The latest issue of Forbes magazine features Steve Forbes‘ analysis of the Federal Reserve’s questionable actions in connection with one of North Carolina’s top banks. Forbes contends the Fed’s recent “stress tests” for the nation’s 18 largest banks gave the central bank a chance to “whack” BB&T and others “for political reasons.”
The Fed’s thrashing of BB&T, however, is especially disturbing, because it is the best-capitalized institution of the 18. The Fed is playing dirty pool here for two reasons. First, the bank’s former CEO John Allison IV, who made BB&T the formidable powerhouse it is today, was unusually outspoken in his criticism of bank regulators. During the financial crisis of 2008-09 he fiercely resisted Treasury Department pressure to take TARP money. The bank took it only after Treasury Secretary Hank Paulson threatened grievous harm. Second, the Fed didn’t like the firm’s less-than-adulatory views regarding economic and financial modeling. Sure, BB&T had its own internal models for assessing risk, based on its own experience. But while the Fed won’t admit this, it wants all financial institutions to basically follow its own model.
And this is where we’ll get into future trouble. The Fed is forcing institutions to be, in effect, carbon copies of one another in their activities. Thus, if there is another financial “virus,” all of these institutions will be infected and topple.
A theoretical possibility? We have real-life proof of the folly in this kind of forced uniformity: the Basel Accords. For years regulators around the world have been concocting uniform risk assessments to judge bank loans. The results of this exercise have been disastrous.
