CHART OF THE WEEK

 

 

Contrary to what Dodd-Frank proponents claim, a Brookings study looks at several market estimates of financial institutions’ safety and finds that by all metrics, banks are riskier, or at least as risky, as they were before the financial crisis of 2008, due in part to overly burdensome regulations.

 

A higher equity-to-asset ratio indicates a firm is in a better position to absorb losses, i.e., it is less risky. Conversely, a lower ratio indicates a firm is more risky.

 

The chart above shows the pre-crisis (2002-2007) and post-crisis (2010-2015) equity-to-asset ratios for what are now the six largest financial institutions. Post-crisis, the data indicate that banks have an even smaller margin for error than before the financial crisis.

 

The study attributes the banks’ increased riskiness to declining “franchise values,” as a possible result of low interest rates, a relatively flat yield curve, regulatory restrictions, financial penalties for past practices, and the likelihood of future regulatory actions.

 

LAST WEEK

News & Commentary Weekly Highlights:

• Real Money: Troubling Details Lie Beneath a Decent Jobs Number (Friday)
• Wall Street Journal: U.S. to Forgive at Least $108 Billion in Student Debt in Coming Years (Wednesday)
• Bloomberg: How Does Occupational Licensing Affect Employment and Recidivism? (Tuesday)
• CNBC: Second estimate of US Q3 gross domestic product up 3.2%, vs 2.9% prior estimate (Tuesday)
• Weekly Standard: If Charter Schools Are ‘Unregulated,’ Why Is This Successful California School Facing a Shutdown? (Tuesday)

 

Top Economic Indicator Highlights:

• Employment Situation (November)
  • Unemployment rate (seasonally adjusted):
    • November: 4.6%; October: 4.9%; September: 5.0%
• Nonfarm jobs (seasonally adjusted):
  • November: 178,000; October: 142,000; September: 208,000
• Noteworthy: While headline unemployment fell 0.3 percentage point, the workforce shrank by 226,000 individuals even though the civilian noninstitutional population grew by 219,000. Even more troubling is that 231,000 prime-age workers (ages 25 to 54) exited the workforce in November.

 

JEC Releases:

• Labor Review: Context for the November Labor Report (Friday)
• The Looming Debt Crisis: An International Perspective (Thursday)
• The Reward of Work, Incentives, and Upward Mobility (Thursday)
• From Creation to Reform, Part I: The Process of Agency Rulemaking (Wednesday)

 

THIS WEEK

Upcoming Economic Data

• Monday
  • ISM Manufacturing (10:00am)
• Tuesday
  • Productivity and Costs (8:30am)
  • Trade Balance (8:30am)
  • Manufacturers’ Shipments, Inventories, & Orders (10:00am)
• Wednesday
  • Job Openings and Turnover Summary (JOLTS) (10:00am)
  • Consumer Credit (3:00pm)
• Thursday
  • Jobless Claims (8:30am)
• Friday
  • Michigan Consumer Sentiment (Preliminary) (10:00am)
  • Wholesale Trade (10:00am)