Press releases and other resources for media.
The Potential “Perverse” Consequences for Banks of New M&A Policies
Host Rob Blackwell
Karen Shaw Petrou, managing partner of Federal Financial Analytics, details how new guidelines by federal regulators to curb M&A could inadvertently increase the market power of the biggest banks and Big Tech.
Will regulators hit the gas or brakes on remaining post-Basel reforms?
By Kyle Campbell
For more than a year, a once ambitious bank regulatory reform agenda has largely been on hold as agencies deal with the fallout from last summer’s much maligned joint capital proposal. Now that the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency are in apparent agreement on a path forward for the so-called Basel III endgame, regulators are poised to work through their backlog of joint initiatives, including expanded long-term debt requirements and new liquidity standards….The Fed, the FDIC and the OCC have been eyeing a long-term debt expansion since 2022, when they issued what is known as an advanced notice of proposed rulemaking — a precursor to a formal rulemaking process — before issuing an official proposal last September. But finalizing that rule while risk-based capital changes are still pending could have significant unintended consequences, said Karen Petrou, managing partner of Federal Financial Analytics. The proposal would set long-term debt requirements at each impacted bank at the greater of 6% of total risk-weighted assets, 3.5% of average total consolidated assets or 2.5% of total leverage exposure if the bank is subject to the supplementary leverage ratio. Because the Basel III endgame proposal would realign the risk-weighting calculus, Petrou said neither banks nor regulators can know the impact of the long-term debt requirement until the capital rules are established. “The long-term debt rule can make no …
Political bluster threatens the Fed’s ‘vibes-based’ independence
By Kyle Campbell
Once taken as a given, the Federal Reserve’s independence is facing existential questions in the current political environment. Former president and Republican presidential nominee Donald Trump said in an interview last week that if elected he would “bring interest rates way down” while also combating inflation, which he said was “destroying our country.”…Others see the agreement as a capitulation by the Treasury to secure short-term participation by the Fed in its war financing efforts. Karen Petrou, founder of Federal Financial Analytics and highly regarded expert on financial policy, said the accord amounted to an acknowledgment by the Treasury that it never had the ability to force the Fed’s hand. “It was essentially Appomattox for the Treasury Department,” Petrou said, referring to the Confederate surrender in the Civil War. “They had to sign it.”
https://www.americanbanker.com/news/political-bluster-threatens-the-feds-vibes-based-independence
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‘They need to kick the tires’: Karen Petrou on bank-fintech alliances
By Penny Crosman
The bankruptcy of bank-fintech partnership middleware provider Synapse and the many consent orders banks have received from regulators regarding their fintech relationships have formed a dark cloud over banking as a service. The way forward should include much more due diligence on banks’ part, according to Karen Petrou, co-founder and managing partner of Federal Financial Analytics, a Washington, D.C. firm that provides analytical and advisory services on legislative, regulatory and public-policy issues affecting financial services companies. “I think they really need to kick the tires and not just look at the fee revenue, but at the resilience of their counterparty in these deals,” Petrou said. “Clearly one of the issues with Synapse is at least a hundred million dollars of customer money is missing, and while [compared to] the scale of trillion dollar financial crises, that might not seem like a lot, it’s a lot to the individual households,” she said in a recent American Banker podcast….
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Some banks are making a Faustian bargain with fintechs: Karen Petrou
By Penny Crosman
Welcome to the American Banker Podcast. I’m Penny Crosman. The disputes between banking-as-a-service middleware provider Synapse and its banking partners have cast doubt on the whole practice of banking as a service, where fintechs build relationships with customers directly and bank partners keep the money in their vaults. Today we’re here with Karen Petrou, managing partner at Federal Financial Analytics, to get her take on this whole situation and what the way forward might look like. Welcome, Karen.
Host David Boccaccio speaks with Karen Petrou, Federal Financial Analytics Managing Partner, about Federal Reserve, Chairman Powell, and interest rates.
https://www.marketplace.org/shows/marketplace-morning-report/…
The U.S. economy added 206,000 jobs in June, according to the labor department. On the other hand, the job growth in previous months was revised down significantly. Let’s discuss with Karen Petrou, co-founder and managing partner at Federal Financial Analytics.
Derivatives pose thorny problem for banks, regulators in resolution plans
By Kyle Campbell
Federal regulators want large banks to get specific about their contingency plans for their derivatives holdings. The Federal Deposit Insurance Corp. and the Federal Reserve cited four of the country’s largest banks last week for weaknesses in their resolution plans related to derivatives — a broad and varied market of financial contracts that include swaps, options and futures. The move was the latest and most direct move by the agencies to encourage banks to step up their practices around the handling of these contracts…Yet because of their complexity and the role they play in financial markets, derivatives receive different legal treatment than other assets on a bank’s balance sheet, said Karen Petrou, managing partner at Federal Financial Analytics. Deemed “qualified financial contracts” by Dodd-Frank, derivatives held by systemically large banks — known as “covered entities” — are shielded from typical default provisions in cases of failure. This means that, unlike in a traditional bankruptcy process, when these banks fail, their counterparties cannot simply close out their derivative positions. This arrangement is meant to protect banks, the FDIC and broader financial stability by mitigating losses for large failed banks and preventing counterparties from having to quickly seek out hedging alternatives.But, because these contracts are treated differently under the special resolution regime than they are under the traditional bankruptcy code, Petrou said there is ambiguity and confusion about how they should be handled.”Without clarification of the bankruptcy …
Why are bond prices up right now? And what difference does it make?
By Mitchel Hartman
We’re in the midst of a bond market rally. In the last eight weeks — barring Monday, when the bond market retreated a bit — bond prices have been going up, as their yields — the annual interest rate they pay — have been going down….The Fed’s got interest-rate-setting meetings in July and September. But here’s the thing: It met just last week: At that meeting, “they changed their forecast,” said Joanna Gallegos. “They said for the end of the year, we anticipate only making one rate cut versus three.” Basically, said Karen Petrou, a managing partner at Federal Financial Analytics, the bond market is saying to the Fed: “We can hear you. We’re just not listening.” “Even though [Chair] Jay Powell said, ‘We’re going to keep rates about where they are for a while. We don’t think we’ve beaten inflation yet,’ the market is essentially saying, ‘We think you have, and you’re going to be cutting rates as soon as September,’” Petrou said. Based on that belief, investors bid up bond prices, sending the interest rate on the benchmark 10-year Treasury note lower. “Traders think the Fed is overcautious, and the Fed will be able to cut rates. Indeed, it may have to cut rates because the economy will be softening,” she said. But Petrou pointed out that so far, the Fed has confounded market expectations, keeping rates higher for …