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So far Eliza Allen has created 207 blog entries.
5 10, 2022

CRYPTO33

2022-10-05T11:14:08-04:00October 5th, 2022|5- Client Report|

FSOC:  Cryptoassets Demand Top-Down Standards, Securities Regulation, Banking-Agency Cooperation

In this report, we build on our initial assessment of FSOC’s conclusion that cryptoassets now pose systemic risk and the Council’s recommendations about what should be done to curtail it.  Unsurprisingly, the FSOC report reiterates Treasury’s conclusion that cryptoassets have few, if any, natural uses (see Client Report CBDC14), characterizing this asset class as largely speculative and/or focused on benefiting insiders.  Specific recommendations are detailed in this FedFin report, with FSOC focusing as much on inter-agency cooperation – so far almost non-existent – and effective enforcement via the reach of traditional rules into cryptoassets as on new regulatory initiatives and legislation.  The description of new laws governing spot markets side squarely with the SEC, urging Congress to limit the CFTC’s jurisdiction to futures-related activities now subject to its jurisdiction and govern retail investors only to the extent needed with regard to CFTC-specific activities.  Custody and similar crypto activities should only be conducted by banks or other regulated entities, with FSOC also seeking first data and then restrictions on inter-connections between crypto companies and regulated banks.

CRYPTO33.pdf

4 10, 2022

DAILY100422

2022-10-05T10:36:14-04:00October 4th, 2022|2- Daily Briefing|

IMF Calls for Open-End Fund Swing Pricing

The IMF today released a study of open-end funds sure to guide the action promised by SEC Chairman Gensler (see Client Report INVESTOR20).

Fed Study: Climate-Risk Insurance Cross-Subsidies Pose Moral Hazard, Financial Risk

Using homeowners’ insurance as a proxy for climate-risk insurance, a Fed staff study finds that the decoupling of rates and risk raises moral hazard and causes policy-holders in lower-risk and less restrictively regulated states to subsidize those in riskier states, where rates have been outpaced by losses.

Yellen Highlights Need for Crypto Reg at Racial Equity Roundtable

At a Treasury roundtable on racial equity and economic inequality, Treasury Secretary Yellen today reiterated the importance of the cryptoasset standards recommended yesterday by the Financial Stability Oversight Council.

Fed Sets Supervisory Standards for a Non-Traditional IDI Parent

The Federal Register today includes the Federal Reserve’s final supervisory framework for DIHCs controlled by insurance companies.

Final FHLB Listening Session Brings System Praise, Resistance to Change

We will shortly provide clients with an in-depth report on the last session FHFA held today listening to dozens of views on the future of the Federal Home Loan Bank System.

Daily100422.pdf

3 10, 2022

DAILY100322

2022-10-05T10:29:43-04:00October 3rd, 2022|2- Daily Briefing|

Gruenberg Commits to Climate-Risk Standards, Cautious on Premium Hike

Acting FDIC Chairman Gruenberg today strongly defended banking-agency action addressing climate risk, indicating that the FDIC will advance pending risk-management principles akin to those pending from the OCC (see FSM Report GREEN12) along with working with the Fed.

FRB-Chicago Study: Big U.S. Banks are Oligopolists

A new Federal Reserve Bank of Chicago working paper finds that U.S. banking has become increasingly concentrated judged by the top-five bank’s market share and a standard market-power index, concluding that this “oligopolistic” sector is thus able to charge undue fees to weaker corporate customers.

Warren Zelle Report Finds “Rampant” Fraud, Slams Banks

Following the hearing with large-bank CEOs (see Client Report REFORM213), Sen. Warren (D-MA) released a scathing report concluding that Zelle is plagued by “rampant and increasing fraud.”

