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.
Businesses are taking out fewer bank loans
By Justin Ho
Businesses have been able to pay off some debt during the pandemic — that’s one conclusion of a new report from S&P Global Market Intelligence. And that might be telling us something about where this economy’s headed….Karen Petrou, managing partner at Federal Financial Analytics, said companies were hoarding cash. “Companies drew every nickel of cash they could get out of their banks just in case,” she said.
Listen: https://www.marketplace.org/2020/08/14/businesses-taking-out-fewer-bank-loans/…
Anti-Discrimination Regulatory Framework
The Bureau of Consumer Financial Protection has opened a sweeping inquiry into how credit discrimination occurs and could be averted, seeking comments and suggestions without indicating any possible policy responses. However, the issues on which it seeks comment are guideposts to the agency’s near-term regulatory priorities, spelling out what could prove an ambitious agenda redefining consumer-finance regulation to speed artificial intelligence (AI) and machine learning (ML) adoption and increase the scope of federal preemption. The Department of Housing and Urban Development (HUD) has proposed what many see as a rollback in its disparate-impact standards to enhance AI/ML use; any action by the CFPB to do so following comments on this RFI would be at least as controversial as it would apply across the spectrum of consumer-financial products, not just to HUD-backed mortgages.
Global GSIB-Designation Criteria
The Basel Committee has revised the designation criteria for global systemically-important banks (GSIBs) first adopted in 20131 with this new framework following a 2017 consultation.2 Although there was little doubt that global regulators would retain the basic GSIB framework and its objective of higher capital for banks deemed the riskiest to reduce negative externalities, Basel has not only stood by the GSIB construct, but also strengthened it in several ways. The new approach will prove particularly costly to large banks with significant insurance activities, as insurance subsidiaries now count in various indicators that could lead to designation and, accordingly, capital surcharges.
Naomi Ric?
In this analysis, we assess a new plan to restructure the GSEs sure not only to be considered by the Obama Treasury if it issues the promised RFI on a “utility” approach, but also and far more importantly in any Democratic Administration to come. We confess up-front to a lack of objectivity about this proposal – it favors a government corporation akin to one we have outlined in prior reports not only for the GSEs, but also FHA and agree that its transitional approach may ease the nation into a privatized GSE-style utility without the shock of the new one that has stymied most other plans. One challenge we foresee – rightly raised in the report as a worry – is the procyclicality of the new structure. This protects taxpayers, but undermines the entity’s market liquidity function. We doubt a counter-cyclical capital buffer will cure for this because we’ve yet to see a proposal for one that works, but a counter-cyclical fee structure could solve for this systemic worry if correctly structured and acceptable to the market.
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