Treasury Presses Fed Efforts to Contain Systemic Liquidity Risk

In remarks today, Treasury Under-Secretary Nellie Liang addressed systemic liquidity risks such as the 2020 dash-for-cash and recent bank failures.  Treasury is cautiously optimistic about increasing regional-bank stability, but systemic liquidity risk is now structural.

FDIC Proposes Special, Costly Uninsured-Deposit Assessment

The FDIC today voted 3-2 to propose the special assessments presaged in Chairman Gruenberg’s Congressional testimony after SVB and SBNY’s failures (see Client Report REFORM218).  Notably, the assessment does not also cover the $13 billion of cost estimated for the FRC rescue in conjunction with JPMorgan’s purchase; its rescue was not technically systemic and its cost will thus be covered as the FDIC reviews DIF ratios in coming meetings at which more broadly-shared, traditional premiums are likely also to increase.

GOP Endorses GAO Recommendations; Dems Point To Bank Management

At today’s HFSC Oversight Subcommittee hearing on the GAO’s report (see Client Report REFORM223), Subcommittee Chair Huizenga (R-MI) built the case that the Fed has historically been unable to properly supervise troubled banks and noted that the committee will investigate this along with the Systemic-Risk Exception used in recent failures.

Waller Disavows Fed Climate-Risk Action

Confirming the Fed’s omission of climate risk in its new financial-stability report (see Client Report SYSTEMIC96), Gov. Waller today said not only is climate risk not now a threat to financial stability, but it also does not pose a safety-and-soundness hazard to large banks.

FRB-NY Data Contradict Story Of Significant Small-Bank Deposit Outflows

The FDIC’s decision earlier today to propose new DIF assessments for uninsured deposits makes a new FRB-NY post on bank funding still more germane.  Looking at funding from the onset of tightening in March of 2022 to the beginning of March 2023 before the bank failures, the study finds first that banks replaced approximately $500 billion of deposit funding with $800 billion from other sources, with these numbers not reflecting the $450 billion of deposits that left the banking system in March following bank failures.

HFSC GOP Demands SEC Rescind Custody Proposal

HFSC GOP leadership today sent a letter to the SEC demanding that it rescind its custody proposal (see FSM Report CUSTODY5) on grounds that the proposal is far broader than SEC authority allows, will adversely affect many markets, and make digital asset custody “extremely onerous and costly.”