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Bank Capital, Loan Liquidity, and Credit Standards since the Global Financial Crisis

Published by Anonymous (not verified) on Wed, 21/10/2020 - 10:00pm in

Sarah Ngo Hamerling, Donald P. Morgan, and John Sporn

LSE_Bank Capital, Loan Liquidity, and Credit Standards since the Global Financial Crisis

Did the 2007-09 financial crisis or the regulatory reforms that followed alter how banks change their underwriting standards over the course of the business cycle? We provide some simple, “narrative” evidence on that question by studying the reasons banks cite when they report a change in commercial credit standards in the Federal Reserve’s Senior Loan Officer Opinion Survey. We find that the economic outlook, risk tolerance, and other real factors generally drive standards more than financial factors such as bank capital and loan market liquidity. Those financial factors have mattered more since the crisis, however, and their importance increased further as post-crisis reforms were phased in in the middle of the following decade.

Measuring Credit Standards

The Fed’s Senior Loan Officer Opinion Survey (SLOOS) is a quarterly survey of about eighty large domestic banks and twenty-four foreign banks. The domestic banks, our focus, account for roughly 70 percent of all U.S. banks’ assets. The first question in the survey asks about credit standards for commercial and industrial (C&I) loans:

Over the past three months, how have your bank's credit standards for approving applications for C&I loans or credit lines—other than those to be used to finance mergers and acquisitions—to large and middle-market firms changed?

a. Tightened considerably
b. Tightened somewhat
c. Remained basically unchanged
d. Eased considerably
e. Eased somewhat

The chart below plots the number of banks reporting tightening and easing between 2001 and 2019. Banks tend to cycle from easing to tightening before recessions but that shift had never been so dramatic as during the 2007-09 crisis. Researchers have found that tighter standards strongly predict slowdowns in bank credit growth and economic activity (Lown and Morgan; Basset et al.).

Bank Capital, Loan Liquidity, and Credit Standards since the Global Financial Crisis

What Drives Credit Standards?

Banks reporting a change in credit standards or terms are asked to rate the importance of various factors in driving the change. The set of reasons offered since at least 2001 is listed in the table below in slightly abridged form (the full text is here). Easing and tightening banks are offered the same set of reasons, except with the directions reversed. For example, the text on bank capital is either “improvement in your bank’s current or expected capital position” or “deterioration …”

The second column below reports the mean share of respondents that ranked the reason as either very or somewhat important. By that (simple) metric, real factors drive standards more than financial factors like bank capital and liquidity. That is notable in light of recent academic literature stressing the importance of banks’ capital strength in driving credit supply (Bernanke and Gertler; Peek and Rosengren). Of course, the hypothesis of a bank capital channel is that capital also matters, along with real factors, not that it matters more. Note also that financial factors were markedly more important during the financial crisis, as shown in the final column.

Bank Capital, Loan Liquidity, and Credit Standards since the Global Financial Crisis

Columns (3) and (4) report the means separately for banks that reported easing or tightening and column (5) reports the difference in means. The financial factors matter symmetrically, that is, increased concerns about banks’ capital or loan liquidity drive easing standards as much (or as little) as decreased concerns drive lower standards. The real factors, by contrast, matter asymmetrically, with all but one mattering more for tightening than for easing. The exception is competition; increased competition among lenders drives standards downward much more than weaker competition drives them upward. The strong link between increased competition and easing standards is consistent with the long-standing notion that increased competition spurs more risk taking by banks (Carlson, Correia and Luck provide interesting historical evidence on that conjecture; Goetz reviews the literature). However, we’re not aware of theories that predict the asymmetric effects of competition on credit standards.

Different Drivers Since the Crisis?

To see if the drivers have changed since the financial crisis of 2008-09, we compare the average share of banks reporting that a reason was important before the crisis to the average share after the crisis, conditional on the number of banks that changed standards. Technically, we regressed the number of banks saying x was an important reason why they tightened or eased each quarter on a constant, a “post-crisis” indicator, and the number of banks that tightened or eased. Given the asymmetries just noted, we estimated separate models for easing and tightenings. The chart below summarizes the results. The asterisks over the red bars indicate if that reason was significantly more or less important after the crisis.

While real factors still predominate over the cycle, financial factors are more significant since the crisis. On the easing side, the mean share of easing banks citing their capital position rose from 18 percent to 23 percent, eclipsing banks’ own risk tolerance in importance. On the tightening side, both capital and loan market liquidity were more significant drivers; the mean share of tightening banks citing capital concerns increased from 5 percent to 14 percent while the mean share citing liquidity concerns increased from 7 to 18 percent.

Bank Capital, Loan Liquidity, and Credit Standards since the Global Financial Crisis

To see what’s behind the post-crisis shift, we plot the fraction of tightening banks citing capital and liquidity concerns below. Those concerns remain elevated for several years after the crisis, which partly explains their heightened importance since the crisis. That post-crisis “hangover” is not the whole story, however, since capital and liquidity concerns resurged somewhat in the middle of the decade.

Bank Capital, Loan Liquidity, and Credit Standards since the Global Financial Crisis

That resurgence roughly coincides with the finalization of stricter bank capital and liquidity rules in 2013 and 2014, respectively, and their gradual implementation over the next few years. We can’t put too fine a point on this interpretation given our simple analysis, but the timing squares with other recent evidence that those reforms might have unintentionally reduced or reallocated bank credit supply (for example, Roberts, Sarkar, and Shachar; Kovner and Van Tassel). Of course, the policy question is whether any such costs of reforms outweigh the benefits of increased bank resilience and financial stability, a more difficult question indeed.


Sarah Ngo Hamerling is a senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Donald P. Morgan

Donald P. Morgan
is an assistant vice president in the Bank’s Research and Statistics Group.

Sporn_johnJohn Sporn is a collateral value analysis associate in the Bank’s Markets Group.

How to cite this post:

Sarah Ngo Hamerling, Donald P. Morgan, and John Sporn, “Bank Capital, Loan Liquidity, and Credit Standards since the Global Financial Crisis,” Federal Reserve Bank of New York Liberty Street Economics, October 21, 2020,


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

How Has Post-Crisis Banking Regulation Affected Hedge Funds and Prime Brokers?

