28 06, 2022

DEPOSITINSURANCE114

2022-06-28T12:33:52-04:00June 28th, 2022|1- Financial Services Management|

DIF Premium Assessments

The FDIC is proposing to raise base Deposit Insurance Fund (DIF) assessments by two basis points (BPS) to replenish the DIF by the statutory deadline to reflect deposit inflows that the FDIC no longer expects to be temporary.  Even after the DIF reaches its minimum ratio, the added assessments would continue to restore the fund to a more ample reserve.  This will increase costs at insured depository institutions (IDIs), in some cases likely by sizeable amounts likely to alter business strategy in ways that might dampen economic growth.  However, scant DIF resources under acute stress might trigger not only the need for another taxpayer infusion into the FDIC, but also demands for more stringent regulatory and resolution standards.

DEPOSITINSURANCE114.pdf

27 06, 2022

DAILY062722

2022-06-27T16:46:20-04:00June 27th, 2022|2- Daily Briefing|

FRB-Richmond: Reform MMFs or End Prime Institutional Funds

A new paper from the Federal Reserve Bank of Richmond authored in part by the Bank’s former president argues that the heart of prime MMF risk is continuing expectation of a Fed backstop under stress.  As a result, swing pricing or other changes proposed by the SEC (see FSM Report MMF19) are, they say, unlikely to reduce systemic risk.  They thus recommend that MMFs be required to have pre-positioned liquidity support backstops above and beyond the additional liquidity that would be mandated for MMFs in the SEC proposal.

HFSC Plans Look at Mortgage Discrimination, Servicing

HFSC Democratic staff today released plans for the full committee’s hearing this Wednesday on mortgage finance and economic equality.  It will look at the hot housing market and the extent to which it affords wealth accumulation to low-and-moderate-income households and those of color, with the memo noting an array of obstacles to home ownership such as the inability to save for down payments, obstacles to FHA loans, and the prevalence of cash buyers (a matter also to be taken up by the panel tomorrow).

CFPB Details Immigrant Financial Challenges

The CFPB today released a blog post asserting that financial institutions make it unduly difficult for immigrants to obtain financial services.  Barriers include those to account and language access, vulnerability to predatory actors, and refugee or newcomer-specific challenges such as a lack of credit history and legal protection.

DAILY062722.pdf

27 06, 2022

GSE-062722

2022-06-27T12:50:57-04:00June 27th, 2022|4- GSE Activity Report|

That Was Close!

A new Fed paper analyzes the striking differences between mortgage-market liquidity – or the dramatic lack thereof – in the great financial crisis of 2008 and the pandemic crisis of March, 2020.  Providing often unique insights into market strain over the last two weeks of that month, the paper concludes that market resilience in this last near systemic cataclysm was due to better underwriting ahead of the 2020 collapse and – more significantly – far larger and faster federal interventions that quickly stabilized the agency market.

There was significant stress in mortgage banks exposed to TBA-hedge margin calls and among mREITs, with these strains only made manageable thanks to the Fed’s overall market support and the small size of the non-agency market in 2020 versus 2008.  The paper draws no conclusions about the next stress scenario, but its clear inference is that bailout is going to be the necessary order of the day absent more liquidity resilience at nonbank companies and mREITs.

GSE-062722.pdf

27 06, 2022

Karen Petrou: Consumer-Finance Regulation Under the New Paradigm

2022-06-27T12:15:16-04:00June 27th, 2022|The Vault|

My interview late last week with NPR’s Marketplace on the CFPB’s assault on credit-card fees sparked considerable comment mostly about how much people hate their credit-card fees.  What’s at stake here, though, is not one fee – it’s the impact of a paradigm shift in the construct of U.S. consumer-finance regulation.  If Rohit Chopra has his way – and he may well – consumer financial-protection standards will be transformed from reliance almost exclusively on disclosures into a federal construct of price-setting and product prohibitions.  Political ideology may dictate a preference between these paradigms, but a choice that enhances effective consumer protection isn’t that simple – disclosures have largely failed consumers, but nationalized consumer finance could crush consumer banks.

Historically, U.S. consumer-financial protection law depends on disclosure.  Indeed, transformational law were called the “truth-in” acts because Congress believed that making financial providers tell the truth would set consumers free from predatory practice.  Congress also understood that some practices were ill-governed by pages of ex ante paperwork or seemingly-comparable terms and thus set standards – when payments must be in hand – or provided express protections – $50 maximum charges for transactions that go astray.  However, with few exceptions mostly instituted in 2010 after the crash, Congress did not allow regulators to set prices or prohibit even egregiously predatory products.  Look for example at the Home Ownership Equity Protection Act, which principally required disclosures and did nothing to staunch high-risk mortgage finance and the crisis it fostered.

