#climate

5 02, 2024

DAILY020524

2024-02-05T16:54:06-05:00February 5th, 2024|2- Daily Briefing|

Bowman Opposes Tech Self-Regulation, Highlights Emerging Risks

In remarks Friday on the future of banking, FRB Gov. Bowman joined Acting Comptroller Hsu in expressing concern over supervisory and governance complacency, especially when it comes to interest-rate and liquidity risk.  The speech picks up on Karen Petrou’s memo last week, pointing to the way in which regulators now appear focused principally on new rules, not emerging risks including those from fraud-renewed threats and third-party vendors.  Ms. Bowman thus urges greater accountability for banks based on third-party actions not only to enhance risk management, but also to reduce migration risk.

House GOP Expands Attack on Fed Work With Global Bodies

Continuing previous attacks on Federal Reserve Banks and federal banking agencies’ work with global entities, HFSC Chair McHenry (R-NC) and Financial Institutions Subcommittee Chair Barr (R-KY) sent letters today to the San Francisco and New York Reserve Banks disputing what they describe as undue cooperation with the Network for Greening the Financial System (NGFS) and Bank for International Settlements (BIS).

Daily020524.pdf

9 01, 2024

DAILY010924

2024-01-09T16:48:15-05:00January 9th, 2024|2- Daily Briefing|

Bowman Now Tackles Supervisory Transparency

In remarks late yesterday, FRB Gov. Bowman added a new concern: supervisory transparency.  She indicated that the Fed’s supervisory expectations have changed to the point at which some state agencies think the Fed goes too far, but banks have no way of anticipating possible supervisory injunctions.  As a result, she argues for near-term transparency via public notice-and-comment guidance or rulemaking.

Barr Bows a Bit

Answering questions today, FRB Vice Chair Barr indicated that the BTFP may well close on March 11, emphasizing the importance of adhering to the Fed’s emergency-liquidity mandate.  That said, loans will be extended until the one-year anniversary and may remain until 2025.  He also outlined a significant compromise on the operational-risk section of the end-game rules (see FSM Report OPSRISK22), more closely aligning the proposal with the Basel standards as our outlook anticipated.

Daily010924.pdf

18 12, 2023

FSOC29

2023-12-18T11:36:07-05:00December 18th, 2023|5- Client Report|

FedFin Assessment: FSOC Worries A Lot, Watches, Waits

This year’s FSOC report trods much old ground with two exceptions.  The first pertains to a new focus on artificial intelligence, machine learning, and new, generative technologies.  That said, the report does little beyond highlight this risk and include it among all the others federal agencies are told to monitor.  Private credit now also alarms FSOC, with insurance company investment in this sector of particular systemic concern in concert with the sectors’ CRE and junk-bond exposures, offshore reinsurance, and PE ownership.  As detailed in this report, banks are found to be resilient and have ample capital even as the report supports consideration of pending regulatory revisions.  Banking agencies are also asked to monitor uninsured-deposit levels and assess run-risk in light of social media and other accelerants.  In sharp contrast to more alarmist statements in the past and extensive Treasury reports (see Client Report CRYPTO32), this year’s report downplays cryptoasset risk because federal regulators are said to have taken steps to contain it.  The report also reiterates FSOC’s continuing focus on cyber and climate risk, with the closed session preceding the meeting considering a framework being developed by the OCC to measure and monitor financial risks and bank exposures.  Agencies are also encouraged to pursue comparable, “decision-useful” climate disclosures.  The LIBOR transition is considered a success and no longer poses a systemic risk.

FSOC29.pdf

15 12, 2023

DAILY121523

2023-12-15T17:31:25-05:00December 15th, 2023|2- Daily Briefing|

Crypto Measures Await Next Session

As anticipated, HFSC Chair McHenry (R-NC) was able to fend off concerted efforts by Sens. Brown (D-OH) and Warren (D-MA) to add the Warren-Marshall crypto bill to the National Defense Authorization Act.