Published by Anonymous (not verified) on Mon, 19/10/2020 - 10:00pm in

Nina Boyarchenko, Thomas M. Eisenbach, Pooja Gupta, Or Shachar, and Peter Van Tassel


“Arbitrageurs” such as hedge funds play a key role in the efficiency of financial markets. They compare closely related assets, then buy the relatively cheap one and sell the relatively expensive one, thereby driving the prices of the assets closer together. For executing trades and other services, hedge funds rely on prime brokers and broker-dealers. In a previous Liberty Street Economics blog post, we argued that post-crisis changes to regulation and market structure have increased the costs of arbitrage activity, potentially contributing to the persistent deviations in the prices of closely related assets since the 2007–09 financial crisis. In this post, we document how post-crisis changes to bank regulations have affected the relationship between hedge funds and broker-dealers.

The Relationship between Hedge Funds and Prime Brokers

Hedge funds rely on prime brokers and broker-dealers for a slew of services, such as trade execution, the extension of leverage, securities lending, and account centralization of cash and securities. Consolidation of the banking system over time has led to the largest broker-dealers becoming part of bank holding companies and therefore subject to bank regulations. In an update to our Staff Report, we find specific evidence that post-crisis regulation has affected the match between broker-dealers and their clients. This evidence is consistent with the hypothesis that regulations affecting incentives for banks to take on leverage pass through to their hedge fund clients and thereby increase the overall “limits-to-arbitrage” in leverage-dependent arbitrage trades.

We use data from Form ADV, which is an annual regulatory filing required by the U.S. Securities and Exchange Commission for investment advisers. Form ADV data provides us with a repeated panel of hedge fund-prime broker pairs. These pairings enable us to study how the choice of prime brokers for a given hedge fund changes over time, including the probability of new match formation and the persistence of existing matches.

The Impact of the Supplementary Leverage Ratio (SLR)

We focus on key Basel III banking regulations that became active in 2014. In particular, the supplementary leverage ratio (SLR) requires that large banking organizations hold capital against their total leverage exposure—including on-balance sheet assets and off-balance sheet assets and exposures. Our hypothesis is that these regulations incentivize banks and their broker-dealer subsidiaries to be wary of their balance sheet size and hesitant to provide balance sheet space to hedge fund clients. We expect hedge funds to adjust by splitting their business across a larger number of prime brokers. Because the regulations are more stringent for larger and more systemic institutions, we expect the effects to be stronger for prime brokers affiliated with global systemically important banks (G-SIBs).

The next chart shows the average number of prime brokers reported by hedge funds over our sample period, as well as the average share of those prime brokers that are affiliated with a G-SIB. We see a first indication of the changing relationship between hedge funds and G-SIB prime brokers, with the average number of prime brokers used increasing and the share of G-SIB prime brokers declining over time.


However, the hedge funds in our sample vary considerably in terms of size so we explicitly study effects for different types of funds. We split our sample into a pre-SLR period (2011–13) and a post-SLR period (2014–18), indicating the periods before and since the implementation of the SLR. We then compare within each decile of the distribution of fund size (gross asset value). On average, the smallest 10 percent of funds (1st decile) have gross assets of $1.9 million pre-SLR and $2.2 million post-SLR while the largest 10 percent have $4.1 billion pre-SLR and $5.6 billion post-SLR.

Hedge-funds Diversify to More Prime Brokers Post-SLR and the Effect Is Stronger for Larger Funds

The next chart shows the average number of prime brokers per fund for each fund size decile. Larger hedge funds tend to use more prime brokers overall and the chart shows that larger hedge funds also increased their prime brokerage relationships more post-SLR. Hedge funds splitting their business amongst more prime brokers post-SLR is consistent with the hypothesis that funds are under pressure from their brokers to economize on balance sheet space with larger funds under more pressure than smaller funds.


Hedge Funds Rely Less on Prime Brokers That Are More Constrained by the SLR but the Effect Is Weaker for Larger Funds
The next chart shows the average fraction of a hedge fund’s prime brokers that are affiliated with a G-SIB, for each fund size decile. Overall, hedge funds reduce their reliance on G-SIB prime brokers. However, for larger hedge funds, which are more reliant on G-SIB prime brokers, the effect is weaker than for smaller hedge funds. The reduced reliance on G-SIB prime brokers after the introduction of SLR is consistent with our hypothesis that the more constrained prime brokers exert more pressure on their hedge fund clients. The weaker effect for larger hedge funds is consistent with larger funds being more dependent on services that only a large G-SIB prime broker can provide.


In our Staff Report, we investigate these trends more formally using regressions where we can control for additional fund and prime-broker characteristics. We also consider the probability of a relationship at the level of each broker-fund pair and study both the probability of new relationships forming as well as the persistence of existing relationships. Consistent with a shift away from relying on G-SIB prime brokers, we find that fewer new relationships are formed each year in the post-SLR period and that this effect is stronger for G-SIB prime brokers. Further, existing relationships are more persistent, suggesting a more specialized match in each broker-fund relationship, but this effect is weaker for G-SIB prime brokers and large hedge funds.

Summing Up

Taken together, our results suggest a pass-through of regulation from the directly affected sector to other parts of the financial system, such as hedge funds, that rely on the regulated sector for leverage as well as funding, execution, and clearing services. This is important since it affects the ability of hedge funds to fulfill their role as arbitrageurs contributing to the functioning of the financial system. Recognizing these externalities, regulators temporarily excluded U.S. Treasury securities and deposits from the SLR calculation in the wake of Treasury market dislocations in early March 2020 “to allow bank holding companies, savings and loan holding companies, and intermediate holding companies subject to the supplementary leverage ratio increased flexibility to continue to act as financial intermediaries.”


Nina Boyarchenko is an officer in the Federal Reserve Bank of New York’s Research and Statistics Group.

Thomas Eisenbach is a senior economist in the Bank’s Research and Statistics Group.

Pooja Gupta is is a senior associate in the Bank’s Markets Group.


Or Shachar is a senior economist in the Bank’s Research and Statistics Group.


Peter Van Tassel is an economist in the Bank’s Research and Statistics Group.

How to cite this post:

Nina Boyarchenko, Thomas M. Eisenbach, Pooja Gupta, Or Shachar, and Peter Van Tassel, "How Has Post-Crisis Banking Regulation Affected Hedge Funds and Prime Brokers?" Federal Reserve Bank of New York Liberty Street Economics, October 19, 2020, .


