Shane Smith

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So far Shane Smith has created 36 blog entries.
21 02, 2024

DAILY022124

2024-02-21T17:03:29-05:00February 21st, 2024|2- Daily Briefing|

Hsu Identifies Near-Term Microprudential Options to Curtail Systemic Risk via Bank Inter-Connections

Acting Comptroller Hsu warned that the risks of blurred lines between commerce and banking pose financial-stability risks, especially when it comes to payment systems and private equity.

Waters Adds to Democratic CapOne/Discover Merger Opposition

Building on Democratic opposition, HFSC Ranking Member Waters (D-CA) made it clear that she vigorously opposes Capital One’s acquisition of Discover, arguing that it not only validates her view that tough new capital rules are essential, but also the significant risks large regional banks continue to pose.

Daily022124.pdf

20 02, 2024

M022024

2024-02-20T09:14:36-05:00February 20th, 2024|6- Client Memo|

How the OCC Made a Bad Bank Both Bigger and Badder

As I noted last week, the OCC’s proposed bank-merger policy fails to reckon with the strong supervisory and regulatory powers federal banking agencies already have to quash problematic consolidations and concentrations.  Here, I turn to one reason why the OCC may not trust these rules:  it doesn’t trust itself.  A bit of recent history shows all too well why this self-doubt is warranted even though it’s also inexcusable.

m022024.pdf

20 02, 2024

Karen Petrou: How the OCC Made a Bad Bank Both Bigger and Badder

2024-02-20T09:01:31-05:00February 20th, 2024|The Vault|

As I noted last week, the OCC’s proposed bank-merger policy fails to reckon with the strong supervisory and regulatory powers federal banking agencies already have to quash problematic consolidations and concentrations.  Here, I turn to one reason why the OCC may not trust these rules:  it doesn’t trust itself.  A bit of recent history shows all too well why this self-doubt is warranted even though it’s also inexcusable.

I owe my historical recall to the authoritative Bank Reg Blog, which last week looked at the latest on NYCB.  This included a troubling reminder of the troubled bank’s merger with Flagstar before it thought it snapped up another great deal from the FDIC via acquiring what was left of Signature Bank.

NYCB first sought approval for the Flagstar acquisition in 2021 when its primary federal regulator was the FDIC.  As is often the case with merger applications, this one appeared to go into a dark hole.  Unlike many other acquisitions, the banking companies had a go-to Plan B: charter conversion.

NYCB went to the OCC and got rapid approval not just for converting its charter to a national bank, but also then for acquiring Flagstar via a reverse flip that also involved a Flagstar conversion to a national charter.  The OCC then readily approved the merger in 2022, just in time for some of the super-rapid growth via the Signature deal both the OCC and FDIC approved even though they should have been well aware that rapid-fire mergers almost always …

16 02, 2024

Al021924

2024-02-16T15:54:42-05:00February 16th, 2024|3- This Week|

Bagehot’s Legacy

HFSC Financial Institutions Chair Barr (R-KY) last week invoked the patron saint of central banks, Walter Bagehot, reminding his hearing (see Client Report LIQUIDITY34) that central banks are to use their lender-of-last-resort powers only for solvent banks and then only at a premium.  To do other, Bagehot said and Mr. Barr repeated, is to encourage moral hazard, the sin the chair went on to attribute to the modern-day Federal Reserve.  He also floated legislation to curb the Fed’s 13(3) emergency-liquidity powers, legislation on which he will have a surprising ally, Sen. Elizabeth Warren (D-MA).  She is a long-time advocate of tougher restrictions on Fed emergency liquidity (see FSM Report FEDERALRESERVE21).  Still, we think the odds of legislation in this Congress are small, with Congress, the agencies, and banks sure instead to focus on what will be demanded of them in terms of discount-window readiness, FedWire resilience, FHLB access, and additional liquidity.  Vice Chair Barr is less enthusiastic than Acting Comptroller Hsu about new liquidity standards, but much is afoot and thus so are we.  More to come…

Al021924.pdf

16 02, 2024

GSE-021624

2024-02-16T11:18:38-05:00February 16th, 2024|4- GSE Activity Report|

All Stressed Out

In this report, we build on our in-depth analysis yesterday of the Fed’s new stress-test scenarios to focus on their mortgage-market impact.  The binding stress tests won’t make portfolio mortgage finance any easier, but they also won’t make it much worse.  However, new “exploratory” stress tests will take interest-rate risk into account with particular attention to mortgages and MBS.  That won’t help.

