Arezou

Wells shed its asset cap — but it isn’t clear why

By   Kyle Campbell

In 2018, the Federal Reserve Board’s total growth restriction on Wells Fargo established a new tool for dealing with large banks with broken compliance cultures. Many in and around the banking space viewed the $1.95 trillion asset cap — imposed in response to Wells Fargo’s cross-selling and fake accounts scandals — as a high-water mark for regulatory enforcement, ….Some view the longevity of the penalty as an indictment of the Fed more than the bank. Karen Petrou, co-founder and managing partner of Federal Financial Analytics, said if Wells Fargo was consistently failing to get into compliance, its supervisors should have increased the penalty to force swifter action. On the other hand, she added, if the bank had satisfied the necessary criteria years ago, regulators should not have dragged their feet in removing the cap. “If the supervisors are not just following picky little details and the bank is truly delinquent, then they should move past one enforcement order and slam them with another,” Petrou said. “But seven years of limbo speaks to me of supervisory failure, not Wells Fargo recalcitrance.” Petrou said regulators are incentivized to keep enforcement actions in place longer than necessary to avoid being held accountable for scandals or bad actions that might arise from a bank after their release. It leaves banks in a state of perpetual limbo, she said, hinders their competitiveness. “We need to have a much more …

Trump ‘revenge tax’ may open new front in global trade war, with consequences for your wallet

By Chris Matthews

A little-noticed provision in President Donald Trump’s sweeping tax and spending bill could spark the next battle in an escalating global trade war – and potentially unnerve an already rattled market for U.S. Treasurys that is critical to the global economy….Karen Petrou, managing partner at Federal Financial Analytics, warns that Section 899 may signal something far more consequential than a targeted trade response. In her view, it reflects a broader Trump-era shift toward economic nationalism, one that could fundamentally alter how the U.S. engages with global capital flows. In a Monday note to clients, she cited recent commentary by onetime Trump Fed board nominee Judy Shelton, who has criticized payments the Fed makes to foreign banks on the reserves they have deposited at the U.S. central bank. Petrou predicted that the Trump administration could soon cast these payments as giveaways to foreigners, even though they are a key pillar in the global dollar system, ensuring “dollar-clearing stability in a crisis.” The White House has proved willing to risk disrupting facets of the globalized economy, and Petrou argued that more such moves should be expected in the future. “An Administration determined to kick foreign students out of the United States will not hesitate to bar [interest payments on reserves] to foreign banks and maybe even central banks if the issue arises to its notice,” she wrote.

https://www.marketwatch.com/story/trump-revenge-tax-may-open-new-front-in-global-trade-war-with-consequences-for-your-wallet-f3bec60f

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Examiner discretion takes center stage in CAMELS debate

By   Kyle Campbell
As freshly appointed agency heads aim to refocus their approaches to supervision, an emerging question is how much discretion will be left for bank examiners — if any at all. Regulators and lawmakers have already sought to remove one key discretionary tool by barring the consideration of reputational risks. But some policy specialists want them to go further…Karen Petrou, managing partner of Federal Financial Analytics, said there are ways to put quantitative measures around seemingly qualitative factors. She noted that governance could be examined by establishing benchmarks for things such as executive compensation and board composition against which individual banks can be measured. Petrou said management examination is critical, noting that it is often an early indicator of future issues — but only when done correctly.”I would like it refined, and if the agencies think they cannot refine it, then I want it out,” she said. “It needs to be a largely quantitative, transparent and accountable measure of managerial controls.”

https://www.americanbanker.com/news/examiner-discretion-takes-center-stage-in-camels-debate

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Trump Has Cut Thousands of Wall Street Cops While Markets Wobble

By Katanga Johnson and Weihua Li

Donald Trump’s administration is set to shrink the ranks at the top US financial regulators by more than 2,300 workers, a group that includes bank examiners, criminal investigators and economists. The cuts are the steepest in decades for the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Securities and Exchange Commission, the primary agencies responsible for oversight of banks, trading houses and the public markets…“The problem with bank supervision is not lack of personnel, but rather where they are deployed, how they are supervised by senior officials, and the extent to which the agencies demand rapid action on problem institutions,” said Karen Shaw Petrou, the managing partner at Federal Financial Analytics, a Washington-based consulting firm.

https://news.bloomberglaw.com/us-law-week/trump-has-cut-thousands-of-wall-street-cops-while-markets-wobble…

Bird-watching at the Federal Reserve

By David Brancaccio

Which bird is it: hawk or dove? The guardians of interest rates at the Federal Reserve meet today and tomorrow on what to do about an economy under stress. And President Donald Trump would prefer the Fed be dovish by lowering interest rates. We’ll get out our binoculars with Karen Petrou, managing partner at Federal Financial Analytics.

https://www.marketplace.org/episode/2025/05/06/ford-says-the-road-ahead-is-unclear#bird-watching-at-the-federal-reserve…

Powell Attempts Balancing Act as Trump Tests Fed’s Autonomy

By Craig Torres

Donald Trump’s second term has begun with a renewed determination to curb the Federal Reserve’s treasured autonomy. Jerome Powell’s response so far: trying to draw a sharp line around monetary policy independence, even if it means appearing to give ground elsewhere. The Fed chair’s balancing act comes as the Trump administration has moved to swiftly rein in the central bank’s autonomy on bank supervision, the president continues to pressure Powell to cut interest rates, and Republicans on Capitol Hill signal they will ramp up their oversight….About a month after his inauguration, Trump issued an executive order that swept up regulation into White House review. While Fed governors vote on bank rules and a White House review may not change the vote, some say the presumption that the Fed’s decisions should proceed unquestioned in a variety of areas is over.“Whatever independence the Fed had in bank regulation is now gone,” said Karen Shaw Petrou, the managing partner at Federal Financial Analytics, a Washington-based consulting firm.

https://www.bloomberg.com/news/articles/2025-04-23/powell-attempts-balancing-act-as-trump-tests-fed-s-autonomy?sref=BSO3yKhf

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Fed regulation, supervision take backseat in independence fight

By Kyle Campbell

Federal Reserve officials are battling to maintain their political independence on monetary policy, but the same cannot be said for their regulatory and supervisory authorities. Instead, central bank officials have downplayed their ability to set their own banking oversight policies rather than boisterously defend it from the Trump administration’s efforts to bring it under more direct executive control… Some policy analysts and observers see the Fed’s disparate treatment of its authorities as a pragmatic choice. Facing pressure on multiple fronts, Karen Petrou, managing partner at Federal Financial Analytics, said the Fed was wise to bolster its monetary independence — and fortunate to have had it explicitly exempted from the Trump administration’s overtures.”The Fed is lucky to have maintained the Trump administration’s agreement to its monetary policy independence in the executive order the president issued on that point,” Petrou said, referring to a February action making independent agencies more accountable to the White House. “That was not a foregone conclusion.” Petrou added that the legislative history and the academic literature that establish and justify the Fed’s monetary independence do not clearly apply to its regulatory and supervisory functions. “Their independence for supervision dates to a period in which the principal concern was that bank examiners would sanction or favor banks based on [favoritism], and that remains a concern,” Petrou said. “But I don’t think that the kinds of rules that redefine macroeconomic growth or the competitive landscape, like …