In conjunction with rejecting an uninsured crypto bank’s application for Federal Reserve membership, the Federal Reserve issued a policy statement conforming state member bank powers only to those authorized for national banks even if the state member is an uninsured depository institution. While it is possible for state member banks to gain greater powers following Fed deliberations, the new approach sharply limits the ability of states to empower uninsured charters not only focused on cryptoasset activities, but….
The Fed can’t fix inflation alone. Here’s why
By Karl Evers-Hillstrom
The Federal Reserve continues to hike interest rates in its fight to bring an end to historic inflation. The central bank has driven up borrowing costs and slowed the economy in an effort to reduce demand for goods and services, which leads to lower prices….“We’re not done by any stretch. But inflation has cooled and more quickly than I and others who were so upset when the Fed was late intervening,” said Karen Petrou, managing partner at policy research firm Federal Financial Analytics……Existing home sales have fallen for eleven straight months, according to the National Association of Realtors.Home price growth has slowed dramatically from the extreme gains in recent years and has turned negative in some parts of the U.S….“Mortgages are where the Fed has the heaviest foot in terms of slamming on the brakes and having very little lag time between what it does and how a market cools,” Petrou said.
Are the FHLBs Dangerously Off Mission?
Host Rob Blackwell
While the Federal Housing Finance Agency conducts a historic review of the Federal Home Loan Banks’ mission, several critics are questioning whether the housing government-sponsored enterprises have lost sight of their original purpose. Karen Shaw Petrou, managing partner of Federal Financial Analytics details the controversy, and how the FHLBs should be reformed.
It’s a sad commentary on American politics to observe, as I feel we must, that the experienced chairman of the House Financial Services Committee, Patrick McHenry, has followed M&M’s “spokescandies” as a target of Tucker Carlson’s bilious, yet widely-watched, wrath. The fundamental frivolity of this contrast is self-evident, but that has yet to dampen the credibility of this combustible commentator with his super conservative acolytes. That Mr. Carlson matters so much to public discourse is deeply distressing given some of his other targets – Nancy Pelosi’s husband after a brutal attack is only one that comes immediately to mind. Unlike him and many other Carlson targets, Mr. McHenry can more than take care of himself. Still, going after him means super-conservatives will blast any Member or measure that falls short of purity on their rightward-loaded scale. Since nothing these folks like can be enacted into law, all this does is reduce the hopeful odds we cast earlier this year for constructive financial-policy legislation. Too bad – the nation could use some.
The nub of the accusation lies in his chairman’s decision to leave the word “inclusive” in the name of one of his panel’s revamped subcommittees. Clearly, the concept of inclusion has become accursed because Democrats often used it in concert with what might seem an equally innocuous word: diversity. Democrats did use diversity and inclusion demands to press for racial, gender, and sexual-orientation equity in ways that rubbed many republicans raw, but the idea of inclusion is fundamental to …
Using one of its controversial edicts to set what some consider a new rule, the CFPB has opined that negative-option or “subscription” marketing of consumer-financial products or services may be unfair, deceptive, or abusive (UDAAP) and thus subject to significant sanction for both the provider and any third parties with which it works. Although the circular does not prohibit negative-option marketing, these sanctions and the sometimes-vague nature of stipulated safeguards may lead some financial companies…..
Under Director Thompson, FHFA’s top policy priority is equitable housing. However, a ground-breaking study from Fed staff shows that FHFA is swimming upstream when the Fed raises rates. Combined with our own research showing that ultra-low rates also accelerate inequitable housing, the best FHFA can do to help lenders reach LMI borrowers is tread water – better than sinking, but still hard work getting pretty much nowhere….
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Building on its proposed nonbank registry related to enforcement orders, the CFPB is now also proposing a public registry requiring posting of provisions in consumer-finance contracts the agency believes threaten consumer legal or free-speech rights when issued by supervised nonbanks. The agency’s concern is based on its view that consumers generally have no ability to understand and alter the agreements presented to them as take-it-or-leave-it propositions with no choice other than a signature or an “agree” box to click. Further, many contractual terms are decided between originators and third parties – e.g., credit reporting agencies, loan servicers, and debt collectors – over which the consumer has no power of choice or ability. The registry is thus also intended to capture these sub-contracts determining back-end consumer risk, a move with considerable implications for proprietary relationships with these third-party providers. Much in the new standards strikes at….
Recent revelations about the Federal Home Loan Bank System have made it still more imperative to address whether at least $1 trillion of implicitly-guaranteed federal debt should be authorized to feather the FHLBs’ pockets instead of furthering public welfare. As we detailed in a recent client report, flat-out mission contradictions are clear in the case of a crypto-heavy bank’s use of FHLB funding as a lifeline which it surely obtained because the System can lend with impunity because it has a prior lien ahead of even the FDIC. However, this case isn’t the only current mission conundrum. The other is little-noticed but at least as problematic: the extent to which Home Loan Banks lend not to support homes, but instead to give foreign banks in the U.S. a tidy revenue source via a nifty interest-rate arbitrage play that disadvantages U.S. banks and may even threaten financial stability and monetary-policy transmission.
But first to the question of whether the FHLB System is required to do better. It would seem totally obvious that Home Loan Banks issue debt through the System’s Office of Finance thanks to taxpayer benefits. However, in connection with a discussion of the prior lien, an FHLB spokeswoman said the System operates without any resort to taxpayers. Leaving aside the fact that the Banks don’t pay taxes and couldn’t raise hundreds of billions at near-Treasury spreads if they weren’t cushioned in the taxpayers’ bosom, the law says these entities are agencies of the U.S. Government and regulates …
Silvergate Bank loaded up on $4.3 billion in FHLB advances
By Kate Berry
When depositors began pulling money out of Silvergate Capital Corp. following the collapse of cryptocurrency exchange FTX, the California bank shored up its liquidity by tapping a quasi-government agency not typically known as a lender of last resort. Silvergate received $4.3 billion from the Federal Home Loan Bank of San Francisco late last year, company filings show….”What the $4.3 billion to Silvergate went to in terms of mission is a very intriguing question,” said Karen Petrou, managing partner at Federal Financial Analytics. “The housing mission of the Home Loan banks is apparently long gone, since this has nothing to do with housing. It has to do with supplementing wholesale funding sources for banks that can’t happen any other way or at greater cost.”
Is Silvergate solvent? Media coverage suggests it can stay in business based on the crypto bank’s liquidity. Liquidity is, though, only a necessary condition for a bank to survive. For it actually to remain in business, a bank must also be solvent. For Silvergate and several other crypto-heavy banks this won’t be easy.
The critical criterion determining whether regulators allow a bank to remain in business is the extent to which its capital meets or exceeds the rules and, when it doesn’t, how much below these thresholds it falls and why. Ever since 1991, regulators are supposed to grant banks little leeway on these capital requirements – “prompt corrective action” provisions demand that regulators sanction banks as capital plummets and close them if they haven’t already done so if ratio’s sink to the “critical-capital” threshold.
Faced with a Lehman-like run, Silvergate has understandably focused on assuring stakeholders that it can continue to sell assets to handle all withdrawals. And so it may, but that’s not its only problem. Even if it’s liquid, Silvergate faces a grim future if its regulatory-capital ratios falter – and they might.
To survive, Silvergate must run a gauntlet between the amount of capital it holds on a shrinking pool of assets and the capital costs of losses taken as assets are sold to handle withdrawals. The bank entered the liquidity wringer with ample capital. According to its third-quarter call report, its leverage ratio was over ten percent. And, even when the bank dumped over …