Federal Financial Analytics’ Weekly report will be abbreviated this week due to the holidays. In-depth analyses of weekly developments as well as Karen Petrou’s weekly memo will return next week. All of us at FedFin wish you a happy New Year.
Weekly Analyses Returning In The New Year
Federal Financial Analytics’ Weekly report will be abbreviated this week due to the holidays. In-depth analyses of weekly developments as well as Karen Petrou’s weekly memo will return in the new year. All of us at FedFin wish you a joyous holiday season.
Switching from Tea to Gatorade
As we noted, CFPB Director Chopra has referred to the Financial Stability Oversight Council as a “book-report club.” We don’t disagree – each lengthy annual report has seemed more a compendium of financial-sector facts than a guide to action based on any of them. However, last week’s FSOC meeting seemed to move from reading to at least talking about intervening, with the readout making it clear that hedge funds are first on the systemic chopping block now that the Council has finalized its systemic methodology (see FSM Report SYSTEMIC98). Mr. Chopra is especially emphatic about the need to use FSOC’s newly-revised designation power (see FSM Report SIFI37) to name names and set standards. His target is big tech and the Council’s report this year and its focus on AI may move it slightly in that direction at some future point.
Another Book Report?
At a recent hearing (see Client Report CONSUMER54), CFPB Director Chopra wasn’t shy in his critique of the Financial Stability Oversight Council. He called it a “book report club,” a moniker Karen Petrou last week suggested was not wholly untrue when it comes to emerging risks such as private credit. FSOC’s meeting this Thursday is likely to show the Council at its bookwormy best given that the agenda consists largely of ritual release of yet another FSOC report. We’ve dutifully catalogued these year-in, year-out as hundreds of FSOC blessed pages spew forth about what the Council did, how many facts its staff gathered about whom in the past year, and what it thinks might go wrong where in concert with little indication of what the Council might then do to prevent the worst from happening.
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.
Weekly Analyses Returning Next Week
In observance of Thanksgiving, FedFin’s offices will be closed on Thursday, November 23 and Friday, November 24. Weekly report will be abbreviated this week. In-depth analysis of Weekly developments will resume on Friday December 1st. All of us at FedFin wish you a joyous Thanksgiving.
That’s Different
As we noted in our in-depth reports last week, Congressional hearings with top bank supervisors are always eventful, but rarely game-changers. This proved to be the case when FRB Vice Chair Barr, Acting Comptroller Hsu, and FDIC Chair Gruenberg came before Senate Banking (see Client Report REFORM229) and HFSC (see Client Report REFORM230). One surprising takeaway affects policy and the other is political, but each has the potential to change the end-game landscape as well as that of the Biden Administration’s financial rulemaking for the rest of the President’s term.
No Weekly Alert for the Week of November 13
Federal Financial Analytics’ weekly report will be abbreviated this week due to the U.S. Veterans Day holiday. In-depth analyses of weekly developments will resume on Monday, November 13.
Bye-Bye Basel???
Later this week, HFSC’s Financial Institutions Subcommittee plans finally to hold a long-delayed hearing scrutinizing another aspect of controversial capital proposals: how closely these hue to global norms and, if they do, the extent to which U.S. agencies are sacrificing U.S. interests in pursuit of global comity. The GOP hasn’t much use for most of this comity if it comes attached to new rules, and this point will be more than clearly expressed at the hearing. Democrats generally don’t expend much political capital defending global institutions. Indeed, when these threaten home-town interests, they join with Republicans as Sen. Brown (D-OH) did in 2014 when it came to passing legislation demanding that international insurance rules be significantly altered in concert with new transparency standards forcing U.S. agencies to tell Congress what they might be about when it came to endorsing future global insurance proposals (see FSM Report INSURANCE41). This time around, House bills are pending to force similar transparency and limits when it comes to global banking rules. We doubt Sen. Brown this time will agree to them, but it will first be up to Chairman McHenry (R-NC) to decide the next steps. These are likely to include mark-up, but the panel has a lot else to do on its other issues more critical to the chairman – e.g., crypto legislation – caught up in the prolonged speakership battle.
Take a Deep Breath
But don’t relax too much as newly-minted Speaker Johnson (R-LA) figures out what he’s going to do with the gavel now that he’s got it. The House has barely three weeks to see if unanimity holds and a shutdown is avoided in favor of yet another can-kicking continuing resolution. Regardless, with HFSC Chairman McHenry (R-NC) happily freed of his Speaker Pro Tem assignment, HFSC will this week (see below) return to the high-impact hearing schedule if was forced to cancel during the speakership battle, move a raft of bills through mark-up, and work hard to put Mr. McHenry’s plans to realign crypto jurisdiction into must-pass legislation if the House agrees (likely) and the Senate doesn’t object (far less certain). Among the bills to be marked up and those on the Senate’s agenda will surely be measures reviewed at last week’s Senate Banking hearing to ensure Treasury is super-tough when it comes to Iran and Hamas. Secondary sanctions are in the works, putting any financial institution doing business in the U.S. on notice that offshore activities so far out of law-enforcement’s reach are about to come in range. And, if that’s not enough, then there’s all the regulatory action.