#capital standards

6 03, 2023

M030623

2023-03-06T16:31:40-05:00March 6th, 2023|6- Client Memo|

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.

M030623.pdf

6 03, 2023

Karen Petrou: Why Way-Woke Won’t Work in 2023

2023-03-06T16:31:48-05:00March 6th, 2023|The Vault|

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 …

24 02, 2023

FedFin on: Custody Reform

2023-02-24T16:53:29-05:00February 24th, 2023|The Vault|

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….

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

24 02, 2023

CUSTODY5

2023-02-24T11:15:03-05:00February 24th, 2023|1- Financial Services Management|

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.

CUSTODY5.pdf

22 02, 2023

DAILY022223

2023-02-22T16:44:44-05:00February 22nd, 2023|2- Daily Briefing|

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.

Daily022223.pdf

21 02, 2023

Karen Petrou: FSOC’s NBFI Plans Will Cost Big Banks Dearly

2023-02-21T11:15:33-05:00February 21st, 2023|The Vault|

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 …

21 02, 2023

M022123

2023-02-21T11:15:27-05:00February 21st, 2023|6- Client Memo|

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.

m022123.pdf

16 02, 2023

DAILY021623

2023-02-16T16:46:08-05:00February 16th, 2023|2- Daily Briefing|

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.

Daily021623.pdf

6 02, 2023

Karen Petrou: It’s Game-On for End-Game Capital Regulation

2023-02-06T10:56:45-05:00February 6th, 2023|The Vault|

Many rules determine the terms of combat in key financial markets, but none is as fundamental as bank-capital standards because every decision a bank makes first factors capital costs or benefits.  These are axiomatic because, even if every other business assumption a company makes is good, a financial product or service will still prove unprofitable if capital requirements are high enough to doom returns sufficient for insatiable investors.  Said by some only to be a tidy Basel III clean-up, the Basel IV “end-game” capital rules set to come in the next month or so are actually a substantive recalibration of which businesses make banks how much money compared to all the competitors empowered over the years by the happy – if highly risky – absence of like-kind requirements.  It’s thus no wonder that it’s already game-on for the future of the end-game regulations.

As we’ve noted in recent client updates, Rep. Andy Barr (R-KY) now chairs the HFSC subcommittee with power over both financial-institution regulation and monetary policy.  Although one of his first bills in this Congress deals only with loosening capital rules for de novo banks (H.R. 758), he has made it very clear that he fears that the new big-bank capital construct will prove unduly costly and anti-competitive.  Senate Banking Ranking Member Tim Scott (R-SC) said the same thing in more guarded tones when he released his priorities, making it clear that the GOP has its eyes on the new capital rules.

No coincidence, conservative critics are …

6 02, 2023

M020623

2023-02-06T10:56:35-05:00February 6th, 2023|6- Client Memo|

It’s Game-On for End-Game Capital Regulation

Many rules determine the terms of combat in key financial markets, but none is as fundamental as bank-capital standards because every decision a bank makes first factors capital costs or benefits.  These are axiomatic because, even if every other business assumption a company makes is good, a financial product or service will still prove unprofitable if capital requirements are high enough to doom returns sufficient for insatiable investors.  Said by some only to be a tidy Basel III clean-up, the Basel IV “end-game” capital rules set to come in the next month or so are actually a substantive recalibration of which businesses make banks how much money compared to all the competitors empowered over the years by the happy – if highly risky – absence of like-kind requirements.  It’s thus no wonder that it’s already game-on for the future of the end-game regulations.

m020623.pdf

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