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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.

21 12, 2022

FedFin on: New to You

2022-12-22T16:39:07-05:00December 21st, 2022|The Vault|

Finally taking what was supposed to be an “interim” final rule in 2009, FHFA yesterday finalized a variation on Mark Calabria’s 2020 new-product proposal.  FHFA still has more discretion over which activities go into this process and what the market then knows about them….

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

21 12, 2022

FedFin on: Nonbank Enforcement-Order Registry

2022-12-21T16:54:37-05:00December 21st, 2022|The Vault|

The CFPB is proposing to create a public registry of certain enforcement actions that would initially cover nonbanks (including BHCs) with a goal of drawing public and enforcement-agency attention to what the Bureau’s director calls “serial offenders.” …

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

20 12, 2022

FedFin on: CFPB Crafts New-Style, High-Impact Enforcement Construct

2022-12-20T17:22:32-05:00December 20th, 2022|The Vault|

In this report, we provide an in-depth assessment of the CFPB’s unprecedented $3.7 billion settlement earlier today with Wells Fargo (WFC).  In its release, the Bureau notes that it worked with the FRB and OCC to craft this consent agreement; in his remarks, Director Chopra makes it clear that, settled or not, he wants to penalize a “corporate recidivist” by retaining or even tightening the Fed’s 2018 asset-cap (see Client Report CORPGOV26) and doing the same with the OCC’s 2021 mortgage-servicing settlement….

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

19 12, 2022

FedFin on: FSOC Targets Usual Suspects but Also Points to Big-BHC, Nonbank Mortgage Systemic Risk

2023-01-03T15:56:33-05:00December 19th, 2022|The Vault|

As promised, this FedFin report provides an in-depth analysis of FSOC’s 2022 annual report, focusing on findings with near-term policy implications.  As always, the report is lengthy and includes many observations and market details that provide insight into Treasury and member-agency-staff thought.  Much in it reiterates concerns about short-term funding markets, CCPs, and….

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

12 12, 2022

Karen Petrou: Where New Crypto Enforcement, Regulatory Action Will Land

2022-12-12T15:50:07-05:00December 12th, 2022|The Vault|

As we’ve learned over the years, a memo written is a memo shared.  So it was with my last note on what were then little-noticed links between the tumultuous cryptosphere and what regulators assured us was a banking sector aloof from these violent downdrafts.  Sens. Warren and Smith then picked up the examples of several bank/crypto hot spots.  The result of new facts combined with heightened political risk will surely lead the bank regulators to follow the tried-and-true strategy of slapping a lot of enforcement actions around before agency heads are hauled up to the Hill.  Other than stablecoin legislation, new crypto law is uncertain, but after all the enforcement actions will also surely come new banking crypto regulation.

First, though, to incoming enforcement actions as these lay the groundwork for next-gen regulation.  Any bank with big crypto exposures no matter how otherwise pristine is already under its examiner’s gun in terms of immediate demands for an inventory of all crypto actions anytime for anyone.  The senators include this in their asks, looking for names as well as activities and customers.  But the banking agencies were surely already hot on this trail.

Any bank that failed to mind its prior-notice manners will surely get a public drubbing so that regulators can point to a host of cases that uncover all risks anywhere they lurk.  And banks now casting covetous eyes on cheap crypto assets will get a talking to from Washington if their own internal risk managers haven’t already …

5 12, 2022

FedFin on: The Big Squeeze

2022-12-06T16:24:20-05:00December 5th, 2022|The Vault|

Making an important addition to the ongoing debate about Treasury-market liquidity, a new paper from the Bank for International Settlements provides sobering data on agency MBS liquidity with significant implications not only for secondary-market liquidity, but also primary-market stability…..

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

5 12, 2022

Karen Petrou: Bank Canaries in the Crypto Mineshaft

2022-12-05T16:34:33-05:00December 5th, 2022|The Vault|

Just because crypto hasn’t triggered a systemic collapse doesn’t mean that it won’t be the perpetrator of quiet banking crashes.  We would do well to remember that the 2008 calamity came shortly after the collapse of small subprime-mortgage finance companies.  These would have been proverbial dead canaries had anyone looked down the mineshaft.  And, even as the U.S. subprime crashes formed into a single, torrential crisis, bank regulators confidently foretold no systemic impact because they comfortably believed that no bank had undue exposure to high-risk mortgages.  So bank regulators still say now when it comes to crypto and let’s hope the outcome is different this time.  However, bits and pieces of bank wreckage are already to be found in FTX’s rubble and may well surface as the crypto tide continues to ebb.  No bank shipwrecks have emerged, but some of the wreckage has the look of a sizeable hull.

The most tantalizing bit of banking wreckage is a super-tiny Washington State bank which FTX appears to have surreptitiously acquired.  As the New York Times reported, one of FTX’s affiliates last March invested more than double all the capital previously held in Farmington State Bank, doing so in a carefully-structured way to avoid triggering legal control thresholds.  The bank is the nation’s 26th smallest and, after this generous investment, it deposits went up about 600 percent from its initial $10 million level via four new accounts.  Sill more intriguingly, Farmington’s crypto ties via shadow owners appear to go back to …

21 11, 2022

FedFin: We’re Starting to See SIFIs

2022-11-22T13:21:33-05:00November 21st, 2022|The Vault|

As came out into the open last week, FSOC will finally turn to rewriting the Trump era rewrite of the Obama Administration’s FSOC protocols regarding systemic financial institutions and activities.  Could the SIFI reaper be coming for Fannie and Freddie?  We doubt it, but then again…

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

21 11, 2022

FedFin on: Treasury Plumbs the Depth of Nonbank Finance, Seeks New Merger Policy, Rules

2022-11-22T13:19:47-05:00November 21st, 2022|The Vault|

As promised, this report provides an in-depth analysis of Treasury’s report and resulting recommendations to the President’s Competition Council on the impact of new nonbank consumer-finance entrants from a competition, consumer-protection, and financial-stability perspective.  Although the report calls for reconsideration of bank-merger policy with an eye to the growing role of fintechs and bigtechs, its overall view of market power fails in our view to capture the actual landscape in which…

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

21 11, 2022

Karen Petrou: What Will Be Done, Not Just Said, To Fix FTX

2022-11-22T13:18:11-05:00November 21st, 2022|The Vault|

The only question left unanswered about FTX is whether it was a purposeful scam as more than a few clients conclude or a case of implacable forces ending the era of easy money that just got the better of another wunderkind whose awesome skills turned out to be largely confined to costumery conveying inspired innovation to all too many vulnerable investors and gullible politicians. No matter which it is or even – as I think – if it’s a bit of both, FTX is a debacle that will change U.S. financial policy for the better unless FTX drives still more crypto chaos that then spills over to core financial infrastructure and intermediation. I’ve gotten a lot of questions about crypto policy after my brief discussion in last week’s talk on the midterm’s policy impact. Here, more on both the legislative outlook and what regulators may finally bring themselves to do even if Congress can’t get itself together any better next year than in so many before it.

First more on why stablecoins are the cryptoasset most likely to come under a new federal gun. This isn’t because they deserve it more than any other cryptoasset – although they might – but because policy thinking about what to do with stablecoins is most advanced and, thus, bipartisan negotiations in the House are closest to the finish line.

That said, even stablecoin standards aren’t going to be easy. The clearest articulation of how new law might work is S. 4356, the Lummis-Gillibrand …

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