Warren Renews Demand for Wells Fargo Break-Up
Renewing her attack against Wells Fargo, Sen. Warren (D-MA) has called on the Fed to retract the company’s financial holding company (FHC) status.
Treasury/FHFA Reset the GSEs’ Role in U.S. Housing Finance
As we forecast earlier this year, Treasury and the FHFA today suspended — but did not abrogate — key aspects of the Trump Administration’s final changes to the standards governing Fannie Mae and Freddie Mac under the PSPA.
The House Financial Services Committee has approved legislation introduced by a progressive Democrat, Rep. Ayanna Pressley (D-MA), requiring GSIBs to disclose many quantitative and qualitative matters deemed necessary to assess the extent to which these very large banks engage in behavior that, while legal, treads on concerns related to systemic risk, racial equity, climate risk, incentive compensation, market concentration, and the Community Reinvestment Act. Many disclosures could bring to light information GSIBs have long considered proprietary that are required of none of their competitors nor of any other public company in the U.S.
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Global Crypto Prudential Standards
Moving beyond recent concerns expressed by the Financial Stability Board on “decentralized” finance,1 the Basel Committee is soliciting views on a preliminary assessment of crypto-asset risk and the capital, liquidity, and prudential standards it warrants for banking organizations. Although framed as only a request for general comment, the paper specifies numerous risk-management and supervisory protocols Basel believes should already be in place at banks with direct or indirect crypto exposures. While seeming to differentiate between high-risk exposures and others likely to be considerably less problematic, the overall risk-management framework appears to apply to all crypto exposures.
FedFin Assessment: Expanded U.S. Trade War to Exchange Rates Poses Structural, Strategic, and Systemic Challenges
The Federal Register today includes one of the most controversial steps the Trump Administration is taking in its already contentious trade wars: use of countervailing duties to punish nations the Commerce Department determines are manipulating their currency to advantage export competitiveness.
Conservatorship Quandary Continues
Mel Watt’s appearance today before the Financial Services Committee signals the beginning of House GSE-reform action, but it’s the beginning of the beginning with little clear end in sight. That said, the GSEs’ exemption from the QM rule and, by inference, FHA’s is now taking heavy GOP fire that could result in regulatory change under a Republican head of the CFPB.
Powell Defends Senate Bill FBO, Threshold Provisions
In this report, we assess FRB Chairman Powell’s appearance today before the Senate Banking Committee. With the Senate finreg legislation (see Client Report SIFI25) heading to the floor next week, supporters pushed the Chairman to rebut claims that the legislation benefits large foreign banks and eliminates key standards for banks between $100 billion and $250 billion. Despite Treasury Secretary Mnuchin suggesting that FBOs with U.S. operations under $250 billion will benefit from the legislation (see Client Report SIFI26), Mr. Powell said that the FRB will consider these banks’ global total consolidated assets when applying prudential requirements and that the bill does not mandate changes to IHC rules.
FEDERALRESEVE43.pdf
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Senate Banking Welcomes FDIC, FSOC Nominations, Dems Target Goodfriend
In this report, we assess today’s Senate banking hearing on the nominations of Jelena McWilliams to be Chair of the FDIC, Marvin Goodfriend to be an FRB Governor, and Thomas Workman to be the FSOC voting member with insurance expertise. Ms. McWilliams, a former committee staffer, received a friendly reception from both sides (who know her well). She plans to prioritize reducing community-bank burdens, encouraging de novos, and advancing a regulatory approach to cyber security. She also said that she would like to take “a look” at leverage-capital rules. Late yesterday, the White House made a change to her nomination almost surely resulting in Vice Chair Hoenig leaving the Board when his term expires in April.
New SIFI Standard Unveiled in AIG Action
Late Monday evening, FSOC released member statements leading to the Friday-night decision to end
AIG’s systemic designation. Most striking among these was Chair Yellen’s regarding the
reason she for the first time sided with Trump appointees against her fellow Obama
hold-overs. As detailed in this report’s analysis of FSOC action, Ms. Yellen did not make a
clear statement in favor of activity-and-practice regulation versus designation even though
global regulators have now generally agreed on the new approach. Instead, she
focused narrowly on AIG’s recent restructuring.
Adding Seasoning to U.S.
The CFPB’s proposal to allow QM treatment for certain seasoned mortgages will rewrite a decade’s worth of securitized lending if macroeconomic and interest-rate conditions turn favorable. Once the QM coast is clear for portfolio loans, we expect large banks not only to make more of them both for their portfolios and eventual securitization, but also to renew experimentation with covered bonds. If portfolios grow, the GSEs’ footprint will shrink – perhaps a lot, adverse selection will take on renewed importance in new bond and PLS markets, nonbanks will need a new gig, and MIs may finally crack bank portfolios.
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CCAR’s New Direction
As we noted in our assessment of the ground-breaking proposal to rewrite the GSIB leverage ratio, the big-bank regulatory framework has also been upended by a companion Fed proposal to rewrite its capital rules and, as a result, redesign the CCAR stress test that is now usually the biggest banks’ most binding capital constraint.