BIS Study: Low-Profit GSIBs are High-Risk GSIBs

A new BIS paper assesses the systemic consequences of GSIBs with low market capitalization, an issue with immediate relevance given investor concerns about the long-term earnings impact of numerous pending rules.  The methodology leads the authors to focus on price-to-book ratios (PTBRs) which are found to be directly linked to investor-predicted return on equity.  Although GSIB capital requirements dramatically increased over the course of the study, there is said to be no significant impact on franchise value.

CFTC Realigns Client-Fund Segregation Standards

The CFTC today proposed to make significant changes to client-fund segregation rules governing futures commission merchants and derivatives clearing organizations covering both how FCMs and DCOs handle client funds and the manner in which they may be deposited with banks.  The proposal redefines permissible investments that must still be housed at a bank or similar entity, adding foreign sovereigns, limiting MMFs to government funds, and removing certain corporate bonds and similar instruments.

Basel Points to Problematic Climate-Risk Implementation

The Basel Committee today issued a “newsletter” addressing issues raised since it finalized global climate-risk management principles (see Client Report CLIMATE14), now codified for large U.S. banking organizations (see Client Report CLIMATE17).

FDIC Sets Up Special Committee to Address Widespread Concerns

In a major concession surely necessary to appease at least some in Congress and ensure continuing agency function, the FDIC board today announced formation of a special committee to be chaired by Acting Comptroller Michael Hsu and Director Jon McKernan.  Akin to the kind of special committee private boards establish when questions arise about a corporate chair, the FDIC panel will include not only board members who could have had no role in problematic behavior, but also as many as three additional members likely from outside the agency.

CFPB Advances First Alternate-Disclosure Option

The CFPB today announced the first test in which lenders can experiment with consumer disclosures rather than being forced to use standard ones that may not suit a particular loan category.  The approval is for an ICBA petition related to construction loans in which lenders now may use variations on standard mortgage forms.  The Bureau sought comment on ICBA’s approach in February.