#AI

17 04, 2024

DAILY041724

2024-04-17T17:36:07-04:00April 17th, 2024|2- Daily Briefing|

Global Regulators Tackle NBFI Margining, Collateral Transformation

As it has long promised, the FSB today issued a consultation on standards designed to buttress derivatives, commodity, and securities-financing markets under stress through more stringent margining and collateral requirements.

Basel Head Says Go Slow re AI Risk, Supervisory Models

Basel’s Secretary General, Pablo Hernández de Cos, today focused on AI’s risk-reward profile in the banking sector, concluding that it raises a series of profound questions global regulators must work cooperatively to address.

Lummis, Gillibrand Begin Senate Stablecoin Debate

As long anticipated, Sens. Lummis (R-WY) and Gillibrand (D-NY) today introduced a significantly revised version of their 2022 Bill (see FSM Report CRYPTO28) laying out U.S. stablecoin standards.

FIO Subpoena Power Faces Rollback

At HFSC’s mark-up today, the committee began with Rep. Fitzgerald’s (R-WI) Insurance Data Protection Act, H.R. 5335, which would repeal the Federal Insurance Office’s authority to subpoena insurance companies for data collection.

HFSC Likely to Pass RegTech Bill

At HFSC’s extended mark-up today, the committee turned to H.R. 7437, a bipartisan bill that would require federal banking regulators to regularly review and report to Congress on their use of technology to ensure they’re equipped to address threats to the financial system.

HFSC Set to Pass AOCI Recognition, Systemic-Risk Designation Study Measures

Continuing our coverage of today’s mark-up, HFSC was generally supportive of the two bills on the agenda from Democrats, H.R. 4206 from Rep. Sherman (D-CA) requiring large banks with available for sale securities to mark to market …

12 04, 2024

DAILY041224

2024-04-12T16:38:09-04:00April 12th, 2024|2- Daily Briefing|

Barr, Tillis Warn CFPB Against Mandatory-Arbitration Ban

HFSC Financial Institutions Chair Barr (R-KY) and Sen. Tillis (R-NC) sent a letter to the CFPB today threatening to invoke the Congressional Review Act to overturn any newly-proposed mandatory-arbitration ban from the CFPB, warning that it would violate the CRA.  This is based on the enactment of a reversal of the agency’s prior ban in 2017 which the Members state now cannot be vitiated by any proposal close to the one revoked.

IOSCO Adds CD, AI Workstreams to Revised Work Plan

IOSCO today announced revisions to its 2024 work plan, adding new workstreams to address opacity and illiquidity in the single-name CDS market as well as the integrity, financial stability and investor protection associated with AI along with monitoring financial-asset tokenization.

Daily041224.pdf

27 03, 2024

DAILY032724

2024-03-27T16:47:24-04:00March 27th, 2024|2- Daily Briefing|

FRB-Cleveland Study: Banks Beat Capital-Rule Reaper

One of the major complaints banks have raised with the pending end-game capital rules is that the proposed transition period for final implementation does not soften the blow as the agencies argue.

Treasury Points to AI Fraud, Cyber Risk; Presses for New Rules, Best Practices

Adhering to the President’s AI executive order (see Client Report AI3), Treasury today assessed AI risk in the financial sector, concluding that further work is required to address AI-related fraud and cybersecurity risks.

FRB-NY: Mid-Size Regionals Show Deposit/Asset Recovery

A new report from Federal Reserve Bank of New York staff finds that the 2023 failures had little lasting impact on bank deposit costs and funding practices save for banks between the $50 to $250 billion level the study dubs “super-regionals.”

KC Fed: Core-System Providers May Have Undue Market Power

A new report from Kansas City Fed staff finds that three core-system providers dominate this critical sector, making it difficult for depository institutions and especially smaller banks to obtain better service levels.

Daily032724.pdf

26 03, 2024

DAILY032624

2024-03-26T16:39:52-04:00March 26th, 2024|2- Daily Briefing|

CBO Flags Long-Term Fiscal Risk to Financial Stability

CBO’s latest long-term fiscal forecast now includes a financial-stability warning absent from the Fed’s recent analysis (see Client Report SYSTEMIC97) and FSOC’s annual report (see Client Report FSOC29): the rising U.S. debt burden.

