#CAMELS

17 05, 2024

DAILY051724

2024-05-17T16:46:55-04:00May 17th, 2024|2- Daily Briefing|

Gruenberg Turns to Regulatory Rewrites

Turning back to his day job, FDIC Chair Gruenberg today spoke to European regulators on lessons from last year’s U.S. banking crisis.

Waller Reinforces Fed Dominant Role Across U.S. Payment System

FRB Gov. Chris Waller today addressed an array of technical payment-system issues, also reiterating the Fed’s plan to remain firmly engaged in payment services as well as serving as technology convenor and dominant provider.

Freedom Caucus Republicans Resurrect Bill to Abolish the Fed

Leading a group of Freedom Caucus Republicans, Rep. Thomas Massie (R-KY) yesterday introduced H.R. 8421, a bill to abolish the Federal Reserve Board and Federal Reserve banks, along with repealing the Federal Reserve Act.

Fed Denies Petitions to Review CAMELS, Social-Commitment Disclosure

The Federal Reserve Board today voted 7-0 to reject two petitions on grounds that they do not demonstrate that the FRB erred on statutory or policy grounds.

Bowman Lumps Fed M&A Reports Into Policy Critique

FRB Gov. Bowman today reinforced the substantive nature of recent Fed changes to M&A reporting first identified in a FedFin client alert, saying that these could increase up-front costs in a way particularly harmful to small institutions.

Daily051724.pdf

28 03, 2024

Daily032824

2024-03-29T10:36:38-04:00March 28th, 2024|2- Daily Briefing|

House GOP Resolution Challenges CFPB Credit-Card Late-Fee Rule

As promised, the GOP resolution to overturn the CFPB’s credit-card late-fee rule has now been introduced (see FSM Report CREDITCARD37).  HFSC Rep. Ogles (R-TN) introduced H.J. Res. 121 on Tuesday, adding another attack to the rule which is already being challenged in court.

FinCEN Advances Limited KYC Reform

Acting on its longstanding promise, FinCEN in consultation with banking agency and NCUA staff today issued a RFI examining new KYC approaches, including permitting banks to collect partial SSN information directly from the customer backed by third-party sources that provide full SSN prior to account opening.

BIS: Statement Revisions Augur Greater Bank Risk

Doubtless reflecting Credit Suisse’s failure, the BIS today released a study on risk information derived from pre-publication revisions to bank financial statements sent to supervisors, finding that the frequency of revisions is highly correlated with a bank’s subsequent CAMELS rating downgrade, higher future average probability of borrower default, and greater distance to default score.

Daily032824.pdf

5 12, 2023

FINTECH33

2023-12-05T15:39:20-05:00December 5th, 2023|5- Client Report|

HFSC GOP Grills Regulators Over Novel Activities, Third-Party Risk Management Guidance

At today’s HFSC Digital Assets Subcommittee hearing on banking agency financial innovation, Republicans raised concerns about the Fed’s novel activities guidance (see FSM Report FINTECH32), interagency guidance on third-party risk management (see FSM Report VENDOR10), and the SEC’s predictive data analytics proposal. Members on both sides of the aisle also focused on AI, crypto, and CBDC, with Republicans pressing for hands-off crypto policy while Democrats urged faster action to curb AI risk. Pointing to the OCC’s recent hiring scandal, Subcommittee Chairman Hill (R-AR) suggested that more oversight might be necessary.

FINTECH33.pdf

2 10, 2023

DAILY100223

2023-10-02T16:36:52-04:00October 2nd, 2023|2- Daily Briefing|

FRB FAQs Open a Small, But Significant Capital Window

In what Reuters takes as a sign of hope that the end-game rules may not be as crushing as banks fear, the FRB has issued a new FAQ related to credit-linked notes and SPVs.

Bowman Turns to Specific Supervisory Reforms

In remarks today, FRB Governor Bowman expanded on her prior comments about Fed supervisory lapses, but made it clear that she also opposes a “heavy-handed” supervisory approach that relies primarily on call report data, instead calling for a new approach to CAMELS and regular engagement with financial institutions to express areas of concern or to better understand a bank’s strategic direction.

