Archive February 2020
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Week InReview: February 28, 2020
Who owns the Fed?
The question comes from foil-hatted conspiracists, good government advocates, and sober academics: Who owns the New York Federal Reserve Bank?
Under the Federal Reserve Act of 1913, each of the 12 regional reserve banks of the Federal Reserve System is owned by its member banks, who originally ponied up the capital to keep them running.
The number of capital shares they subscribe to is based upon a percentage of each member bank’s capital and surplus.
But the New York Fed – by far the most important of the regional banks – as a matter of policy has previously not disclosed the capital share holdings of its 70-plus member banks.
Now, thanks to a Freedom of Information Act request filed late last year by Institutional Investor, we know the truth.
The big reveal for year-end 2018: Citibank, the No. 1 institution on the roster, held 87.9 million New York Federal Reserve Bank shares – or 42.8 percent of the total.
The No. 2 holder stockholder was JPMorgan Chase Bank, with 60.6 million shares, equal to 29.5 percent of the total. In other words, the two banks together control nearly three-quarters of the regional bank’s capital shares.
Each bank, after all, has only one vote when it comes to electing bank directors (their only shareholder responsibility) regardless of stock holdings. And New York Fed shares cannot be traded, shorted, or pledged as collateral.
Week InAdvance: February 24, 2020
Week InReview: February 21, 2020
The language of finance.
Week InAdvance: February 18, 2020
Week InReview: February 14, 2020
Catastrophes and Correlations
"In 2017 the World Bank issued some pandemic bonds. Investors who bought these bonds got a high interest rate, but they could lose all their money if there was a pandemic. The bonds would “trigger” if a pandemic occurred, and then instead of paying back the bondholders, the money would go to the World Bank to fund relief efforts. The bonds "were originally conceived as a sort of public-private partnership to get insurance investors to assume some of the risk of the Ebola epidemic.
"One way to read the pandemic bond story is that the risk of an Ebola outbreak spreading from Congo to Rwanda does not seem likely to be highly correlated with global financial markets, but the risk of a deadly coronavirus spreading from China to the rest of the world probably is pretty correlated with global financial markets: The actual coronavirus is shutting down factories, disrupting trade, and generally causing large economic impacts even as it is also risking triggering the bonds. People may have bought these bonds with the wrong disease, and the wrong correlation model, in mind."
Week InAdvance: February 10, 2020
Week InReview: February 7, 2020
Meanwhile in China.
Chinese health experts’ recommendations for easing coronavirus stress: Have a good cry, buy a punching bag for the office or try singing. Not recommended: drinking and gambling.