It’s thus understandable that Rohit …

27 06, 2022

m062722

2022-06-27T09:11:30-04:00June 27th, 2022|6- Client Memo|

Consumer-Finance Regulation Under the New Paradigm

My interview late last week with NPR’s Marketplace on the CFPB’s assault on credit-card fees sparked considerable comment mostly about how much people hate their credit-card fees.  What’s at stake here, though, is not one fee – it’s the impact of a paradigm shift in the construct of U.S. consumer-finance regulation.  If Rohit Chopra has his way – and he may well – consumer financial-protection standards will be transformed from reliance almost exclusively on disclosures into a federal construct of price-setting and product prohibitions.  Political ideology may dictate a preference between these paradigms, but a choice that enhances effective consumer protection isn’t that simple – disclosures have largely failed consumers, but nationalized consumer finance could crush consumer banks.

m062722.pdf

24 06, 2022

AL062722

2022-06-24T17:11:07-04:00June 24th, 2022|3- This Week|

How to Fry the Fed

As we noted last week, FRB Chairman Powell took unaccustomed heat from both the left and right even as media are replete with stories about how wrong the U.S. central bank has gotten pretty much everything about the macroeconomy.  The Senate Banking session (see Client Report FEDERALRESERVE70) was more heated than the House follow-up (see Client Report FEDERALRESERVE71), an unusual turnaround for a panel which just a few months ago lauded Mr. Powell’s nomination and confirmation

AL062722.PDF

24 06, 2022

DAILY062422

2022-06-24T16:39:19-04:00June 24th, 2022|2- Daily Briefing|

ILC, Overdraft Bills Face Tough Path to Passage

The vote is now out on H.R. 5912, Rep. Garcia’s (D-IL) bill to circumscribe ILC charters (see FSM Report ILC13).  As we noted during the mark-up, the final bill includes modified grandfather language designed to protect existing parent companies without giving them future protection from BHC-like standards.  The bill passed narrowly – 28-25 – and is likely to face a still more challenging time on the House floor.

HFSC Wants Tough New Broker-Dealer Standards

HFSC’s investigative report today on the meme-stock crisis takes a strikingly different approach than the SEC’s pending rule.  While the Commission is focused on circumscribing payment for order flow and other market practices, HFSC principally targets broker-dealer resilience and the role of the DTCC and other critical market infrastructure.  It thus calls on Congress, the SEC, the DTCC, and the NSCC to create a new emergency-liquidity facility for clearing brokers and lays out an array of safety-and-soundness standards it wants the SEC and FINRA to mandate.

GOP Targets Thompson

Picking up their complaints about HFSC’s housing focus from Wednesday’s mark-up, Committee Republicans today called on Chairwoman Waters (D-CA) to bring FHFA Director Thompson before the panel.  They are concerned about the safety and soundness of the housing finance system amid increasing recession forecasts, highlighting the urgent pressures of higher mortgage rates and declining household income.

Daily062422.pdf

24 06, 2022

Marketplace, Thursday, June 23, 2022

2022-06-24T09:04:32-04:00June 24th, 2022|Press Clips|

Here’s why the CFPB is concerned about credit card late fees

By Justin Ho

The Consumer Financial Protection Bureau announced this week that it’s looking into the fees that credit card companies charge consumers for late payments — specifically, whether those late fees are “reasonable and proportional” to the amount people owe. The CFPB is looking at this now because credit card companies can change their late fees based on inflation, and given how high inflation has been lately, they have some concerns. The current rules governing credit card late fees date back to 2009. In the wake of the financial crisis, Congress was looking for ways to protect people from getting too deep into debt, said Karen Petrou at Federal Financial Analytics. “Credit cards became an area where consumer advocates were really focused,” she said. In 2010, the Federal Reserve put a $25 limit on late fees. But it also allowed credit card companies to adjust those fees annually, based on the consumer price index. Petrou said the thinking was that credit card companies should be able to account for inflation. “And if we fail to reflect it as a cost of doing business, then banks will not do that business. And if banks don’t do that business, consumers don’t get credit cards,” she said…

https://www.marketplace.org/2022/06/23/heres-why-the-cfpb-is-concerned-about-credit-card-late-fees/

23 06, 2022

DAILY062322

2022-06-23T17:05:03-04:00June 23rd, 2022|2- Daily Briefing|

Treasury Tries Transparency

Treasury and its inter-agency working group today advanced its earlier findings (see Client Report TMARKET2) with a public consultation on data transparency.

House Ag Subcommittee Advances CFTC Digital-Asset Authority

Advancing proposals to give the CFTC jurisdiction over aspects of the crypto market as proposed in the Lummis-Gillibrand bill (see FSM Report CRYPTO28), the House Agriculture Subcommittee on Commodity Exchanges, Energy, and Credit today advanced statutory changes that not only give the CFTC this authority, but also expand the committee’s jurisdiction.

OCC Targets Macro Risks

The OCC today released its latest analysis of risks to federally-chartered institutions, reiterating longstanding operational-risk concerns now heightened by the challenges facing banks seeking to retain or hire specialized personnel.

House Republicans Craft New Data-Privacy Regime

HFSC Ranking Member McHenry (R-NC) and panel Republicans today released a draft bill establishing consumer-data privacy rights with an eye on emerging financial providers and products.

Daily062322.pdf

23 06, 2022

FEDERALRESERVE71

2022-06-23T16:38:30-04:00June 23rd, 2022|5- Client Report|

Powell Takes Another Pounding

At today’s HFSC hearing, Chairman Powell encountered the same political headwinds evident at yesterday’s Senate Banking session (see Client Report FEDERALRESERVE70), reinforcing and even heightening his commitment to fighting inflation in concert with hopes that a soft landing may still be possible.  Chairwoman Waters (D-CA) followed Chairman Brown’s (D-OH) cautious tone, urging the central bank to be mindful of maximum employment as it pursues price stability and blaming much recent inflation on undue corporate power.  Ranking Member McHenry (R-NC) was merciless in his inflation attack, largely directing it to Democrats even as he and other Republicans pressed for faster Fed intervention and reconsideration of the Taylor Rule.

FEDERALRESERVE71.pdf

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