Banking

High hopes for Yellen; JPMorgan fined $250 million by OCC over weak controls

Receiving Wide Coverage …

What Yellen faces

Janet Yellen, President-elect Joe Biden’s nominee to be Treasury secretary, “will confront an economic recovery that appears to be losing momentum and uncertain prospects for additional stimulus from Congress,” the Wall Street Journal reports. “If confirmed by the Senate, Ms. Yellen would play a key role pushing for more aid for an economy battered by the coronavirus pandemic and related shutdowns, especially if Congress is unable to reach an agreement on a relief package before Mr. Biden takes office on Jan. 20.”

Yellen “brings a lot to the table—not the least of which is that her confirmation process should be easy,” the Journal says. “She wouldn’t be viewed as overtly political a choice as, say, Massachusetts Sen. Elizabeth Warren. She has experience dealing with crises, starting with her job as head of the White House Council of Economic Advisers during the 1998 Russian debt crisis. And, as the past head of the 23,000-person Federal Reserve system, she has managed a large government organization.”

All of which should make Ms. Yellen’s transition to the Treasury a relatively easy one—a plus, given that the country will still be in the grips of the Covid-19 pandemic. She will also be well-positioned to coordinate the Biden administration’s policy response to the pandemic with the Fed’s. She would likely, in conjunction with the Fed, reinstate the central bank’s emergency lending programs—including its Main Street lending program for small businesses—that current Treasury Secretary Steven Mnuchin is allowing to expire at the end of the year.”

Indeed, “Yellen is likely to exert considerable influence over the central bank,” a Journal editorial said. “For all of the protests about President Trump’s misguided Twitter attacks on [Fed Chair Jerome] Powell, the Fed has been moving toward becoming an arm of the Treasury for some time. With her ties to the Fed governors, and especially the Fed staff, Ms. Yellen is likely to have even more influence even than most recent Treasury chiefs.”

“Supporters assert that her Fed experience will make for a smooth working relationship with her successor at the central bank, Jay Powell, in steering the U.S. economy away from trouble,” the New York Times adds.

As Treasury Secretary, “Yellen would assume a vast policy portfolio,” the Times also notes. “From trade and sanctions to tax policy and financial regulation, the former Fed chair will be at the center of the new administration’s agenda.”

“While Ms. Yellen’s views on monetary policy are well known from her time leading the central bank, her perspective on a range of issues that are part of the Treasury Department’s portfolio are less known.”

“Ms. Yellen is a well-known quantity both nationally and internationally, given her four years at the helm of the U.S. central bank between 2014 and 2018, fitting well with Mr. Biden’s drive to fill his cabinet with competent institutionalists after the disruption created by President Donald Trump,” the Financial Times said.

Yellen’s selection as Treasury secretary “increases the odds the government will double down on pandemic recovery efforts, which include lending programs that enable banks to provide credit to households and businesses,” American Banker reports.

But she “will need Congress to approve re-use of $455 billion in funds that the Trump administration is taking back from Federal Reserve and other pandemic lending programs,” Reuters reports.

Still, the Fed “is well prepared to navigate the U.S. economy’s challenging path to recover from the effects of the coronavirus pandemic, and the central bank can resume emergency lending efforts if it deems it necessary,” New York Fed president John Williams told the Journal.

Wall Street Journal

Out of control

The Office of the Comptroller of the Currency fined JPMorgan Chase Bank $250 million “over deficiencies in internal controls and internal audit practices.” The bank “maintained a weak management and control framework for its fiduciary activities and had an insufficient audit program for, and inadequate internal controls over, those activities,” the OCC said. “Among other things, the bank had deficient risk management practices and an insufficient framework for avoiding conflicts of interest.” The bank has since remedied these deficiencies.”

“It is JPMorgan’s second major fine this fall,” American Banker noted. “In September, the company agreed to pay the Commodity Futures Trading Commission and other agencies $920 million for manipulating the markets for precious metals and Treasury securities.”

Quotable

“Janet Yellen’s appointment will be universally welcomed, and rightly so, including by economists, foreign officials and markets, all of whom regard her as a highly experienced policymaker who delivered years of stability.” Mohamed El-Erian, chief economic adviser to Allianz.



 

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