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

RT America’s Lee Camp Raises Questions about Starmer’s Connection to British Deep State

Mike’s put up a number of pieces discussing and criticising Starmer’s demand that Labour MPs abstain on the wretched ‘Spycops’ bill. If passed, this would allow members of the police and security services to commit serious offences while undercover. Twenty Labour MPs initially defied him and voted against it, with several resigning in protest from the shadow cabinet. The Labour whips’ office has also broken party protocol to issue written reprimands to the rebels. If they defy party discipline, they will face a reprimand period of six months, which will be extended to twelve if they continue to break the whip. These letters have also been shared with the parliamentary committee, a group of backbench MPs elected by the parliamentary Labour party and currently dominated by the right. This committee will decide whether or not to inform the rebel MPs’ constituency parties and the NEC. The information could then be considered if an MP seeks reselection in preparation for a general election. As one MP has said, it’s intimidation, pure and simple. And a number of those MPs, who received the letters, are talking to union officials.


Starmer’s conduct shouldn’t really be a surprise. He’s a Blairite, and Blair’s tenure of the Labour leadership was marked by control freakery as he centralised power around himself and his faction away from the party’s ordinary members and grassroots. But Starmer is also very much an establishment figure. He was, after all, the director of public prosecutions. In this video below, comedian and presenter Lee Camp raises important and very provocative questions about Starmer’s connections to the British establishment and the deep state. Camp’s the presenter of a number of shows on RT America, which are deeply critical of the corporate establishment, and American militarism and imperialism. The video’s from their programme, Moment of Clarity. The questions asked about Starmer are those posed by Mac Kennard in an article in The Gray Zone. RT is owned by the Russian state, as it points out on the blurbs for its videos on YouTube. Putin is an authoritarian thug and kleptocrat, who has opposition journalists, politicos, activists and businessmen beaten and killed. But that doesn’t mean that RT’s programmes exposing and criticising western capitalism and imperialism and the corrupt activities and policies of our governments aren’t accurate and justified.

Camp begins the video by explaining how there was a comparable battle in the Labour party over Jeremy Corbyn’s leadership as there was in the American Democrat party over Bernie Sanders’ candidacy for the presidency. Just as Sanders was opposed by the Democrats’ corporate leadership and smeared as a Communist in a neo-McCarthyite witch hunt, so Jeremy Corbyn – a real progressive – was opposed by the corporatists in the Labour party. He was subjected to the same smears, as well as accusations of anti-Semitism because he supported Palestine. Camp states that there are leaked texts showing that leading figures in the Labour party were actively working to undermine him. Jeremy Corbyn has now gone and been replaced by Keir Starmer, about whom Kennard asks the following questions:

1. why did he meet the head of MI5 for drinks a year after his decision not to prosecute the intelligence agency for its role in torture?

Camp uses the term ‘deep state’ for the secret services, and realises that some of his viewers may be uncomfortable with the term because of its use by Trump. He tries to reassure them that the deep state, and the term itself, existed long before Trump. It’s just something the Orange Generalissimo has latched onto. Camp’s not wrong – the term was used for the network of covert intelligence and state law enforcement and security services long before Trump was elected. Lobster has been using the term for years in its articles exposing their grubby activities. More controversially, Camp believes that the deep state was responsible for the assassinations of JFK, RFK and MLK. JFK was supposedly assassinated because he was about to divulge publicly the deep state’s nefarious activities. This is obviously controversial because the JFK assassination is one of the classic conspiracy theories, and one that many critics of the British and American secret states don’t believe in. It may actually be that JFK really was killed by Lee Harvey Oswald, a lone gunman. But Camp’s belief in this conspiracy theory doesn’t on its own disqualify his other allegations and criticisms about the secret state.

2. When and why did Starmer join the Trilateral Commission?

The Trilateral Commission was set up in 1973 by elite banker David Rockefeller as a discussion group to foster greater cooperation between Japan, the US and western Europe. According to Camp, it was really founded to roll back the advances of the hippy era as the corporate elite were horrified that ordinary people were being heard by governments instead of big businessmen. They looked back to the days when President Truman could listen to a couple of businessmen and no-one else. The Commission published a paper, ‘The Crisis of Democracy’, which claimed that democracy was in crisis because too many people were being heard. Ordinary people were making demands and getting them acted upon. This, the Commission decided, was anti-business. They made a series of recommendations themselves, which have since been implemented. These included the demand that the media should be aligned with business interests. Camp states that this doesn’t mean that there is uniformity of opinion amongst the mainstream media. The various media outlets do disagree with each other over policies and politicians. But it does mean that if the media decides that a story doesn’t fit with business interests, it doesn’t get published. The Commission also wanted the universities purged of left-wing progressives. The Commission’s members including such shining examples of humanity and decency as Henry Kissinger and the former director general of US National Intelligence, John Negroponte.

3. What did Starmer discuss with US attorney general Eric Holder when he met him on November 9th, 2011 in Washington D.C.?

Starmer was the director of public prosecutions at the time, and met not just Holder, but also five others from the Department of Justice. This was at the same time the Swedes were trying to extradite Julian Assange of Wikileaks infamy. Except that further leaked documents have shown that the Swedes were prepared to drop the case. But Britain wanted him extradited and tried, and successfully put pressure on the Swedes to do just that.

4. Why did Starmer develop such a close relationship with the Times newspaper?

Starmer held social gatherings with the Times’ staff, which is remarkable, as Camp points out, because it’s owned by Rupert Murdoch like Fox News in America.

Camp goes on to conclude that, at the very least, this all shows that Starmer is very much a member of the corporate establishment, and that the deep state has been working to assure that same corporate elite that he’s safe, just as they worked to reassure Wall Street about Obama. At the time Obama had only been senator for a couple of years, but nevertheless he succeeded in getting a meeting with a former treasury secretary. But now the corporate establishment in the Democrats and the Labour party has won. Jeremy Corbyn has been ousted and replaced with Starmer, while Sanders can’t even get a platform with the Democrats. This is because the Democrats have surrendered the platform to the Republicans because Trump contradicts himself so much they just can’t follow him.

While these are just questions and speculation, they do strongly indicate that Starmer is very much part of the establishment and has their interests at heart, not those of the traditional Labour party. His closeness to the Times shows just why he was willing to write articles for the Tory press behind paywalls. His role in the British state’s attempt to extradite Julian Assange and meetings with Holder also show why Starmer’s so determined not to oppose the ‘spycops’ bill. He is very much part of the British state establishment, and sees it has his role and duty to protect it and its secrets, and not the British public from the secret state.

As for the Trilateral Commission, they’re at the heart of any number of dodgy conspiracy theories, including those claiming that the American government has made covert pacts with evil aliens from Zeta Reticuli. However, as Camp says, his membership of the Commission does indeed show that he is very much a member of the global corporate elite. An elite that wanted to reduce democracy in order to promote the interests of big business.

