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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.

1 05, 2023

FedFin Assessment: FDIC Blames Signature Governance, Clarifies Failure Scenario

2023-05-03T15:20:31-04:00May 1st, 2023|The Vault|

In this report, we build on our assessment earlier today of the Fed’s SVB autopsy (see Client Report REFORM221) with an assessment of the FDIC’s self-review of Signature’s failure.  As noted on Friday, the FDIC confines this report to Signature’s supervision; a separate report will address policy recommendations.  Although the analysis has some findings in common with the Fed’s SVB assessment with regard to matters such as supervisors’ failure to keep up with a fast-growing bank, the FDIC principally focuses on key risk indicators at the bank rather than supervisory shortcomings.

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

1 05, 2023

FedFin Assessment: Fed Contemplates Supervisory Reform, Promises Regulatory Rewrite

2023-05-01T11:51:43-04:00May 1st, 2023|The Vault|

In this and subsequent reports, we build on our initial reactions to SVB/SBNY reports from the Fed, FDIC, and GAO, focusing in more depth on the agencies’ plans for near-term action with strategic consequence and key points in the GAO’s report that will strongly influence Hill reactions on both sides of the aisle.  Informed by today’s rescue of First Republic – on which more is to come from us shortly – FedFin starts here with the Fed, not going into detail on the results of its extensive fact-finding unless new facts are likely to influence near-term policy and political response.  As previously noted, the Fed’s report acknowledges serious supervisory shortcomings, with the detailed analysis concluding that the “root cause” of this is “difficult to ascertain, especially given the impact of the pandemic on remote supervision in 2020 and 2021.”

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

1 05, 2023

Karen Petrou: What the FRB and FDIC Left Out: Why They Still Can’t Shutter Regional Banks Without a Bailout

2023-05-03T15:38:36-04:00May 1st, 2023|The Vault|

Although the Fed’s “unflinching” self-assessment of SVB’s inglorious demise and the FDIC’s still more exculpatory analysis of SBNY talk much of supervisory gaffes, neither addresses a critical unanswered question:  why were both agencies so ill-prepared for such large resolutions?  That they were is still more grievous when it comes to First Republic, where the agencies are flat-footed even though they’ve had over a month of warnings that FRC might not make it.  As the Fed says, a banking system without failure is a financial system without intermediation.  It and the FDIC clearly know that failures are inevitable, but still turn to one or another form of the taxpayer bailouts U.S. policy-makers swore after 2008 would never again disfigure the nation’s financial system.  The agencies did not answer the urgent question of why even mid-sized bank resolutions are still systemic or lead to still more concentrated market power, but we must and then hold them as accountable for this failure as for all the others mentioned or not in each of their reports.

Are regional banks truly systemic or is it just that the FDIC doesn’t know what to do with them?  Mass regional-bank failures are clearly problematic, but would these be likely if the FDIC knew how to resolve mid-sized banks when supervisors spot problems or, failing that as seems sadly likely, if a regional bank comes unglued?  The FDIC is clearly ill-prepared to handle them even when the bank is the principal subsidiary of a non-complex BHC as is …

27 04, 2023

FedFin on: How To Say It’s Systemic

2023-04-27T17:04:10-04:00April 27th, 2023|The Vault|

FSOC’s newly-proposed analytical methodology for systemic risk identification is most immediately important for nonbank mortgage companies and the regulated institutions that love them. It may look as if a U.S. systemic framework is months away, but FSOC has signaled that, in some cases, systemic interventions could well come sooner.

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

26 04, 2023

FedFin on: Systemic-Risk Determinations

2023-04-26T16:59:28-04:00April 26th, 2023|The Vault|

Rejecting the Trump Administration’s hands-off approach to designating systemically-important nonbank financial institutions or activities and practices, the Biden Administration’s FSOC has bifurcated this construct with one proposal on designating entities and another that lays out an analytical approach to identifying systemic risk that would then guide firm and activity designation as well as Council staff coordination with primary federal regulators leading to new rules, product or service prohibitions/restrictions, or firm-specific supervisory action. If the final framework is as comprehensive as this proposal and FSOC is as actively engaged as its plan requires, then U.S. systemic standards could extend far more widely than is now the case even if firm-specific nonbank designations are few and far between…

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

24 04, 2023

Karen Petrou: The Price of Higher FDIC Protection and How to Prevent It

2023-04-24T10:40:22-04:00April 24th, 2023|The Vault|

Last week’s memo stirred up a lot of comment about ways to provide at least some private-sector deposit insurance.  The consensus is that, while nothing is easy about a private-sector backstop for federal coverage, the concept warrants careful consideration because all the other reform ideas on their own are still more problematic.  This isn’t just because proposals for expanded federal coverage – my own included – extend the federal safety net at resulting moral hazard.  In some cases, as I said, this risk is worth taking because some depositors warrant protection.  Still, there’s sure to be a price for more federal coverage – super-costly premiums and/or more bank regulation – that argue for market-based solutions to the greatest extent compatible with social welfare and stable finance.

