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24 07, 2023

DAILY072423

2023-07-24T17:00:47-04:00July 24th, 2023|2- Daily Briefing|

FDIC Clamps Down On Uninsured Deposit Reporting

Likely reacting to mid-size bank accusations that large banks are under-counting uninsured deposits, the FDIC today posted a financial institution letter highlighting that some financial institutions have incorrectly estimated uninsured deposits on their Call Reports.

Fed Archegos Order Lays Out Broader FBO Issues

Joining the U.K.’s record-breaking order, the Federal Reserve added $268.5 million to the $387 million fine imposed on Credit Suisse for governance and numerous other risk-manage failings related to its $5.5 billion Archegos loss.  The Fed’s order is an important reminder that FBO branches may be held to full account for failings tolerated at the time by U.S. or home-country regulators (who today also joined in this enforcement action).

GAO Anticipating Mark-Ups, Calls for Stablecoin, Crypto Spot Market Legislation

Ahead of HFSC’s mark-up, GAO today released a report sure to be cited as it calls for statutory change to address regulatory gaps in stablecoins and spot markets.  It notes that the lack of stablecoin reserve, disclosure, and redemption requirements may pose consumer-protection and financial-stability risks.

Daily072423.pdf

3 07, 2023

DAILY070323

2023-07-03T16:12:30-04:00July 3rd, 2023|2- Daily Briefing|

UK Targets PE/Private-Credit Interconnections

Although U.S. regulators have begun to talk about inter-connections (see FSM Report SYSTEMIC95), the Bank of England’s top official for international finance today laid out new U.K. policy to address them.  Specifically, Nathanaël Benjamin addressed counterparty risk with particular attention to bank private-equity and private-credit exposures.  Mr. Benjamin’s concern is principally that, should the U.S. not pull off a soft landing, this sector could experience severe stress that could quickly migrate to asset management.

IOSCO Sticks With SOFR

Acting on concerns often expressed by SEC Chairman Gensler, IOSCO today published its final assessment of USD LIBOR, judging two credit-sensitive alternatives problematic and blessing limited use of certain term SOFRs.  The most immediate consequences of this will be to make the Fed still less likely to permit banks to use the limited credit-sensitive exemptions provided in its final alternative-benchmark rule (see FSM Report LIBOR9), with IOSCO emphasizing its point with specific reference to this option by urging only cautious use of these rates and suggesting that regulators (presumably outside the U.S.) review their permissibility.

Daily070323.pdf

9 08, 2022

DAILY080922

2023-01-04T12:53:47-05:00August 9th, 2022|2- Daily Briefing|

Dems Demand Tougher CRA Standards

HFSC Chairwoman Waters (D-CA) today released the comment letter she and 76 Democrats filed on the CRA proposal (see FSM Report CRA32).  As anticipated, it strongly supports community-group comments on issues such as the need for express CRA recognition of a bank’s demographic record.  The letter also supports the proposed, tougher approach to scoring, although it argues that it should be made still more stringent via component scores that emphasize LMI and community-of-color performance largely on a facilities-based methodology.

BoE Staff: Regulators Must Tackle Cryptoassets Before They Pose Systemic Risks

Echoing concerns now troubling the Financial Stability Board, a new article from the Bank of England concludes that growth of an open and decentralized metaverse could augment existing cryptoasset risks and trigger systemic financial stability consequences.  The article first describes volatility, hacking risks inherent to oracles and smart contracts, transaction front-running and potential negative effects on market confidence, and leverage.  More cryptoasset use and interconnectedness – especially for household investments, payment, and bank and non-bank financial institutions – might exacerbate existing risks via new vulnerabilities to macroeconomic shocks, balance-sheet losses, fire-sales, and declines in bank profitability.

Daily080922.pdf

13 01, 2022

FEDERALRESERVE68

2023-04-24T15:39:54-04:00January 13th, 2022|5- Client Report|

Brainard Navigates Troubled Waters; Looks Like Smooth Sailing for Thompson

At today’s confirmation hearing, Gov. Brainard took a lot of the heat on inflation Republicans only mildly mentioned during Mr. Powell’s Tuesday confirmation hearing (see Client Report FEDERALRESERVE67).  As we anticipated (see Client Report FEDERALRESERVE66) this reflects the fact that the GOP is united in opposition to her appointment as Fed vice chair; should she hold Sen. Manchin (D-WV) she will be confirmed; if not, perhaps not.  Ranking Member Toomey (R-PA) also used the occasion to signal – again unsurprisingly – GOP opposition should Sarah Bloom Raskin be nominated as the Fed’s supervisory vice chair.

FEDERALRESERVE68.pdf

13 01, 2022

FedFin on: Brainard Navigates Troubled Waters; Looks Like Smooth Sailing for Thompson

2023-04-24T15:40:10-04:00January 13th, 2022|The Vault|

At today’s confirmation hearing, Gov. Brainard took a lot of the heat on inflation Republicans only mildly mentioned during Mr. Powell’s Tuesday confirmation hearing (see Client Report FEDERALRESERVE67). As we anticipated (see Client Report FEDERALRESERVE66) this reflects the fact that the GOP is united in opposition to her appointment as Fed vice chair; should she hold Sen. Manchin (D-WV) she will be confirmed; if not, perhaps not. Ranking Member Toomey (R-PA) also used the occasion to signal – again unsurprisingly – GOP opposition should Sarah Bloom Raskin be nominated….

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

20 12, 2021

Karen Petrou: For the Next Vice Chair: Stringent Enforcement and Meaningful Supervision

2023-05-22T15:43:38-04:00December 20th, 2021|The Vault|

As we noted last week, the Fed decided to issue some post-Archegos guidance telling big banks to watch their counterparty credit-risk exposures.  As a banker with all too much experience dodging risk bullets told me, this guidance followed lots of prior guidance saying the same thing after each big boo-boo – think Long-Term Capital Management more than two decades ago and follow the trail of Fed statements thereafter.  Each time, the Fed looks stern and banks say they’re sorry but soon go back to following the money, not the risk.  And, over and over, examiners fail to notice anything amiss until the amount of realized risk is impossible to ignore.  Interestingly, the Bank of England acted with the Fed but with far more force.  Unlike the Fed’s renewed “you better watch out” guidance, the BoE demanded an immediate review of prime-brokering, reports back to regulators, and senior-management pay cuts if flaws go unrepaired.  Thus, unlike the Fed, the Bank of England’s response to costly and thoroughly avoidable lapses has teeth.  Whether the British then bite anyone is another question – the record is not replete with supervisory success – but the difference should nonetheless be instructive to the Fed’s next supervisory vice chair.

This difference is just like that between telling a child that she’ll be sorry next time and ensuring that the kid immediately knows that bad actions have tangible, actual consequences.  One doesn’t have to beat the kid silly – indeed, of course one more than shouldn’t.  But, …

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