#AI – Page 2 – Federal Financial Analytics

1 02, 2024

FedFin on: AI Regulation

Arezou Rafikian2024-02-05T16:39:39-05:00February 1st, 2024|The Vault|

Although FSOC’s latest annual report highlights AI risk, it does not request any express agency action, a hands-off approach that led to bipartisan legislation demanding a more forceful approach. Possibly leading the way as it did on climate risk, the CFTC now seeks comment on both the way it uses AI and how it affects not only financial markets under its jurisdiction, but also financial-system stability.

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

1 02, 2024

AI5

Arezou Rafikian2024-02-01T10:20:08-05:00February 1st, 2024|1- Financial Services Management|

AI Regulation

Although FSOC’s latest annual report highlights AI risk, it does not request any express agency action, a hands-off approach that led to bipartisan legislation demanding a more forceful approach. Possibly leading the way as it did on climate risk, the CFTC now seeks comment on both the way it uses AI and how it affects not only financial markets under its jurisdiction, but also financial-system stability.

AI5.pdf…

31 01, 2024

DAILY013124

Eliza Allen2024-01-31T16:57:15-05:00January 31st, 2024|2- Daily Briefing|

Senate Banking Turns to AI’s Impact on Housing Finance

Today’s lightly-attended Senate Banking Subcommittee hearing on AI and Housing focused principally on AI governance issues including accountability, model explainability, transparency, and bias. Sen. Warnock (D-GA) called for action on S. 3692, legislation to prohibit use of algorithmic systems to coordinate – and it is believed thus inflate – rental prices or reduce supply. Although Subcommittee Chairwoman Smith (D-MN) lauded AI for its potential to boost the housing supply, she and other Democrats raised serious concerns that AI reinforces biases in lending decisions.

Democrats Remain Dubious About the Capital Proposal

Today’s Financial Institutions Subcommittee hearing on the capital rules made it still more clear that more than a few Democrats share at least some GOP concerns. Chair Barr (R-KY) reiterated points he has frequently made about the poor analytics behind the proposal; Full Committee Ranking Member Waters (D-CA) and Rep. Green (D-TX) were unequivocal in their support. Other Democrats raised concerns many had previously expressed in comment letters, with Rep. Sherman (D-CA) pointing to problems with the proposal’s impact on capital markets and its lack of credit for private mortgage insurance and Rep. Beatty (D-OH) highlighting concerns with small business credit availability.

Daily013124.pdf…

29 01, 2024

DAILY012924

Eliza Allen2024-01-29T16:36:27-05:00January 29th, 2024|2- Daily Briefing|

White House Advances AI Governance, Government Adoption

Following the President’s AI executive order (see Client Report AI3), the White House today released an update following a steering-group meeting.

BIS Study Examines Stablecoin Run-Risk

A new BIS study supports pending U.S. legislation and possible rules related to stablecoin reserve assets and run-risk, finding that transparency increases stablecoin stability when reserve assets are of high quality, but decreases stability when reserves are perceived to be low quality or when there are low transaction costs to convert to fiat.

Hsu Sets Course to New OCC Merger Policy with No Fed Companion in Sight

In remarks today emphasizing the need for a more transparent bank-merger process, Acting Comptroller Hsu announced that the OCC will today release an NPR eliminating the possibility that merger applications will be approved solely by the passage of time.

Warren Starts the New Year with Political Pressure on Fed Policy

Reiterating concerns about high interest rates, Sen. Warren (D-MA) along with Sens. Hickenlooper (D-CO), Rosen (D-NV) and Whitehouse (D-RI) today sent a letter to Chair Powell calling on him to reverse rate hikes, citing its impact on the current affordable housing crisis.

Daily012924.pdf…

25 01, 2024

DAILY012524

Shane Smith2024-01-25T16:50:12-05:00January 25th, 2024|2- Daily Briefing|

Fed Surprisingly Slams the BTFP’s Doors

At an unusual time and on a day that does not comport with the usual timelines for Fed action, the Board last night unanimously announced it will shutter the Bank Term Funding Program as scheduled on March 11.

Basel Head Backs U.S. Regulators

In response to waves of recent letters pushing back on the Basel III capital rules, Basel Committee Secretary General Esho defended Basel III, arguing that there is little evidence that Basel III implementation will have a detrimental effect on banking and economic growth

FTC Tackles AI Inter-Connections, Concentration

Following remarks by FTC Chair Khan making clear that there is no “AI exception” to lawful behavior, the FTC announced that it has issued orders to Alphabet, Amazon, Anthropic, Microsoft, and OpenAI requiring them to provide their recent investment and partnership information involving gen-AI companies and major CSPs.

CFTC Kicks Off Financial-Agency AI Assessment

Just as it did years ago with climate risk (see Client Report GREEN4), the CFTC took the lead among U.S. financial regulators with respect to AI.

Daily012524.pdf…

12 01, 2024

DAILY011224

Eliza Allen2024-01-12T15:31:11-05:00January 12th, 2024|2- Daily Briefing|

Emmer, HFSC GOP Reintroduce FSOC Oversight Measure

Following a hearing earlier this week at which GOP Members reiterated longstanding FSOC criticism, House Majority Whip Emmer (R-MN) has reintroduced legislation along with ten other HFSC Republicans to bring FSOC under congressional appropriations.

HFSC Bipartisan AI Task Force Already Divided on Key Priorities

Reflecting growing concern about AI’s risks (see Client Report FSOC29), HFSC Chairman McHenry (R-NC) and Ranking Member Waters (D-CA) yesterday announced the creation of a bipartisan AI Working Group to be led by Digital Assets Subcommittee Chairman Hill (R-AR) and Ranking Member Lynch (D-MA).

