12 05, 2022

DAILY051222

2022-05-12T17:18:45-04:00May 12th, 2022|2- Daily Briefing|

Basel Heading Towards Tough New Crypto Standards

In remarks today, Basel Committee Director Pablo Hernández de Cos reiterated that Basel’s latest cryptoasset consultation will be out in “coming months,” going on to say that while global negotiations have yet to resolve various controversies raised in the consultation (see FSM Report CRYPTO19), he emphasized that he is not persuaded by comments urging lenient capital treatment to prevent crypto activity from migrating outside banking.

House Codifies Sanctions for Subsidiaries

The House yesterday passed H.R. 7066, legislation sponsored by Rep. Sherman (D-CA) to tighten secondary sanctions against Russia and its allies.  Approved on a 418-2 vote, the bill stands high odds of inclusion in the omnibus Ukraine and sanctions legislation wending its way through Congress.

GOP Takes on Hsu, Merger Policy

Republicans today made it clear that the blame they directed for what they called the “FDIC coup”, so far directed only to CFPB Director Chopra, has now ensnared Acting Comptroller Hsu.

Daily051222.pdf

12 05, 2022

FSOC27

2022-05-12T17:08:51-04:00May 12th, 2022|5- Client Report|

Demand for Stablecoin Rules, Legislation Ramps Up

With stablecoin markets even more distressed than earlier in the week, today’s HFSC hearing with Secretary Yellen was even more emphatic than senators two days before on the need for action (see Client Report FSOC26).  Chairwoman Waters (D-CA) urged FSOC quickly to implement the key regulatory recommendations in the PWG report (see Client Report CRYPTO16).  Ranking Member McHenry (R-NC) emphasized instead the need for federal legislation to define this new framework but did not clearly object to any regulatory action.  Instead, he and Rep. Torres (D-NY) argued that fully reserved stablecoins do not engage in financial intermediation and, since this makes them different than banks, bank regulation for any such stablecoins would be inappropriate.  Secretary Yellen countered that there are many different types of banks and this business model distinction is thus not grounds for different regulation.  She demurred on the extent to which stablecoins pose systemic risk, but urged rapid action to ensure that this does not prove the case.

FSOC27.PDF

11 05, 2022

DAILY051122

2022-05-11T17:19:48-04:00May 11th, 2022|2- Daily Briefing|

HFSC re FSOC: SIFIs, Climate, Stablecoins, Lots More

Looking ahead to tomorrow’s HFSC hearing with Secretary Yellen, the Democratic staff memo suggests that this session will track much of what occurred yesterday at Senate Banking (see Client Report FSOC26): i.e., discussion of the need for stablecoin legislation, the role of SIFI designation, and the overall risks presented by higher inflation, Russia, China, and climate change.

Basel Plans Wholesale Review of Post-GFC Regulatory Regime

The head of the Basel Committee, Pablo Hernández de Cos, today announced a full-scale evaluation of the Basel III construct set for release later this year.  The report will evaluate complexity, regulatory interactions and systemic-risk dynamics, focusing on capital, liquidity, leverage, and macroprudential elements of the Basel III reforms.  The report will also evaluate resilience and financial-activity behavioral incentives.

FSB Plans Commodity, Climate, Crypto Agenda

In remarks today, FSB head Klaas Knot reiterated ongoing concern about commodity markets and continuing financial-market resilience despite stress absorption since Russia first invaded Ukraine.  Mr. Knot is also concerned that some banks are generally over-leveraged and those with prime brokers may be at particular risk.

Daily051122.pdf

10 05, 2022

DAILY051022

2022-05-10T17:07:03-04:00May 10th, 2022|2- Daily Briefing|

HFSC Looks at NSRO Competition, Insurance Ratings

The HFSC Investor Protection Subcommittee hearing on bond markets reopens debate about the credit rating agencies that is unlikely to end in substantive action despite continuing Democratic displeasure with these agencies and the SEC standards mandated for them by the Dodd-Frank Act (see Client Report RATINGS49).

FinCEN Under Still More Beneficial-Ownership Pressure

Picking up on a theme at a recent HFSC hearing, Sens. Warren (D-MA), Grassley (R-IA), and over a dozen bipartisan senators sent a letter to Treasury demanding faster action on stalled beneficial-ownership disclosure rules.  Acknowledging that FinCEN lacks the resources it needs, the senators nonetheless demand action in part to ensure effective anti-Russia sanctions enforcement.

IMF Head Calls for New Global Payment-System Infrastructure

In remarks today, IMF Managing Director Kristalina Georgieva identified financial-market fragmentation  in the wake of Russian sanctions as the threat to the global order also discussed in a recent Petrou op-ed.

Daily051022.pdf

10 05, 2022

FSOC26

2022-05-10T16:45:46-04:00May 10th, 2022|5- Client Report|

Stablecoin Risk Sparks Renewed Legislative Interest

Today’s Senate Banking Committee hearing with Secretary Yellen renewed calls for federal legislation based on recent algo-coin losses and resulting digital-currency market volatility.  Chairman Brown (D-OH) and Ranking Member Toomey (R-PA) each noted the need for digital-asset legislation, with Mr. Toomey eliciting a commitment from Ms. Yellen to work with him to advance a measure, albeit without any specifics.  We will await Thursday’s HSFC hearing before forecasting the prospects for stablecoin legislation in the relatively short time remaining in this session, with this report assessing the details of today’s discussion, as well as the Secretary’s very cautious approach to renewing SIFI designation while under fire from Sen. Warren (D-MA).

