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Narayana Kocherlakota

The Fed Has Too Much Empathy for Banks

It needs policy makers with more diverse backgrounds.

Where’s the diversity of economic interests? — Where’s the diversity of economic interests?
Photographer: Andrew Harrer/Bloomberg

By

Narayana Kocherlakota

July 1, 2020, 10:30 AM UTC

The U.S. Federal Reserve is being surprisingly soft on banks and their investors. Just last week, for example, officials yet again allowed banks to keep paying dividends to their shareholders, even though the practice erodes the capital they will need to weather the current crisis.

Why the generosity? I think it’s partly because Fed officials are too homogeneous, and too likely to empathize more with banks and investors than they do with the broader set of Americans whose well-being they are supposed to defend. This needs to change.