many different members of Congress’ views on the economy. 

The FOMC met live today at 2:30 p.m. to discuss the economy’s recovery. With three vaccines in full swing and a new stimulus package passed, many of the challenges induced by the coronavirus pandemic are seeming smaller, and recovery has been top-of-mind among regulators. As a result, speculators are expected to grow more eager to reenter the market after a tumultuous year.

Many investors are concerned with the recent rise in treasury yields and inflation. Powell has discussed inflation a few weeks ago, and he does not believe inflation to be a major concern. As expected, he reiterated this point during today’s FOMC meeting. The Fed’s Summary of Economic Projections in December estimated GDP to be 4.2 percent, unemployment to be at 5 percent, and core inflation to be at 1.8 percent for 2021. Some believe these estimates rely on optimistic outcomes regarding vaccine rollouts and business reopenings. 

Market conditions indicated investors were not expecting a change in interest rates announced at the meeting, and there was none. Powell made it clear that the Fed would employ ample forward signaling before implementing any drastic, market-moving changes such as a tapering of treasury yields. In a Q&A with reporters, Powell made it clear that there needs to be significant progress made in economic recovery to consider the action. Currently, the federal funds target rate (the rate commercial banks lend to each other) is set from 0 to 0.25 percent. This was set low by the Fed to stimulate credit markets and encourage lending to businesses afflicted by the economic shutdown that occurred last March in response to spiking COVID-19 transmission rates.  As we recover from the pandemic, the economy’s fate will be placed not only in the hands of the FOMC and the Fed but in the average American’s consumer confidence and their ability to spend money. A recovery in consumer confidence followed by an economic recovery will likely prompt the Fed to change course, when that will happen remains an uncertainty.


Testing the mettle: banks to undergo arduous stress tests by Federal Reserve


Elizabeth McLaughlin, Staff


The Federal Reserve is subjecting large banks to routine stress tests in order to measure their ability to cope with a worsening recession.

On Friday, Feb. 12, the Federal Reserve Board released scenarios for its 2021 bank stress tests. The tests are designed to measure the resilience of large banks by estimating their loan losses and capital levels. Last year, banks performed relatively well under the stress tests, and the Fed ultimately placed restrictions on bank payouts to preserve the strength of the banking sector. Large banks are subject to the stress test and some smaller banks have the option to opt-in to the test over a longer period of time. The banks that are required to take part in the upcoming stress test are Capital One Financial (COF), Citigroup (NYSE:C), Credit Suisse (NYSE:CS) Holdings USA, DB USA (NYSE:DB), Goldman Sachs (NYSE:GS), HSBC (NYSE:HSBC) North America Holdings, JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS), Northern Trust (NASDAQ:NTRS), PNC Financial (NYSE:PNC), State Street (NYSE:STT), TD Group (NYSE:TD) US Holdings, Truist Financial (NYSE:TFC), UBS Americas (NYSE:UBS), U.S. Bancorp (NYSE:USB) and Wells Fargo (WFC). This upcoming test will be the third stress test in the last 12 months.

The test comes in two parts. The first is the Dodd-Frank Act Stress Test, which analyzes a bank’s balance sheet performance under hypothetical scenarios using a standard capital management plan. The second part is the Comprehensive Capital Analysis and review, which subjects the bank to the same hypothetical scenario, but this time, under their own capital management plan. The test lasts nine consecutive quarters.

The hypothetical recession scenario begins in the first quarter of 2021 and places significant strains on commercial real estate and corporate debt. There will be a severe commercial real estate price decline in this stress test compared to the past three tests. There is also a global market shock component that evaluates banks’ abilities to trade under pressure. Moreover, the unemployment rate will rise by four percent, reaching a peak of 10.75 percent in Q3 2022. This year, the stress test is more severe than usual, given the COVID-19 pandemic and its harrowing effects on the economy. The 2020 stress tests featured a decline in GDP by 9.9 percent and 5.9 percent, as well as peak unemployment rates of 10.0 percent and 12.5 percent. The results of the stress test will be announced by the Federal Reserve on their website by June 30.