Arezou Rafikian – Federal Financial Analytics

18 09, 2023

FedFin on: Large-IDI Resolution Plans

Arezou Rafikian2023-09-19T18:09:58-04:00September 18th, 2023|The Vault|

Although a pending FDIC/FRB proposal imposes a raft of new requirements for resolution plans from IDIs with over $100 billion in assets, the FDIC has also issued a freestanding proposal doing the same, also setting information-filing standards for IDIs below $100 billion but above $50 billion. Aspects of the resolution-plan filing standards for large covered IDIs (CIDIs) echo and in some cases allow reliance on aspects of the joint rule with the Fed, but the FDIC notes that this rule is, as required by the Dodd-Frank Act, focused on financial stability. Its own IDI resolution rules now and as proposed instead address how the FDIC is to meet its own statutory requirements (e.g., least-cost resolution). The NPR mandates many new planning or filing requirements to achieve its goals, most notably adding new severability standards that may require new inter-affiliate or -branch firewalls that reduce operating efficiencies and, when it comes to broker-dealer or other entities, lead to indirect resolution requirements not mandated by functional regulators.

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

15 09, 2023

Politico, Friday, September 15, 2023

Arezou Rafikian2023-09-15T13:51:34-04:00September 15th, 2023|Press Clips|

‘Triple threat’: Auto strike joins a messy season for Biden’s economy

By Sam Sutton

The strike against Detroit’s Big Three automakers is hitting the U.S. economy at a precarious time — as it’s struggling with an era of high inflation and soaring borrowing costs. Combined with other emerging headwinds — rising gas prices, tightening credit, the resumption of student loan payments and shrinking household savings — the walkout could slow growth just as President Joe Biden and Federal Reserve Chair Jerome Powell are trying to steer the U.S. away from a recession….“None of these is a shot in the temple; they’re nonfatal,” Federal Financial Analytics managing partner Karen Petrou said. “But none is good, and the American public is fragile. It doesn’t take much to throw them off.” Pillars of the economy — including the job market and consumer spending — remain strong. But a protracted auto industry strike could be a significant test for Powell, who is already under pressure from progressives to relax monetary policy as inflation levels out in key segments of the economy.

https://www.politico.com/news/2023/09/15/triple-threat-auto-strike-joins-a-messy-season-for-bidens-economy-00116088

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7 09, 2023

S&P Global, Thursday, September 7, 2023

Arezou Rafikian2023-09-07T16:10:59-04:00September 7th, 2023|Press Clips|

Spinout of banking unit could be best option for embattled Hawaiian Electric

By Author Alex Graf, Syed Muhammad Ghaznavi

Questions are swirling about American Savings Bank FSB’s future as its parent company Hawaiian Electric Industries Inc. faces mounting lawsuits. As the only bank in the country owned by a publicly traded utility company, American Savings Bank is in an unprecedented position as its parent company Hawaiian Electric comes under pressure following fires that devastated the town of Lahaina….”Without downstreamed parent-company cash in hand to protect it from the utility’s travails, the insured depository and thus the FDIC are sure to suffer,” Karen Petrou, the co-founder and managing partner at Federal Financial Analytics, wrote in a recent blog post. The bank had $8.21 billion in total deposits at June 30, and $1.75 billion of those were uninsured, according to S&P Global Market Intelligence data. In the press release, American Savings Bank touted its liquidity and capital position, and assured customers that their deposits are safe. The bank has 273% of liquidity coverage for its uninsured deposits and a common equity Tier 1 ratio of 12.23%. It also has borrowing capacity of $3.1 billion from the Federal Home Loan Bank and Federal Reserve, according to the press release. Banking regulators are also in a precarious situation because they do not have oversight of Hawaiian Electric like they do for most bank holding companies. When a parent company is a bank or savings and loan holding company, the Federal Reserve can …

7 09, 2023

FedFin on: Living-Will Requirements

Arezou Rafikian2023-09-07T16:39:01-04:00September 7th, 2023|The Vault|

In conjunction with proposing a new long-term debt (LTD) requirement for categories II, III, and IV banks, the Fed and FDIC are pursuing other ways to enhance resolvability. Among these is new guidance for large domestic and foreign banking organizations that requires U.S. banking organizations and foreign banking organization (FBO) intermediate holding companies (IHCs) along with all their insured depositories when any is over $100 billion to file resolution plans. These are also redesigned to make the plans much closer in substance to those mandated for GSIBs.

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

6 09, 2023

FedFin on: Long-Term Debt Requirements

Arezou Rafikian2023-09-07T16:38:46-04:00September 6th, 2023|The Vault|

Building on an advance notice of proposed rulemaking, the banking agencies have issued several proposals to enhance the resolvability of large banking organizations not covered by stringent GSIB standards. Among these is a proposal mandating long-term debt (LTD) to increase regional-bank total loss-absorbing capacity (TLAC) and, the agencies believe, reduce resolution costs and/or increase the FDIC’s options, thus avoiding the systemic designation and costly resolutions that occurred for regional banks earlier this year. The LTD requirements for category II, III, and IV banking organizations do not go as far as those mandated for GSIBs, based instead exclusively on a “capital-refill” construct in which eligible LTD is issued in amounts the agencies believe sufficient to provide enough capital-equivalent funding to achieve the proposal’s expected results.

