#capital rules – Page 2 – Federal Financial Analytics

27 11, 2023

GSE-112723

Eliza Allen2023-11-27T11:49:59-05:00November 27th, 2023|4- GSE Activity Report|

An Advanced View of Regulatory Capital?

The most significant thing in FHFA’s final capital rule is not what is to be done, but what FHFA left out: ending the GSEs’ advanced-approach requirement. As a result, Fannie and Freddie can still use models for key calculations, a requirement that makes more sense for two complex organizations than it did for the regional banks also long subject to advanced-approach requirements even though the rules required them, like GSIBs, to hold the higher of the standardized or advanced approach.

GSE-112723.pdf…

17 11, 2023

Al112023

Eliza Allen2023-11-17T16:34:27-05:00November 17th, 2023|3- This Week|

That’s Different

As we noted in our in-depth reports last week, Congressional hearings with top bank supervisors are always eventful, but rarely game-changers. This proved to be the case when FRB Vice Chair Barr, Acting Comptroller Hsu, and FDIC Chair Gruenberg came before Senate Banking (see Client Report REFORM229) and HFSC (see Client Report REFORM230). One surprising takeaway affects policy and the other is political, but each has the potential to change the end-game landscape as well as that of the Biden Administration’s financial rulemaking for the rest of the President’s term.

Al112023.pdf…

16 11, 2023

DAILY111623

Eliza Allen2023-11-16T16:40:39-05:00November 16th, 2023|2- Daily Briefing|

Global Supervisors Press Direct, Indirect CSP Oversight

Global financial supervisors today highlighted cloud-service provider systemic risk, pointing to an issue also of longstanding FSOC concern.

Barr Takes Surprising AOCI Turn

In remarks today focused on Treasury-market risk, FRB Vice Chair Barr also surprisingly said that “most banks” do not need to report unrealized securities gains and losses in capital although supervisors are stepping up surveillance in this area.

McHenry Escalates FDIC Revelations to Official Probe

Following bipartisan outrage regarding the FDIC’s harassment scandal at Senate Banking and HFSC hearings this week, HFSC Chairman McHenry (R-NC) today announced that his Committee will investigate the FDIC as well as Chairman Gruenberg for alleged misconduct.

Global Regulators Set Crypto Custody Standards

IOSCO today issued final standards for cryptoassets in securities markets, codifying its prior stand that protections such as those against conflicts of interest and embedded vertical-integration risks should be managed for cryptoassets in the same manner regulators and supervisors address them in fiat-asset transactions.

Daily111623.pdf…

15 11, 2023

REFORM230

Eliza Allen2023-11-15T15:58:45-05:00November 15th, 2023|5- Client Report|

Bipartisan Capital Bashing Continues in the House

Following yesterday’s Senate Banking hearing (see Client Report REFORM229), today’s HFSC session with top bank regulators again highlighted growing bipartisan consternation over the unintended consequences of the agencies’ capital proposal (see FSM Report CAPITAL230). Although Ranking Member Waters (D-CA) echoed Chairman Brown’s defense, Democratic criticism today went beyond concerns about mortgages and green bonds also to address credit availability, new trading and derivatives standards, capital recognition of securities losses, and insufficient review of the proposal’s quantitative impacts. Republicans continued to bash the proposal for what they said is insufficient economic analysis. Unlike yesterday, attention to the FDIC’s harassment scandal most notably came from Democrats’ side of the aisle, with Ranking Member Waters using all of her questioning time to criticize the FDIC and request a report from each agency describing how they will review sexual-harassment. Reiterating concerns he and Subcommittee on Financial Institutions Chairman Barr (R-KY) recently raised regarding regulators’ interactions with international standard-setters, Chairman McHenry grilled Vice Chair Barr and Acting Comptroller Hsu about staff compensation and agency documentation practices at international events. Mr. Barr emphasized that all Board and staff member compensation comes from the Fed, while Mr. Hsu only said that his agency tracks participation in these bodies to ensure mission alignment. We continue to expect GOP pressure on the international-agency front but no action until GAO completes its report. Chair Gruenberg noted broad alignment with a new incentive-compensation proposal, but revised the initial timeline …

13 11, 2023

DAILY111323

Eliza Allen2023-11-13T17:07:02-05:00November 13th, 2023|2- Daily Briefing|

Senate Banking GOP Demand End-Game Withdrawal, Holistic Review Release

Making still clearer their line of attack at tomorrow’s hearing, all GOP Members of the Senate Banking Committee today sent Chairs Powell, Gruenberg and Acting Comptroller Hsu another letter demanding the withdrawal of the capital proposals.

FRB-PHL: Fintech Spots Credit Risk Better than Banks

A new study from the Federal Reserve Bank of Philadelphia finds not only that fintech loan-risk scoring performed well during the pandemic, but also that the proprietary loan rating systems of large fintech companies better predict default likelihood in the personal loan market compared to traditional measures of credit risk.

Barr Stands By His Proposals

Vice chairman Barr’s testimony for forthcoming hearings emphasizes that the banking system is resilient and sound, eschewing the caveats included in Friday’s supervisory report about pockets of weakness.

Gruenberg Defends DIF Rewrites

While echoing comments from Messrs. Barr and Hsu about the sound banking system, FDIC Chair Gruenberg’s testimony pointed to what he called significant downside risk from higher rates, geopolitical tension, unrealized losses, and other factors.

