Press Clips

That 5% is actually kinda normal by David Brancaccio The era of borrowing money for practically nothing is over. Today, we’re joined by Karen Petrou, co-founder and managing partner at Federal Financial Analytics, to learn about the history of 5% bond yields and what currently higher yields mean for the broader economy. Marhttps://www.marketplace.org/shows/marketplace-morning-report/are-interest-rates-high-or-have-we-just-gotten-spoiled/#That-5%-is-actually-kinda-normal

US Weighs Leaning on Banks to Curb Hedge Fund Leveraged Trading By Lydia Beyoud and Katanga Johnson Top US regulators are zeroing in on dangers posed by highly leveraged hedge fund trades, and considering options to rein in risks to the broader financial system. Regulators are especially concerned about the growth of one strategy known as the basis trade, which involves the use of leverage to profit from the price gap between Treasury futures and the underlying cash market. Borrowing in the repurchase market using US Treasuries as collateral has soared in recent years to almost $3 trillion....Karen Petrou, a managing partner at Washington-based consulting firm Federal Financial Analytics Inc., says that regulators are aware of the difficulties of imposing major rule changes or designating firms. “The banking agencies know this,” she said. “Short of these new tools, then, regulators are hoping to reduce counterparty risk by using their existing [...]

By Victoria Guida and Zachary Warmbrodt The agencies, industry and observers have floated a range of options on how to improve the guardrails over the long term:...Federal Financial Analytics managing partner Karen Petrou said there needed to be more rigorous planning and stress testing of banks’ plans for funding in an emergency, which would help them weather the kind of social media-fueled run that brought down SVB. https://www.politico.com/newsletters/morning-money/2023/10/17/cash-is-king-00121871  

Absolute zero: Lessons learned from the Fed's zero interest rate experiment By Kyle Campbell Once a controversial move, lowering interest rates to effectively zero is now an accepted part of the Federal Reserve's crisis playbook, despite the havoc that a rapid increase in rates has wreaked on the housing market and banks' balance sheets. Fed Chair Jerome Powell said he would not hesitate to take rates to their lower bound again in the future, despite the ramifications of that move present in the economy today.... Karen Petrou, managing partner of Federal Financial Analytics, said the Fed's various methods have been effective in averting a complete collapse of the financial system. To that end, she said, the Fed does not need to remove any tools or put limitations on the degree of their use. Instead, Petrou said, the Fed should focus on how and when to pull such support back once [...]

Here’s how a government shutdown can cause a major financial crisis By Chris Matthews As a government shutdown appears likely, Americans are preparing for disruptions to food aid, air travel, and much more. Worse yet, it’s also possible that a prolonged shutdown could contribute to systemic stress in U.S. financial markets. That’s according to Karen Petrou, managing director of the advisory company Federal Financial Analytics Inc. “Financial stability depends on part on critical financial infrastructure, particularly in the payment, settlement and clearing spaces, and a large and increasing amount of that infrastructure is outside the reach of the banking agencies,” Petrou said in an interview with MarketWatch....... Petrou also warned that recent fragility in the market for U.S. Treasuries, which has seen less liquidity and wider bid-ask spreads of late, could be exacerbated as global investors become less confident in the competence of the U.S. Congress. A third risk is [...]

‘Triple threat': Auto strike joins a messy season for Biden’s economy By Sam Sutton The strike against Detroit’s Big Three automakers is hitting the U.S. economy at a precarious time — as it’s struggling with an era of high inflation and soaring borrowing costs. Combined with other emerging headwinds — rising gas prices, tightening credit, the resumption of student loan payments and shrinking household savings — the walkout could slow growth just as President Joe Biden and Federal Reserve Chair Jerome Powell are trying to steer the U.S. away from a recession....“None of these is a shot in the temple; they’re nonfatal,” Federal Financial Analytics managing partner Karen Petrou said. “But none is good, and the American public is fragile. It doesn’t take much to throw them off.” Pillars of the economy — including the job market and consumer spending — remain strong. But a protracted auto industry strike could [...]

Spinout of banking unit could be best option for embattled Hawaiian Electric By Author Alex Graf, Syed Muhammad Ghaznavi Questions are swirling about American Savings Bank FSB's future as its parent company Hawaiian Electric Industries Inc. faces mounting lawsuits. As the only bank in the country owned by a publicly traded utility company, American Savings Bank is in an unprecedented position as its parent company Hawaiian Electric comes under pressure following fires that devastated the town of Lahaina...."Without downstreamed parent-company cash in hand to protect it from the utility's travails, the insured depository and thus the FDIC are sure to suffer," Karen Petrou, the co-founder and managing partner at Federal Financial Analytics, wrote in a recent blog post. The bank had $8.21 billion in total deposits at June 30, and $1.75 billion of those were uninsured, according to S&P Global Market Intelligence data. In the press release, American Savings Bank [...]

Regulators must monitor more than big banks to avoid systemic failure By Karen Petrou Federal banking agencies are fiercely waging what some big banks consider a jihad mandating tough new rules. Some of the rules are warranted, some not. Regardless, what’s completely missing and all too essential is action on all the other manifest threats that aren’t big banks. Indeed, one looming nonbank’s systemic merger poses a clear and present danger: Intercontinental Exchange Inc. (ICE). ICE, an already-systemic global clearing and settlement powerhouse, is now poised to gain still greater control over critical portals across the even more systemic $12 trillion mortgage market through a merger with real estate software company Black Knight.  So much could go so wrong so fast if ICE is allowed to complete its acquisition of Black Knight that, should this occur, the firm as a whole must quickly be designated a systemic financial market utility [...]

SVB’s failure has led US regulators to see higher capital as solution to future crises The failure of Silicon Valley Bank and a few others has led regulators to swing the pendulum too far toward more draconian capital solutions. U.S. bank regulators recently unveiled sweeping proposals to raise capital for the country’s largest banks by around 16%, or about $200 billion. The proposed capital charges stunned many in the banking industry and prompted dissent among policymakers at the U.S. Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) — something one rarely sees....The question that emerges is why such draconian capital charges are needed when regulators have long said that the U.S. banking system is resilient and well-capitalized. “The banking agencies are in the same bind parents are with their children,” said Karen Petrou, managing partner of Federal Financial Analytics, a Washington, D.C. consultancy. “They want to tell the world [...]

Karen Petrou on President Biden's Economic Agenda and Public Opinion Polls Karen Petrou talked about President Biden’s economic agenda and how voters are responding. https://www.c-span.org/video/?529650-3/karen-petrou-president-bidens-economic-agenda-public-opinion-polls