#Basel – Page 4 – Federal Financial Analytics

17 10, 2023

Daily101723

Arezou Rafikian2023-10-17T16:33:46-04:00October 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…

11 10, 2023

DAILY101123

Eliza Allen2023-10-11T16:47:36-04:00October 11th, 2023|2- Daily Briefing|

Bowman Targets U.S. Leverage Ratio, NBFIs

In remarks during the Morocco IMF/Bank meeting today, FRB Gov. Bowman contrasted U.S. bank resilience with the IMF’s findings yesterday on potential vulnerabilities as rates rise and macroeconomic conditions soften.

FSB Reiterates Stability Concerns

The FSB’s latest work plan reiterates all it most recently said to the G20.

CFPB Barrels Down on “Basic” Banking Fees

In conjunction with a new White-House junk-fee initiative, the CFPB today issued “guidance” – i.e., essentially a final rule – banning large banks and credit unions from collecting “unreasonable” fees for what the Bureau considers reasonable and “basic” account information.

SEC Throws Wrench into TLAC Standards

As we noted yesterday, the FSB’s assessment of the global resolution framework’s effectiveness found significant glitches it urges national regulators quickly to address via standards such as those now pending in the U.S. to bring smaller banking organizations into the resolution-planning regime (see FSM Report LIVINGWILL23).

OFR Study: Short-Selling Does Not Harm Financial Stability

OFR today released a model-based study that finds no evidence that short-selling adversely affects financial stability.

Daily101123.pdf…

10 10, 2023

DAILY101023

Eliza Allen2023-10-10T16:46:21-04:00October 10th, 2023|2- Daily Briefing|

Barr Stands Firm on Capital Rewrite

In remarks yesterday, Vice Chair Barr made it clear that, no matter all the industry and Republican pressure, the Fed believes the pending capital rewrite has no material problematic consequences and is necessitated by recent events.

FSB Calls for Continued Improvements in Cross-Border Payments

Following its cross-border payments roadmap, the FSB today released two progress reports finding that further work is needed in ensuring payment system interoperability, establishing common data standards for payments messages, developing tools needed for APIs, and providing a vehicle for the investigation of legal, regulatory and supervisory frameworks.

FSB Presses for Better Smaller-Bank, GSIB Resolvability

Following Basel’s review late last week on the 2023 crash (see Client Report REFORM228), the FSB today released its assessment of implications for GSIB resolution. Basel’s report acknowledged challenges in this area, but largely focused on what we call Basel V.

Fed Finalizes DIHC Insurance-Capital Construct

As promised in the bank-capital proposals (see FSM Report CAPITAL230), the FRB Friday voted 6-0 to finalize long-pending standards for insurance-focused depository institution holding companies.

GOP Hikes Pressure on Iran Payment, Sanctions

Presaging likely HFSC hearings and delays in regular committee action, Ranking Member Scott (R-SC) today called for Secretary Yellen to testify in front of Senate Banking to explain why $6 billion is being released to Iran and to identify any sanctions gaps.

Bowman Pursues Barr, Array of Recent Fed Actions

Continuing her opposition to much of what Vice Chair Barr is doing, …

6 10, 2023

FedFin Assessment: Basel Lays Big Plans for Basel V

Arezou Rafikian2023-10-06T14:47:18-04:00October 6th, 2023|The Vault|

As we noted yesterday, the Basel Committee’s October meeting concluded not only with plans for new disclosure consultations, but also a report on lessons learned from the 2023 crisis. We have long considered the “end-game” standards so substantive as to constitute Basel IV; now, as this report details, Basel is laying plans for Basel V via new liquidity, interest-rate, capital, and structural changes to the current construct. We thus focus on the supervisory and regulatory action steps Basel posits as necessary responses to the financial-market volatility sparked earlier this year by SVB, SBNY, FRC, and CS’s failures. While Basel states that none of its recommendations necessarily presages near-term global standards, …

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

6 10, 2023

REFORM228

Eliza Allen2023-10-06T11:45:12-04:00October 6th, 2023|5- Client Report|

FedFin Assessment: Basel Lays Big Plans for Basel V

As we noted yesterday, the Basel Committee’s October meeting concluded not only with plans for new disclosure consultations, but also a report on lessons learned from the 2023 crisis. We have long considered the “end-game” standards so substantive as to constitute Basel IV; now, as this report details, Basel is laying plans for Basel V via new liquidity, interest-rate, capital, and structural changes to the current construct. We thus focus on the supervisory and regulatory action steps Basel posits as necessary responses to the financial-market volatility sparked earlier this year by SVB, SBNY, FRC, and CS’s failures. While Basel states that none of its recommendations necessarily presages near-term global standards, they warrant review not only as likely precursors to at least some new proposals, but also as guides to what is top of mind for national regulators beyond finalizing end-game capital rules and dealing with home-country matters such as resolvability. If Basel proposes only some of the regulatory revisions it has in mind or, as the Fed clearly intends, the U.S. does so ahead of time, larger banks will face significant revisions to the LCR and NSFR, capital add-ons for interest-rate outliers, and express ring-fencing to prevent a CS repeat – i.e., a case in which the parent company met applicable standards but key subsidiaries fell far short.

REFORM228.pdf…

5 10, 2023

DAILY100523

Eliza Allen2023-10-05T16:36:40-04:00October 5th, 2023|2- Daily Briefing|

Kanter, Khan Mount Stout Defense of Draft Merger Guidelines

FTC Chair Khan and DOJ Assistant AG Kanter today defended the agencies’ draft merger guidelines (see FSM Report MERGER12) on grounds that they are faithful to congressional intent, reflect core legal principles, are more accessible and easier to apply, and better reflect the modern competitive landscape.

