Press Clips

Big banks are raking in cash

By Caleigh Wells

The end of 2024 was a great time for big banks. Goldman Sachs, Citigroup, BlackRock — a bunch of financial institutions posted their calendar fourth-quarter earnings Wednesday. And a lot of them exceeded investors’ already rosy expectations. JPMorgan Chase and Wells Fargo, for example, both saw their net income soar 50%. Several factors came together in the quarter that spelled good news. “There was a lot of market volatility, and banks traditionally do very well when markets are volatile,” said Karen Petrou, managing partner at Federal Financial Analytics. Petrou said volatile markets make people trade, seek advice and look for other services. Much of that volatility was based on election uncertainty. But Petrou doesn’t expect that to end. “Some of what the president-elect [Donald Trump] says may be just bluster, but bluster from the Oval Office really moves markets, and I think you will see a good deal of volatility,” Petrou said.

https://www.marketplace.org/2025/01/15/big-banks-fourth-quarter-earnings/…

Barr’s self-demotion changes little for regulatory outlook

By Kyle Campbell

Michael Barr has elected to end his term as Federal Reserve’s top regulator a year and a half ahead of schedule, taking the threat of a costly and potentially damaging legal fight with the incoming Trump administration off the table for himself and the central bank…Karen Petrou, managing partner of Federal Financial Analytics, said whether Fed Chair Jerome Powell allows Barr to helm the committee after he vacates the vice chair position on Feb. 28 will dictate the degree and speed of policy change at the Fed, particularly as it relates to supervision. “If there is a new chair of the Fed committee on [supervision and regulation], things could change more quickly at the Fed,” Petrou said. “If not, then not.” …Regardless of what happens with the Fed’s vice chair for supervision, Petrou said changes to bank policy were always inevitable under Trump. Just how drastic those reforms end up being will be determined by the people the White House chooses to lead the FDIC and OCC. “Interagency bank policy depends very much on who the next acting or confirmed comptroller is and the lineup at the FDIC,” she said. “Without knowing that, I cannot forecast interagency policy, because there is significant potential under the Trump administration that the normally institutional, relatively non-partisan nature of bank regulation will not continue over the next four years.”

https://www.americanbanker.com/news/barrs-self-demotion-changes-little-for-regulatory-outlook…

Where the Fed’s Michael Barr goes from here

By Kyle Campbell

Michael Barr has a lot to do and little time to do it. His term as vice chair for supervision at the Federal Reserve ends in 19 months. Before then, he hopes to change liquidity standards, require more banks to issue long-term debt and rewrite the capital framework for the nation’s largest banks…The proposal stems from an agreement struck by the Basel Committee on Banking Supervision in 2017, which was itself a product of the group’s post-global financial crisis policy response. Implementing the Basel endgame has been a thorny issue for regulators around the world. The U.K. and the European Union also have not fully adopted the standards into their bank oversight regimes.But Karen Petrou, managing partner of  Financial Federal Analytics and a leading expert in regulatory policy, said the U.S. proposal put forth last year was simply too flawed to be codified. “The fundamental reason why the endgame capital rules and other priorities never advanced is that they were a combination of intensely technocratic detail combined with overarching, often inexplicable purposes, such as simply significantly raising capital requirements,” Petrou said. “Proposals like that, with so many technical flaws and inconsistencies combined with controversial objectives, almost always fail. It is a very poor approach to federal rulemaking.”

https://www.americanbanker.com/news/where-the-feds-michael-barr-goes-from-here…

Trump taps Scott Bessent for treasury secretary

Host, Sabri Ben-Achour,  talks with FedFin managing partner, Karen Petrou, about the role of Treasury Secretary. (2:00min)

https://www.marketplace.org/shows/marketplace-morning-report/trump-taps-scott-bessent-for-treasury-secretary/

 …

The one institution that Trump can’t afford to break

Some of Trump’s closest advisers are angling for the president-elect to choose a candidate who will shake things up at Treasury.

