What are Big Banks’ Roles in Current Economics?
Banks Could Prove Weak Partner in Coronavirus Recovery
After the last financial crisis, banks now hang back in lending and trading, allowing hedge funds and nonbanks to…
Q: What is the outcome of less risk taken in the banking system?
“There is less risk-taking in the banking system” today, said Jean Boivin, head of the BlackRock Investment Institute, the think-tank arm of the world’s biggest asset manager. “As a result, the traditional channel of [the Fed] lending to banks and having them deploy it is not as powerful.”
A: The traditional channel of the Fed lending to banks and having them deploy it is not so powerful.
Q: In September, repo rate hiked to 9.5%? Why did banks not lend and take advantage of this high rate?
A: Historically, banks would seize this opportunity to earn money and prices would abate. But now regulations require bank to hold loads of cash-like assets and this hampers the ability of banks to help keep markets functioning when tough.
Q: what happened and should happen(to banks) when coronavirus hit?
A: Money-market funds, which lend to businesses overnight, struggled to stay liquid.
Usually banks should step into their role as the circulatory system of the markets, scooping up assets, matching buyers with sellers (and making moeny as well).
But this time banks are unwilling (or unable) to give up cash and they cannot even steady the safest and most liquid market, which is the market for U.S. government debt.