Friday, January 13, 2017

Insular, Isolated and (therefore we're all) In Jeopardy...

Fed Annual Reports:  Dealing with
 gloomy forecasts and "uncertainty"...
Was reading the Annual Report of the Federal Reserve Bank of Philadelphia recently.  That's the sort of thing one does on a dreary, overcast day, when you're down with the flu, fevered, somewhat dazed by antibiotics, and lacking the resolve to venture far from the couch or "the facilities" - if you know what I mean. (Otherwise, wouldn't recommend Federal Reserve annual reports to anyone under normal circumstances.)

Found two things of particular interest in the Philly Fed's annual progress report. First, the commentary piece [ "Fiscal Policy and Monetary Policy:  Restoring The Boundaries"] by the President of the Philadelphia Fed, Mr. Charles I. Plosser, is a strikingly thoughtful review of overall Federal Reserve policy since 2008, outlining much concern that The Fed may have dangerously overstepped its monetary mandate and outlining the daunting difficulties ahead. 

The Fed, the Congress, and the Country are at significant risk in trying to unwind the current fiscal "dire straits" in which we now find ourselves.  "Fevered or unfevered", the article is well worth your time - and most fortunately, it's written in intelligent, "non-robust" English and runs just a couple of pages. 

The second point of interest was the wealth of ways the Philly Fed is involved within the Fed district it serves. The annual report prominently marks the numerous sources of advice and feedback the bank has developed to assure it stays informed and attuned to the folks it serves. 

There is a nine member Citizens Advisory Council of which Mr. Plosser says:  "I am grateful for the continued advice and counsel of the nine citizens who serve on the board." There is also an Economic Council composed of leaders from District industry, manufacturers, and non-profits.  The Community Depository Institutions Advisory Council has 12 financial leaders, including two representing credit unions.  And, Mr. Plosser even speaks proudly of the District's representative on the national Federal Advisory Council which meets quarterly with the Chairman and full Federal Reserve Board.  

Yes, even "The Big FED" has several working advisory councils which meet regularly to provide insight, as does the FDIC, as do the Federal Home Loan Banks.  One of the very first initiatives of the brand spanking new CFPB was to create citizen/business advisory groups - in which credit unions were thankfully included.

So, here's Test Question #1:  Name the one federal regulatory agency which hasn't formed any advisory groups to provide periodic advice and counsel?


(Lucky guess!!)

Test Question #2:  Why no dialogue at NCUA?  Is everyone else foolish?

A:leadership which is insular and isolated is prone to unforced, uninformed errors - an "irresponsible regulatory risk" ("IRR") for all of us.



Anonymous said...

Speaking of IRR (interest rate risk) … in future blog posts, I’d be “interested” in your take on the revised NCUA procedures for evaluating interest rate risk. My concerns?

Their treatment of all NMD as the same when checking and savings have different characteristics than money markets.

Their treatment of time deposits as guaranteed funding sources, despite the fact the owner of the deposit has the call option (the ineffectiveness of penalty for early withdrawal).

Their lack of understanding that the “obvious fix” of shoring up the deposit base with higher cost funds actually puts the credit union at greater economic risk if rates don’t rise.

Their lack of understanding that relying upon higher cost funding sources is a strategic error; sustainable competitive advantage can be created by being the low cost provider, provided it is done with non-maturity deposits that have characteristics that lead to long average lives.

Their lack of understanding that policies to attract maturity deposits might lead to more surge balance, not less.

Anonymous said...

Your use of the NCUA "logo" has always been fun.
Love the NCYA.

WHY don't you standardize to NACT.

Think you can probably guess what it stands for.