Now What?
As detailed in our reports earlier this week on Powell’s appearance before Senate Banking and HFSC, much was said about the pending rewrite of big-bank capital standards. As we’ve noted, this matters a lot to the comparative advantage of GSEs, nonbank mortgage players, and banks large and small. As a result, we here go in depth on what Powell said – and mostly didn’t – about what’s next on these critical standards.
GOP Revs Up Fight Vs. Big-Bank Capital Hikes
Firing a fusillade ahead of capital rewrites expected late this month, Senate Banking Republicans late Friday sent FRB Chairman Powell a letter arguing strongly against capital increases and laying out a strong view that the agencies are required by law to tailor key standards.
BIS Project Finds Retail-CBDC Cross-Border Benefits
In a project boosting retail CBDC, the BIS Innovation Hub today announced the results of Project Icebreaker, a cross-border retail CBDC pilot between Sweden, Norway, and Israel.
GOP Will Deploy IGs To Demand Fed, CFPB, SEC Reform
In addition to a hearing that morning with Chairman Powell, the full HFSC will call federal banking agencies on the carpet Wednesday for “wasteful” spending and other governance issues.
Dems Beg Gensler Not to Scrap Scope 3 Climate Disclosures
Responding to intense GOP opposition to the SEC’s climate disclosure proposal, fifty Congressional Democrats led by Sen. Warren (D-MA) sent a letter to SEC Chairman Gensler today urging him not to scale the proposal back, especially its Scope 3 provisions.
Treasury Wants Fast NBFI, OEF, Crypto Standards
Treasury International Affairs Under-Secretary Jay Shambaugh today outlined U.S. priorities, emphasizing not only the importance of containing Russia and countering new threats, but also quickly advancing numerous global initiatives.
Hsu Pushes To Start The End Game
Acting Comptroller Hsu today reiterated his determination to act as quickly as possible on Basel’s end-game rules, noting the interagency statement last year that this would soon be done without providing …
Why Way-Woke Won’t Work in 2023
The fact that both the House and Senate passed a Congressional Review Act resolution overturning the Department of Labor’s ESG standards makes it clear that striking an anti-woke blow is deemed good politics by red and purple politicians. The President’s certain veto also makes it clear that a blue man sees matters quite differently, as did 204 House Democrats and 46 of their Senate colleagues. This stalemate will continue for changes to federal law, but it won’t stop Republicans from taking a lot out on financial regulators and big banks that they can’t get into the law books. Thus, anyone deemed even a bit woke-ful will get an earful.
The fact that both the House and Senate passed a Congressional Review Act resolution overturning the Department of Labor’s ESG standards makes it clear that striking an anti-woke blow is deemed good politics by red and purple politicians. The President’s certain veto also makes it clear that a blue man sees matters quite differently, as did 204 House Democrats and 46 of their Senate colleagues. This stalemate will continue for changes to federal law, but it won’t stop Republicans from taking a lot out on financial regulators and big banks that they can’t get into the law books. Thus, anyone deemed even a bit woke-ful will get an earful.
Even if all these excoriations are only rhetorical, they will prove meaningful because even federal regulators immune from the appropriations process are susceptible to political influence – as well they should be if they are not also to be unaccountable. That anti-wokeness is already making its mark is evident in many ways, most recently in the inter- agency crypto-liquidity risk statement at great pains to refute any Republican suggestion that tough new standards amount to a blanket ban on engaging in any form of legal cryptoasset activity. In essence, the new statement says, “banks can do crypto if it’s legal, but they almost surely shouldn’t do crypto because it’s way risky and we’re watching.”
To be sure, anything crypto isn’t always toxic. Another way the agencies will handle accusations that they are conducting a stealth-woke anti-crypto campaign is to make it …
Making full use of powers granted in the 2010 Dodd-Frank Act, the SEC is proposing a wholesale rewrite of the rules dictating how investment advisers must place assets in custody and which institutions are considered qualified for this purpose. Although the proposal was sparked first by controversies surrounding custody for cryptoassets and then by significant investment losses, the NPR reaches most assets held in the direct or indirect possession of investment advisers or to which the adviser may gain possession, also redefining qualified custodians to exclude not only most crypto platforms, but also foreign firms and other entities the Commission believes do not ensure sufficient safeguards protecting investor assets in the event of the adviser’s malfeasance, insolvency, or operational failure….
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Custody Reform
Making full use of powers granted in the 2010 Dodd-Frank Act, the SEC is proposing a wholesale rewrite of the rules dictating how investment advisers must place assets in custody and which institutions are considered qualified for this purpose. Although the proposal was sparked first by controversies surrounding custody for cryptoassets and then by significant investment losses, the NPR reaches most assets held in the direct or indirect possession of investment advisers or to which the adviser may gain possession, also redefining qualified custodians to exclude not only most crypto platforms, but also foreign firms and other entities the Commission believes do not ensure sufficient safeguards protecting investor assets in the event of the adviser’s malfeasance, insolvency, or operational failure. Many of the proposal’s new requirements – e.g., control over beneficial-ownership changes, strict segregation – are already followed by those bank custodians with fiduciary obligations due to their own protocols and regulatory requirements, perhaps giving banks a head-up complying with new standards. However, the new standards may be problematic for at least some custody banks – the SEC wants them to resume fiduciary obligations and does not appear wholly satisfied with bank rules governing qualified custodians.