Basel Plans NBFI Ops-Risk Supervisory Standards, Continuing Review of Bank Supervision, New Disclosures

The Basel Committee today released its long-awaited report on 2023 vulnerabilities, deciding based on it to prioritize new supervisory approaches and additional analytical tools.

Bipartisan Bill Provides Transaction Account Deposit Insurance

Following Chairman Gruenberg’s remarks yesterday highlighting targeted deposit insurance reform, Sens. Manchin (D-WV), Braun (R-SD), and Hickenlooper (D-CO) yesterday introduced legislation to reinstate the Transaction Account Guarantee (TAG) program, expanding deposit insurance to non-interest bearing transaction accounts up to $10 million.

FDIC Proposes Public-Good Policy for IDI Corporate Governance

The FDIC today announced the Board’s 3-2 approval of an NPR establishing guidelines on corporate governance and risk management for FDIC-supervised IDIs with over $10 billion in assets.

Daily100523.pdf…

3 10, 2023

DAILY100323

Eliza Allen2023-10-03T16:38:58-04:00October 3rd, 2023|2- Daily Briefing|

Hsu Notes Benefits of International Data Hub, Warns of Nonbank Risks

In remarks today, Acting Comptroller Hsu focused on the benefits of the BIS International Data Hub, noting for example that it provides national authorities with a horizontal view of key risks affecting the global financial system difficult to obtain elsewhere.

Basel Sees End-Game in Sight, US Off Late List

Finally taking the U.S. off the tardy list, the Basel Committee today updated its Basel III implementation dashboard, finding that as of Q3 2023 the US, along with the EU, UK, China, Switzerland, South Africa, and Hong Kong are now working to adopt revisions to the credit valuation adjustment and operational risk frameworks, the standardized approach for credit risk, the minimum requirements for market risk, and the output floor – i.e., Basel’s end-game.

Daily100323.pdf…

26 09, 2023

DAILY092623

Eliza Allen2023-09-26T16:36:09-04:00September 26th, 2023|2- Daily Briefing|

BIS Analysis Blasts Lax Capital Regs, But We See Study Flaws

A new BIS paper uses confidential data to defend tough regulatory capital charges because bank internal measures of expected loss (EL) are “excessively optimistic.” However, this critique in our view is applicable only to internal models. It might be said that standardized-approach charges are also unduly optimistic if based on EL, but the entire Basel construct is intended to cover only EL, with loan-loss reserves, capital-conservation-buffers, the leverage ratio, and stress tests supposed to do the rest.

Basel Sees Large Bank Capital Improvements, Slight Liquidity Reductions

The Basel Committee today released the results of its monitoring exercise for the second half of 2022, finding that the largest banks’ capital ratios increased above pre-pandemic levels while liquidity coverage ratios declined. Under the fully phased-in Basel III framework, the average common equity tier 1 capital ratio increased from 12.5% to 12.7% for Group 1 banks from the first half of 2022 to the end of the year. Group 1 banks also reported regulatory capital shortfalls of $3.42 billion under this framework as of December 31, 2022, all of which was GSIB Tier II capital.

Daily092623.pdf…

14 09, 2023

CAPITAL235

Eliza Allen2023-09-14T14:23:57-04:00September 14th, 2023|5- Client Report|

GOP Blasts Basel End-Game Regs, Dems Seek a Few Changes

With HFSC Chairman McHenry (R-NC) leading the way, GOP Members of the panel’s Financial Institutions Subcommittee today blasted the banking agencies’ end-game proposal (see Client Report CAPITAL234). Republicans were unanimous in joining leadership’s attack on the proposal’s process and substance, pointing to what they called incomplete impact analyses, an inexplicably short comment period, and adverse macroeconomic and regional-bank implications. Democrats led by Ranking Member Waters (D-CA) were more restrained and in some cases supported the proposal, but concerns were also noted with specific provisions (e.g., re the treatment of certain mortgage and securitization assets) and the interface with the pending CRA final rule. We continue to expect the banking agencies to hold firm to the proposal in broad terms and make minimal, if any, changes to the comment deadline. However, pressure from Republicans and the industry could well force renewed and what many would consider improved impact analyses designed not only to allay political opposition, but also the courts if litigation challenges the final rule.

CAPITAL235.pdf…

12 09, 2023

DAILY091223

Eliza Allen2023-09-12T17:19:22-04:00September 12th, 2023|2- Daily Briefing|

GHOS Presses Basel Action on Lessons Learned

Basel’s group of Governors and Heads of Supervision (GHOS) met yesterday, listing strong bank risk management and governance arrangements, effective supervision, and the need for a robust regulatory framework as the primary lessons it learned from this year’s banking turmoil. GHOS also pressed its members to finalize their Basel III reforms, noting that most plan to implement them by the end of 2024.

Gensler Takes Swing-Pricing, AI Fire

At today’s Senate Banking hearing with SEC Chairman Gensler, Democrats largely defended the pace and scope of recent SEC work while Republicans criticized the agency for rulemakings they said were ideologically driven and inadequately analyzed. Chairman Brown (D-OH) applauded the SEC’s crypto enforcement actions and encouraged it to examine broker and investment adviser use of AI. Ranking Member Scott (R-SC) and several other Republicans sharply criticized Mr. Gensler for what they said was his lack of transparency and responsiveness to congressional inquiries.

Daily091223.pdf…