Dissatisfied with FRB Chairman Powell’s recent recognition that the pandemic has wreaked extra-excruciating havoc with communities of color, Senate Banking Ranking Member Brown demanded Tuesday that the Fed take positive and institutional action not just to talk about systemic racism, but also to end it.  Clearly flustered, Chairman Powell said he’d have to talk to his colleagues, reiterating later in the hearing that much remains for fiscal – not monetary – policy-makers.  Chairwoman Waters pursued a similar, if gentler, line the following day in the House.  While it’s of course true that the Fed isn’t omnipotent, Sen. Brown and Chairwoman Waters are right:  there’s a lot the Fed can do about systemic racism that isn’t just about issuing a new CRA proposal.  This memo gives the Fed more than a few suggestions and, because it’s a long list, they follow in only bullet-point form:

• Root Out Regulatory Disparate Impact:  Federal banking agencies are, or at least they should be, tough on discrimination judged by disparate impact when it comes to financial institutions.  They can and should be at least as tough on themselves. The rulebook has an array of requirements that unintentionally but all too effectively discourages banks from making loans to lower-income and minority borrowers. Just one case in point is the assumption that subprime borrowers are high-risk borrowers. The more we study the 2008 mortgage meltdown, the more we know that this isn’t true.  Risk was actually concentrated in higher-income borrowers who took out second liens, bought

Today’s abbreviated HFSC hearing with FRB Chairman Powell was relatively cordial, likely reflecting the absence of junior progressive Democrats and populist Republicans.  During the hearing, Chairman Waters (D-CA) joined Senate Banking Ranking Member Brown (D-OH, see Client Report FEDERALRESERVE56) in calling on the FRB to take action to address racial economic disparities.  Rep. Cleaver (D-MO) urged the FRB to consider using consent decrees to force financial institutions with patterns of discrimination to enact change.  Mr. Powell  did not  commit to that, but he did indicate that the FRB plans to advance a CRA rulemaking modelled on Gov. Brainard’s alternative to the OCC’s approach (see Client Report CRA28).  However, Mr. Powell also pushed back Democratic legislation to create retail FedAccounts (see Client Report CBDC2), saying that retail FedAccounts would adversely impact bank intermediation.  However, Mr. Powell said that the Fed’s plans on CBDC need not involve private-sector consultation.

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

In this report, we assess FRB Chairman Powell’s appearance today before the Senate Banking Committee.  While Chairman Crapo (R-ID) continued to demand quick operationalization of all the FRB’s facilities, Sen. Toomey (R-PA) argued that operationalizing the corporate facilities could interfere with market pricing.  Mr. Powell stressed that the FRB needs to follow-through on its commitment to operationalize the facilities even though conditions have improved, saying that the facilities are there in case the economy “turns bad.”  Indicating that the Main Street Lending Program is still a work in progress, Mr. Powell also said that the FRB is considering an asset-based approach to calculating maximum loan sizes to address certain industries that may not now be able to use the program.  In addition to reiterating his demands for subjecting facility participants to governance and distribution restrictions, Ranking Member Brown (D-OH) also said that participants should be required to adopt policies that combat inequality.

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

Federal Financial Analytics, Inc.

Moving Fast, Breaking Things, Redefining Banking

In just a few days, Acting Comptroller Brooks laid out a path not just to tech-based banking,
but also to expansive bank-based finance. The final construct will redefine U.S. finance as it’s been known since at least 2010.

The analytics below are based on in-depth reports provided to FedFin clients.
To learn more, contact us at info@fedfin.com

As Karen Petrou’s memo last Friday explained, U.S. financial standards have long been redesigned not by law, but by rule. Doubtless recognizing this, Acting Comptroller Brooks has in just 2 weeks in office taken three actions and promised a fourth to fundamentally restructure the role federally-chartered depositories play in U.S. finance.

• First, a little-noticed proposal shakes the foundations of the technological, financial, payment, and even commercial activities in which national banks and federal savings associations(FSAs) could engage. While it doesn’t go anywhere near as far as the OCC contemplates (see below), this proposal is a concrete roadmap for empowered charters not just for national banks, but also and even more importantly for FSAs. Indeed, many questions in the proposal suggest that the OCC could go still farther in its final rule. The OCC is likely also to implement proposed changes that make it easier to ditch a parent holding company. Combined with COVID’s impact across the sector, the flow of finance outside regulated banks that characterized the last decade would begin to reverse.
• Indeed, the flow could be a technology watershed. The OCC