Hsu Differentiates OCC Supervision, Defends Regs

Acting Comptroller Hsu’s testimony reiterates Mr. Barr’s comment about a sound banking system, pointedly noting that all of the recent failures were state-chartered.

Daily111323.pdf…

13 11, 2023

M111323

Eliza Allen2023-11-13T12:07:05-05:00November 13th, 2023|6- Client Memo|

How Inequitable Rules Stoke Financial Crises and What the Banking Agencies Should do to Cut This Link

Last week, OMB issued another edict redesigning the way most of the federal government writes rules, going beyond its earlier directive to consider competitive impact now also to demand detailed consideration of the broader public good, especially when it comes to economic equality. I focused on public-good regulation in last week’s memo because it is sadly alien to federal financial regulation even though, as OMB says, “the benefits and costs of a regulation are ultimately experienced by people.” I grant that economists are people, but some are also people who don’t like people, at least when qualitative assessment of what people need challenges the quantitative conclusions they cherish. Pending banking rules thus ignore the public good in favor of complex market constructs, rationalizing them on assertions that, whatever else befalls finance, crises are less likely. This is a methodology fraught with perverse consequences, the most important of which is that the agencies’ standards will hike the risk of financial crises precisely because they omit distributional analysis.

M111323.pdf…

13 11, 2023

Karen Petrou: How Inequitable Rules Stoke Financial Crises and What the Banking Agencies Should do to Cut This Link

Eliza Allen2023-11-13T15:41:25-05:00November 13th, 2023|The Vault|

Last week, OMB issued another edict redesigning the way most of the federal government writes rules, going beyond its earlier directive to consider competitive impact now also to demand detailed consideration of the broader public good, especially when it comes to economic equality. I focused on public-good regulation in last week’s memo because it is sadly alien to federal financial regulation even though, as OMB says, “the benefits and costs of a regulation are ultimately experienced by people.” I grant that economists are people, but some are also people who don’t like people, at least when qualitative assessment of what people need challenges the quantitative conclusions they cherish. Pending banking rules thus ignore the public good in favor of complex market constructs, rationalizing them on assertions that, whatever else befalls finance, crises are less likely. This is a methodology fraught with perverse consequences, the most important of which is that the agencies’ standards will hike the risk of financial crises precisely because they omit distributional analysis.

A demand for distributional consideration is not – repeat not – a plea for the banking agencies to go easy on banks. It’s a plea for them to be as sure as they can that none but banks that need to be reined in are throttled. As OMB now also says, “some alternatives may change distributional effects even without significantly changing stringency.” The extent to which this is the case with bank standards is unknown because not one regulator has ever asked a distributional …

9 11, 2023

DAILY110923

Eliza Allen2023-11-09T17:11:08-05:00November 9th, 2023|2- Daily Briefing|

Bowman Outlines Capital-Comment Priorities

In remarks today, FRB Gov. Bowman reiterated many of her longstanding concerns regarding pending bank rules, going on now to lay out key points on which she believes comment are warranted on the capital standards.

OMB Now Demands Distributional Analytics

Following its order to federal agencies now to consider competitive-impact in regulatory assessments, OMB’s Office of Information and Regulatory Affairs (OIRA) today issued new standards also demanding distributional-impact analyses. As Karen Petrou’s memo this week made clear, it is our view that these are singularly and unfortunately absent from those accompanying the recent spate of banking proposals.

HFSC Plans Sanctions Markup

As anticipated, HFSC is proceeding next Tuesday to mark up a raft of bills addressing Iran and broader sanctions questions. Among the bills is one from Reps. Vargas (D-CA) and Hill (R-AR), H.R. 6245, to require Treasury to report on financial institution’s involvement with Iranian officials.

Daily110923.pdf…

8 11, 2023

FedFin on: Rebirth at 91

Arezou Rafikian2023-11-08T16:55:16-05:00November 8th, 2023|The Vault|

Although FHFA calls its FHLB report a centenary event ahead of the System’s 2032 birthday, the agency clearly plans structural substantive reform well before that milestone. Much of what’s planned will crimp FHLB profitability, increasing the importance of what would otherwise seem like tidying-up operational improvements to protect the viability of the System’s weaker Banks. With its eye on keeping the System in line, FHFA does not even suggest it should be allowed by law or regulatory sleight-of-hand to issue MBS or …

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8 11, 2023

GSE-110823

Eliza Allen2023-11-08T11:55:13-05:00November 8th, 2023|4- GSE Activity Report|

Rebirth at 91

Although FHFA calls its FHLB report a centenary event ahead of the System’s 2032 birthday, the agency clearly plans structural substantive reform well before that milestone. Much of what’s planned will crimp FHLB profitability, increasing the importance of what would otherwise seem like tidying-up operational improvements to protect the viability of the System’s weaker Banks. With its eye on keeping the System in line, FHFA does not even suggest it should be allowed by law or regulatory sleight-of-hand to issue MBS or like-kind instruments, get into the CRT business, or do anything much but provide ordinary advances to mission-focused members and up its own contributions to affordable housing. A series of near-term regulations are also contemplated to ensure tighter mission compliance and more certain resilience, steps sure also to cut into the Banks’ already-challenged bottom lines.

GSE-110823.pdf…