#Basel – Federal Financial Analytics

29 11, 2023

DAILY112923

Eliza Allen2023-11-29T16:51:26-05:00November 29th, 2023|2- Daily Briefing|

FDIC’s OIG Presses for Non-Capital PCA Triggers, Additional Supervisory Reform

The FDIC’s OIG report on First Republic’s failure is at least as scathing as its SBNY post-mortem.

Treasury Launches Anti-Crypto Enforcement Campaign

In remarks today from Deputy Secretary Wally Adeyemo, Treasury officially launched its anti-crypto sanctions and AML campaign.

Basel Proposes Sweeping Climate-Risk Disclosure Standards

Following the FSB’s finding that most banks were failing to provide meaningful climate disclosures, the Basel Committee today issued proposed climate-risk disclosure standards.

3Q Report Highlights AOCI Risk

The FDIC’s 3Q banking-condition report includes a stunning 22.5 percent rise in the total of HTM and AFS unrealized losses, which now stand at $683.9 billion.

Senate Banking Opens Private-Credit Inquiry

Senate Banking Chair Brown (D-OH) and Sen. Reed (D-RI) today asked FRB Vice Chair Barr, Acting Comptroller Hsu, and FDIC Chair Gruenberg to look into the risks private credit poses to the banking system.

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28 11, 2023

DAILY112823

Eliza Allen2023-11-28T16:35:09-05:00November 28th, 2023|2- Daily Briefing|

FRB-Dallas: Reciprocal Deposits Require Policy Attention

The Federal Reserve Bank of Dallas today released a staff study revaluating reciprocal deposits in the wake of SVB’s failure, concluding that policy-makers should reconsider concentration limits imposed in 2018 in conjunction with brokered-deposit constraints (see FSM Report DEPOSITINSURANCE108).

FRB-NY: OEFs Create Run-Run Risk

The Federal Reserve Bank of New York today released a staff study concluding that open-end funds (OEFs) experienced acute outflows after SVB failed, bank deposits received de facto unlimited insurance, and the FRB established the TBFP.

Chopra Testimony Ducks Tough Questions Ahead of Hearings

CFPB Director Chopra’s testimony for forthcoming hearings with HFSC and Senate Banking this week largely recaps Bureau action since his last appearance before Congress in June, with Mr. Chopra focusing on consumer debt issues highlighted in the CFPB’s recent consumer credit card market report.

FSB Wants Action on Crypto Vertical Integration

The FSB today released a report concluding that, while multifunction crypto-asset intermediaries (MCIs) currently pose limited financial-stability threat, cryptoasset stress events such as those that occurred over the past year present spillover risks to banks with concentrated deposit exposures to firms reliant on cryptoassets.

Basel Presses Supervisors to Enforce GSIB Data-Aggregation Standards

The Basel Committee today released a report finding that only two of the 31 GSIBs are fully compliant with its Principles for effective risk data aggregation and risk reporting (see FSM Report RISKMANAGEMENT7).

Daily112823.pdf…

21 11, 2023

Daily112123

Arezou Rafikian2023-11-21T16:48:20-05:00November 21st, 2023|2- Daily Briefing|

BIS Study: Low-Profit GSIBs are High-Risk GSIBs

A new BIS paper assesses the systemic consequences of GSIBs with low market capitalization, an issue with immediate relevance given investor concerns about the long-term earnings impact of numerous pending rules. The methodology leads the authors to focus on price-to-book ratios (PTBRs) which are found to be directly linked to investor-predicted return on equity. Although GSIB capital requirements dramatically increased over the course of the study, there is said to be no significant impact on franchise value.

CFTC Realigns Client-Fund Segregation Standards

The CFTC today proposed to make significant changes to client-fund segregation rules governing futures commission merchants and derivatives clearing organizations covering both how FCMs and DCOs handle client funds and the manner in which they may be deposited with banks. The proposal redefines permissible investments that must still be housed at a bank or similar entity, adding foreign sovereigns, limiting MMFs to government funds, and removing certain corporate bonds and similar instruments.

Basel Points to Problematic Climate-Risk Implementation

The Basel Committee today issued a “newsletter” addressing issues raised since it finalized global climate-risk management principles (see Client Report CLIMATE14), now codified for large U.S. banking organizations (see Client Report CLIMATE17).

FDIC Sets Up Special Committee to Address Widespread Concerns

In a major concession surely necessary to appease at least some in Congress and ensure continuing agency function, the FDIC board today announced formation of a special committee to be chaired by Acting Comptroller Michael Hsu and Director …

15 11, 2023

DAILY111523

Eliza Allen2023-11-15T16:42:07-05:00November 15th, 2023|2- Daily Briefing|

HFSC Advances Sanctions Bills

HFSC yesterday reported an array of Hamas-sanctions related measures, extending its reach to Iran, China, and other nations deemed to support Hamas. Bipartisan bills with some hope of advancing include measures to require Treasury to report on financial institution’s involvement with Iranian officials (H.R. 6245), mandate that OFAC develop a licensing program for private firms to conduct nominal transactions with sanctioned entities (H.R. 6370), and to expand secondary sanctions to Chinese banks financing the purchase of Iranian oil (H.R. 5923).