FSOC to Target Hedge Funds, Nonbank Mortgage Companies

The readout from Treasury on yesterday’s FSOC meeting provides insight into the Council’s executive session suggesting significant near-term systemic action regarding hedge funds.

FSB Plans Broad Rewrite of Public Backstops, GSIFI Resolvability, Operational Readiness

The FSB’s 2023 Resolution Report today advises banks and public sector authorities to be prepared to access public sector funding in resolution, with the Board planning to review whether existing public sector backstops are adequate to meet potential failure scenarios.

Brown Renews Bipartisan Quest to Constrain Nonbank Banks

Advancing the big-tech concerns he most recently voiced before GSIB CEOs (see Client Report GSIB23), Senate Banking Chairman Brown (D-OH) has introduced S. 3538, bipartisan legislation to impose bank regulation on non-bank parent companies of insured depository institutions.

DOJ Targets Fraudulent Microtransactions

Cracking down on unauthorized bank account charges, the DOJ today announced multiple actions against “sham” companies alleged to have used misrepresentations or unauthorized charges to steal money from consumers’ financial accounts.

CRS Warns Credit Card Act Could Result In Risky Retailer Payment Networks

The CRS this week issued a report analyzing the Durbin-Marshall Credit Card Competition Act, S.1838 (see FSM Report INTERCHANGE10), projecting that fee caps will have a greater impact on transaction fees than competition, with …

12 12, 2023

DAILY121223

2023-12-12T17:09:22-05:00December 12th, 2023|2- Daily Briefing|

IMF Calls for Enhanced Climate-Risk Analyses, Stress-Testing

Calling for implementation of the Basel Committee’s climate-related financial risk principles (see FSM Report CLIMATE14), the IMF’s Monetary and Capital Markets Department Director, Tobias Adrian, today pressed central banks to enhance their climate risk analyses and adapt stress-testing frameworks to better reflect climate-financial risk transmission and amplification channels.

Agencies Come Under Still More Workplace-Practice Scrutiny, Political Pressure

As we noted last week, House Republicans are now using ongoing assertions of FDIC workplace dysfunction to attack the OCC.

HFSC Subcomm Considers Sanctions Enforcement

Today’s HFSC National Security Subcommittee hearing focused primarily on critiques of US energy sanctions enforcement related to Russia, Iran, and Venezuela.

House Select Committee Calls on Fed to Stress Test China Risk

The House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party today released a bipartisan report urging Congress to direct the Fed to stress-test U.S. banks for their ability to withstand Chinese market risk, produce classified reports on these assessments, and consider the financial market impact of potential sanctions on Chinese financial firms.

Basel Proposes Modest Fix to IRR Standards, Post-SVB Revisions Await

As anticipated, the Basel Committee today released a consultation revising global interest-rate risk (IRR), standards updating current banking-book standards (see FSM Report IRR7) to toughen the IRR-shock calibration.

McKernan Extends Capital Olive Branch

FDIC Director McKernan today offered an end-game compromise that might actually lead to final rules in 2024 that defer some of the …

8 12, 2023

DAILY120823

2023-12-08T16:54:36-05:00December 8th, 2023|2- Daily Briefing|

Basel Study Concludes Banks at Climate Risk Despite Lit-Survey Conclusions

A new Basel Committee working paper provides a literature review of recent analyses of climate risk’s impact on financial institutions to assess the drivers key to establishing the scenario analyses recently outlined in the Committee’s final climate-risk principles (see FSM Report CLIMATE14) and those recently finalized by U.S. banking agencies (see FSM Report CLIMATE17).

EU Regulators Seek AT1 Certainty

Treasury and the EU today issued a joint statement summarizing topics discussed at this week’s U.S.-EU financial regulatory forum.  These included financial stability, bank-regulatory developments, AML, sustainable finance, supervisory coordination, and digital-finance operational resilience.

Senate GOP Tackles U.S. Participation in FSB Entities

Sens. Braun (R-IN), Hagerty (R-TN), and Marshall (R-KS) have introduced S. 3446, a bill to require the banking agencies to report on their interactions with nongovernmental international organizations.  This is part of the broader campaign to block U.S. agencies from adhering to edicts such as the end-game capital rules, reaching also insurance and securities standards.