Fed OIG re Silvergate: Far More Scathing re Supervision, Need for New Guidance

The OIG report today from the Fed regarding supervisory lapses at Silvergate is considerably less expansive than the prior report on SVB because the parent company remains open despite the IDI’s voluntary liquidation and relevant data are thus deemed confidential.

Barr Presses Emergency-Window Readiness

FRB Vice Chair Barr’s comments today on monetary policy and financial stability provide a detailed rationale for addressing the linkages between these two arms of the Fed’s mandate without any specific steps for doing so.

Daily100223.pdf

11 09, 2023

M091123

2023-09-11T09:40:12-04:00September 11th, 2023|6- Client Memo|

The PCA Cure for Much That Ails New Banking Rules

It’s a cliché, but it’s also true that one can’t beat something with nothing, especially in Washington.  This is an axiom well worth remembering when it comes to all of the new capital and resolution rules befalling the nation’s biggest banks.  I don’t think they need to be beaten back in their entirety – much in the proposals fixes vital flaws.  But the agencies have done a remarkably poor job conjuring the impact of each of these sweeping proposals, let alone their cumulative impact in the context of all the other rules and the grievous supervisory lapses that contributed to recent failures no matter all the rules that could well have sufficed if enforced.  Thus, the most obvious problems with this new construct are opacity, complexity, and most importantly reasonable doubts that, even with all these sharpened arrows, supervisors will still fail to draw their bows and then fire early and often.  All too much in the new rules is false science, as even a cursory read of the impact analyses makes painfully clear.  Instead of setting standards on lofty, unproven models, safeguards should rely on an engineering axiom:  use warning lights that force prompt and corrective action.  Think of the ground warning in an airplane followed by urgent “pull-up” commands and then go to work on the banking dashboard with clear, enforceable rules and new PCA thresholds forcing supervisory action and accountability.

M091123.pdf

11 09, 2023

Karen Petrou: The PCA Cure for Much That Ails New Banking Rules

2023-09-11T09:40:05-04:00September 11th, 2023|The Vault|

It’s a cliché, but it’s also true that one can’t beat something with nothing, especially in Washington.  This is an axiom well worth remembering when it comes to all of the new capital and resolution rules befalling the nation’s biggest banks.  I don’t think they need to be beaten back in their entirety – much in the proposals fixes vital flaws.  But the agencies have done a remarkably poor job conjuring the impact of each of these sweeping proposals, let alone their cumulative impact in the context of all the other rules and the grievous supervisory lapses that contributed to recent failures no matter all the rules that could well have sufficed if enforced.  Thus, the most obvious problems with this new construct are opacity, complexity, and most importantly reasonable doubts that, even with all these sharpened arrows, supervisors will still fail to draw their bows and then fire early and often.  All too much in the new rules is false science, as even a cursory read of the impact analyses makes painfully clear.  Instead of setting standards on lofty, unproven models, safeguards should rely on an engineering axiom:  use warning lights that force prompt and corrective action.  Think of the ground warning in an airplane followed by urgent “pull-up” commands and then go to work on the banking dashboard with clear, enforceable rules and new PCA thresholds forcing supervisory action and accountability.

The need for new PCA triggers is even more urgent than I thought when I first outlined

8 09, 2023

DAILY090823

2023-09-08T16:06:25-04:00September 8th, 2023|2- Daily Briefing|

Barr Backs Away from CBDC, Stands Firm vs. Stablecoins

FRB Vice Chair Barr today for the first time sided firmly with Chair Powell in approaching CBDCs with caution, if at all.  Mr. Barr also emphasized not only that the Fed will not proceed with a CBDC without Executive Branch approval, but also now says that it would require “authorizing legislation,” not just Congressional “approval.”

