Max Camateros-Mann

29 09, 2023

Al100223

Max Camateros-Mann2023-09-29T16:56:07-04:00September 29th, 2023|3- This Week|

The Week That Won’t

As we write this, the U.S. government shutdown seems all too inevitable. Karen Petrou’s memo addresses its financial-system consequences – none good – even as the political fallout starts to smolder. What the shutdown already means to day-to-day business in Washington is evident from the all-quiet calendar below. Even though the FDIC, OCC, and FRB are funded independently of appropriations and will thus remain fully open, each generally eschews substantive non-emergency action during shutdowns to avoid the appearance of attempting to subvert Congress or, in days past, the White House.

Al100223.pdf…

28 08, 2023

M082823

Max Camateros-Mann2023-08-29T16:55:58-04:00August 28th, 2023|6- Client Memo|

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

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.

m082823.pdf…

22 08, 2023

DAILY082223

Max Camateros-Mann2023-08-23T10:19:39-04:00August 22nd, 2023|2- Daily Briefing|

Waters Presses GAO to Study AI Mortgage Lending Discrimination

Reflecting ongoing concerns at the CFPB and the IMF when it comes to generative AI (see earlier today), HFSC Ranking Member Waters (D-CA) today sent a letter requesting that the GAO study the extent to which AI and especially AVMs may lead to housing discrimination.

IMF Spots Systemic Macro Risk as Gen-AI Advances

A new IMF Fintech Note concludes that generative AI (GenAI) may heighten risk, undermine institutional trust, and accelerate procyclicality. It thus advises policymakers to ensure close human GenAI supervision as regulatory frameworks take shape, pressing also that this be done in conjunction with strengthened regulation and effective monitoring.

FRB-NY Staff: SEC Proposals May Not Prevent MMF, OEF Run Risk

A New York Fed blog post yesterday concluded that, while the SEC’s recent MMF liquidity reforms (see FSM Report MMF20) and proposed OEF rules make significant progress ensuring resilience, open- and closed-end funds may nonetheless remain vulnerable.

Daily082223.pdf…

16 08, 2023

CAPITAL233

Max Camateros-Mann2023-08-16T14:21:09-04:00August 16th, 2023|1- Financial Services Management|

Market-Risk Capital Standards

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. However, banks in category III and IV that do not have significant capital-markets activities would share at least some of this cost because the new approach proposed for equity holdings moves many positions now housed in the more generous banking book into the trading book covered by these market-risk standardized requirements.

CAPITAL232.pdf…

14 08, 2023

GSE-081423

Max Camateros-Mann2023-08-14T16:17:02-04:00August 14th, 2023|4- GSE Activity Report|

Ax the Ops?

As Karen Petrou’s memo today suggests, there are many reasons the new operational-risk framework proposed in the capital rewrite will not only be costly for covered banks but also counterproductive for financial resilience. That said, the agencies are unlikely to rewrite it much unless the politics of the overall proposal takes the course many banks seek to the agencies’ detriment. In this report, we build on our in-depth analysis of the operational risk-based capital (ORBC) proposal to go in-depth on its significant implications for mortgage origination.

GSE-081423.pdf…

1 08, 2023

CAPITAL230

Max Camateros-Mann2023-08-01T16:23:31-04:00August 1st, 2023|1- Financial Services Management|

U.S. Regulatory-Capital Rewrite: Framework

In this in-depth report, we begin our analysis of the 1089-page capital proposal released by the U.S. banking agencies not only to make U.S. standards more consistent with Basel’s 2017 “end-game” rules, but also to correct failings in the current capital framework the agencies believed were laid bare by recent bank failures. The new standards rewrite the 2019 “tailoring” rule with regard to application of the toughest capital standards, now covering all BHCs with assets over $100 billion along with their insured depository institutions (IDIs) regardless of size. For smaller BHCs, the most significant impact of the new approach requires recognition of accumulated other comprehensive income (AOCI) unrealized gains and losses related to available-for-sale (AFS) and held-to-maturity (HTM) securities; the agencies recognize this cost but believe the proposed three-year transition reduces any adverse impact.

CAPITAL230.pdf…

19 07, 2023

CLIMATE16

Max Camateros-Mann2023-07-19T11:12:21-04:00July 19th, 2023|5- Client Report|

HFSC GOP Targets NGOs, Banking-Agency Climate Scenarios/Principles

As anticipated, Republicans continued their campaign against ESG at today’s HFSC Financial Institution Subcommittee hearing on climate risks, reiterating arguments that a regulatory focus on climate risk signals financial institutions to cease lending to carbon intensive industries. Chairman Barr (R-KY) strongly criticized the banking agencies’ involvement in climate policy, singling out Fed Vice Chair Barr and linking the failure of other Fed Governors to see the SVB report to what he believes will be an opaque, biased report on climate scenario data. Committee Democrats strongly defended the banking agencies’ climate work, stressing the climate risk materiality. The banking agency witnesses all emphasized that none of their agencies tell banks to whom they can lend, focusing solely on financial risk and deferring climate policy to Congress. A witness clearly added by committee Democrats countered the GOP’s anti-ESG focus by noting that local governments have been fiscally hamstrung by state-level anti-ESG laws.

CLIMATE16.pdf…

10 07, 2023

CAPITAL228

Max Camateros-Mann2023-07-10T12:49:19-04:00July 10th, 2023|5- Client Report|

Going Up?

FRB Vice Chairman Barr’s speech today outlines near-term U.S. regulatory-capital policy, confirming our earlier assessment that a sweeping proposal will soon be released. There are few surprises in the speech, which outlines a “holistic” construct comprised of U.S. action on the “endgame” rules and revisions presaged in the Fed’s response to SVB’s failure (see Client Report REFORM221). As detailed in this new FedFin report, the agencies also plan to retain the GSIB surcharge largely as is despite technical flaws in order to reduce GSIB size and give super-regionals a fighting chance.

CAPITAL228.pdf…

5 07, 2023

REALESTATE25

Max Camateros-Mann2023-07-05T09:16:12-04:00July 5th, 2023|1- Financial Services Management|

CRE Loan Modifications

The banking agencies and NCUA have agreed on a final policy statement providing guidance for how financial institutions are to handle troubled commercial real estate loans, giving banks considerable latitude to forbear when borrowers are unable to meet their obligations but are deemed to be able to pay at least some of it over time. The statement was finalized in consultation with state regulators, suggesting most also agree with its provisions and thus establishing a national standard that regulators hope will prevent unnecessary losses and market distress. However, long experience in prior downturns suggests that loan extensions may lead to heightened losses, making it unclear if this policy will ultimately have its desired effect. Should this not prove the case, the agencies’ new policy will insulate banks from near-term loss and reduce credit outflows from sectors particularly dependent on regional banks.

REALESTATE25.pdf…

14 06, 2023

REFORM227

Max Camateros-Mann2023-06-14T15:34:59-04:00June 14th, 2023|5- Client Report|

Yellen Demurs on Resolutions, Capital Changes

Treasury Secretary Yellen was pressed at today’s HFSC hearing to comment on pending bank capital standards, the scope of FDIC coverage, and failed-bank resolutions. Although she deferred to the banking agencies, she did agree to work with Rep. Foster (D-IL) to determine if additional guidance is needed to clarify the difference between the least-cost test and systemic stability. Ms. Yellen was closely questioned about IFI policies to China and the need for U.S. sanctions, continuing to make clear that the U.S. is seeking what NSC Director Sullivan calls derisking, not decoupling. The Secretary also stood by FSOC’s positions in favor of swing pricing, stablecoin and crypto reform, and careful CBDC consideration.

REFORM227.pdf…

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