HFSC Leadership Blast Hsu’s Competence, Agency Operations

HFSC Subcommittee Chairs Barr (R-KY), Huizenga (R-MI) and Hill (R-AR) sent a letter today to Acting Comptroller Michael Hsu continuing their attacks (see Client Report FINTECH33) against the OCC for its recently reported hiring of an individual with falsified credentials to oversee the OCC’s Office of Financial Technology.

Daily120823.pdf

1 12, 2023

Al120423

2023-12-01T16:41:48-05:00December 1st, 2023|3- This Week|

Capital Conundrum

Early signals indicate that GSIB CEOs summoned this week before Senate Banking will do their best to use the session to solidify Congressional calls for substantive changes in pending capital rules based on a far more transparent, systematic CB analysis.  Signals such as the Brown/Reed letter last week also make it clear that Democrats will push hard for tougher GSIB-specific standards to offset increasingly-likely changes to the capital rules.  Democratic advocates of specific changes – i.e., with regard to LMI mortgages and small-business credit – will also use the session to navigate a path between helping regional banks on key points while looking tough on the overall question of big-bank capital.  Again, sticking it to GSIBs may be their tactic.  Republicans won’t let up against the capital rules, but we suspect they’ll also focus on borrowers and regional banks, side-stepping GSIB surcharges and other top-tier questions wherever possible.

Al120423.pdf

29 11, 2023

DAILY112923

2023-11-29T16:51:26-05:00November 29th, 2023|2- Daily Briefing|

FDIC’s OIG Presses for Non-Capital PCA Triggers, Additional Supervisory Reform

The FDIC’s OIG report on First Republic’s failure is at least as scathing as its SBNY post-mortem.

Treasury Launches Anti-Crypto Enforcement Campaign

In remarks today from Deputy Secretary Wally Adeyemo, Treasury officially launched its anti-crypto sanctions and AML campaign.

Basel Proposes Sweeping Climate-Risk Disclosure Standards

Following the FSB’s finding that most banks were failing to provide meaningful climate disclosures, the Basel Committee today issued proposed climate-risk disclosure standards.

3Q Report Highlights AOCI Risk

The FDIC’s 3Q banking-condition report includes a stunning 22.5 percent rise in the total of HTM and AFS unrealized losses, which now stand at $683.9 billion.

Senate Banking Opens Private-Credit Inquiry

Senate Banking Chair Brown (D-OH) and Sen. Reed (D-RI) today asked FRB Vice Chair Barr, Acting Comptroller Hsu, and FDIC Chair Gruenberg to look into the risks private credit poses to the banking system.

Daily112923.pdf

21 11, 2023

DAILY112023

2023-11-21T10:36:54-05:00November 21st, 2023|2- Daily Briefing|

Thompson: No Regulatory “Silos” in a Crisis

Reiterating much in FHFA’s sweeping FHLB report, FHFA Director Thompson today reinforced suggestions that FHLBs can avoid acting as lenders of last resort because there are no regulatory “silos” in a crisis.

IMF Reconsiders CBDC

On Friday, the IMF updated its CBDC work, concluding that it is prudent for most countries to consider CBDC implementation even though nations are increasingly hesitant to do so.

IMF: Nations Should Block Fintech Reg Arbitrage

A new IMF study finds that Fintechs adversely affect bank profitability, concluding that “well-designed” fintech regulations are necessary to foster a level bank-fintech playing field.

House Opens New Front vs. FDIC

Following an official HFSC investigation and a raft of letters from Democrats and Republicans, House Oversight Subcommittee on Health and Financial Services Chairwoman McClain (R-MI) along with Rep. Biggs (R-AZ) today sent a letter to Chairman Gruenberg requesting briefings, documents, and communications regarding harassment and workplace practices.

Daily112023.pdf

15 11, 2023

REFORM230

2023-11-15T15:58:45-05:00November 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 …

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