ElizaAllen

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So far Eliza Allen has created 633 blog entries.
6 12, 2023

DAILY120623

2023-12-06T16:42:25-05:00December 6th, 2023|2- Daily Briefing|

OFR Sees Heightened Systemic Risk

Striking a considerably more somber note than the FRB (see Client Report SYSTEMIC97), OFR today concluded that systemic risk is elevated due to an upcoming economic slowdown, heightened inflation,  and geopolitical risk and global conflict.

OCC Cracks Down on BNPL Finance

Reflecting continuing CFPB concerns about buy-now/pay-later finance, the OCC today sets new risk-management standards for federally-chartered entities in this arena.

HFSC Housing Subcommittee Revisits Housing Debate

Today’s HFSC Housing Subcommittee hearing largely followed the staff memo’s outlined political playbook, with Chairman Davidson (R-OH) calling for market-based solutions and Ranking Member Presley (D-MA) arguing that expanded subsidies are necessary alongside zoning reform to make housing affordable.

Fed Proposes Market-Risk Valuation Reporting

Readying disclosures for the market-risk capital rewrite (see FSM Report CAPITAL233), the Federal Reserve has proposed new reporting standards that would require covered banks to disclose valuations of their covered positions taking into account unearned credit spreads, close-out costs, early termination costs, investing and funding costs, liquidity, and model risk.

Fed Proposes New Liquidity Risk Reporting Standards

Reflecting growing fears that banks could not actually monetize HQLAs under stress as proved the case for Credit Suisse, the FRB is also proposing new reporting standards requiring covered companies to report on qualifying master netting agreement compliance with current liquidity-risk measurement standards.

Daily120623.pdf

5 12, 2023

DAILY120523

2023-12-05T17:00:21-05:00December 5th, 2023|2- Daily Briefing|

Bowman Calls for Bank-Driven Inclusive Finance

Federal Reserve Gov. Bowman today encouraged banks to offer more inclusive retail-banking products in part by making better use of technology.  Noting the Board’s 2020 statement on small-dollar lending, she notes that consumers are best served when products such as these come from regulated banks.

Daily120523.pdf

4 12, 2023

DAILY120423

2023-12-04T16:41:17-05:00December 4th, 2023|2- Daily Briefing|

HFSC GOP to Press Regulatory-Agency Financial Innovation

Tuesday’s HFSC Digital Assets Subcommittee hearing will focus on regulatory-agency offices focused on financial innovation, a session sure to give GOP Members an opportunity to closely question the OCC’s witnesses about her agency’s hiring offer to a person heading this activity who turned out to have a fraudulent resume.

HFSC GOP Lays Out “Market-Based” Affordable Housing Approach

The HFSC majority-staff memo for Wednesday’s Housing Subcommittee hearing emphasizes GOP goals with regard to “market-based” solutions addressing affordable housing.  In this context, Fannie, Freddie, and FHA come in for criticism with regard to driving out private capital, but the memo makes no specific recommendations about how to address this or, indeed, many of the zoning, supply-chain, and other challenges it identifies.

FSB Toolkit Focuses on Critical Interdependencies

Following its initial consultation, the FSB today published its final report on enhancing third-party risk management, now laying out a flexible and nonbinding toolkit focused on incident reporting, identification of critical dependencies, interjurisdictional comparability and interoperability, and systemic risk management.  In addition to a list of terms and definitions, the report provides tools to help financial institutions and supervisors identify critical third-party services and manage their risks.

Daily120423.pdf

4 12, 2023

M120423

2023-12-04T11:03:03-05:00December 4th, 2023|6- Client Memo|

Why Curbing Banks Won’t Curtail Private Credit

Last Wednesday, Sens. Brown and Reed wrote to the banking agencies pressing them to cut the cords they believe unduly bind big banks to private-credit companies.  The IMF and Bank of England have also pointed to systemic-risk worries in this sector, as have I.  Still, FSOC is certainly silent and perhaps even sanguine.  This is likely because FSOC is all too often nothing more than the “book-report club” Rohit Chopra described, but it’s also because it plans to use its new systemic-risk standards to govern nonbanks outside the regulatory perimeter by way of cutting the banking-system connections pressed by the senators.  Nice thought, but the combination of pending capital rules and the limits of FSOC’s reach means it’s likely to be just thought, not the action needed ahead of the private-credit sector’s fast-rising systemic risk.

m120423.pdf

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4 12, 2023

Karen Petrou: Why Curbing Banks Won’t Curtail Private Credit

2023-12-04T11:03:15-05:00December 4th, 2023|The Vault|

Last Wednesday, Sens. Brown and Reed wrote to the banking agencies pressing them to cut the cords they believe unduly bind big banks to private-credit companies.  The IMF and Bank of England have also pointed to systemic-risk worries in this sector, as have I.  Still, FSOC is certainly silent and perhaps even sanguine.  This is likely because FSOC is all too often nothing more than the “book-report club” Rohit Chopra described, but it’s also because it plans to use its new systemic-risk standards to govern nonbanks outside the regulatory perimeter by way of cutting the banking-system connections pressed by the senators.  Nice thought, but the combination of pending capital rules and the limits of FSOC’s reach means it’s likely to be just thought, not the action needed ahead of the private-credit sector’s fast-rising systemic risk.

One might think that banks would do all they can to curtail private-credit competitors rather than enable them as the senators allege and much recent data substantiate.  But big banks back private capital because big banks will do the business they can even when regulators block them from doing the business they want.  Jamie Dimon for one isn’t worried that JPMorgan will find itself out in the cold.