BIS Backs Away From Old CBDC, Presses New “Unified Ledger”
BIS General Manager Agustín Carstens today distanced the global central bank somewhat from its prior calls for two-tier CBDC as quickly as possible (see Client Report CBDC6).
Administration Drops FHA Premiums in Broad Housing Push
In a victory for mortgage lenders and defeat for private mortgage insurance and the GSEs, Vice President Harris announced that FHA will shortly reduce mortgage premiums by .30 percent, saving the average homeowner $800 in total premiums or $67 a month.
GOP Opens Anti-CBDC Campaign
Starting the GOP’s 2023 campaign against CBDC with a specific initiative, Rep. Tom Emmer SP (R-MN) and nine Republicans have introduced H.R. 1122.
FDIC Found Remiss re Systemic Resolution
In its assessment of challenges facing FDIC leadership, the Office of Inspector General (OIG) finds that the agency may not be ready to handle an OLA or systemic resolution, nor is it yet able to assess climate financial risk and sanctions compliance.
FHFA Looks Into FHLB-Member Community Activities
Perhaps advancing FHFA Director Thompson’s commitment to review aspects of the FHLB System, her agency today released a request for views on the extent to which a Home Loan Bank member supported its community to retain eligibility for long-term System advances.
Although the always-inscrutable FSOC’s read-out of its last meeting was clear only with respect to approval of prior meeting minutes, the brief mention of ongoing U.S. work to address nonbank financial intermediation (NBFI) was so tantalizing that we ventured down darkened corners of key agencies to get a read-out of our own. Two conclusions came to light: the U.S. will take tough action on limiting bank/NBFI interconnections in its pending bank capital rewrite and FSOC is fine with the SEC’s recent MMF and open-end fund proposals even if pretty much no one else is.
First to the capital rewrites and how costly they could be. In its most recent NBFI review, the FSB took sharp issue with the extent to which the U.S. has taken sufficient steps to curb the inter-connected risks to NBFIs evident even before the 2020 market collapse. We expect the banking agencies not only to issue the end-game rules discussed in my last memo, but also to make good on the U.S. promise to Basel well before the game nominally ended with the 2017 revisions.
This means new capital standards costing banks big when it comes to bank equity investments in funds and higher risk weightings for exposures to unregulated financial institutions. It also means new capital requirements absorbing “step-in” risk – i.e., the extent to which reputational risk forces banks to stand by their off-balance sheet funds, SIVs, or other instrumentalities. Two banks in fact supported affiliated funds in MMFs during the 2020 …
FSOC’s NBFI Plans Will Cost Big Banks Dearly
Although the always-inscrutable FSOC’s read-out of its last meeting was clear only with respect to approval of prior meeting minutes, the brief mention of ongoing U.S. work to address nonbank financial intermediation (NBFI) was so tantalizing that we ventured down darkened corners of key agencies to get a read-out of our own. Two conclusions came to light: the U.S. will take tough action on limiting bank/NBFI interconnections in its pending bank capital rewrite and FSOC is fine with the SEC’s recent MMF and open-end fund proposals even if pretty much no one else is.
House GOP Slams Beneficial-Ownership Database
Reiterating longstanding concerns, HFSC Chairman McHenry (R-NC) and National Security, Illicit Finance, and International Financial Institutions Subcommittee Chairman Luetkemeyer (R-MO) submitted a comment letter today strongly opposing FinCEN’s latest beneficial ownership NPR.
House GOP Decries SEC Crypto-Custody Construct
Reflecting GOP concerns about the SEC’s new custody proposal as well as broad GOP objections to much of what Chairman Gensler does, HFSC Republicans today tweeted that the proposal will not ensure sufficient investor safeguards in part because restrictions on bank custody services remain.
Biden Order Reasserts Racial-Equity Agenda
Reiterating much of his last racial-equity executive order, President Biden today issued an order directing federal agencies to establish equity teams and comprehensive strategies to implement the order’s new equity initiatives.
FSB Pledges Further Work on DeFi Financial-Stability Risks
The FSB today released a report finding that DeFi’s financial stability risks are limited but may grow should linkages increase to traditional finance.
CFPB: Unfair Credit-Card Competition Evident Via Data Suppression
Following strongly-worded letters to six credit card lenders last May, the CFPB today concluded that these companies have suppressed payment data for competitive purposes.
FHFA Floats Single-Family ESG Bonds
Building on its equitable-finance initiative, FHFA today released a request for input on the benefits and risks of Fannie and Freddie single family social bonds.