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

3 09, 2023

The Hill, Sunday, September 3, 2023

Arezou Rafikian2023-09-05T09:41:28-04:00September 3rd, 2023|Press Clips|

Regulators must monitor more than big banks to avoid systemic failure

By Karen Petrou

Federal banking agencies are fiercely waging what some big banks consider a jihad mandating tough new rules. Some of the rules are warranted, some not. Regardless, what’s completely missing and all too essential is action on all the other manifest threats that aren’t big banks. Indeed, one looming nonbank’s systemic merger poses a clear and present danger: Intercontinental Exchange Inc. (ICE). ICE, an already-systemic global clearing and settlement powerhouse, is now poised to gain still greater control over critical portals across the even more systemic $12 trillion mortgage market through a merger with real estate software company Black Knight. So much could go so wrong so fast if ICE is allowed to complete its acquisition of Black Knight that, should this occur, the firm as a whole must quickly be designated a systemic financial market utility and regulated as such by the Federal Reserve.

https://thehill.com/opinion/finance/4183220-regulators-must-monitor-more-than-big-banks-to-avoid-systemic-failure/#:~:text=Federal%20banking%20agencies%20are%20fiercely,rules%20are%20warranted%2C%20some%20not.…

28 08, 2023

Karen Petrou: What Happens When a Bank’s Parent Goes Up in Smoke

Arezou Rafikian2023-08-28T12:31:01-04:00August 28th, 2023|The Vault|

I recently bemoaned the Fed’s failure before and after SVB’s collapse to demand source-of- strength backstops from the parent holding company. That these would have materially reduced the FDIC’s cost and thus that of the large banks picking up this tab is still more obvious by the fact that it took the Justice Department to bar big pay-outs to the parent company’s executives. Clearly, there’s still money to be made, just not for anyone else. However, the source-of-strength question takes on still more immediate importance in light of the highly worrisome case of Hawaii Electric. It owns American Savings Bank (ASB), a $9.6 billion insured depository. Some parent-company investors somehow think ASB will bail out the beleaguered Maui electric utility, redefining who is the source of strength. ASB can’t, but that doesn’t mean the insured depository is safe and sound. Without downstreamed parent-company cash in hand to protect it from the utility’s travails, the insured depository and thus the FDIC are sure to suffer.

Yet another formidable post on the Bank Reg Blog lays out the history of how it came to be that an public utility owns an insured depository. Barriers between banking and commerce that Congress didn’t close for BHCs in 1956 were shuttered in 1970 and 1987, leaving only industrial loan companies and unitary thrift holding companies (i.e., parent companies such as Hawaii Electric) as the only ones allowed to own insured depositories. Unitary thrifts were prospectively barred in 1999 and several large grandfathered ones did themselves …

22 08, 2023

FedFin on: GSIB Surcharge

Arezou Rafikian2023-08-23T10:19:58-04:00August 22nd, 2023|The Vault|

As anticipated in the wake of recent bank failures, the FRB has proposed a significant revision to the current rules calculating systemic-risk scores that lead to GSIB designation. These indicators are used not only for GSIB designation or a higher surcharge, but also for categorizing U.S. and foreign banks for other purposes and thus would also bring some banking organizations into categories subject to very strict prudential standards. The Board estimates that the overall impact of the changes to the surcharge and risk-scoring methodology are small and, regardless, warranted to enhance systemic resilience and consistency. It also estimates that the interaction of this new approach with certain liquidity and TLAC standards is generally minimal. However, the Fed has not assessed the relationship of scoring revisions to one way to calculate the GSIB charges, nor does the Board assess the cumulative impact of all of the changes proposed here in concert with its sweeping revisions to U.S. capital rules for all banking organizations with assets over $100 billion. It is also unclear how these changes in concert with all the others interact with the stress capital buffer applicable to large U.S.-domiciled banking organizations…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

17 08, 2023

FedFin Assessment: What the Agencies Think the Rules Will do and Why Much of That is Wrong

Arezou Rafikian2023-08-23T10:13:25-04:00August 17th, 2023|The Vault|

FedFin Assessment: What the Agencies Think the Rules Will do and
Why Much of That is WrongWith this report, we conclude our assessment of the regulatory-capital proposal with analysis of what the sum total of the credit (see FSM Report CAPITAL231), operational (see FSM Report OPSRISK22), and market (see FSM Report CAPITAL233) rules could do in the real world of banks, nonbanks, foreign banks, and complex market interconnections. Our first assessment of the proposal’s framework (see FSM Report CAPITAL230) provided the agencies’ quantitative-impact statement (QIS). Here, we evaluate the QIS, expand on the agencies’ qualitative conclusions, and add our own assessment of what might actually happen in the face of these sometimes-contradictory capital incentives….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

16 08, 2023

FedFin on: Market-Risk Capital Standards

Arezou Rafikian2023-08-17T10:02:39-04:00August 16th, 2023|The Vault|

In this analysis, we turn to one of the costliest aspects of the proposed rewrite of U.S. regulatory-capital standards: the market-risk framework. This aspect of the proposal would significantly rewrite current U.S. market-risk rules to reflect the “fundamental review of the trading book” (FRTB) regime the Basel Committee crafted in 2018. However, unlike the global rules, the U.S. approach would largely dispense with reliance on internal models in a manner generally consistent with the overall decision to eschew models; even where models are allowed for market risk, they are strictly constrained. These standards thus would raise current market risk-based capital (MRBC) requirements by as much as seventy percent, with much of this falling on category I and II banks no longer allowed to use their current, largely models-based methodologies….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

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