NonBank Mortgage Companies Are Prime SIFI Target
Treasury Secretary Yellen’s hearing today before Senate Banking followed the path set in Tuesday’s HFSC session (see Client Report FSOC30), with Ms. Yellen refusing to take a stand on matters such as the capital rules and banking-agency supervisory effectiveness. Republicans in sparse attendance used the session to reiterate their critique of FSOC’s systemic-designation standard (see FSM Report SIFI36) and the capital rules; Democrats were most focused on defending Bidenomics. However, questioning touched on NBFI risk with a particular focus on nonbank mortgage companies; the secretary reiterated conclusions about possible systemic risks laid out in FSOC’s most recent report (see Client Report FSOC29), now going further to say that one or another nonbank mortgage company could fail under market stress. As we noted when FSOC standards were released, nonbank mortgage companies are top targets for systemic intervention, with Ms. Yellen’s comment today focused on individual companies suggesting that this might come via designation, not activity-and-practice standards. There was little focus on NYCB today, but much attention to CRE risk; the secretary reiterated that it is worrisome for smaller banks, but not systemic.