Chopra Expands CFPB Attack to Card Rewards

Undaunted by a CBA audience suing him on many actions, CFPB Director Chopra today gave a rousing defense of his agency’s credit-card late fee rule (see FSM Report CREDITCARD37), making clear he will vigorously defend it in the courts.

CFPB/FTC Press for More Tech-Finance Enforcement

Building on the Bureau’s recent efforts to limit AI use in comparison-shopping and other consumer-finance applications (see FSM Report CONSUMER56), the CFPB joined the FTC today in issuing a statement coordinating federal and state enforcement efforts against generative AI in particular and digital consumer-finance products more generally.

HFSC, AG Republicans Press SEC on Crypto-Custody Standards

HFSC Chair McHenry (R-NC) and House Ag Chair Thompson (R-PA), alongside 46 Republican members today sent a letter to SEC Chair Gensler calling for clarification the position on special purpose broker dealer’s (SPBD) ability to custody non-security digital assets, the agency’s willingness to address SPBD non-compliance, the regulatory classification of ETH, and the SEC’s position regarding Prometheum’s custody services announcement.

Daily032624.pdf

25 03, 2024

DAILY032524

2024-03-25T16:46:05-04:00March 25th, 2024|2- Daily Briefing|

House GOP Resolution Challenges FSOC Designation Guidance

HFSC Vice-Chairman Hill (R-AR) introduced H.J. Res 120 on Friday to disapprove of FSOC’s guidance on nonbank financial company systemic designations (see FSM Report SIFI36).  The CRA resolution follows GOP criticism of the guidance at recent hearings (see Client Report FSOC30) and S.3601 from Sens. Rounds (R-SD) and Sinema (I-AZ), which would require FSOC to consider “alternative approaches” prior to systemic designation.

Hsu, Cook Warn Banks re AI Fair-Lending Risk

Acting Comptroller Hsu today stressed the importance that banks understand their use cases for AI and utilize it in a controlled manner, reiterating longstanding agency concerns about bad learning models leading to credit discrimination (see FSM Report AI).  FRB Gov. Cook today also noted that, while the FRB cannot address inequality within its mandate, it can and is looking to ensure that AI use does not lead to unfair lending.

Daily032524.pdf

18 03, 2024

DAILY031824

2024-03-18T16:42:54-04:00March 18th, 2024|2- Daily Briefing|

IMF: More Work Needed to End Too-Big-to-Fail Banks

In a blog post today, the IMF stated that progress is required to put an end to too-big-to-fail banks following last year’s bank failures.  The Tobias Adrian post cites the need for more “intrusive” supervisory action, noting that last year’s failed US banks were allowed to pursue risky strategies without proper risk-management procedures.  The post calls for improved liquidity support for banks approaching resolution, also concluding that smaller banks may pose systemic risks.

SEC Sets AI-Use Standards via New Enforcement Action

Although actual fines are small, the SEC’s enforcement action today countering “AI washing” is not just aimed at investment advisers touting AI as their guide to investment choice either for their own actions or those of their customers.  The standard also applies to other financial entities (e.g., broker-dealers) and – with still greater effect – to public-company filings related to AI and machine learning both in terms of firm focus and products offered.  Both advisers targeted by the order were also charged with violations of SEC marketing and other standards.

Daily031824.pdf

1 03, 2024

DAILY030124

2024-03-01T17:10:56-05:00March 1st, 2024|2- Daily Briefing|

Fed Emergency Powers Back on Senate Docket

Just before the Senate passed the stopgap bill to avert a shutdown, Sen. Paul (R-KY) forced a vote on an amendment to prevent the Fed from buying debt from states and municipalities.

DOJ Goes After “Gate-Keepers”

In remarks late yesterday, Assistant AG Jonathan Kanter highlighted the impact of new DOJ/FTC guidelines (see FSM Report MERGER13) and enforcement efforts with regard to “gate-keepers” – i.e., “monopoly chokepoints” so powerful that they control entry and pricing in a key sector in which they also often compete.

Fed Seems a Bit Warier of Banking-System Stress

The Fed monetary-policy report submitted today ahead of Chair Powell’s testimony next week includes a financial-stability analysis largely derived from the FRB’s most recent financial-stability report (see Client Report SYSTEMIC97) and the update provided earlier this week by a key FRB-NY official.