Board Defies Critics, Demands Two Networks for Online Debit Transactions

Ahead of possible Congressional action on legislation to restrict credit-card interchange fees (see FSM Report INTERCHANGE10), the FRB today voted 6-1 to finalize its controversial proposal (see FSM Report INTERCHANGE8) requiring debit-card issuers to enable at least two unaffiliated payment-card networks, including with regard to “card not present” transactions.

FSOC Presses New Law, Rule, Supervisory Standards to Tackle Crypto Systemic Risk

As anticipated, the FSOC today approved a sweeping report on cryptoasset financial stability, finding that interconnectedness between this sector and the financial system poses significant risk that warrants structural action.

Daily100322.pdf

3 10, 2022

M100322

2022-10-03T11:27:39-04:00October 3rd, 2022|6- Client Memo|

As Markets Thunder, FSOC Snores

Later today, the FSOC will open its sanctum for what promises to be a brief session of largely political theatrics.  One can only hope that the rarefied air of the Council’s closed-door meeting elevates actual action addressing growing signs of financial instability.  Sadly, FSOC’s record of timely intervention ahead of any systemic event since its creation – and I count at least four – is dismal as are the Fed’s see-no-evil financial stability reports.  As of this writing, the U.S. is on the precipice of another “dash for cash” and no one – not the bond market, mutual funds, MMFs, investors – has any sandbags at the ready beyond faith that the Fed will bail them all out all over again.  Loose lips sink financial systems, but lips that are zipped only because they have nothing useful to say do the same and then some.

m100322.pdf

30 09, 2022

Al100322

2022-10-03T13:32:03-04:00September 30th, 2022|3- This Week|

FSOC Does What Again?

Later on Monday, we’ll advise clients of the FSOC meeting’s outcome.  Open sessions of this august council are so infrequent that we view them with great anticipation – or we would if the agendas made known to the public addressed critical systemic-risk concerns.  These there are a’plenty as interest rates rise, geopolitical risk grows, and much more might well go amiss, but FSOC is planning to tell the public little more than where its various reports and internal deliberations stand.  These are on matters of note such as climate risk and cloud computing, but what’s to come of them beyond telling the public not to worry much is hard to discern.  More may come in the wake of Treasury’s various, ground-breaking cryptoasset-policy reports (see Client Report CBDC14, Client Report CRYPTO32, GSE Activity Report Can you see CBDC, and FSM Report AML136).  So, as always, we’ll be monitoring, analyzing, and alerting you ASAP.  Still, we wish we had more to say about some of the most important issues of these days in this market.

Al100322.pdf

30 09, 2022

DAILY093022

2022-10-03T13:40:26-04:00September 30th, 2022|2- Daily Briefing|

Brainard Acknowledges Risk But Sticks to Policy Guns

Responding to acute concerns that Fed policy will shatter global financial stability, Fed Vice Chair Brainard today emphasized her longstanding and once-isolated view that monetary policy must consider financial stability.

Global Standard-Setters Turn to Clearing Margin, Liquidity

The Basel Committee, IOSCO, and CPMI issued the first substantive response to the FSB’s decision to target margining practices following its review of the 2020 financial crisis and the need to address nonbank financial intermediation (see Client Report NBFI).

HFSC Republicans Denounce Beneficial Ownership Rule

HFSC Ranking Member McHenry (R-NC) and Rep. Luetkemeyer (R-MO) released a statement today sharply criticizing FinCEN’s beneficial ownership final rule as overly broad and complex.

Basel Concludes High Capital Compatible with Sustained Profitability

The Basel Committee today released its latest report on bank capitalization, finding that profitability remains robust despite capital ratios increasing to the highest level since the beginning of the exercise in 2012.

Bowman Comes Out Swinging on New, Costly Big-Bank Rules

Following a speech earlier this week largely siding with banks on merger policy, FRB Gov. Bowman today agreed with assertions from bank CEOs (see Client Report REFORM213) and others that the largest U.S. banks are now well capitalized as judged by ratios and effective stress testing.