Basel Tackles Digital Fraud

The Basel Committee has released a discussion draft seeking views on supervisory and financial-stability implications of digital fraud. Discussion papers of this sort are often precursors to more formal standards, and this one appears to be no exception. While Basel seeks comment on broad questions such as the definition of digital fraud, it also wants views on the prevalence of digital fraud as commenters choose to define it and resulting risks.

Daily111523.pdf…

7 11, 2023

DAILY110723

Eliza Allen2023-11-07T17:01:20-05:00November 7th, 2023|2- Daily Briefing|

Treasury Advances Financial-Inclusion Agenda

In conjunction with its read-out of yesterday’s meeting of its most recent financial-inclusion discussion group, Treasury announced that it will shortly release a request for information about how best to accomplish the national financial-inclusion strategy demanded in the Department’s FY23 appropriations.

HFSC GOP Challenges Motives, Process of Basel, NGFS Standard-Setting

As anticipated, today’s Financial Institutions Subcommittee hearing on global banking accords was acrimonious, with Republicans strongly attacking what they characterized as Democratic agency head’s participation in a range of global banking accords as well as the Network for Greening the Financial System.

CFPB Proposes to Extend its Supervisory Reach to Tech-Payment Providers

The CFPB today proposed a sweeping rule bringing tech-platform or fintech companies offering general-use digital-payment services under bank-like consumer-protection standards via more direct CFPB supervision.

Bowman Stands by Basel

Perhaps due to today’s HFSC hearing on global accords, FRB Gov. Bowman today went beyond her ongoing critiques of pending rules to defend participation in the Basel Committee and other forums.

FHFA Starts FHLB Redesign

FHFA today released its long-awaited assessment of the Federal Home Loan Banks, laying out an ambitious program of supervisory, regulatory, and statutory issues.

McHenry Slams CFPB Digital-Payment Proposal

HFSC Chairman McHenry (R-NC) today slammed the CFPB not for usual causes, but because he believes the agency’s proposed supervisory standards for nonbank general-use digital-payment providers will “entrench the status quo” – i.e., the role of banks – by eliminating consumer choice and impeding innovation.

Daily110723.pdf…

3 11, 2023

Al110623

Eliza Allen2023-11-13T15:42:56-05:00November 3rd, 2023|3- This Week|

Bye-Bye Basel???

Later this week, HFSC’s Financial Institutions Subcommittee plans finally to hold a long-delayed hearing scrutinizing another aspect of controversial capital proposals: how closely these hue to global norms and, if they do, the extent to which U.S. agencies are sacrificing U.S. interests in pursuit of global comity. The GOP hasn’t much use for most of this comity if it comes attached to new rules, and this point will be more than clearly expressed at the hearing. Democrats generally don’t expend much political capital defending global institutions. Indeed, when these threaten home-town interests, they join with Republicans as Sen. Brown (D-OH) did in 2014 when it came to passing legislation demanding that international insurance rules be significantly altered in concert with new transparency standards forcing U.S. agencies to tell Congress what they might be about when it came to endorsing future global insurance proposals (see FSM Report INSURANCE41). This time around, House bills are pending to force similar transparency and limits when it comes to global banking rules. We doubt Sen. Brown this time will agree to them, but it will first be up to Chairman McHenry (R-NC) to decide the next steps. These are likely to include mark-up, but the panel has a lot else to do on its other issues more critical to the chairman – e.g., crypto legislation – caught up in the prolonged speakership battle.

Al110623.pdf…

24 10, 2023

DAILY102423

Eliza Allen2023-10-24T17:18:54-04:00October 24th, 2023|2- Daily Briefing|

McHenry, Barr Blast Basel Adherence in End-Game Regs

Although today’s hearing challenging regulatory actions aligned with global regulators was postponed, HFSC Chairman McHenry (R-NC) and Financial Institutions Subcommittee Chairman Barr (R-KY) today kept up the pressure, releasing a letter to the GAO commissioning a study of the end-game rules.

New CRA Reg Sets Controversial, Complex Standards

Leading the way to certain inter-agency approval, the Federal Reserve today voted 6-1 to approve a final version of their 2022 controversial proposal (see FSM Report CRA32).

