Chris Whalen: Economist Class Has Run out of Ideas
Chris Whalen, Whalen Global Advisors Chairman and author of The Institutional Risk Analyst, recently spoke with BNN Bloomberg about this quarter’s bank earnings announcements and how they shed light on why bank lending relative to deposits is at a 30 year low. The interview hits on themes we’ve been covering since day one on this site, namely that the Fed’s post-Financial Crisis policies of zero interest rates, large QE programs, and paying interest on excess reserves are actually dis-incentivizing bank lending.
“The first quarter was probably the best quarter for the industry (banking industry). They are, once again, facing the Federal Reserve pushing down interest rates and also compressing spreads, which is how banks make money. So for big banks they are battling to retain assets (TC: assets are loans for banks) and retain size. It’s hard for them to originate and retain loans in this environment because rates are so low.”
“Until the Fed really shifts policy and allows rates and also spreads, the difference between different bonds and loans pricing…, to expand, it’s going to be hard for banks to make money. It’s also hard for other savers to make money… I think this is a more general problem which is the economist class has run out of options, they’ve run out of ideas… We’ve turned Fed Fund in the US into a government market. There are no private parties trading Fed Funds because the Fed has taken it over and I worry about this because the more we take away price discovery and the more we nationalize our markets in the US, the less resilience we’ll have going forward…”
