Fed, Treasury agree: Banks need to hold more capital

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Appearing before the Senate Banking committee, Treasury’s Brainard and the Fed’s Tarullo both called for banks to hold more capital.

These are unremarkable comments but with the focus on European stress tests this week (they are more like “mildly uncomfortable tests”, in my opinion), traders are more focused on banking issues than normal. Skepticism toward the stress tests are seen as a major factor in the euro decline today.

Markets remain are choppy this morning. This is no surprise given the sharp reversal of fortune in EUR/USD earlier today. traders remain skittish and are committing little precious bank capital to the markets today.

EUR/USD has eased to 1.2878 while cable has jumped to 1.5220 on short-covering.


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Credit Crisis

Jamie Coleman


  1. Gold has shot upward after re-testing multi-year trendline now around 1171 on my charts…

  2. Banks only one arm of economy, yet interesting situation arising. World’s largest economy deflating, and monetary advisers calling (indirectly) for less monetary liquidity. Assuming the advice is taken, if US govt doesn’t provide a balancing fiscal stimulus, economy will likely contract. FX impact? … complicated. However, increases chances of slowdown in China economy, commodity demand and AUD weakness.

  3. I think there is NO chance of the Fed doing anything that can be remotely construed as tightening liquidity conditions. In fact, quite the opposite. I think the market fully anticipates more QE, one reason for further dollar weakness and lower bond yields…

  4. Jamie. Can we then infer that banks needing to “hold more capital” equates to giving them more money to expand their capital base? Thanks.

  5. No, they’ve been raising capital in the US with relative ease. Government has been selling shares/warrants in TARP banks…won’t end up on the government dole unless things turn sharply south.

  6. Thanks very much Jamie. There’s a disconnect here, and I can’t quite put my finger on it. Maybe it is just in my head! :)


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