Press Clips

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/…

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.

https://bankingwithinterest.libsyn.com/the-potential-perverse-consequences-for-banks-of-new-ma-policies…

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….

https://www.americanbanker.com/news/they-need-to-kick-the-tires-karen-petrou-on-bank-fintech-alliances

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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.

https://www.americanbanker.com/podcast/some-banks-are-making-a-faustian-bargain-with-fintechs-karen-petrou…