“The Fed should be concerned about a taper tantrum 2.0,” KBW analyst Brian Kleinhanzl wrote in a note to clients this week.
Democratic Senator Sherrod Brown, the chairman of the Senate Banking Committee, downplayed concerns about the market fallout and said the focus should be on keeping the banking system safe.
“We should be moving past making decisions based on the stock market going up,” Brown told CNN Business on Thursday.
“We have strong capital requirements to make sure we don’t have a situation where banks have to be bailed out like they were a decade ago,” he added. “We can’t, as a nation, afford for that to happen again.”
Putting out fires on Wall Street
At issue is a buffer known as the supplementary leverage ratio, or SLR, which requires the biggest US banks to hold capital of at least 5% of total assets on — and off — their balance sheets.
The goal is to prevent a repeat of 2008, when overleveraged major banks nearly collapsed the entire system.
The Fed had several goals: First, the move gave banks much more lending firepower at a time when consumers and businesses were facing a serious crisis. Second, the Fed wanted to put out a fire in the Treasury market, where trading uncharacteristically seized up.
“Liquidity conditions in Treasury markets have deteriorated rapidly,” the Fed said in…
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