16 06, 2021

FedFin on: A Wrench in the Crypto Works

2021-06-17T15:15:05+00:00June 16th, 2021|The Vault|

As detailed in our new in-depth report, the Basel Committee is proposing a new regulatory framework for bank exposures to cryptoassets that will influence not only what banks do in this critical arena, but also what the GSEs can do and thus what happens to the digital mortgage.  If Fannie and Freddie come under like-kind capital and liquidity rules related to their crypto exposures, digital adoption of any asset with crypto components will be slower but the system could well be safer.

The full report is available to subscription clients. To find out how you can sign up for the service, click here.…

16 06, 2021

Daily061621

2021-06-17T12:42:31+00:00June 16th, 2021|2- Daily Briefing|

GOP Senators Start Bidding War on Antitrust Reform
Joining the rush of Congressional bills aimed at antitrust reform, Senators Lee (R-UT) and Grassley (R-ID) have introduced S. 2039, legislation positioning Senate Republicans as Antitrust Subcommittee Chair Klobuchar (D-MN) readies her panel for action on her bill (S. 225).

BIS Continues Campaign for Fintech/Designation, Not Just Like-Kind Regulation
In speech earlier today, the head of the BIS’s Financial Stability Institute, Fernando Restoy, continued the BIS campaign not just for like-kind activity regulation of fintech and bigtech, but also for entities-based regulation in key cases.

Waters Ramps Up Digital-Asset Action Plan
HFSC Chairwoman Waters (D-CA) today announced the roster for a new, all-Democrat Digital Assets Working Group.  Yesterday, Rep. Waters laid out deep concerns with cryptoassets but said also that HFSC will hold a series of hearings on them.

CFPB Cracks Down on Military Lending
Responding to strong demands from Congressional Democrats, the CFPB today unsurprisingly reversed the Trump Administration agency’s finding that it lacked statutory authority to examine lenders and thus enforce the Military Lending Act.

SLR Seems Set for Rewrite; How, When Remain TBD
At his press conference today, Chairman Powell renewed big-bank hopes for a revised SLR.  Although Vice Chairman Quarles earlier this month suggested that the Fed was thinking about other approaches to handle deposit growth, Mr. Powell emphasized that the leverage ratio may again be a binding constraint, not the back-up buffer for which it is intended.

Daily061621.pdf

15 06, 2021

Daily061521

2021-06-15T21:15:24+00:00June 15th, 2021|2- Daily Briefing|

HFSC Preparing Sanctions-Evasion Review
We have reviewed HFSC’s committee memorandum for tomorrow’s hearing on sanctions evasion, which lays out various sanctions-evasion schemes and includes several draft bills for consideration. All of these are preliminary governmental responses focused on studies and structure, not causes or direct remedies.

DIF Premiums Remain As Is
Although the Deposit Insurance Fund (DIF) slipped to 1.25 percent at the end of March, the FDIC nonetheless decided today not to increase premiums to speed restoration to the statutory 1.35 minimum.

FinTech Task Force: Privacy, Inclusion Essential for CBDC Success
Although Chairwoman Waters (D-CA) made it clear that the HFSC Fintech Task Force hearing today is an initial foray into HFSC’s CBDC and digital-dollar work, Task Force Members used the session not only to engage in fact-finding, but also to detail in general terms the criteria they believe essential to a successful CBDC.

Daily061521.pdf

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15 06, 2021

CRYPTO19

2021-06-15T21:13:57+00:00June 15th, 2021|1- Financial Services Management|

Bank Crypto Safety-and-Soundness Standards
Advancing some of the most controversial ideas in a 2019 discussion paper,  the Basel Committee has now formally proposed capital, liquidity, risk-management, and supervisory standards it believes nations should apply to bank cryptoasset exposures.  Global regulators have adopted a cautious approach that, despite high-cost proposals for higher-risk cryptoassets, may create a framework in which banks can profitably engage in a wide array of cryptoasset activities and thus expand cryptoassets with the stability and liquidity essential for many of the uses now proposed for them.  Conversely, the rules could limit the extent to which higher-risk cryptoassets could interact with the banking system, likely limiting them to niche speculation or marketing products unless cryptoasset issuers outside the reach of bank regulation still have access to the payment system or have the market heft to challenge bank-acceptable cryptoassets.

CRYPTO19.pdf

15 06, 2021

The Hill, Tuesday, June 15, 2021

2021-06-15T19:51:27+00:00June 15th, 2021|The Vault|

Pressure builds for Fed chief as inflation surges
By Sylvan Lane

The Federal Reserve is facing growing scrutiny from Wall Street and Washington over its cryptic plans to eventually pull back stimulus from an economy that’s starting to struggle with inflation. Fed watchers are eagerly seeking clarity from Chairman Jerome Powell about when the central bank aims to pare down the monthly purchases of bonds meant to dampen the economic blow of COVID-19…And other critics of the Fed’s approach say allowing near-zero interest rates and steady bond purchases to add further fuel to soaring stock prices will only deepen historically high economic inequality. While easy monetary conditions are intended to fuel job creation and economic activity, they can also encourage more speculative forms of investment since low interest rates lead to little growth for savers. “The new policy has been unintentionally but powerfully unequal, and a spike in inflation will be very powerfully anti-equality,” said Karen Shaw Petrou, author of “Engine of Inequality: The Fed and the Future of Wealth in America.” “It’s continued increase in its portfolio combined with rates that are negative in inflation-adjusted terms just drives not only a tremendous amount of wealth inequality, but also distortions in productivity.”

