From a Distance…
The Federal Reserve’s long-awaited CBDC discussion draft led to remarkable Congressional unanimity on its import because pretty much anyone could read it any way they wanted. The only clear conclusion we noted in our initial assessment is that the Fed is in no hurry to act and, should it ever decide to do so, it will demand heavy cover from Congress and the Administration.
Congressional Leaders See What They Want in CBDC Paper
Following release yesterday of the Fed’s CBDC discussion draft, key policymakers in the House and Senate have now weighed in. Senate Banking Chair Brown (D-OH) said the draft is a good first step, highlighting the potential for CBDC to create a more inclusive banking system and further U.S. economic leadership.
FDIC Finalizes Trust, MSA Deposit-Insurance Simplification
The FDIC today finalized as proposed a rule simplifying deposit-insurance coverage for deposits held in connection with revocable and irrevocable trusts as well as certain MSA deposits.
Perhaps nothing says as emphatically that market valuations are divorced from reality as the fact that equity and bond markets are essentially ignoring the increasing risk that Russia invades Ukraine. Investors have grown used to shrugging off geopolitical risks – see just the brief chills after Russia’s previous invasions of Crimea and Georgia as cases in point. But this time is different because this time Ukraine is a critical link in Europe’s energy supply, macroeconomic stress in Europe will have immediate global repercussions, and Vladimir Putin is making it more than clear that this time he’s not just playing around with minor nations he thinks of as vassal states. This time, he will go to the economic map if he believes the Western response to his invasion might pose too much risk to Russia’s economy and his popularity and there’s no reason to doubt him. As a result, I hope Treasury and the Fed are keeping a careful eye on the Treasury market and global payment system, not to mention on the cyber-security on which core market infrastructure rests. The threat is all too real.
Treasury has long known that the “nuclear option” when it comes to economic sanctions is denying Russia access to any financial institution with any kind of domicile in the U.S. or any point of access to the U.S. payment system topped off by SWIFT sanctions blocking Russian access to the global payment system. If Treasury fires these high-powered missiles – and it’s likely to have …
Financial Services Management: Global Insurance Capital and Prudential Standards
The International Association of Insurance Supervisors has issued a series of documents describing its plans for prudential regulation of internationally-active insurance companies, building on recent work defining global systemically-important insurers (G-SIIs) and the broader framework of reform initiatives from the Financial Stability Board (FSB) and Basel Committee. The standards include the first risk-based capital rules for insurers akin in some respects to the Basel III rules for banks, restructuring its ongoing effort to create a common regulatory framework (ComFrame) for internationally-active insurance groups (IAIGs). They also include new macroprudential standards for G-SIIs that would likely require restructuring of designated firms into holding companies with carefully-delineated business lines that segregate “traditional” insurance from non-traditional activities (e.g., monoline credit insurance) and non-insurance activities (e.g., securities financing).