White House Steps in to Comfort NYCB Worries

At close of business, NYCB shares had sunk to levels not seen since 1997 following the release of still more bad news on Thursday.

Daily030124.pdf

13 02, 2024

DAILY021324

2024-02-13T17:42:19-05:00February 13th, 2024|2- Daily Briefing|

Durbin Tries Another Approach to Advance Card-Fee Limits

After trying various ways to bring his credit-card fee bill to the floor, Senate Judiciary Committee Chair and Majority Leader Durbin (D-IL) has scheduled a hearing on this controversial bipartisan measure (see FSM Report INTERCHANGE10).

FinCEN Reaches SEC Agreement to Bring Investment Advisers Under AML/CFT Standards

As it has repeatedly promised, FinCEN today revised a 2015 proposal and issued a new one to subject investment advisers to AML and CFT requirements similar to, but still less restrictive than, those that have long governed banks.

HFSC Rallies to Crypto AML/CFT Defense

The HFSC staff memo on Thursday’s Digital-Assets Subcommittee hearing makes it clear that cryptoasset entities will be given a strong platform from which to resist calls in the Senate to subject cryptoasset transactions to AML and sanctions law.

Gensler Reinforces AI Concerns

In remarks today, SEC Chair Gensler acknowledged AI’s benefits in a manner consistent with the President’s executive order (see Client Report AI3), but then launched into a sharp critique of its risks in line with the agency’s pending rule in this arena.

Bowman Takes Fed Accountability, Transparency to Task

In an essay today, FRB Gov. Bowman emphasized that regulatory accountability does not undermine the independence also essential to a sound, innovative banking system.

Gensler Turns to Bank/Hedge-Fund Interconnection

In addition to his speech on AI earlier today, SEC Chair Gensler today engaged in a wide-ranging discussion of key financial policy questions.

Daily021324.pdf

9 02, 2024

Al021224

2024-02-09T16:40:01-05:00February 9th, 2024|3- This Week|

Are We Wasting Your Time?

We most assuredly hope not, but watching Congress last week was deeply dispiriting not only when it comes to the most critical issues of the day, but also to essential financial-policy decisions.  Our in-depth reports on Tuesday’s HFSC hearing with Secretary Yellen (see Client Report FSOC30) and Thursday’s Senate follow-up (see Client Report FSOC31) laid out key topics discussed and what was said as we always do.  But what we said about what was said was largely inconsequential because almost nothing of real note was said.  The exception came on Thursday when the Secretary intimated that near-term action may begin to deal with the systemic risk FSOC fears from nonbank mortgage companies.  But even here she was elliptical and no senator made any effort to pin her down.  Instead, they – like their House counterparts and the secretary – reiterated partisan talking points about the economy, inflation, and the debt.  But, reading between the lines in our reports and our other analyses illuminates a remarkable number of likely, meaningful Congressional actions on issues of immediate financial policy import assuming NYCB doesn’t fail and absorb the little bandwidth Congress seems to have for financial policy.

Al021224.pdf

5 02, 2024

DAILY020524

2024-02-05T16:54:06-05:00February 5th, 2024|2- Daily Briefing|

Bowman Opposes Tech Self-Regulation, Highlights Emerging Risks

In remarks Friday on the future of banking, FRB Gov. Bowman joined Acting Comptroller Hsu in expressing concern over supervisory and governance complacency, especially when it comes to interest-rate and liquidity risk.  The speech picks up on Karen Petrou’s memo last week, pointing to the way in which regulators now appear focused principally on new rules, not emerging risks including those from fraud-renewed threats and third-party vendors.  Ms. Bowman thus urges greater accountability for banks based on third-party actions not only to enhance risk management, but also to reduce migration risk.

House GOP Expands Attack on Fed Work With Global Bodies

Continuing previous attacks on Federal Reserve Banks and federal banking agencies’ work with global entities, HFSC Chair McHenry (R-NC) and Financial Institutions Subcommittee Chair Barr (R-KY) sent letters today to the San Francisco and New York Reserve Banks disputing what they describe as undue cooperation with the Network for Greening the Financial System (NGFS) and Bank for International Settlements (BIS).

Daily020524.pdf

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