As a corporate, establishment figure, Starmer very definitely should not be the head of a party founded to represent and defend ordinary people against exploitation and deprivation by business and the state. Dissatisfaction with his leadership inside the Labour party is growing. Hopefully it won’t be too long before he’s ousted in his turn, and the leadership taken by someone who genuinely represents the party, its history and its real mission to work for Britain’s working people.

‘I’ Article on Academic Underperformance and Social Deprivation of White Working Class

The most deprived section of the population according to some measurements is the White working class. There have been any number of articles written about this. Working class White boys perform less well at school compared to Blacks and Asians, have higher rates of unemployment and hold poorer paid jobs. And according to an article in last Wednesday’s I for 14th October 2020, the rhetoric used by Black Lives Matter and other pro-Black anti-racist activists may make this deprivation worse. The article states that working class Whites believe that they have little chance of improving their conditions due to their communities lacking status and this is potentially going to be made worse through talk of ‘White privilege’. The academics interviewed in the article also state that their communities are still suffering from the decline of Britain’s manufacturing industry.

The article’s by Will Hazell, and is titled ‘White working-class pupils think academic race is unwinnable’. It runs

White working-class pupils are falling behind at school because their communities suffer from a “status deficit” and talk of “white privilege” could make things worse MPs have heard.

An inquiry by the Commons Education Select Committee is examining why white children from disadvantaged backgrounds perform worse than any other group in education.

Only 17 per cent of white pupils on free school meals get a strong pass in English and maths GCSEs – the lowest of any ethnic group.

Meanwhile just 13 per cent of white British boys on free school meals progress to higher education, compared with 42 per cent from a Pakistani heritage, 51 per cent of black African boys and 66 per cent of Chinese ethnicity.

Matthew Goodwin, a professor of politics at Kent University, told MPs that there were “cultural explanations” with white working-class families suffering a “status deficit”.

White working class families were left to feel “as though they’re not being given as much recognition and esteem as others”, Professor Goodwin said.

He said the idea of “white privilege”, along with references to “toxic masculinity”, had demoralised white working class families. He added: “If we are now going to start teaching them in school they not only have to overcome the economic and social barriers within their community, but they also need to start apologising for simply belonging to a wider group which also strips away their individual agency, then I think we’re just going to compound many of these problems.”

Lee Elliot Major, a professor of social mobility at Exeter University, said white working class communities were “still recovering from the demise of the manufacturing industry”, and a “narrow academic race” in schools which felt “unwinnable” for poor white families.

The problem could only be fixed by providing improved vocational education routes for young people as well as jobs in their local communities, he said.

I think the class background of some of the children of other ethnic groups may help to explain why these generally perform better at school, and get better jobs and opportunities. than working class Whites. Not all Blacks, Pakistanis and Chinese are working class. Many of them are businessmen or professionals, who may have emigrated to Britain as part of their jobs or came over here because of the greater opportunities offered when immigration was being encouraged or at least less restricted. These children therefore already enjoy social advantages and opportunities through their parents’ higher status and education than working class children.

Also, there has been enormous effort put into improving conditions for ethnic minorities. This obviously includes affirmative action programmes. About a decade ago the former head of the Council for Racial Equality, as ’twas then, was quoted in an article in the Heil as suggesting that their should be similar programmes for working class Whites. Nothing further was then said, and I think the gentleman involved left his position shortly afterwards due to a completely unrelated matter. If he’s the fellow I’m thinking of, he was accused of making up accusations for racist abuse or something similar against a policeman at a football match.

The ideas interesting and probably necessary, but it has major problems. Not least is the way it contradicts, or appears to contradict, much contemporary anti-racist and feminist discourse and policies. The contemporary concern for equality is centred around providing better opportunities and social and economic improvement and advancement for ethnic minorities and women. Left-wing, anti-racist and feminist criticism of traditional western society is that it’s dominated by White men. This is obviously true, but it needs to be remembered that it’s dominated by elite White men. But any programme aimed at specifically improving the conditions of Whites, and especially White boys, may appear reactionary because it’s directed to improving the conditions of a gender and ethnicity – but not the class – that some view as already having too much power.

And I do think also that there’s now a lack of glamour about the White working class compared to other ethnic groups. Blacks and Asians have the glamour of the exotic, and so they can be promoted by celebrating their cultures’ achievements, as Black History Month does. But the White working class is much harder to celebrate because of their ordinariness. And the fact that the socially deprived sections are likely to be sneered at as chavs or rednecks.

The concept of White privilege has been subject to extensive criticism by people on the right. As a generalisation about society as a whole, it’s obviously true that Whites generally perform better academically, and enjoy better jobs and opportunities than many, but not all, ethnic minorities. But it ignores the fact that many Whites don’t share this privilege, and may be as disadvantaged or more than some other deprived ethnicities. I think the reason for this is that the whole concept of White privilege was formulated by middle class radicals thinking specifically about the White middle class, and lumping all Whites in with it.

I think we’re probably going to hear much more about the problems of the White working class as time goes on. The right-wing internet host and YouTube Alex Belfield has already put up a video about the plight of White working class boys. Another right-wing outfit – I think it’s called the New Culture Forum or something like that – has also put up a long video about ‘The Demonisation of the White Working Class’. I think the intention here is to exploit working class White discontent as a way of attacking the anti-racist affirmative action programmes.

Because the Tories certainly don’t care about the working class, whatever it’s colour. The Tories smashed the coal industry partly as a way of destroying the trade unions. It was the miner’s union, remember, that defeated Ted Heath. Thatcher had no interest in manufacturing, and her Labour successor, Tony Blair, blandly assumed that its role in the economy would be taken over by the financial sector. Since David Cameron’s election victory, the Tories have insisted on austerity, holding down wages, promoting zero hours contracts and attacking workers’ rights, as well as cutting the welfare benefits working people need to keep body and soul together. It’s all in the name of creating an impoverished, cowed, demoralised workforce that will take any job, no matter how poorly paid or insecure. Most of the people claiming benefits and using food banks are now people actually in work. But instead of doing anything for them, the Tories simply drum up jealousy against those even more disadvantaged. You think of the rants the Tories screamed about how they were going to cut benefits to the unemployed in order to make work pay. The unemployed were scroungers, malingerers and layabouts, who shouldn’t earn more than working people. But in all too many cases, the benefits system does not provide enough for the people who need it to live on. And how seriously the Tories take their slogan of making work pay is shown by the fact that they’ve done nothing to raise wages. ‘Cause it’s all the working class’ fault they’re poor.

