Arezou

Making sense of the ‘crazy quilt’ of financial regulators

Caitlin Mullen Senior Reporter

As the U.S. bank regulatory system has grown throughout history, so have calls to simplify it. Bank of America CEO Brian Moynihan this year lamented “the spaghetti chart of overlap” among bank regulators and reiterated suggestions from big-bank executives that it’s time to “start with a fresh sheet of paper.” …It’s an issue that can pit large banks against small: Bigger banks tend to be annoyed by the plethora of regulators, but smaller banks like the choice, Hsu said. “It does feel like Hamilton versus Jefferson,” he said during a June Brookings event. “That tension’s always been there.” And the resources required to stay on top of such a large and complicated banking system demand a sizable apparatus. There’s a comfort factor, too: Consolidation attempts fail “because individual institutions want things the way they are,” said Karen Petrou, managing partner at Federal Financial Analytics. There are, to some degree, captive regulators “everybody’s quite comfortable with,” and arbitrage opportunities between national and state charters that banks don’t want to lose, she added….

https://www.bankingdive.com/news/bank-regulators-fed-occ-fdic-consolidation-supervision-treasury-trump/751240/

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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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