By Sam Sutton
Donald Trump has chosen to move fast and break things with his early picks for top Cabinet posts. He is facing stiff resistance to that strategy when it comes to the Treasury Department. The president-elect has been hung up for days over who will get the nod for Treasury secretary, the most powerful economic post in his Cabinet. It had been a two-man race between billionaire Howard Lutnick, Trump’s transition team co-chair, and Scott Bessent, a hedge fund executive, until internal squabbling created openings for other candidates, including former Federal Reserve Gov. Kevin Warsh, Sen. Bill Hagerty (R-Tenn.), and Apollo Global Management CEO Marc Rowan….A mismanaged Treasury could “add more uncertainty to the Treasury bond market, which is already in a potentially fragile condition due to liquidity shortages, deficits and a number of other challenges,” Karen Petrou, managing partner of Federal Financial Analytics, said. Rising federal deficits have also fomented concerns about the dollar’s role as a reserve currency and the U.S. government’s ability to respond to any economic crisis in the future. Markets are more likely to respond favorably if they have faith that the person running the show has a firm grasp on how policy shifts affect the broader economy….

https://www.politico.com/news/2024/11/18/trump-treasury-disruption-00190250

 …

Changes coming to the Fed in a Trump presidency

By   Kyle Campbell

Donald Trump’s return to power all but guarantees that changes are coming to the Federal Reserve Board of Governors, but the range of potential shake-ups varies widely. At a minimum, Trump will have the opportunity to appoint two governors to the board during the coming four years and determine the leadership of the body….Karen Petrou, managing partner of Federal Financial Analytics, said whether or not the Trump administration seeks to remove Barr or his title will depend on who runs the incoming president’s transition and what they prioritize. Because of the legal uncertainties around removability, she expects such an undertaking would be, at most, a low priority. “The external environment, whether it’s any kind of financial market stress, geopolitical risk, civil disobedience, or Trump trying to do all the things he cares about doing personally and surrounding himself with the uninhibited people willing to do it, that’s the agenda,” Petrou said. “Not Michael Barr.”…

https://www.americanbanker.com/news/changes-coming-to-the-fed-in-a-trump-presidency

 …

Why the economy drove voters toward Donald Trump

Host Davis Brancaccio talks to Federal Financial Analytics‘ managing partner, Karen Petrou about how economic inequality explains a lot of votes for Donald Trump.

https://www.marketplace.org/2024/11/07/why-the-economy-drove-voters-toward-donald-trump/

 …

Trump win likely to delay Basel III, imperil Biden bank regulation

By   Ebrima Santos Sanneh

The incoming Trump administration is likely to lead to swift turnover at bank regulatory agencies, which would push finalization of new capital standards for large banks further down the road…. Karen Petrou, a managing partner at Federal Financial Analytics, expects the scope of the new framework to be further narrowed. Specifically, she anticipates the requirements being applied only to banks with $250 billion in assets or more and the market-based requirements being limited to the largest global systemically important banks and others with large trading books. She said some revisions could be made to cap operational risk weights and amend credit risk standards, too. Overall, Petrou said, the final version of the Basel III endgame will be the result of a “very complicated negotiation” — one that would likely escape the attention of a potential Trump administration. “Once you start bargaining over details, I can guarantee you, because I have been doing this forever, the White House will completely lose interest,” she said. “Full stop.”…

https://www.americanbanker.com/news/trumps-election-as-president-could-delay-finalizing-biden-era-capital-rules-for-large-banks-with-new-officials-likely-favoring-a-less-stringent-basel-iii-framework-and-softer-capital-requirements…

TD money-laundering scandal puts supervision back under the microscope

By Kyle Campbell

After using one of its most powerful enforcement tools to crack down on rampant money laundering at TD Bank, a Washington regulator finds its own oversight functions under the microscope. The Office of the Comptroller of the Currency implemented an asset cap on TD, prohibiting the Toronto-based bank from growing its balance sheet until its money-laundering controls are fixed…Karen Petrou, managing partner at Federal Financial Analytics, said the extensive consent order issued by the Financial Crimes Enforcement Network outlined a host of red flags that bank examiners should have detected years ago. Based on enforcement actions from Fincen, the OCC and the Federal Reserve, it is not clear if regulators picked up on the issues before last year. At that point, she said, they had few non-drastic options to choose from. “Because the banking agencies didn’t catch it early, when they could have remonstrated effectively or shut the bank down, they ended up with the 10th largest bank in the country that they were undoubtedly afraid to shut down for potential systemic risks,” she said. “They let a bank get away with AML murder by the time it was hauled before the courts, no thanks to the supervisors, from what one could tell.”… Petrou said these and other practices amounted to “red flags across the battlement” that supervisors should have been able to pick up on easily. “Absolutely blaring sirens going back 11 years,” she said.…

What can quarterly earnings tell us about the economy?

 Marketplace talks with Karen Petrou
Listen here: https://www.marketplace.org/2024/10/14/what-can-quarterly-earnings-tell-us-about-the-economy/…