In contrast to the Tories’ posturing, the people who are serious about protecting and advancing the White working class are the Labour left. The very people the anti-immigrant, racist Brexiteer right despise as traitors. But left-wing Labour activists like Richard Burgon have made it very clear that they will work for improving the conditions of White working class communities as part of their commitment to bettering conditions for all of Britain’s working people, Black, brown, White or whatever.

And you can believe them.

The Tories, however, will do nothing but patronise the White working class, drumming up racial resentments and jealousies while pushing through policies that will make them, and the rest of the working class, even poorer and more miserable.

The Banking Industry and COVID-19: Lifeline or Life Support?

Published by Anonymous (not verified) on Mon, 05/10/2020 - 10:00pm in



Madeline Finnegan, Sarah Ngo Hamerling, Beverly Hirtle, Anna Kovner, Stephan Luck, and Matthew Plosser

Editor’s note: Since this post was first published, we have corrected a description accompanying the Variable Capital Buffer graphic — Currently, with a countercyclical capital buffer set to 0, the combined minimum and buffer CET1 requirements range from 7 percent to 10.5 percent. (October 6:10 p.m.)

By many measures the U.S. banking industry entered 2020 in good health. But the widespread outbreak of the COVID-19 virus and the associated economic disruptions have caused unemployment to skyrocket and many businesses to suspend or significantly reduce operations. In this post, we consider the implications of the pandemic for the stability of the banking sector, including the potential impact of dividend suspensions on bank capital ratios and the use of banks’ regulatory capital buffers.

Projecting Bank Capital

Before we can consider how regulatory policy can bolster the ability of banks to lend through the crisis, we need projections that capture the potential outcomes for banks. The Federal Reserve Bank of Minneapolis and a Hutchins Center working paper considered the effect of severe scenarios on bank capital. Most recently, the Federal Reserve released sensitivity analyses to capture the current crisis in its annual disclosure of stress test results.

We have conducted our own analysis to understand the impact of macroeconomic scenarios on bank performance. We considered two scenarios that cover distinct possibilities for the course of the outbreak. The first is a “V-shaped” scenario, in which economic activity plunges sharply in the second quarter of 2020 but rebounds quickly in the second half of the year. The second is an “L-shaped” scenario in which economic activity plunges more deeply than in the V-shaped scenario and recovers very slowly over the next three years.The scenarios use the fourth quarter of 2019 as a jumping-off point, so do not incorporate actual economic developments during the first half of 2020. Instead, they are intended to span a range from moderate to significant negative pandemic-related outcomes for the economy as the basis of our analysis. Scenario variables include real GDP, unemployment, stock prices, residential and commercial real estate prices, and credit spreads. The charts below shows the path of real GDP and the unemployment rate under the two scenarios.

We then use these scenarios to project bank profitability and capital. To do so we use the Capital and Loss Assessment under Stress Scenarios, or CLASS, model that is a simplified capital stress test model based on publicly available regulatory reports (FR Y-9C) data. The model uses the historical relationship between components of net income and macroeconomic variables such as real GDP growth, the unemployment rate, interest rates, stock prices, real estate prices, and credit spreads. The last historical date for our analysis is the fourth quarter of 2019 and the stress test horizon is the nine quarters starting in the first quarter of 2020 and ending in the first quarter of 2022.

 Lifeline or Life Support?

 Lifeline or Life Support?

How Do Dividends Impact Capital Ratios?

The extent of the drop in capital depends on the assumptions we make about shareholder payouts. Although the details of the transactions differ, dividend payments and share repurchases reduce equity capital on a dollar-for-dollar basis. In light of the COVID-19 outbreak, many large banks voluntarily suspended share repurchases in mid-March, but nearly all have continued to make dividend payments. For the third quarter of 2020, the Federal Reserve is requiring large banks to preserve capital by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based on recent income.

In our projections, we assume that banks maintain repurchase suspensions throughout the projection period (currently the Federal Reserve has restricted repurchases only for the third quarter of 2020). For dividends, we examine two alternatives: banks maintain dividends at their fourth quarter of 2019 levels or banks set dividends to zero starting in the first quarter of 2020. Banks paid dividends during the first and second quarters, and the Federal Reserve has limited dividends only to the average of the latest twelve months of net income. Thus, both of our assumptions are counterfactual but they enable us to generate an upper bound on the impact of dividends on capital ratios.

Capital ratios—defined as the ratio of common tier 1 equity (CET1) to risk-weighted assets (RWA)—drop sharply under both the V-shaped and L-shaped scenarios, with the decline being both larger and more persistent under the more severe L-shaped scenario, as shown in the chart below. The industry-average CET1 ratio falls from 12.2 percent in the fourth quarter of 2019 to a minimum of 10.5 percent in the V-shaped scenario and to 8.0 percent in the L-shaped scenario when we assume that banks continue to pay dividends, amounting to drops of 170 and 420 basis points, respectively. The ratio reaches its minimum level and begins to increase relatively quickly in the V-shaped scenario but continues to fall throughout most of the stress test horizon in the L-shaped scenario, recovering only toward the very end of the scenario.

The chart also shows how much dividends matter. The red and gold lines in the chart show the path of the CET1 ratio when we assume that banks suspend dividends during the stress test horizon. In both scenarios, the drop in the CET1 ratio is more muted and the recovery more pronounced than when dividends are paid. By the end of the stress test horizon, both of the projected CET1 ratios are 150 basis points higher when we assume that banks suspend their dividends rather than continue to distribute capital to shareholders.

 Lifeline or Life Support?

Using the Buffer

Banks’ regulatory capital requirements have two components: a minimum threshold and a series of “buffers” on top of this minimum. Banks with capital ratios falling below the minimum threshold could be subject to resolution. Banks with capital ratios that are in the buffer (that is, above the minimum but below the minimum plus the buffer amount) face increasingly stringent restrictions on dividends, share repurchases, and discretionary compensation the closer capital gets to the minimum threshold. For CET1 ratios, the minimum is 4.5 percent while the buffer consists of up to three components: an “always-on” capital conservation buffer of 2.5 percent, a time-varying countercyclical capital buffer that can range between 0.0 percent and 2.5 percent depending on financial and economic conditions, and, for the largest and most complex banking companies, a G-SIB surcharge of up to 3.5 percent. Currently, with a countercyclical capital buffer set to 0, the combined minimum and buffer CET1 requirements range from 7 percent to 10.5 percent. Typically, banks endeavor to maintain capital ratios above the minimum plus buffer level to avoid restrictions on capital distributions and compensation, as well as supervisory scrutiny.

