Rule making is a long process

Jarndyce v CFPB

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Cash may be king, but modern economies run on credit. It may not be literally impossible to live without credit, to build a business without credit, but it’s much harder. The entire infrastructure of our modern world is built around it. Therefore, access to credit is a big deal. And that question, who gets access to credit, is at the heart of a Jarndyce v. Jarndyce-level regulatory struggle.

The Consumer Financial Protection Bureau seems poised to finally complete the process of implementing a law that was passed 16 years ago, our Kate Berry writes this morning (will add link in CMS). The rule requires financial institutions to collect data on the sex, race and ethnicity of small-business loan applicants and has been subject to almost constant legal debate since it was first passed.

“​​The delay comes after multiple legal battles with consumer groups, and then banks, suing the CFPB to enact, and then halt the rule, resulting in multiple court-ordered stays, preliminary injunctions, and an eventual decision by acting CFPB Director Russell Vought last year to reconsider the rule. The Trump administration dramatically scaled back a 2023 rule that was finalized in the waning days of the Biden administration,” Kate writes.

If the latest proposal goes into effect, banks will start collecting the data in 2028, nearly two full decades after the rule was first mandated under the Dodd-Frank Act. It would require lenders to collect data covering 13 fields, and would apply only to firms that make 1,000 or more loans to businesses with less than $1 million in revenue.

Of course, its legal path is still not settled. Republicans in Congress are trying to either repeal the rule through legislation or gut it through appropriations.

In “Bleak House” by Charles Dickens, the entire plot revolves around this epically protracted lawsuit called Jarndyce v Jarndyce. It’s an estate squabble that ends up consuming several generations of the Jarndyce family. Nobody can even remember the original complaint. When it is finally settled, there is nothing left of the estate. It all went to lawyers’ fees. 

It’s kind of astounding that this data-collection rule and the final Basel III rules are still being written and debated, more than a decade after they were proposed and adopted. Fortunately we can remember what the original squabble was about. Hopefully these rules aren’t solving just the last crisis, but can help stave off the next one.

(For the record, I was assigned “Bleak House” in college, hated it, wrote an entire essay about how much I hated it, and the only thing about I remember from it is this Jarndyce v Jarndyce reference, which really does come in handy every now and again in making me look a lot smarter than I am. Thanks Dr. Regan.)

Strait talk

I’d talked last week about how the war’s effects are just starting to be felt, and how the full impact of them likely hadn’t been seen yet. I came across an interesting note from some analysts at JPMorganChase that adds a little more context.

The problem of course is the Strait of Hormuz and the amount of traffic in terms of oil tankers that is going through it, or rather the lack of traffic going through it. There was a lot of relief when it appears that a truce had been struck and the Iranians were opening the Strait. That, of course, did not last. Now the lack of traffic is bad enough on its own, but it will start having knock-on effects on inventories, Michael Feroli and JPMorganChase’s analysts write in a note. “If this drags on into next month, inventories could run below their operational minimums, triggering a more serious shortage—and likely price surge,” they say.

The bank’s commodity strategists think inventories in OECD countries could reach those low levels by late May. If they do, and persist, we are likely to start seeing more evidence of demand destruction. In other words, the higher price of oil will start eating into economic activity. “And the U.S. is unlikely to be immune,” they write, even if other, less oil-rich countries feel worse effects. 

It’s hard to know exactly what’s happening in the Strait, of course. There is a certain amount of data about ocean vessels in the public domain. I’ve found one, Strait tracker, that seems pretty reliable. It shows that right now the traffic going through the Strait is only about 8.5% of a normal day. And, yes, Iran has said it will open the Strait, if the U.S. ends its blockade and the war. So the war appears to have become a game of chicken over economics.