#climate

21 01, 2025

Karen Petrou: Will There Also be a Financial Firestorm?

Eliza Allen2025-01-21T13:57:41-05:00January 21st, 2025|The Vault|

I live two short blocks from Rock Creek National Park, one of D.C.’s hidden wonders. As befits a national park, Rock Creek is very large and densely wooded, but no one has thought much about fire hazard until last summer’s drought led to some significant brush fires. I thus asked a forestry professor next to whom I happened to be seated waiting for a plane if those of us living near Rock Creek Park should worry. Instantly and unequivocally, his answer was emphatically, “Yes.” I’m still not sure what I or any of us now at risks we never contemplated can do, but I’m even less sure that what can clearly be done to reduce financial-system risk due to natural disasters will be done until after it’s too late.

Is risk really this frightening? A report last week from the Financial Stability Board lays out what it believes to be plausible, yet-severe scenarios demonstrating that the extent to which property insurers and reinsurers are able to absorb natural-disaster risk determines whether a disaster leads to systemic financial risk. In the U.S., this is a thin reed.

We know that the National Flood Insurance Program is woefully unable to address the scale of recent hurricanes and inundations. A treasury study last Friday shows that private insurance is in at least as much disarray. Homeowners in the highest climate-risk zip codes pay premiums about eighty percent higher than those in the lowest-risk codes and have far, far higher non-renewal rates. Fifteen of …

13 11, 2024

FedFin Assessment: The Fate of the Federal Reserve

Arezou Rafikian2024-11-14T15:45:31-05:00November 13th, 2024|The Vault|

In a recent client brief, we provided our forecast of what might happen to Federal Reserve independence, process, powers, and personnel under either a Harris or Trump presidency. This is of course no longer an either/or matter, with this report thus reviewing and, where needed, updating our initial assessment of what Mr. Trump could do to the central bank even where Chair Powell says he can’t. Sherrod Brown’s defeat makes the Fed particularly vulnerable in the Senate, where Elizabeth Warren (D-MA) stands a strong chance of becoming the Banking Committee’s ranking Democrat. She and incoming chair Tim Scott (R-SC) will agree on a lot about the Fed, especially if Sen. Rick Scott – a frequent Warren ally on the Fed front – becomes Majority Leader….

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

6 03, 2023

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

Arezou Rafikian2023-03-06T16:31:48-05:00March 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 …

30 01, 2023

Karen Petrou: M&Ms, McHenry, and the Making of Financial Policy

Arezou Rafikian2023-01-30T11:28:41-05:00January 30th, 2023|The Vault|

It’s a sad commentary on American politics to observe, as I feel we must, that the experienced chairman of the House Financial Services Committee, Patrick McHenry, has followed M&M’s “spokescandies” as a target of Tucker Carlson’s bilious, yet widely-watched, wrath. The fundamental frivolity of this contrast is self-evident, but that has yet to dampen the credibility of this combustible commentator with his super conservative acolytes. That Mr. Carlson matters so much to public discourse is deeply distressing given some of his other targets – Nancy Pelosi’s husband after a brutal attack is only one that comes immediately to mind. Unlike him and many other Carlson targets, Mr. McHenry can more than take care of himself. Still, going after him means super-conservatives will blast any Member or measure that falls short of purity on their rightward-loaded scale. Since nothing these folks like can be enacted into law, all this does is reduce the hopeful odds we cast earlier this year for constructive financial-policy legislation. Too bad – the nation could use some.

The nub of the accusation lies in his chairman’s decision to leave the word “inclusive” in the name of one of his panel’s revamped subcommittees. Clearly, the concept of inclusion has become accursed because Democrats often used it in concert with what might seem an equally innocuous word: diversity. Democrats did use diversity and inclusion demands to press for racial, gender, and sexual-orientation equity in ways that rubbed many republicans raw, but the idea of inclusion is fundamental to …

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.…

22 06, 2022

FedFin on: Climate Risk Management

Arezou Rafikian2023-01-26T11:37:39-05:00June 22nd, 2022|The Vault|

The Basel Committee has finalized its proposed climate-risk management principles largely unchanged from its proposal, establishing over-arching goals at which both banks and their supervisors are asked to aim. Much in the final standards echoes proposed OCC risk-management standards proposed in a slightly different form by the FDIC and likely soon to be taken up by the Federal Reserve in inter-agency U.S. goals. Neither Basel’s standards nor these U.S. principles are…..

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

…

5 05, 2022

FedFin Analysis: Global Climate-Risk Disclosures and Standards

Arezou Rafikian2023-03-01T14:37:09-05:00May 5th, 2022|The Vault|

The FSB’s report is aimed at establishing global standards that prevent fragmentation along national or regional lines as well as ensuring that regulatory and supervisory actions mitigate climate risk to the greatest extent possible in the face of an array of data and measurement challenges. Although the FSB proposes no specific requirements….

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

9 02, 2022

FedFin: Plan B

Arezou Rafikian2023-04-05T10:02:28-04:00February 9th, 2022|The Vault|

Continuing her very different vision of Fannie and Freddie, FHFA Acting Director Thompson today has released a new strategic plan for the agency emphasizing the importance of both equitable and sustainable housing finance.

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

3 02, 2022

FedFin Assessment: Raskin Confirmation Possible, But a Squeaker

Arezou Rafikian2023-04-05T14:06:56-04:00February 3rd, 2022|The Vault|

As this report details, all three Fed nominees before the Senate Banking Committee today emphasized the vital importance of Fed independence and their anti-inflation zeal to quell GOP opposition and cement it among moderate Democrats. Professor Philip Jefferson sailed through and will be confirmed — perhaps quickly — by a relatively -wide bipartisan margin. We expect Professor Lisa Cook also to prevail, with Democrats likely joined by a
couple of moderate Republicans convinced that attacks on her expertise art unseemly with regard to a Black woman given how rarely similar concerns are voiced about white nominees with no macroeconomic-policy expertise.

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

13 01, 2022

FedFin on: Brainard Navigates Troubled Waters; Looks Like Smooth Sailing for Thompson

Arezou Rafikian2023-04-24T15:40:10-04:00January 13th, 2022|The Vault|

At today’s confirmation hearing, Gov. Brainard took a lot of the heat on inflation Republicans only mildly mentioned during Mr. Powell’s Tuesday confirmation hearing (see Client Report FEDERALRESERVE67). As we anticipated (see Client Report FEDERALRESERVE66) this reflects the fact that the GOP is united in opposition to her appointment as Fed vice chair; should she hold Sen. Manchin (D-WV) she will be confirmed; if not, perhaps not. Ranking Member Toomey (R-PA) also used the occasion to signal – again unsurprisingly – GOP opposition should Sarah Bloom Raskin be nominated….

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