 Lifeline or Life Support?

Since the onset of the COVID-19 pandemic, supervisors have encouraged banks to allow their capital ratios to drop into the buffer to enable additional lending to support consumers and businesses and thus the broader economy. On March 17, the three federal banking regulators released a statement that they support “banking organizations that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner.” The idea is that banks would reduce their buffers due to expansion of the denominator of the capital ratios—risk-weighted assets, in the case of the CET1 ratio—reflecting the increase in lending. Since the capital ratios of most banks are well in excess of the minimum CET1 plus buffer threshold, expanding assets sufficiently would imply a very substantial increase in lending.

However, as we’ve shown, banks could face very substantial losses due to the COVID-19 outbreak. These losses imply a reduction in common tier 1 equity, the numerator of the capital ratio, and reductions of the ratios themselves that could limit banks’ ability to expand lending, even if they were willing to dip into their buffers.

We use our CLASS results to generate a rough estimate of how much their ability to expand lending could be reduced due to COVID-19-related losses. To do this, for each of the scenarios, we

  • identify those banks whose CET1 ratios fall into the buffer,
  • calculate the dollar amount of the buffer shortfall (that is, the amount of CET1 needed for the bank’s CET1 ratio under stress to just equal the minimum plus buffer threshold),
  • sum these buffer shortfalls to create an aggregate “capital gap,” and
  • express the capital gap as a share of the total amount of CET1 buffer in the banking industry (that is, the sum of the capital conservation buffer and GSIB surcharges for all banks).

This calculation gives us the share of the CET1 buffer that would be “used” by reductions in the numerator of the CET1 ratio.

As shown in the table below, the amount of buffer used depends on the severity of the scenario and whether banks are assumed to continue their dividend payments. When banks are assumed to suspend their dividends, the capital gap is just 0.2 percent of the overall buffer in the optimistic V-shaped scenario, but 16 percent in the L-shaped scenario. Once again, the impact of dividend payments is striking. Under the more pessimistic L-shaped scenario, the capital gap represents a substantial 34.1 percent of the industry CET1 buffer when banks are assumed to continue their dividends payments, more than double the amount when dividends are suspended.

 Lifeline or Life Support?

Summing Up

The ability of banks to support lending to consumers and businesses will be affected by the extent of losses they face and the amount of capital they have after absorbing those losses. Our CLASS model projections suggest that dividends are an important factor in determining whether the U.S. banking industry would have sufficient capacity to absorb losses and expand lending. In particular, when we assume banks suspend dividend payments, we find that they are less prone to meaningfully reduce their capital buffers and thus have more room to increase lending. This is true under both optimistic and pessimistic assumptions about the path of the economy during the COVID -19 outbreak.

Madeline Finnegan is a former senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Sarah Ngo Hamerling
Sarah Ngo Hamerling is a senior research analyst in the Bank’s Research and Statistics Group.

Beverly Hirtle
Beverly Hirtle is an executive vice president and the director of research at the Federal Reserve Bank of New York.

Anna Kovner
Anna Kovner is a policy leader for financial stability in the Federal Reserve Bank of New York’s Research and Statistics Group.

Stephan Luck
Stephan Luck is an economist in the Bank’s Research and Statistics Group.

Matthew Plosser
Matthew Plosser is an officer in the Bank’s Research and Statistics Group.

How to cite this post:

Madeline Finnegan, Sarah Ngo Hamerling, Beverly Hirtle, Anna Kovner, Stephan Luck, and Matthew Plosser, “The Banking Industry and COVID-19:Lifeline or Life Support?,” Federal Reserve Bank of New York Liberty Street Economics, October 5, 2020,


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Was Mussolini’s 1931 Policy on the Banking Crash Better than Britain’s 2008 Bail-Out?

Here’s another interesting question posed by the changing policies of the Italian Fascist state towards industry and the financial sector. Fascism celebrated and defended private industry as the essential basis of the Italian economy and society. When Mussolini first took power in the early 1920s, he declared that Fascism stood for ‘Manchester School’ capitalism – privatisation, cuts to public services and expenditure and the lowering of wages and welfare benefits. But this changed with the development of the Fascist state through the establishment of the corporations – industrial organisations combining the employers’ organisations and the trade unions, which were supposed to take over the management of industry – autarky, which aimed to make Italy self-sufficient and the movement to a centrally planned economy.

This was partly achieved in the early 1930s when Mussolini set up two state institutions to buy out the Italian banks following the Wall Street crash of 1929 and the ensuing depression. These not only bought out the banks, but also the industries these banks owned and controlled, so that the Italian state ended up owning just under a fifth of the Italian economy.

This is described in a passage in the article ‘Industry’ in Philip V. Cannistraro’s Historical Dictionary of Fascist Italy (Westport, Connecticut: Greenwood Press 1982). This runs

Two public agencies were created to save banks and crucially affected industries: the Istituto Mobiliare Italiano (IMI) on November 13, 1931, which was to control credit; and the Istituto per la Ricostruzione Industriale (IRI) on January 23, 1933. IRI was by far the more radical solution, for it purchased all the shares of stock in industrial, agricultural, and real estate companies previously held by banks. (The banking law of 1936 prohibited banks from extending long-term credit to industrial concerns). Although the industrialists fully expected a return to “normalcy” and to private enterprise after the crisis had passed, Mussolini had successfully created an instrument for the permanent intervention of government in the economy. By 1939 IRI controlled a series of firms representing 44.15 percent of the capital of Italian stock values and 17.80 percent of the total capital of the country – hence, the Fascist government controlled a proportionately larger section of national industry than any other government in Europe except the Soviet Union. (p. 278).

This allowed the government to interfere and restructure the Italian economy leading to the expansion of the manufacturing economy and a reduction in imports. On the other hand, poor government planning and an inefficient bureaucracy meant that Italian domestic manufactures were frequently inferior and the country had a lower growth rate than many other western European countries.

But this contrasts very strongly with policy of Britain and America to the financial sector after the 2008. The banks were bailed out with public money, but were not nationalised and the government has continued with its ‘light touch’ approach to regulation. Meaning that the banks have been free to carry on pretty much as before. Public spending, especially on welfare, has been drastically cut. Despite the Tories claiming that this would boost the economy and they’d pay of the debt within a couple of years or so, this has very definitely not happened. In fact, the debt has massively increased.