FSCO26.PDF

10 05, 2022

FedFin: Fed is Cautiously Optimistic re U.S. Systemic Risk

2022-05-10T11:28:47-04:00May 10th, 2022|The Vault|

In this report, we assess the new Federal Reserve financial-stability report. Secretary Yellen is also testifying now about systemic risk and sure to get questions on the Fed’s conclusions. We will shortly send you an in-depth report on this hearing, but key to the Fed’s report is a more cautious, but still sanguine outlook. For example, banks are found to be resilient and well-capitalized despite growing Fed concern about indirect risk channels such as asset-market volatility, sanctions-related disruptions to payment…

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

10 05, 2022

SYSTEMIC93

2022-05-10T11:27:23-04:00May 10th, 2022|5- Client Report|

Fed is Cautiously Optimistic re U.S. Systemic Risk

In this report, we assess the new Federal Reserve financial-stability report. Secretary Yellen is also testifying now about systemic risk and sure to get questions on the Fed’s conclusions. We will shortly send you an in-depth report on this hearing, but key to the Fed’s report is a more cautious, but still sanguine outlook. For example, banks are found to be resilient and well-capitalized despite growing Fed concern about indirect risk channels such as asset-market volatility, sanctions-related disruptions to payment, settlements, and clearing, and inter-connections with large European banks. Life-insurance companies and hedge-fund leverage remains a significant concern, although the Fed finds that at broker-dealers and P&C insurers is well within reasonable range. As detailed below, the FRB is still concerned with MMF-liquidity risk, favoring the swing-pricing reforms if “properly calibrated” in the pending SEC proposal (see FSM Report MMF19) along with urging continued attention to bond and open-end funds. The report also includes a synopsis of the Fed’s CBDC discussion draft (see FSM Report CBDC10), suggesting it might reduce systemic risk without reaching any conclusions ahead of ongoing Board review.

SYSTEMIC93.pdf

9 05, 2022

DAILY050922

2022-05-09T16:57:42-04:00May 9th, 2022|2- Daily Briefing|

U.S. Adopts Powerful Back-Door Campaign vs. Shell Companies, Trusts

In conjunction with a G-7 statement strongly condemning Russia, Treasury took an innovative move to address shell companies linked to the Russian Federation even as FinCEN’s beneficial-ownership rules remain bogged down.

Hsu Promises Deal-By-Deal Review of Large Regional M&A Pending Broad, Forward-Looking Policy

Citing changes in both U.S. banking and inequality since the last round of merger-policy statements in 1995, Acting Comptroller Hsu today called for a new policy that is neither pro- nor anti-merger but rather determines which larger mergers are “good” transactions so that only risky ones are rejected.

SEC Bows to Critics with Longer Comment Periods

In a significant concession to Congressional Republicans and industry critics, the SEC today extended the comment period for two of its most controversial initiatives.  The deadline for comments on its climate-risk disclosures is moved forward by twenty-eight days to June 17.

CFPB Takes Administrative Action Expanding ECOA Reach, Lender Risk

Living up to its promise on Friday to address structural racism, the CFPB today issued a new advisory extending its fair-lending enforcement scope under the ECOA to all aspects of a credit transaction, not just loan origination or servicing.

Daily050922.pdf

9 05, 2022

m050922

2022-05-09T10:11:18-04:00May 9th, 2022|6- Client Memo|

Why the Agencies Demand a CRA Speed-Read

Was the new CRA proposal worth waiting for?  Advocates on all sides of this question are burrowing into the 678 pages delivered unto them by the FDIC last Thursday.  We’re doing the same for an in-depth analysis we’ll make as objective as possible as quickly as possible.  At first glance, there’s a lot in the proposal for all sides to like a lot.  However, the haste with which the agencies are gathering comment suggests that they hear Republican hoofbeats that may well pick up speed and strength as the industry’s deep read concludes.

m050922.pdf

9 05, 2022

Karen Petrou: Why the Agencies Demand a CRA Speed-Read

2022-05-09T10:09:59-04:00May 9th, 2022|The Vault|

Was the new CRA proposal worth waiting for?  Advocates on all sides of this question are burrowing into the 678 pages delivered unto them by the FDIC last Thursday.  We’re doing the same for an in-depth analysis we’ll make as objective as possible as quickly as possible.  At first glance, there’s a lot in the proposal for all sides to like a lot.  However, the haste with which the agencies are gathering comment suggests that they hear Republican hoofbeats that may well pick up speed and strength as the industry’s deep read concludes.

The fact sheet released on the proposal laid out the both-sides benefits.  Banks would bet certainty combined with points for investing in much of what they now do or want to do in areas such as social welfare, environmental resilience, and deposit-taking.  Consumer and community advocates were cheered by the proposal’s tougher metrics focus on demographic data designed to demand racial equity, and higher barriers to exemplary CRA ratings.

However, each side carefully hedged its bet.  Bank trade associations applauded the proposal’s provisions in broad terms, celebrating an inter-agency action along with provisions bringing CRA into the 21st century.  However, none blessed the proposal in substance, doubtless because the new demographic-reporting requirements and tougher grading system already give the industry heartburn.

Conversely, community groups warned that the proposal had better not go soft on banks, especially big ones. Anticipating these concerns, CFPB Director Chopra made it clear that, while he likes a lot in …

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