Welcome to The Vault. Every week you’ll find a sample of FedFin opinion and analysis on the most recent issues facing financial services firms. Check back frequently to see what’s new. Click here to contact us.

14 01, 2022

FedFin: If At First You Don’t Succeed….

2022-01-14T16:14:49+00:00January 14th, 2022|The Vault|

As noted in our in-depth analysis of Acting FHFA Director Thompson’s confirmation hearing, it’s clear that Democrats and Republicans are thinking hard about resurrecting statutory changes to the GSEs’ charters.  They are, though, about as far apart as usual on the constructs they prefer, ….

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13 01, 2022

FedFin on: Brainard Navigates Troubled Waters; Looks Like Smooth Sailing for Thompson

2022-01-14T16:16:40+00:00January 13th, 2022|The Vault|

At today’s confirmation hearing, Gov. Brainard took a lot of the heat on inflation Republicans only mildly mentioned during Mr. Powell’s Tuesday confirmation hearing (see Client Report FEDERALRESERVE67). As we anticipated (see Client Report FEDERALRESERVE66) this reflects the fact that the GOP is united in opposition to her appointment as Fed vice chair; should she hold Sen. Manchin (D-WV) she will be confirmed; if not, perhaps not. Ranking Member Toomey (R-PA) also used the occasion to signal – again unsurprisingly – GOP opposition should Sarah Bloom Raskin be nominated….

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

12 01, 2022

FedFin Forecast: Prudential Regulatory Framework Set for Structural Change Largely Built on Current Standards

2022-01-14T16:21:13+00:00January 12th, 2022|The Vault|

As promised, FedFin begins our 2022 forecasts with this in-depth report on bank regulation. In general, we conclude that the context of decisions in 2022 and beyond will shift from a focus on tailoring efficiencies and burden relief to one emphasizing risk mitigation, fairness, equity, and — for the very biggest banks — a smaller systemic footprint. This report looks at the impact of pending personnel decisions as well as the outlook for climate-risk, new capital rules, FBO standards, and other key issues….

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

11 01, 2022

FedFin Assessment: Powell Sidesteps Many Challenges, Promises Much

2022-01-14T16:19:14+00:00January 11th, 2022|The Vault|

As promised yesterday (see Client Report FEDERALRESERVE66), we listened closely today to gauge the extent to which Chairman Powell faces a serious challenge to reconfirmation. At least as far as Senate Banking Members are concerned, he doesn’t. Although Sen. Warren (D-MA) and other Democrats lambasted Mr. Powell over insider-trading allegations and what they called the Fed’s unresponsiveness, all still were cordial and seemed generally to blame the problem on institutional failures, not the chairman. Sen. Menendez (D-NJ) called the Fed’s diversity policy “outrageous,” but also does not seem inclined….

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

10 01, 2022

Karen Petrou: Senate Banking’s CBDC Questionnaire

2022-01-10T14:21:01+00:00January 10th, 2022|The Vault|

It’s certain that Jay Powell’s confirmation hearing will put him through the wringer on inflation, equality, “insider” trading, and the rules he’ll foster under the new vice chair for supervision.  This is enough to try even the most patient of souls, but there’s another issue senators should be sure to raise:  what’s taking the Fed so, so long to start its CBDC deliberations, let alone conclude them?

After initially dismissing the need for a U.S. central bank digital currency, Chairman Powell announced last May that the Board would seek public comment sometime that summer.  At about the same time, Gov. Brainard spoke about a possible CBDC construct and the Boston Fed announced a technical build-out project along with the Massachusetts Institute of Technology.  The Federal Reserve Bank of New York’s Innovation Hub also has CBDC ambitions.  Although Fed officials were quick to point out that none of these nor any of the subsequent high-profile papers commits the Fed to anything, work seemed well under way to join the dozens of other central banks convinced that CBDC is essential in the quick-digitization payment future clearly emerging outside the reach of central bankers.

What’s happened since the summer CBDC storm?  Not much.

Mr. Powell and other Fed officials at one point promised that the CBDC paper would come in September, but autumn came and went.  The Fed’s certainly been busy tidying up after its “transitory” inflation goof and ongoing macroeconomic challenges, but it neglects CBDC at its and our peril.