This has added to the long term problems of Britain’s manufacturing industry. Left-wing economists have pointed out that Britain’s domestic industries suffer from a lack of capital because the financial sector is geared towards overseas investment. A situation that has no doubt got worse due to globalisation and the personal investment of many Tory and New Labour MPs in foreign industry and their savings in offshore tax havens. British industry has also suffered from the ignorance and neglect of successive prime ministers from Maggie Thatcher onwards. Thatcher couldn’t understand that her policy of keeping the Pound strong would damage British exports, and in any case did not want to rescue failing British industries. They were either to be allowed to go under, or else sold to foreign companies and governments. Tony Blair went further, and believed that manufacturing industry’s place in the British economy could be successfully taken over by the financial sector and the service industries.

But this has also been a failure. Ha-Joon Chang in his 23 Things They Don’t Tell You About Capitalism has pointed out that manufacturing industry is still very much of vital importance. It’s just that it has grown at a slower rate than the other sectors.

Fascist Italy was a totalitarian dictatorship where Mussolini ruled by fear and violence. There was no freedom of speech or conscience in a system that aimed at the total subordination of the individual, economy and society. Mussolini collaborated with Hitler in the persecution of the Jews, although mercifully this wasn’t quite so extreme so that 80 per cent of Italian Jews survived. The regime was aggressively militaristic aiming at the restoration of a new, Roman-style empire in the Mediterranean. Albania, Greece and Ethiopia were invaded along with Tripoli in Libya and Fascist forces were responsible for horrific atrocities as well as the passage of race laws forbidding racial intermixture with Black Africans.

It was a grotesque, murderous regime which was properly brought to an end by the Allied victory of the Second World War. It must never be revived and Fascism must be fought every where. But it does appear that Mussolini’s policy towards the banks and industry was better than that pursued by our supposedly liberal democracies. But the governments of our own time are also becoming increasingly intolerant and authoritarian. The danger of our country becoming similar repressive dictatorship under Boris and the Tories is very real.

We desperately need the return to power of a genuinely socialist Labour government, committed to investment in the welfare state and public services with a nationalised NHS, a mixed economy and positive commitment to democracy and freedom of speech rather than the illusion maintained by the mainstream media and Tory press.

And that will mean overturning over three decades of Thatcherite orthodoxy on the banks and financial sector, just as Mussolini changed his policies towards them with the aim of restoring and expanding Italian industry.

Did Too-Big-To-Fail Reforms Work Globally?

Published by Anonymous (not verified) on Wed, 30/09/2020 - 9:00pm in



Asani Sarkar

Did Too-Big-To-Fail Reforms Work Globally?

Once a bank grows beyond a certain size or becomes too complex and interconnected, investors often perceive that it is “too big to fail” (TBTF), meaning that if the bank were to fail, the government would likely bail it out. Following the global financial crisis (GFC) of 2008, the G20 countries agreed on a set of reforms to eliminate the perception of TBTF, as part of a broader package to enhance financial stability. In June 2020, the Financial Stability Board (FSB), a sixty-eight-member international advisory body set up in 2009, published the results of a year-long evaluation of the effectiveness of TBTF reforms. In this post, we discuss the main conclusions of the report—in particular, the finding that implicit funding subsidies to global banks have decreased since the implementation of reforms but remain at levels comparable to the pre-crisis period.

What Did the TBTF Evaluation Report Find?

The TBTF reforms evaluated by the FSB include capital requirements, recommendations for enhanced supervision, and policies to resolve distressed banks. These reforms apply to systemically important banks (SIBs)—large and complex banks that are an important part of the banking sector globally. For example, globally, the share of SIBs in domestic bank assets ranges from 35 percent to 82 percent.

The FSB report finds that SIBs are more resilient than they were during the GFC. Since the implementation of Basel III regulations, they hold more capital and liquidity. Further, Basel III reforms improved the quality of regulatory capital—for example, risk-weighted capital ratios have also increased.

Increased resilience is expected to make banks safer. Indeed, the expected default risk of banks has fallen since the reforms. More important, their systemic risk—which indicates the risk a bank poses to the financial system or, alternatively, the stability of a bank during a crisis—is also lower since the GFC.

When SIBs become distressed during a crisis, their size and complexity make them difficult to resolve in an orderly manner through normal bankruptcy procedures. Thus, after the GFC, the FSB published international standards for resolving SIBs that are no longer viable as ongoing concerns. These standards comprise a mix of legal powers, policy standards, and coordination arrangements. The report finds that most authorities have comprehensive regimes in place, although their implementation remains incomplete in many countries. Moreover, the largest SIBs—global systemically important banks, or G-SIBs—in advanced economies have met international standards for maintaining sufficient equity and debt to absorb losses and to recapitalize the bank without taxpayer support in a resolution.

In spite of progress, the report finds that gaps in resolvability remain. For example, few authorities have signed institution-specific cross-border cooperation agreements, which are necessary given that SIBs have global footprints. In addition, public funds continue to be used on occasion to support SIBs experiencing financial difficulties. Finally, SIBs remain complex, with more than 1,000 subsidiaries on average spread across more than forty jurisdictions—most outside the home country—thus potentially impeding the ability of supervisors to resolve failing SIBs.

Have Implicit TBTF Subsidies to Global Banks Decreased?

If SIBs are viewed as likely to be bailed out, they can issue debt and equity at a discount to the fair market price, thus receiving an implicit funding subsidy that, in turn, creates a competitive disadvantage for non-SIB firms. If TBTF reforms are viewed as credible by market participants, then the implicit subsidy to SIBs should decrease. The FSB evaluation used different ways to estimate this implicit subsidy, but in this post we focus on one method based on a New York Fed study. Details of all the methods used are provided in the technical appendix to the FSB report.

Below, we first introduce the key concept of a TBTF risk factor, then use this factor to estimate the implicit subsidy to SIBs and how the subsidy varies in different regions of the world.

Systemic risk premium. A key concept used to estimate the implicit subsidy is the TBTF risk factor, which is based on the idea that large financial firms with a higher probability of bailout are considered less risky and so have lower equity returns in expectation. Empirically, the TBTF factor is constructed by taking a short equity position on the largest financial firms and a long equity position on smaller (but still very large) financial firms. The returns to this factor may be interpreted as the systemic risk premium—the additional compensation that investors require to hold less systemically important firms.