Of course, sometimes banks should be forced out of high-risk businesses.  There is some business banks shouldn’t do because it’s far too risky for entities with direct and implicit taxpayer backstops.  This is surely the case with some of the wildly-leveraged loans private-credit companies …

1 12, 2023

Al120423

2023-12-01T16:41:48-05:00December 1st, 2023|3- This Week|

Capital Conundrum

Early signals indicate that GSIB CEOs summoned this week before Senate Banking will do their best to use the session to solidify Congressional calls for substantive changes in pending capital rules based on a far more transparent, systematic CB analysis.  Signals such as the Brown/Reed letter last week also make it clear that Democrats will push hard for tougher GSIB-specific standards to offset increasingly-likely changes to the capital rules.  Democratic advocates of specific changes – i.e., with regard to LMI mortgages and small-business credit – will also use the session to navigate a path between helping regional banks on key points while looking tough on the overall question of big-bank capital.  Again, sticking it to GSIBs may be their tactic.  Republicans won’t let up against the capital rules, but we suspect they’ll also focus on borrowers and regional banks, side-stepping GSIB surcharges and other top-tier questions wherever possible.

Al120423.pdf

1 12, 2023

DAILY120123

2023-12-01T16:39:15-05:00December 1st, 2023|2- Daily Briefing|

Barr Outlines Rationale for LCR, NSFR Rewrite

FRB Vice Chair Barr today reiterated his views that banks must be much better prepared to use the Fed discount-window, this time emphasizing that operational readiness entails regular testing of actual transactions at regular intervals as well as robust collateral pre-positioning.

Reed Presses Synthetic-Securitization Controls

Following his comments at recent hearings (see Client Report REFORM229), Sen. Reed (D-RI) late yesterday sent a letter to FRB Vice Chair Barr, FDIC Chair Gruenberg, and Acting Comptroller Hsu urging them to evaluate CRT transaction risk on financial stability grounds and, should they find an uptick in synthetic securitizations, request public comment on possible remedies to the risks Sen. Reed identifies.

Pending Veto, House Votes Against CFPB

As anticipated (see Client Report CONSUMER53), the House today voted 221 to 202 to authorize Congressional Review Act withdrawal of the CFPB’s small business reporting rule.

OCC Readies Research for Liquidity-Reg Rewrite

Likely readying itself for the raft of new liquidity proposals presaged in Michael Barr’s talk earlier today, the OCC today issued a call for papers on depositor behavior, bank liquidity, and run risk.

Daily120123.pdf

30 11, 2023

DAILY113023

2023-11-30T17:02:53-05:00November 30th, 2023|2- Daily Briefing|

FRB-Cleveland Head Calls for Reg Redesign

The head of the Federal Reserve Bank of Cleveland, Loretta Mester, yesterday argued for higher bank capital requirements, including counter-cyclical imposition of a capital buffer during low-risk periods so it can be released under stress based on credit growth under a formula ensuring that the CCyB in fact moves quickly to ease stress.

Brown, Colleagues Stand Behind GSIB Surcharge

Ahead of next week’s hearing with GSIB CEOs, Senate Banking Chairman Brown (D-OH) was joined today by Sens. Warren (D-MA), Fetterman (D-PA), and Reed (D-RI) in a letter to FRB Vice Chair Barr voicing their strong support for the Board’s GSIB surcharge proposal (see FSM Report GSIB22).

IMF: Future of AI’s Impact on Banking Unpredictable

The IMF today released an article focused on AI, concluding that banking has the potential to be the biggest beneficiaries of AI, but also may have the most to lose.  The article considers the unpredictable future of AI technology through optimistic and pessimistic scenarios, concluding that AI could better protect assets and markets, but also could be put to various nefarious uses.

Daily113023.pdf

30 11, 2023

GSE-113023

2023-11-30T12:03:15-05:00November 30th, 2023|4- GSE Activity Report|

FHA’s Mission and Mishaps

A new FRB-NY study confirms that 83% of loans from 2000-2022 went to first-time homebuyers, compared to 56% for the GSEs and 57% for private lenders.  FHA loans of course have very high LTVs and low scores, with scores improving after 2008 when the PLS market stopped adversely selected FHA even though over half of FHA loans still have scores under 680.  FHA sustainability has varied based on these and other factors, but 21.8% of borrowers from 2011-2016 still lost their homes.

GSE-113023.pdf

29 11, 2023

DAILY112923

2023-11-29T16:51:26-05:00November 29th, 2023|2- Daily Briefing|

FDIC’s OIG Presses for Non-Capital PCA Triggers, Additional Supervisory Reform

The FDIC’s OIG report on First Republic’s failure is at least as scathing as its SBNY post-mortem.

Treasury Launches Anti-Crypto Enforcement Campaign

In remarks today from Deputy Secretary Wally Adeyemo, Treasury officially launched its anti-crypto sanctions and AML campaign.

Basel Proposes Sweeping Climate-Risk Disclosure Standards

Following the FSB’s finding that most banks were failing to provide meaningful climate disclosures, the Basel Committee today issued proposed climate-risk disclosure standards.

3Q Report Highlights AOCI Risk

The FDIC’s 3Q banking-condition report includes a stunning 22.5 percent rise in the total of HTM and AFS unrealized losses, which now stand at $683.9 billion.

Senate Banking Opens Private-Credit Inquiry

Senate Banking Chair Brown (D-OH) and Sen. Reed (D-RI) today asked FRB Vice Chair Barr, Acting Comptroller Hsu, and FDIC Chair Gruenberg to look into the risks private credit poses to the banking system.

Daily112923.pdf

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