It could amplify the moral hazard problem: if the bank wins, its shareholders - as well as its traders under their bonus packages - pocket the profit, and if it loses, the regulator/tax-payer ends up with the bill. A penalty would not act as a deterrent to a bank prepared to gamble its capital because that bank would not be affected by such a penalty when it was ‘down and out’. Furthermore, regulators could over time become less familiar with banks’ risk management systems, which might make them less effective in a crisis. Early supervisory intervention is more difficult if supervisors only become aware of problems ex-post, after the limit has been breached. It may be possible to devise an approach to pre-commitment which avoids these potential handicaps. But for the time being our attitude remains somewhat hesitant. Finally, a discussion about rules is not complete without touching on the question of a ‘level playing field’; an odd analogy, I think, since in field sports there is no such thing. If there were, why would teams change ends at half time? (In American football, of course, teams change ends three times - and in baseball they resolve the problem by running round in circles.) When banks and securities houses do similar business it seems only fair to apply similar capital rules. But while this is true at the margin, when we look at the total business of banks and securities houses, the picture is still vastly different.
Here in the Federal Reserve’s Second District, many households in both our urban and rural communities are vulnerable financially. And since the onset of the pandemic, access to quality, nutritious food has been greatly impeded. After many businesses were forced to shut down in the spring of 2020, food banks were quickly overwhelmed. In addition to an abrupt increase in need, there was also the challenge of distribution. I’m sure many of you remember the long lines to food pantries that stretched through neighborhoods. And many of our schools shifted from providing free lunches to students to offering grab-and-go meals to entire families. Now, we are facing another economic challenge: higher food prices. Transportation and labor costs—along with supply-chain disruptions—are driving up the price of many staples, such as beef, poultry, eggs, peanut butter, and produce. Food is not only becoming far more expensive for families, but also for food banks—which, at the same time, are reporting fewer donations. The result of all of this is that food insecurity is becoming more widespread—and more difficult to resolve. The ripple effects expand across the economy, as food insecurity drives economic inequality, which in turn is a barrier to cultivating a healthy workforce. And a healthy workforce is what we need to keep our economy strong. At the New York Fed—and across the Federal Reserve System—one of our key areas of focus is to better understand the economic drivers and social determinants of health.