GSE-021624.pdf

15 02, 2024

LIQUIDITY34

2024-02-15T15:07:26-05:00February 15th, 2024|5- Client Report|

Congress Contemplates Fed Emergency-Liquidity Power, Discount-Window Use

Today’s HFSC Financial Institutions hearing on emergency liquidity featured much discussion of reform, but few indications of any action Congress will take to advance it apart from support for pending agency efforts to enhance discount-window readiness. However, GOP criticism of the Bank Term Funding Program combined with witness support for its end makes clear the Fed’s political challenge should it reverse course and retain the facility in light of NYCB’s challenges and the potential for broader regional-bank stress.  Republicans including Subcommittee Chairman Barr (R-KY) were skeptical of the Home Loan Banks’ role as lenders to banks in duress; Democrats countered with strong support for the System as a boon to community banks.  Rep. Barr also contemplates some form of legislation to prevent the Fed from crafting new emergency-liquidity programs without prior Congressional approval, with Rep. Luetkemeyer (R-MO) noting his longstanding plan to give the FDIC authority to invoke a transaction-account guarantee regardless of amount without the need for prior Congressional approval.

LIQUIDITY34.pdf

12 02, 2024

M021224

2024-02-12T09:32:53-05:00February 12th, 2024|6- Client Memo|

How to Have Sound Bank-Merger Policy Reflecting Unique Bank Regulation

Chair Powell said a week ago that, thanks to commercial real estate risk, some banks will need to be “closed” or “merged out of existence,” hopefully adding that these will be “smaller banks for the most part.”  That this may befall the banking system sooner than Mr. Powell suggested is all too apparent from NYCB’s travails. The OCC’s new merger proposal flies in the face of this hard reality, dooming mergers of size or maybe even small ones until it’s too late. A surprising source – a super-progressive analysis of bank merger policy – makes it clear why the OCC’s approach is not only high-risk, but also ill-conceived.

m021224.pdf

12 02, 2024

Karen Petrou: How to Have Sound Bank-Merger Policy Reflecting Unique Bank Regulation

2024-02-12T09:19:42-05:00February 12th, 2024|The Vault|

Chair Powell said a week ago that, thanks to commercial real estate risk, some banks will need to be “closed” or “merged out of existence,” hopefully adding that these will be “smaller banks for the most part.”  That this may befall the banking system sooner than Mr. Powell suggested is all too apparent from NYCB’s travails. The OCC’s new merger proposal flies in the face of this hard reality, dooming mergers of size or maybe even small ones until it’s too late. A surprising source – a super-progressive analysis of bank merger policy – makes it clear why the OCC’s approach is not only high-risk, but also ill-conceived.

The paper comes from Saule T. Omarova, President Biden’s nominee to be Comptroller who was forced to withdraw, and the Administration’s most recent Assistant Secretary for Financial Institutions, Graham Steele.  As befits their longstanding views, the paper presses for stringent bank-merger policy to combat what Justice Brandeis first called the “money trusts.” Ms. Omarova and Mr. Steele say that banks of all sizes are still “money trusts” despite the role of omnipotent private-equity and asset-management firms, but so goes much of their analysis.  What’s more interesting in their report and a new petition filed by a like-minded academic is their ground-breaking, hard look at how much of bank regulation is actually intended to curtail undue market power.  Taking this into account could lead to sound merger policy without the adverse consequences evident in the OCC’s drop-dead proposal.

There are in fact …

9 02, 2024

Al021224

2024-02-09T16:40:01-05:00February 9th, 2024|3- This Week|

Are We Wasting Your Time?

We most assuredly hope not, but watching Congress last week was deeply dispiriting not only when it comes to the most critical issues of the day, but also to essential financial-policy decisions.  Our in-depth reports on Tuesday’s HFSC hearing with Secretary Yellen (see Client Report FSOC30) and Thursday’s Senate follow-up (see Client Report FSOC31) laid out key topics discussed and what was said as we always do.  But what we said about what was said was largely inconsequential because almost nothing of real note was said.  The exception came on Thursday when the Secretary intimated that near-term action may begin to deal with the systemic risk FSOC fears from nonbank mortgage companies.  But even here she was elliptical and no senator made any effort to pin her down.  Instead, they – like their House counterparts and the secretary – reiterated partisan talking points about the economy, inflation, and the debt.  But, reading between the lines in our reports and our other analyses illuminates a remarkable number of likely, meaningful Congressional actions on issues of immediate financial policy import assuming NYCB doesn’t fail and absorb the little bandwidth Congress seems to have for financial policy.

Al021224.pdf

9 02, 2024

DAILY020924

2024-02-09T16:31:50-05:00February 9th, 2024|2- Daily Briefing|

Source-of-Strength Regs Remain in Limbo

As is usually the case, the Federal Reserve’s semi-annual agenda in today’s Federal Register is wholly unilluminating as to the anticipated deadlines on the pending capital, LTD, and resolution proposals nor does it indicate if it plans to do anything regarding liquidity as suggested by Acting Comptroller Hsu.

Daily020924.pdf

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