This trade-off was most recently addressed last week by John Vickers, a former U.K. regulator.  Commenting on proposals across the pond akin to those in the U.S. to expand the sovereign deposit backstop, Mr. Vickers cautioned that added coverage should come with higher regulatory capital to ensure that banks do not take undue advantage of the comfy quilt into which the current, porous safety net would be transformed.

The U.K. deposit insurance system is different than that in the U.S., most notably by the absence of costly, ex ante bank premiums for the privilege of deposit-insurance coverage.  However, the U.S. risk-based premium system that sets bank premium payments is asset – not insured deposit – based.  As a result, coverage could go up considerably …

20 04, 2023

FedFin: From Plans To Purpose

2023-04-24T14:27:28-04:00April 20th, 2023|The Vault|

FHFA yesterday proposed a sweeping rule that would codify Sandra Thompson’s equitable- and fair-housing standards in a rule that any future FHFA director would have to work a lot harder to reverse. Indeed, not only would new plans become a mandatory part of the GSEs’ mission, but violations of them by Fannie or Freddie or any other fair-lending, equity, or related standard by all of the housing agencies could be sanctioned as unfair or deceptive acts or practices (UDAP), a page from the CFPB’s rulebook that affords a far greater scope to call an action discrimination and then punish it at even greater legal and reputational cost. Even if spared new plans – and that’s a big if – Home Loan Banks would also be brought into a far more exacting equity construct far beyond current adherence to statutory AHP requirements….

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

17 04, 2023

Karen Petrou: Why FDIC Privatization Isn’t a Pipe Dream

2023-04-17T12:02:05-04:00April 17th, 2023|The Vault|

As night follows day, so proposals to privatize the FDIC have again followed bank failures.  While debate over deposit-insurance privatization was, is, and will be an ideological tug of war between free-market conservatives and government safety-net progressives, it’s nonetheless an important option that warrants careful analysis as the FDIC yet again faces huge losses, banks are charged crippling and procyclical premiums, and talk turns to still more federal coverage at still greater risk not just to insured banks, but also to taxpayers.  Pure FDIC privatization remains impossible, but target risk transfers warrant careful, but quick consideration.

Privatization was last seriously discussed when Congress rewrote FDIC coverage in 2006.  This was a halcyon time when the FDIC was so sanguine about all the rules put in place after the S&L and bank crises that its 2007 study confidently predicted that systemic risk was a thing of the past, uninsured deposits would never again be covered, and the Deposit Insurance Fund more than sufficed for any systemic situation.

Of course, the great financial crisis that began later that same year put the lie to all this happy talk.  Privatization proposals now aren’t anywhere near as happy nor do they repeat past assertions that, with FDIC privatization, the nation could also dispense with bank regulation.  Instead, and for good reason, talk has now returned to private options because, without them, moral hazard seems sure to be embedded in a financial system that is still more shadowy.

A modern rethink of FDIC privatization must …

13 04, 2023

FedFin Assessment: Implications Of An IRR Capital Charge, New Liquidity Rules

2023-04-13T14:02:25-04:00April 13th, 2023|The Vault|

As we noted yesterday, the head of the Basel Committee has targeted two capital and liquidity  compromises included in the current Basel III construct not addressed in the end-game rules to which the U.S. plans shortly to turn.  Actions whether by Basel or, even without it, the U.S. to return to Basel’s initial proposals have significant strategic consequence.  Thus, this report assesses these options and how the U.S. might act on them.  We conclude that the U.S. will quickly impose a de facto interest-rate risk (IRR) capital charge and tighten LCR assumptions related to uninsured deposits.

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

12 04, 2023

We are Hiring

2023-04-20T13:30:52-04:00April 12th, 2023|The Vault|

Research Associate: We are looking for a detail-oriented self-starter for our bank regulatory and legislative analytical services.  Candidates should be able to utilize quantitative and qualitative research methods and analytical skills to assist senior staff in preparing both high-level and in-depth reports assessing regulatory, legislative, and political developments across a wide range of banking and financial services issues.  A college degree is a must, and candidates must have excellent writing and analytical skills as well as the ability to work in a fast-paced environment.


  • Track financial services policy developments in Congress and at relevant Federal regulatory agencies
  • Assist in preparation of client-facing analyses, reports, and papers assessing regulatory and legislative developments and associated impacts
  • Monitor Congressional hearings and Agency meetings and prepare reports summarizing these
  • Gather accurate, credible information and analyze data from public sources
  • Conduct literature/document reviews and present findings to senior staff
  • Assist in preparation of Managing Partner’s articles and op-eds published in major outlets (e.g., New York Times, Wall Street Journal, Financial Times, Bloomberg)
  • Perform other duties as assigned


  • Bachelor’s degree in a relevant field of study (e.g., finance, economics, political science)
  • Excellent writing and communications skills
  • Advanced qualitative and quantitative data analysis abilities
  • Ability to perform under pressure, meet time-sensitive deadlines, prioritize, and multi-task
  • Excellent time management skills
  • Knowledge of Congressional/regulatory processes and procedure
  • Strong research skills and attention to detail
  • Proficiency with Microsoft Office products, particularly Word, Excel, and Outlook
  • Previous Capitol Hill, banking agency, or similar experience preferred


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