Examining CBDC and Wholesale Payments

The FDIC today released an internal – but not necessarily independent – review of First Republic’s failure, largely saying that FDIC supervisory staff could have done better identifying emerging risks without strongly criticizing actions ahead of the bank’s collapse.  This is blamed on factors evident at the time: e.g., rapid growth, poor liquidity and interest-rate risk management.

Fed Study: CBDC Unnecessary for Successful Wholesale Tokenization

As JPMorgan and other companies continue to advance wholesale digital payments and Chair Powell has suggested (see Client Report FEDERALRESERVE73) that he may be open to wholesale CBDC, a new Fed staff study finds that tokenized wholesale payment systems do not require a new form of central-bank money.

Daily090823.pdf

13 06, 2023

DAILY061323

2023-06-13T17:11:07-04:00June 13th, 2023|2- Daily Briefing|

Prime Brokers Face New Liquidity-Risk Standards

FINRA today released long-awaited proposals to ensure greater prime-broker liquidity, with prime brokers governed by the largest BHCs presumed to have sufficient liquidity based on Fed supervision of relevant enhanced liquidity standards.

Treasury Presses Private RTP

In remarks today, Treasury Assistant Secretary Graham Steele made it clear that Treasury wants to see private real-time payments continue in concert with FedNow to ensure resilience, noting also that instant payments pose risks that require new tools such as advanced cryptographic methods and controls such as transaction limits.

Chopra Stands Ground; Vance Considers Banking-Agency Overhaul

Today’s Senate Banking Committee hearing with CFPB Director Chopra showcased the usual partisan divide over the Bureau’s mission, with Democrats denouncing the 5th Circuit’s decision and Republicans taking issue with the Bureau’s franchise and activities as well as its credit-card late fee proposal (see FSM Report CREDITCARD36) and small business reporting rule.

Democrats Remain Cautious on Stablecoin Bill, Opposed to Crypto Jurisdiction Rewrite

As anticipated, the full HFSC hearing today on digital assets focused on draft legislation concerning payment stablecoins and digital asset market structure.

Daily061323.pdf

31 05, 2023

DAILY053123

2023-05-31T17:00:40-04:00May 31st, 2023|2- Daily Briefing|

IMF: Housing Risk Not At GFC Level, Still Worrisome

While falling home prices are unlikely to trigger another financial crisis, an IMF blog post today finds that a drop could still harm the global economic outlook.

FDIC Tries Guarded Optimism

The FDIC’s first-quarter report on the condition of the U.S. banking industry was guardedly optimistic, but that in part appears to be due to the way in which the agency foresees its problems.  Problem banks are up by 4 to 43 with $58 billion in assets among them.

End-Game Starts Soon

FRB Governor and Vice-Chair nominee Jefferson today expanded on the Fed’s financial-stability objectives, resolutely disavowing any of the credit-allocation ambitions Republicans sometimes ascribe to its work on climate risk.

CFPB Small-Business Disclosures Go Live

The Federal Register today includes the CFPB’s controversial final rule on small business data collection published late March which the Bureau says will increase transparency in small business lending, promote economic development, and combat unlawful discrimination.

FHA Expands Pandemic Mortgage Relief As Rates Rise

FHA today requested comment on a new loss mitigation proposal called the Payment Supplement Partial Claim allowing servicers to use FHA funds to bring a borrower’s mortgage current and temporarily reduce principal payments.

Daily0523123.pdf

30 05, 2023

FedFin on: Enforcement Policy

2023-05-30T17:09:49-04:00May 30th, 2023|The Vault|

Following a speech earlier this year by the Acting Comptroller arguing that some banks are “too big to manage” and the furor caused by recent failures, the OCC has significantly revised its enforcement policy.  The new framework requires examiners promptly to intervene if any of a bank’s CAMELS scores slips to 3 for unsatisfactory or if the bank is what CFPB Director Chopra would call a “repeat offender” of law, rule, or express supervisory actions or found deficient in practices necessary to ensuring safety and soundness.

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