The chart below shows estimates of the systemic risk premium using equity returns data of banks from Asia (excluding Japan), Canada, Europe, Japan, and the United States. The global portfolio pools data from all five geographies. In the pre-crisis period (June 2002 to July 2007), the systemic risk premium is positive for all regions except Canada. It decreases in the post-crisis period (2009-19) for all regions except Canada and Europe. Europe may be an exception because its post-crisis period includes a second crisis event—the European debt crisis of 2011. Apart from these cases, it appears that investors require less compensation for bearing systemic risk since the GFC.

Did Too-Big-To-Fail Reforms Work Globally?

Implicit Funding Subsidy to SIBs. In order to estimate the implicit subsidy to SIBs, we consider the exposures of SIBs and other large non-SIB banks to the TBTF risk factor. Since SIBs benefit when they are perceived to be TBTF, they should have a lower TBTF risk exposure than non-SIBs. This differential exposure is a measure of the subsidy to SIBs. Our methodology accounts for the systematic risk of large banks, or how much their returns co-move with the market return. This is important because large banks are expected to have large systematic risk, which should be separated out when estimating their systemic risk.

In the chart below, we show the implicit TBTF subsidy for the global portfolio of banks, expressed as a lower equity cost of capital for SIBs relative to non-SIB large banks. The implicit subsidy was 1.57 percent annually in the pre-crisis period and 1.80 percent in the post-crisis period. However, there was a shift in subsidies during the post-crisis period around the implementation of TBTF reforms in 2011. We find that the implicit subsidy actually dropped from 2.37 percent before reforms were implemented to 1.37 percent since then. Market prices thereby imply lower subsidies to SIBs than before reforms, although we cannot establish causality (since many other changes also occurred during this time).

Did Too-Big-To-Fail Reforms Work Globally?

Regional Variations in Implicit Funding Subsidy to SIBs. As TBTF reforms were implemented differently in different regions of the world, changes in implicit subsidies since reforms may also vary by region. In the chart below, we show the implicit subsidies for four regions and the global portfolio. Due to data issues, the implicit subsidy to SIBs is estimated relative to large non-financial firms (instead of large non-SIB banks, as before) and Canada is excluded. The chart indicates considerable regional variation in the evolution of the subsidy, with post-reform reductions in implicit subsidies for Europe and the United States, but not for Asian countries. This dynamic is consistent with the views of credit rating agencies that the credibility of resolution regimes is greater for Europe and the United States, as described in Annex F of the FSB’s evaluation report.

Did Too-Big-To-Fail Reforms Work Globally?

Trends in Implicit Subsidies to SIBs in Recent Years: The chart below shows the evolution of implicit subsidies to SIBs for the global portfolio, relative to three other bank groups: large non-SIB banks, large non-bank financials and large non-financial firms. For all three comparisons, the implicit subsidies have consistently decreased since their peak during the GFC, except for a second smaller peak around 2011 when the European debt crisis occurred. However, the chart also shows that the magnitude of the implicit subsidy remains at levels comparable to those before the GFC.

Did Too-Big-To-Fail Reforms Work Globally?

Looking Ahead

We have shown that implicit subsidies to SIBs have generally declined since 2012, albeit with some regional variations. While the FSB’s evaluation does not currently cover market developments since the COVID-19 pandemic broke out, they will be taken into account when the report is updated in 2021. It will be interesting to see whether the implicit subsidy has changed as authorities across the globe have stepped up their economic support following the onset of this new crisis.

Asani Sarkar
Asani Sarkar is an assistant vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

How to cite this post:

Asani Sarkar, “Did Too-Big-To-Fail Reforms Work Globally?,” Federal Reserve Bank of New York Liberty Street Economics, September 30, 2020,


The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

Degrowth and the ‘assistance’ of Modern Monetary Theory

Published by Anonymous (not verified) on Wed, 30/09/2020 - 5:48am in

This is an excellent article by Jason Hickell on degrowth and how Modern Monetary Theory (MMT) helps that narrative. Indeed MMT always helps anything that needs resources directed towards it because it actually explains how the monetary system works and shows that money is human created for whatever purpose is required! The article itself is... Read more

Is the End of Debtfare Forced Labour?

Published by Anonymous (not verified) on Tue, 29/09/2020 - 5:26am in

In his chapter ‘The Violence of the Debtfare State’ in Vickie Cooper and David Whyte, eds., The Violence of Austerity (London: Pluto Press 2017), David Ellis uses the term ‘debtfare’ to describe the dismantling of state welfare provision and its replacement by debt and credit. And I’m starting to wonder how far this can go before something like debt slavery arises. The Romans abolished debt slavery, but the punishment for debt was addictio, forced labour. People are being forced into mountains of debt through poverty created by austerity and the removal of living wages and proper unemployment and disability benefits. Students are also mired in it through tuition fees which now may amount to tens of thousands of pounds.

I am therefore left wondering at what point the various banks and other organisations offering credit will stop it and start demanding their money back or some other form of repayment. Clearly if people remain in debt, they can’t repay the money. The alternatives seem to be either that the banks keep on giving them credit in the hope that they’ll be able to repay something, or else write it off as a loss. But if the number of people in irrecoverable debt hits millions, what happens? If the levels of indebtedness actually starts to harm the banks and the other organisations, will they turn to the state to demand some kind of forced labour in order to make good their profits?

I’ve already pointed out the similarity of the workfare schemes to the forced labour systems of Stalin’s Russia. Stalin used slave labour from the gulags to industrialise the Soviet Union. Business managers would give the KGB lists of the kind of workers their enterprise needed, and the KGB would then have those with the appropriate skills and qualifications accused of anti-Soviet crimes and arrested. The workfare scheme now used to punish the unemployed doesn’t teach anybody any new skills, nor does it allow them to find employment. Indeed the stats a while ago showed that people on workfare were less likely to get a job than if they were left to their own initiative. But workfare does supply cheap, state-subsidised labour to the scheme’s backers and the parties’ business donors, like the supermarkets.

So if the number of people in grievous, irrecoverable debt, will the government simply write them off and let them starve to death, as so many disabled people have done already thanks to false assessments under the Work Capability Tests? Or will they decide they can still make some money for business by pressing them into compulsory labour in order to work their way out of it, as in the Roman system?

I’m not saying this will happen or even that it’s likely. But I do wonder if it’s a possibility.

Victorian government Public Health

Published by Anonymous (not verified) on Tue, 22/09/2020 - 5:00pm in

I have looked at at a BBC Factcheck on Covid -19 testing, which is certainly interesting, and seems to put Britain near the top in Europe – for testing. Fine, for Britain, which, as the cradle of Public Health, unsurprisingly it should be. The originator of the industrial revolution really should know all about it….... Read more