#CCP – Federal Financial Analytics

19 09, 2023

DAILY091923

Eliza Allen2023-09-19T18:11:29-04:00September 19th, 2023|2- Daily Briefing|

FSB Finally Takes Concrete CCP-Resolution Action

Following longstanding announcements that it would advance CCP resolvability, the FSB today released a consultative report recommending a toolbox approach to CCP resolution providing sufficient loss absorption and liquidity that is readily available and mitigates adverse effects on financial stability.

Treasury Advances Climate-Risk Principles, Not Mandates

Cautiously advancing the President’s climate-risk order (see FSM Report GREEN8), Treasury today released nine nonbinding principles for net-zero financing and investment encouraging financial institutions to focus on limiting scope 3 emissions by implementing robust net-zero transition plans.

CFPB Expands AI Crackdown

Expanding on last year’s adverse action guidance (see FSM Report FAIRLEND11), the CFPB today issued a circular stating that lenders – especially those using AI – cannot use CFPB sample adverse actions forms and checklists to deny consumers credit if the samples do not accurately portray the reasoning behind the denial.

HFSC Republicans Expand Attack From Capital to LTD Rules

Today’s HFSC Financial Institutions Subcommittee hearing on the economic consequences of the banking agencies’ slate of recent proposals showcased strong Republican concerns.

Daily091923.pdf…

4 08, 2023

FedFin on: Credit-Risk Capital Rewrite

Arezou Rafikian2023-08-04T13:41:04-04:00August 4th, 2023|The Vault|

In this report, we proceed from our assessment of the proposed regulatory capital framework to an analysis of the rules governing credit risk. In addition to eliminating the advanced approach, the proposal imposes higher standards for some assets than under the old standardized approach (SA) via new “expanded” requirements. As detailed here, many expanded risk weightings are higher than current requirements either due to specific risk-weighted assessments (RWAs) or definitions and additional restrictions. This contributes to the added capital costs identified by the banking agencies in their impact assessment, suggesting that lower risk weightings in the expanded approach reflected the reduced risks described in the proposal for other assets and will ultimately have little bearing on regulatory-capital requirements and thus ….

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

4 08, 2023

CAPITAL231

Eliza Allen2023-08-04T13:40:43-04:00August 4th, 2023|1- Financial Services Management|

Credit-Risk Capital Rewrite

In this report, we proceed from our assessment of the proposed regulatory capital framework to an analysis of the rules governing credit risk. In addition to eliminating the advanced approach, the proposal imposes higher standards for some assets than under the old standardized approach (SA) via new “expanded” requirements. As detailed here, many expanded risk weightings are higher than current requirements either due to specific risk-weighted assessments (RWAs) or definitions and additional restrictions. This contributes to the added capital costs identified by the banking agencies in their impact assessment, suggesting that lower risk weightings in the expanded approach reflected the reduced risks described in the proposal for other assets and will ultimately have little bearing on regulatory-capital requirements and thus on the overall ability of banks to expand into lower-risk areas and compete more effectively with nonbanks and foreign banks. Big banks forced to abandon certain activities may expand others receiving capital discounts in the new rules, increasing their footprint in traditional banking in ways that may increase industry consolidation.

CAPITAL231.pdf…

13 06, 2023

DAILY061323

Eliza Allen2023-06-13T17:11:07-04:00June 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 5^th 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…

26 04, 2023

FedFin on: Systemic-Risk Determinations

Arezou Rafikian2023-04-26T16:59:28-04:00April 26th, 2023|The Vault|

Rejecting the Trump Administration’s hands-off approach to designating systemically-important nonbank financial institutions or activities and practices, the Biden Administration’s FSOC has bifurcated this construct with one proposal on designating entities and another that lays out an analytical approach to identifying systemic risk that would then guide firm and activity designation as well as Council staff coordination with primary federal regulators leading to new rules, product or service prohibitions/restrictions, or firm-specific supervisory action. If the final framework is as comprehensive as this proposal and FSOC is as actively engaged as its plan requires, then U.S. systemic standards could extend far more widely than is now the case even if firm-specific nonbank designations are few and far between…

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

26 04, 2023

SYSTEMIC95

Eliza Allen2023-04-26T13:51:20-04:00April 26th, 2023|1- Financial Services Management|

Systemic-Risk Determinations

Rejecting the Trump Administration’s hands-off approach to designating systemically-important nonbank financial institutions or activities and practices, the Biden Administration’s FSOC has bifurcated this construct with one proposal on designating entities and another that lays out an analytical approach to identifying systemic risk that would then guide firm and activity designation as well as Council staff coordination with primary federal regulators leading to new rules, product or service prohibitions/restrictions, or firm-specific supervisory action. If the final framework is as comprehensive as this proposal and FSOC is as actively engaged as its plan requires, then U.S. systemic standards could extend far more widely than is now the case even if firm-specific nonbank designations are few and far between.