First, whether …

6 01, 2022

Analysis of AML/CFT Regulatory Reform

2022-01-14T16:23:44+00:00January 6th, 2022|The Vault|

As the banking industry has long hoped and Congress last year directed,1 FinCEN is beginning to develop a new policy framework prioritizing ways to make anti-money laundering (AML) and countering the financing of terrorism (CFT) regulation more risk-based. FinCEN is taking the opportunity of its request for information (RFI) also to seek views on ways to modernize AML/CFT standards, make them more efficient, ensure adherence to global protocols, and toughen rules where necessary to protect national security. Last year’s law required Treasury to enhance law enforcement and submit a report on AML/CFT….

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

20 12, 2021

Karen Petrou: For the Next Vice Chair: Stringent Enforcement and Meaningful Supervision

2021-12-20T14:16:58+00:00December 20th, 2021|The Vault|

As we noted last week, the Fed decided to issue some post-Archegos guidance telling big banks to watch their counterparty credit-risk exposures.  As a banker with all too much experience dodging risk bullets told me, this guidance followed lots of prior guidance saying the same thing after each big boo-boo – think Long-Term Capital Management more than two decades ago and follow the trail of Fed statements thereafter.  Each time, the Fed looks stern and banks say they’re sorry but soon go back to following the money, not the risk.  And, over and over, examiners fail to notice anything amiss until the amount of realized risk is impossible to ignore.  Interestingly, the Bank of England acted with the Fed but with far more force.  Unlike the Fed’s renewed “you better watch out” guidance, the BoE demanded an immediate review of prime-brokering, reports back to regulators, and senior-management pay cuts if flaws go unrepaired.  Thus, unlike the Fed, the Bank of England’s response to costly and thoroughly avoidable lapses has teeth.  Whether the British then bite anyone is another question – the record is not replete with supervisory success – but the difference should nonetheless be instructive to the Fed’s next supervisory vice chair.

This difference is just like that between telling a child that she’ll be sorry next time and ensuring that the kid immediately knows that bad actions have tangible, actual consequences.  One doesn’t have to beat the kid silly – indeed, of course one more than shouldn’t.  But, …

17 12, 2021

FedFin: Building Buffers

2021-12-17T20:05:18+00:00December 17th, 2021|The Vault|

As noted on Thursday, FHFA continues to tread carefully through the big-bank rulebook, adopting standards said to be like-kind that aren’t quite so similar when it comes to critical details.  The latest proposal demands capital planning in a construct akin to the one Democrats favored as the agencies finalized the big-bank stress capital buffer (SCB) minus express restrictions on capital distributions.  Although the SCB will make Fannie and Freddie more resilient, it also steepens the climb out of conservatorship unless some new capital comes along.

The full report is available to subscription clients. To find out how you can sign up for the service, click here.…

16 12, 2021

FedFin: Bank Merger Policy

2021-12-17T20:06:40+00:00December 16th, 2021|The Vault|

Released in a highly-controversial fashion (see below) by two Democrats on the FDIC’s board, this RFI posits the need for a significant review of mergers involving insured depository institutions (IDIs) due to many changes in the financial industry and, so it says, the lack of substantive competitive analysis over past decades even of the largest transactions.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

13 12, 2021

Karen Petrou: Why Pro-Competition Consumer Finance May Not be Pro-Consumer Consumer Finance

2021-12-16T21:31:20+00:00December 13th, 2021|The Vault|

On Wednesday, several major crypto companies told Congress that the best way to govern them – should this be needed at all – is to create a new federal regulator that knows its way around the blockchain.  One trusts this proposal is a sincere effort at constructive engagement, but anyone who has run the financial-regulatory traps longer than a DLT minute knows that proposing a single regulator is the most effective way to look earnest and yet still roam free outside the regulatory perimeter.  There is simply no way Congress will pull itself together to enact a single crypto regulator.  And, even if Congress could do so, it shouldn’t.

Congressional obdurace about regulatory-agency rationalization isn’t because the financial-regulatory construct makes sense or even that Congress somehow thinks it does.  Congress knew that the multiplicity of banking agencies created undue opportunities for arbitrage and captivity at least as early as the 1971 Hunt Commission report arguing for what the then head of the Senate Banking Committee, William Proxmire, called the “Federal Banking Commission” when he tried to create one throughout the 1970s and early 1980s.  As banking blurred into financial services in the 1990s, the regulatory perimeter became even fuzzier and Congress tried to rationalize it in the 1999 Gramm-Leach-Bliley Act, ultimately having only minimal impact on the alphabet soup.

A new regulator – the Office of Federal Housing Enterprise Oversight – was created in 1992 for Fannie, Freddie, and the Home Loan Banks, but that was because the S&L crisis …

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