House Passes Measures to Check Chinese Economic Power

The House today passed several bills addressing the role of China in IMF and World Bank policy and a renewed attempt to limit what many Members of Congress consider Chinese currency manipulation (H. R. 839).

The Fed Becomes a Big Loser

The Federal Reserve System today released its preliminary FY23 financial results, the first look into the System’s operating condition above and beyond its significant mark-to-market losses.

Daily011224.pdf…

2 01, 2024

AI4

Eliza Allen2024-01-02T10:14:03-05:00January 2nd, 2024|1- Financial Services Management|

AI Financial Risk, Rules

Bipartisan Senate legislation has been introduced to press FSOC to do more than highlight artificial intelligence (AI) as a potential threat to financial stability. The measure instead requires the Council to undertake a rapid study of AI’s financial stability risk and report to Congress on conclusions that must then be advanced through FSOC designation and federal-agency action. The bill also gives the SEC more authority to address at least some of the risks its chairman has identified that may be posed by predictive analytics, including AI. New AI-related stress testing would also be likely.

AI4.pdf…

22 12, 2023

DAILY122223

Eliza Allen2023-12-29T10:01:49-05:00December 22nd, 2023|2- Daily Briefing|

President Imposes Sweeping Secondary Sanctions

Responding to ongoing evidence that sanctions are not working as hoped despite recent Treasury assurances they are, the President today issued a sweeping executive order and Treasury laid out secondary sanctions for financial institutions found to facilitate Russian Federation finances related to its “war machine.” We will shortly provide clients with an in-depth analysis of these actions which pose significant threats to dollar-clearing access for financial institutions that have so far been largely outside the reach of existing sanctions.

Treasury Requests Feedback for Financial Inclusion Strategy

Following a statutory directive, Treasury today issued an RFI to develop a national strategy for financial inclusion. We will shortly provide clients with an in-depth report on the RFI. Noting significant disparities in banking-system access for LMI, low-wealth, Black, and Hispanic households as well as discrepancies in rates of stock and business ownership between white, Black, and Hispanic households, the RFI invites recommendations for policy, government programs, financial products, technology, and other tools and market infrastructure.

Brown Prioritizes Housing, ILC Bill, AI in 2024

The Senate Banking Committee today released its policy outlook entering 2024 prioritizing affordable housing, enacting the ILC-powers bill (see FSM Report ILC17), and AI financial-sector policy (likely here picking up the Warner-Kennedy bill we will shortly assess in depth).

Daily122223.pdf

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18 12, 2023

FSOC29

Eliza Allen2023-12-18T11:36:07-05:00December 18th, 2023|5- Client Report|

FedFin Assessment: FSOC Worries A Lot, Watches, Waits

This year’s FSOC report trods much old ground with two exceptions. The first pertains to a new focus on artificial intelligence, machine learning, and new, generative technologies. That said, the report does little beyond highlight this risk and include it among all the others federal agencies are told to monitor. Private credit now also alarms FSOC, with insurance company investment in this sector of particular systemic concern in concert with the sectors’ CRE and junk-bond exposures, offshore reinsurance, and PE ownership. As detailed in this report, banks are found to be resilient and have ample capital even as the report supports consideration of pending regulatory revisions. Banking agencies are also asked to monitor uninsured-deposit levels and assess run-risk in light of social media and other accelerants. In sharp contrast to more alarmist statements in the past and extensive Treasury reports (see Client Report CRYPTO32), this year’s report downplays cryptoasset risk because federal regulators are said to have taken steps to contain it. The report also reiterates FSOC’s continuing focus on cyber and climate risk, with the closed session preceding the meeting considering a framework being developed by the OCC to measure and monitor financial risks and bank exposures. Agencies are also encouraged to pursue comparable, “decision-useful” climate disclosures. The LIBOR transition is considered a success and no longer poses a systemic risk.

FSOC29.pdf…

15 12, 2023

DAILY121523

Eliza Allen2023-12-15T17:31:25-05:00December 15th, 2023|2- Daily Briefing|

Crypto Measures Await Next Session

As anticipated, HFSC Chair McHenry (R-NC) was able to fend off concerted efforts by Sens. Brown (D-OH) and Warren (D-MA) to add the Warren-Marshall crypto bill to the National Defense Authorization Act.

FSOC to Target Hedge Funds, Nonbank Mortgage Companies

The readout from Treasury on yesterday’s FSOC meeting provides insight into the Council’s executive session suggesting significant near-term systemic action regarding hedge funds.

FSB Plans Broad Rewrite of Public Backstops, GSIFI Resolvability, Operational Readiness

The FSB’s 2023 Resolution Report today advises banks and public sector authorities to be prepared to access public sector funding in resolution, with the Board planning to review whether existing public sector backstops are adequate to meet potential failure scenarios.

Brown Renews Bipartisan Quest to Constrain Nonbank Banks

Advancing the big-tech concerns he most recently voiced before GSIB CEOs (see Client Report GSIB23), Senate Banking Chairman Brown (D-OH) has introduced S. 3538, bipartisan legislation to impose bank regulation on non-bank parent companies of insured depository institutions.

DOJ Targets Fraudulent Microtransactions

Cracking down on unauthorized bank account charges, the DOJ today announced multiple actions against “sham” companies alleged to have used misrepresentations or unauthorized charges to steal money from consumers’ financial accounts.

CRS Warns Credit Card Act Could Result In Risky Retailer Payment Networks

The CRS this week issued a report analyzing the Durbin-Marshall Credit Card Competition Act, S.1838 (see FSM Report INTERCHANGE10), projecting that fee caps will have a greater impact on transaction fees than competition, with …