Staff of Reuters Read for 2 minutes Reuters, June 28 – In an op-ed for the Financial Times, Minneapolis Federal Reserve President Neel Kashkari argued that banks cannot expect the government to bail them out of every crisis and that they must enhance their equity funding to protect against the next “unexpected shock.” On Monday, Kashkari noted in the newspaper that the banking sector’s losses were significantly fewer than his estimates during the COVID-19 outbreak. “Is it true that large banks’ performance throughout the COVID downturn indicates that they are sufficiently strong? No, no, no, no, no, no, no, no, no, no “Moreover, because governments were vigorous in providing fiscal help for households and businesses hit by the crisis, banking losses were far fewer than predicted, he added. While Kashkari believes fiscal authorities did the right thing by supporting the economy during the COVID-19 slump, he also believes “this was also a banking rescue.” “Losses in the banking sector would have been far bigger if not for these fiscal actions,” he wrote in the newspaper. “The people must determine whether banks should be self-reliant or always reliant on government largesse.” Since the financial crisis of 2007-2009, banks have been required to enhance their capital reserves to cover losses, although Kashkari has advocated for even greater standards. Kashkari suggested in April 2020 that big US banks should raise $200 billion in capital and stop paying dividends to prepare for the coronavirus’s deep economic collapse. He wrote, “Banks did not take my suggestion.” Kanishka Singh contributed reporting from Bengaluru, and Ana Nicolaci da Costa edited the piece. Continue reading