SYSTEMIC95.pdf…

21 02, 2023

DAILY022123

Eliza Allen2023-02-21T16:39:53-05:00February 21st, 2023|2- Daily Briefing|

Nonbank Corporate Finance Stokes Systemic, Macro Risk

A new BIS paper supports bank assertions that nonbank corporate finance is considerably more procyclical in terms of its threat to financial stability and macroeconomic growth than that conducted by regulated companies. This risk-arbitrage question is germane not only to the ongoing debate about NBFI regulation, but also efforts to ensure that U.S. “end-game” capital rules sharply reduce the RWA for lower-risk corporate obligations.

FSB Fears Systemic Risk from Bank, CCP Commodity Risk

A new FSB report today assesses systemic risk posed by the oil, gas, and wheat commodity markets given its highly-leveraged and illiquid nature and its deep interconnections into the global banking system. Global regulators conclude that bank exposures in general are “manageable,” but some banks and CCPs have significant sector exposure and thus risk. Commodity firms have recently reduced liquidity risk, but they also hiked credit and market risk at a time of tightening that exacerbates them, leading the FSB to describe emerging risks and detail the data gaps that make it challenging to draw clear conclusions.

FSB Prioritizes Crypto, NBFIs

The FSB head’s letter to the G20 yesterday reiterates priorities outlined in his November letter, stating that global regulators will deliver a joint paper with the IMF later this year synthesizing policy findings and regulatory issues around cryptoassets. The FSB will also continue to prioritize NBFI supervision (see Client Report NBFI2), re-emphasizing the importance of studying hidden leverage and addressing liquidity mismatches in open-end funds.

Daily022123.pdf…

19 12, 2022

FedFin on: FSOC Targets Usual Suspects but Also Points to Big-BHC, Nonbank Mortgage Systemic Risk

Arezou Rafikian2023-01-03T15:56:33-05:00December 19th, 2022|The Vault|

As promised, this FedFin report provides an in-depth analysis of FSOC’s 2022 annual report, focusing on findings with near-term policy implications. As always, the report is lengthy and includes many observations and market details that provide insight into Treasury and member-agency-staff thought. Much in it reiterates concerns about short-term funding markets, CCPs, and….

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

19 12, 2022

FSOC28

Eliza Allen2022-12-19T13:00:38-05:00December 19th, 2022|5- Client Report|

FSOC Targets Usual Suspects but Also Points to Big-BHC, Nonbank Mortgage Systemic Risk

As promised, this FedFin report provides an in-depth analysis of FSOC’s 2022 annual report, focusing on findings with near-term policy implications. As always, the report is lengthy and includes many observations and market details that provide insight into Treasury and member-agency-staff thought. Much in it reiterates concerns about short-term funding markets, CCPs, and investment funds (with FSOC for the first time urging regulators to look not only at MMFs and OEFs, but also at collective investment vehicles). As previously noted, the report is relatively sanguine about digital-asset systemic risk but, also reiterates findings in FSOC’s report (see Client Report CRYPTO33) demanding rapid action on a raft of reforms in this high-risk sector. What surprised us is the discussion of large BHCs, which departs from longstanding Fed and FSOC comfort in the post-GFC regulatory regime for this sector.

FSOC28.pdf…

8 12, 2022

DAILY120822

Eliza Allen2022-12-08T17:14:56-05:00December 8th, 2022|2- Daily Briefing|

Comment Deadline Set For Fed’s Climate-Risk Management Principles

The Federal Register today includes the Fed’s comment request on proposed climate risk-management standards that would guide banking organizations with assets over $100 billion (see FSM Report CLIMATE15).

Basel: Climate Risk Not Ready for Capital Requirements

The Basel Committee today published a clarification by way of FAQs to its recently-finalized climate-risk management principles (see FSM Report CLIMATE14).

Warren, Smith Turn FTX Spotlight on Banking Agencies

As predicted in Karen Petrou’s memo on Monday, Congressional interest has now turned to the role of banks and their regulators in the FTX debacle.

FSB Heightens Focus on CCP, Insurer Resolvability

After over at least a decade of talking about nonbank resolvability, the FSB today announced that addressing it has become an “urgent” priority.

OCC’s Risk Inventory Continues To Target Deposit, Operational, Climate, Crypto Risk

As with its June 23 report on bank risks, the OCC’s December inventory reiterates concerns such as deposit outflow due to rate hikes, operational risks due to cyber-threats and third-party relationships, and compliance and credit risks.

Warren, Smith Back DOL Disqualification Proposal

Tackling yet another “big-bank” concern, Sens. Warren (D-MA) and Smith (D-MN) sent a letter today applauding the Department of Labor’s Employee Benefits Security Administration (EBSA) proposal to disqualify banks found guilty of criminal misconduct from being qualified professional asset managers.

Daily120822.pdf …