https://thehill.com/policy/finance/558405-pressure-builds-for-fed-chief-as-inflation-surges?rl=1

15 06, 2021

FedFin Analysis: Bank Crypto Safety-and-Soundness Standards

2021-06-17T15:13:27+00:00June 15th, 2021|The Vault|

Advancing some of the most controversial ideas in a 2019 discussion paper,  the Basel Committee has now formally proposed capital, liquidity, risk-management, and supervisory standards it believes nations should apply to bank cryptoasset exposures.  Global regulators have adopted a cautious approach that, despite high-cost proposals for higher-risk cryptoassets, may create a framework in which banks can profitably engage in a wide array of cryptoasset activities and thus expand cryptoassets with the stability and liquidity essential for many of the uses now proposed for them.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

14 06, 2021

M061421

2021-06-14T21:47:31+00:00June 14th, 2021|6- Client Memo|

A Little-Noticed Rule and How It Could Redefine Mortgage Finance
Although it seems technical, the question of what’s a qualified mortgage (QM) defines which mortgages make up most of the U.S. market.  This, though, is well known after years of QM squabbles.  What many have forgotten is an even bigger question:  what’s a qualified residential mortgage (QRM).  This term defines which mortgages can be securitized without forcing the originator to hold “skin in the game” – i.e., a portion of the loan on its portfolio.  Given the transformation of U.S. mortgage finance into a business dominated by nonbanks without balance sheets, a problematic QRM would quash a whole lot of mortgage finance no matter the QM.

M061421.pdf

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14 06, 2021

Al061421

2021-06-14T21:46:08+00:00June 14th, 2021|3- This Week|

SANCTIONS SCHIZOPHRENIA
Later this week, a House Financial Services Subcommittee will convene a hearing assessing the extent to which sanctions work as intended.  From the Senate’s perspective, they had better – as a forthcoming in-depth report will assess, the new anti-China bill rests for its economic counterpunch on an array of tough-minded sanctions against still more Chinese entities and individuals for still more things the U.S. doesn’t like.  However, HFSC isn’t the only group wondering about sanctions – even the Treasury Department is rethinking this longstanding weapon in America’s soft-power arsenal, while the Fed faces challenges to the dollar’s reserve-currency status as allies who disagree with U.S. targets look for ways to evade them.

Al061421.pdf

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14 06, 2021

Daily061421

2021-06-14T21:41:33+00:00June 14th, 2021|2- Daily Briefing|

G7 Leaders Emphasize Big Goals, Also Tackle Green, Infrastructure, Illicit Finance
The G7 communique this weekend from the heads of state of course addresses top-priority pandemic, foreign-policy, and taxation questions, including also what has by now become boilerplate language about the importance of economic inclusion.

Anti-Bigtech Bills Pack Big Fintech Punch
Although aimed at bigger market and policy targets, the sweeping, often bipartisan bills aimed at giant tech platforms introduced late Friday will also have far-reaching financial-sector impact.

Senate Banking GOP Rejects Climate-Disclosures RFI
In a letter released today, Senate Banking Ranking Member Toomey (R-PA) led all committee Republicans rejecting SEC Commissioner Lee’s request for public input on the need for climate disclosures.

Fintech Task Force Highlights CBDC Infrastructure, Privacy, Inclusion Concerns
Ahead of its hearing on CBDC tomorrow, the HFSC Fintech Task Force’s hearing memo does not include any legislation on the discussion agenda.

Daily061421.pdf

 

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14 06, 2021

Karen Petrou: A Little-Noticed Rule and How It Could Redefine Mortgage Finance

2021-06-14T13:43:50+00:00June 14th, 2021|The Vault|

Although it seems technical, the question of what’s a qualified mortgage (QM) defines which mortgages make up most of the U.S. market.  This, though, is well known after years of QM squabbles.  What many have forgotten is an even bigger question:  what’s a qualified residential mortgage (QRM).  This term defines which mortgages can be securitized without forcing the originator to hold “skin in the game” – i.e., a portion of the loan on its portfolio.  Given the transformation of U.S. mortgage finance into a business dominated by nonbanks without balance sheets, a problematic QRM would quash a whole lot of mortgage finance no matter the QM.

The banking agencies, SEC, FHFA, and HUD finalized the QRM in 2014 after two proposals and a whole lot of controversy.  The problem crafting the QRM was the wide divide between MBS investors – who wanted tough credit-risk retention to ensure incentive alignment – and lenders who wanted none of this.  Policy-makers were split, but the balance ultimately came down in favor of the current QRM because of concerns so soon after the great financial crisis that housing finance couldn’t recover without a free pass to the secondary market.  Private-label securitizers pushed for equal treatment with the GSEs if private credit enhancements or other capital stood ahead of the investor in a QRM, but the reputation of private mortgage insurance (MI) was badly sullied by the crisis and there was little faith in PLS or their ratings after the subprime-MBS debacle.  As a …

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