FDIC OIG: Supervisors Missed So Much, Acted So Slowly re SBNY

The FDIC’s OIG report today on SBNY’s failure follows much of the line the Fed’s OIG took when it came on the material-loss review of SVB’s collapse.

House Republicans Pressure Biden on $6 Billion Iran Ransom

Although HFSC continues to cancel all its hearings as the speakership battle continues, its Oversight Subcommittee today optimistically released a memo outlining goals for Thursday’s Iran-sanctions hearing.

Treasury Presses CSPs to Negotiate With Banks

Treasury Assistant Secretary for Financial Institutions Graham Steele today highlighted Treasury’s work with cloud service providers (CSPs) to improve transparency and security.

Divided FDIC Advances CRA Rewrite, Climate-Risk Principles

As anticipated, the FDIC on a 3-2 vote joined the Fed in approving a 1400+ page final CRA rule.

Daily102423.pdf…

20 10, 2023

Al102323

Eliza Allen2023-11-13T15:46:12-05:00October 20th, 2023|3- This Week|

Relentless Pressure and Resulting Concession

On Friday, the Federal Reserve offered an olive branch – small and partial, but still a branch – to Republican critics of pending standards and the big banks powering up all this pain. As we noted, the comment deadlines for the capital and GSIB-surcharge rules have been extended to January 16, a move also designed to thwart litigation based on procedural considerations. The Fed has also announced a new data-gathering exercise in which stakeholders can send in “data” but due to which much more input will also surely flow. This exercise also answers procedural critics and protects the bill, with the deadline here also January 16.

Al102323.pdf…

19 10, 2023

DAILY101923

Eliza Allen2023-10-19T16:30:42-04:00October 19th, 2023|2- Daily Briefing|

OIG Blasts FDIC’s Crypto-Policy Delay

Late yesterday, the FDIC’s Office of Inspector General (OIG) issued a report critical of the FDIC’s supervisory crypto policy.

Fed May Signal Possible Compromise as GOP Barr Demands Capital Answers

Amid press reports that Chair Powell has implicitly promised capital-rule compromise, HFSC Financial Institutions Chair Barr (R-KY) released a letter today pressing Vice Chair Barr still harder on the cost-benefit analytical (CBA) and cumulative-impact issues raised at the September hearing at which Karen Petrou testified.

Fed Data Show Increases in Household Financial Resilience, Profound Home-Affordability Gap

The Federal Reserve yesterday released its triennial Survey of Consumer Finances (SCF). As always, we here highlight data with financial-policy implications; Petrou blogs and other releases will update economic-equality indicators.

BIS Head Calls for Review of Large Bank Supervision

BIS General Manager Agustin Carstens today said that the mid-March failures show the need for nations to review how they supervise larger banks, specifically highlighting liquidity risk and setting frameworks for emergency liquidity assistance.

OCC Analysis Shows Broad IRR Resilience With Startling Risk Pockets

Showing some pockets of severe risk but overall resilience, the OCC today released a statistical analysis of interest rate risk based on projected changes in twelve-month net interest income as well as the economic value of equity in parallel interest rate shock scenarios ranging from -200 basis points to +400 bps.

CFPB Thinks Big on Open Banking

As anticipated, the CFPB today advanced from a review of consumer data rights (see FSM Report…

17 10, 2023

Daily101723

William Cross2023-10-17T16:33:46-04:00October 17th, 2023|2- Daily Briefing|

Bowman Opposes Global Unified Ledger, Cautious re Cross-Border CBDCs

FRB Gov. Bowman today sharply differed with BIS managing director Agustín Carstens on the future of central banks in wholesale payments. Mr. Carstens as recently as three weeks ago pressed again for central bank “unified ledgers,” placing central banks wholly into payment streams not only for commercial banks, but also across most other payment, settlement, and clearing assets.

Basel Proposes Extensive Crypto Disclosure Templates

As anticipated, Basel released a consultative document today providing a standardized template for crypto exposure disclosures, with a proposed implementation date of January 31, 2025. Basel proposes qualitative disclosures, including listing all crypto business activities, how they interact with the bank’s risk profile, the most significant current and emerging risks, and the bank’s approach to assessing classification conditions for group 1 cryptoassets.

Bipartisan Pressure Grows on White House for Iran, Other Sanctions

Led by Rep. Gottheimer (D-NJ), over one-hundred bipartisan lawmakers today sent a letter to President Biden calling for maximum enforcement of all U.S. Iran sanctions as well as immediate implementation of snapback sanctions on Iran at the UN Security Council.

Community-Bank Liquidity Shows Significant Stress

Providing worrisome data on small-bank resilience, a new community banking bulletin from the Federal Reserve Bank of Kansas City finds that community banks have decreased their holdings of highly-liquid assets over the past year to fund what it calls “outsized” loan growth despite deposit run-off.

Daily101723.pdf…