FRB/FDIC Turn to Regional Resolvability

The Fed and FDIC today announced that they will shortly propose resolution guidance for most regional banks.

Daily093022.pdf

29 09, 2022

DAILY092922

2022-09-29T16:56:43-04:00September 29th, 2022|2- Daily Briefing|

Beneficial Ownership Standards Released at Long Last

After a long delay and Congressional demands, FinCEN finalized its beneficial ownership rule today, mandating both domestic and foreign firms doing business in the US to report any individuals with substantial control or ownership interests.

Climate Scenario Analyses Begin

As initially promised by Chairman Powell (see Client Report FEDERALRESERVE67 and Michael Barr, the FRB today announced that it will pilot climate scenario analysis exercises involving Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.  The pilot, which will begin early next year and conclude in late 2023, will require the banks to analyze the impact of certain climate-related stress scenarios on their portfolios.

FSB Continues to Review Climate Financial Stability Risks

In a speech today, FSB Chair Klaas Knot reiterated key needs in addressing climate-related financial stability risks.  These needs include filling gaps in climate data, integrating climate risk into broader financial stability surveillance, and assessing whether a dedicated macroprudential policy approach is appropriate.

Daily092922.pdf

28 09, 2022

DAILY092822

2022-09-29T09:56:21-04:00September 28th, 2022|2- Daily Briefing|

CFPB Targets Repeat Offenders, Overdraft Fees

Continuing his campaign against repeat offenders, CFPB Director Chopra announced sweeping penalties against Regions Bank for “illegal, surprise overdraft” fees.  These are said to be “manipulative” fees charged after the bank had notified consumers of sufficient balances at the time of a transaction, with the release accompanying the order also alleging that Regions’ senior management continued these fees after staff warned against them following an earlier CFPB enforcement order and Fed warnings.

Fed’s Bowman strongly disputes assertion of undo banking-market concentration

In remarks today FRB governor Bowman made it clear that she will dissent for any new merger policy, concluding that regulated banking is currently over-concentrated.  In her talk, she provides extensive data on the transformation of retail banking, arguing that the current measures are particularly deceptive when it comes to community banks.

Daily092822.pdf

27 09, 2022

DAILY092722

2022-09-28T11:29:09-04:00September 27th, 2022|2- Daily Briefing|

BIS Research Finds in Favor of Fintech Small-Business Finance

In sharp contrast to much earlier U.S. research, a new BIS study strongly supports alternative small business-lending fintech credit-scoring processes and market depth, concluding that fintechs expanded credit access to underserved small business owners.  The study compares U.S. proprietary loan-level data from two fintech SBL platforms with Federal Reserve data between 2016 and 2019, finding that fintechs better predicted loan performance than banks.  Fintechs served borrowers less likely to receive credit from banks, lending more in zip codes with higher unemployment rates and higher business bankruptcy filings.

Daily092722.pdf

26 09, 2022

DAILY092622

2022-09-26T17:13:15-04:00September 26th, 2022|2- Daily Briefing|

EU Banks Placate Investors vs. Protecting Capital

As pressure mounts on bank capital requirements (see Client Report REFORM213), the IMF has released a study finding that European banks could not have reduced capital distributions during the first year of the pandemic but for supervisory restrictions.  This study is models-based and thus dependent on its assumptions.  It also does not cover U.S. banks and conditions in each region may differ, but the study concludes that EU banks did not discount future expectations of economic conditions or profitability.

FRB Dallas Paper Finds CBDCs Enhance Financial Inclusion

The Federal Reserve Bank of Dallas today published a working paper finding that both a low fixed-cost/rate and a high fixed-cost/rate CBDC facilitate inclusion without harming intermediation, although the lower fixed-cost/rate option results in greater inclusion by encouraging households now relying on cash to participate in the financial system.  It also found that a CBDC that increases inclusion does not necessarily decrease intermediation if the banking sector is not perfectly competitive, as its definition suggests is now the case.

Daily092622.pdf

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