America’s largest banks have ample funds to meet the credit needs of businesses and consumers, and financial markets are operating appropriately, Treasury Secretary Steven Mnuchin said after conferring with Wall Street executives Sunday in an attempt to soothe investors rattled by White House upheaval and a government shutdown.
The heads of JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley told Mnuchin in individual conversations that they haven’t experienced any issues completing transactions, the Treasury Department said in a statement. That indicates buyers are still available for financial instruments owners are seeking to sell, unlike during the financial crisis of 2008.
At the end of that year, the collapse of investment bank Lehman Brothers amid an imploding housing market prompted a global credit crisis as investors shunned securities whose value could no longer be measured. Regulators and lawmakers have spent the intervening decade taking measures to ensure the financial system can withstand such shocks.
“The risks of the government shutdown along with steep declines in the stock market have elevated concerns about how to ensure the financial system will remain secure and open for business without any investor doubts,” Ken Leon, a banking analyst with CFRA Research, told the Washington Examiner. Bank representatives declined to comment on the discussions with Mnuchin on Sunday.
The Treasury secretary’s move was widely panned on Twitter, with economist and New York Times columnist Paul Krugman noting that no one was worried about bank liquidity until Mnuchin raised the issue.
You know, nobody seriously trying to think about the economic risks is envisioning a replay of 2008; the problems now are much less bank-centered, much more about trade and lack of monetary space. But *maybe Mnuchin doesn’t know that* — and maybe nobody in the admin does 4/
— Paul Krugman (@paulkrugman) December 23, 2018
The conversations come after a week in which all three U.S. equity indexes closed with losses, including the Dow Jones Industrial Average, which tumbled more than 1,100 points in its worst week in a decade. Defense Secretary Jim Mattis resigned on Thursday after breaking with Trump on drawing down U.S. troops in Syria, a partial government shutdown began Saturday after a standoff on funding for Trump’s proposed border wall, and the president reportedly mused privately about firing Federal Reserve Chairman Jerome Powell following a quarter-point rate hike.
The central bank has raised interest rates nine times, to a range of 2.25 to 2.5 percent, since they were cut to nearly zero during the financial crisis. Trump has fumed that the increases are undercutting the performance of stock markets, whose surge before this year had been a point of pride for his administration.
The blue-chip Dow, a widely followed gauge of market performance, is now 16 percent below its January high of 26,616. Many of the dips over the past 11 months occurred as Trump ramped up tariffs on overseas imports, moves he said would correct U.S. trade imbalances; earlier in December, he referred to himself on Twitter as a “tariff man.”
Mnuchin said Saturday the president doesn’t believe he has the authority to fire Powell, a move that would have raised questions about the central bank’s independence from political whims and likely roiled markets further.
(2/2) especially in light of my major trade negotiations which are ongoing, but I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so.”
— Steven Mnuchin (@stevenmnuchin1) December 22, 2018
White House press secretary Sarah Sanders told the Washington Examiner in an email that she’s “aware of no plans” to fire Powell.
First, Mnuchin “tries to reassure investors that Trump will not fire Powell,” Nouriel Roubini, the New York University economist who predicted the 2008 financial crisis and was nicknamed “Dr. Doom,” said in a Twitter post. “Now he wants to reassure them that banks have sufficient liquidity and markets function normally. This may only scare investors. The government shutdown is real, and Trump did consult on whether he could fire Powell.”
Mnuchin will speak with the Federal Reserve, the Securities and Exchange Commission, the Commodities Futures Trading Commission, and possibly other regulators to coordinate market operations and oversight during the shutdown. Acting White House chief of staff Mick Mulvaney said on Fox News Sunday the shutdown may stretch into January.
