#Credit Suisse

21 10, 2024

Karen Petrou: Competitiveness in a Cold, Cruel World

Eliza Allen2024-10-21T12:04:19-04:00October 21st, 2024|The Vault|

When I gave a talk last week about bank-merger policy, I was asked an important question: if I’m right about the franchise-value challenges facing most U.S. banks, then why is banking here doing so much better than in other advanced, market-oriented nations? The answer in part is that, in a pond full of ugly ducklings, a scrawny mallard with just a few more feathers looks a lot better. But, it’s more complicated than that. The reasons why make it clear that, if bank-merger policy remains implacably set against economies of scale and scope, then only a very few, very big birds and more than a few nonbirds will own the waters.

As in any comparative analysis, the first step to judging U.S. banks versus those in other nations is to define which banks are being compared. Most other nations have very few, very big banks often considered national-champion charters dedicated as much to supporting their sovereign governments as to placating shareholders. As our recent merger-policy paper details, national champions are insulated from market discipline because they are almost always expressly too big to fail. Credit Suisse was an exception to this rule, but only because it failed so fast and Switzerland was so unready for resolution that it could do nothing more than fold one national champion into another, UBS.

For all the talk of TBTF banks in the U.S. and the benefits the very biggest enjoy during flight-to-safety situations, none are yet a national champion, and a good thing …

6 10, 2023

FedFin Assessment: Basel Lays Big Plans for Basel V

Arezou Rafikian2023-10-06T14:47:18-04:00October 6th, 2023|The Vault|

As we noted yesterday, the Basel Committee’s October meeting concluded not only with plans for new disclosure consultations, but also a report on lessons learned from the 2023 crisis. We have long considered the “end-game” standards so substantive as to constitute Basel IV; now, as this report details, Basel is laying plans for Basel V via new liquidity, interest-rate, capital, and structural changes to the current construct. We thus focus on the supervisory and regulatory action steps Basel posits as necessary responses to the financial-market volatility sparked earlier this year by SVB, SBNY, FRC, and CS’s failures. While Basel states that none of its recommendations necessarily presages near-term global standards, …

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

10 04, 2023

Karen Petrou: Why the Fed is a Repeat Offender

Eliza Allen2023-04-10T17:29:46-04:00April 10th, 2023|The Vault|

As we noted in a recent report, a divided Congress that may not even be able to keep the U.S. Government in business is one unlikely to enact substantive financial reform. Thus, we’re in for yet another episode of political damage control, regulatory excuses, and a few heads on enforcement spikes without meaningful, measurable, and accountable supervisory reform. Been there, done that, had another financial crash, or so my dispiriting read of recent efforts to force post-crash supervisory reform makes all too clear. It’s probably too much to ask that Congress not flit off to the next election before it ensures meaningful regulatory-agency accountability for manifold supervisory lapses, but if it does what it usually does, then we are doomed to more crashes with worse consequences unless it and the White House force the Fed to do what it’s never done before: meaningfully and transparently improve supervisory rigor and enforcement might.

In my memo three weeks ago, I showed how regulators by 2001 had failed to act on the lessons of the 1980s and 1990s before the largest bank failure at the time presaged the great financial crisis hot on its heels. After the GFC, the U.S. convened the Financial Crisis Inquiry Commission (FCIC). When it issued its report in 2011, it drew scathing conclusions not only about all the “light-touch” regulation before the crash, but also supervisory unwillingness or inability to ensure that what rules there were were rules that were obeyed.

Despite this report and …

22 03, 2023

FedFin Assessment: GSIB Rules Set For Post-CS Rewrite

Arezou Rafikian2023-03-22T16:34:58-04:00March 22nd, 2023|The Vault|

In this report, we assess the implications of recent events on two assumptions underlying current U.S. and global policy affecting GSIBs and those considered domestic SIBs: first, all are likely to be well insulated from illiquidity and/or insolvency and, when this is not the case, then orderly resolution without taxpayer bailout can be readily deployed. Credit Suisse’s failure and subsequent, subsidized acquisition is just one of the “Minsky moments” rattling regulators and other policy-makers, with the conclusions drawn from all of them surely to lead to significant reevaluation of each of these assumptions. To be sure, CS was an outlier in terms of idiosyncratic culture-and-control problems, but the Swiss regulatory and resolution system is considered reasonably robust, thus making the bank’s failure…

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

…

17 03, 2023

FedFin Assessment: Future of U.S. Bank Capital, Liquidity, Structural Regulation

Eliza Allen2023-03-17T16:50:38-04:00March 17th, 2023|The Vault|

In this report, we continue our policy postmortem of SVB/SBNY and, now, so much more. Prior reports have assessed the overall political context (see Client Report RESOLVE49) and likely changes to FDIC insurance (see Client Report DEPOSITINSURANCE118), with a forthcoming Petrou op-ed in Barron’s focusing on specific ways to reform federal deposit insurance to protect only the innocent. In this report, we look at some key regulatory changes likely as the banking agencies reevaluate the regional-bank capital, liquidity, and the IDI/BHC construct. As noted in our initial assessment and thereafter, we do not expect meaningful legislative action on the Warren, et. al. bill to repeal “tailoring” requirements, but we do expect bipartisan political pressure not just for supervisory accountability (see another forthcoming report), but also regulatory revisions.

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