8 08, 2023

FedFin on: Say It’s Simple

2023-08-09T14:19:41-04:00August 8th, 2023|The Vault|

Our most recent analysis of the inter-agency capital proposal focuses on significant changes to the rules for securitization and credit-risk transfer positions. In short, super-traditional securitizations have an easier path to the secondary market, but GSEs still beat banks. Complex ABS face often-formidable obstacles, as does CRT given or taken by banks.

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

24 04, 2023

Karen Petrou: The Price of Higher FDIC Protection and How to Prevent It

2023-04-24T10:40:22-04:00April 24th, 2023|The Vault|

Last week’s memo stirred up a lot of comment about ways to provide at least some private-sector deposit insurance.  The consensus is that, while nothing is easy about a private-sector backstop for federal coverage, the concept warrants careful consideration because all the other reform ideas on their own are still more problematic.  This isn’t just because proposals for expanded federal coverage – my own included – extend the federal safety net at resulting moral hazard.  In some cases, as I said, this risk is worth taking because some depositors warrant protection.  Still, there’s sure to be a price for more federal coverage – super-costly premiums and/or more bank regulation – that argue for market-based solutions to the greatest extent compatible with social welfare and stable finance.

This trade-off was most recently addressed last week by John Vickers, a former U.K. regulator.  Commenting on proposals across the pond akin to those in the U.S. to expand the sovereign deposit backstop, Mr. Vickers cautioned that added coverage should come with higher regulatory capital to ensure that banks do not take undue advantage of the comfy quilt into which the current, porous safety net would be transformed.

The U.K. deposit insurance system is different than that in the U.S., most notably by the absence of costly, ex ante bank premiums for the privilege of deposit-insurance coverage.  However, the U.S. risk-based premium system that sets bank premium payments is asset – not insured deposit – based.  As a result, coverage could go up considerably …

17 04, 2023

Karen Petrou: Why FDIC Privatization Isn’t a Pipe Dream

2023-04-17T12:02:05-04:00April 17th, 2023|The Vault|

As night follows day, so proposals to privatize the FDIC have again followed bank failures.  While debate over deposit-insurance privatization was, is, and will be an ideological tug of war between free-market conservatives and government safety-net progressives, it’s nonetheless an important option that warrants careful analysis as the FDIC yet again faces huge losses, banks are charged crippling and procyclical premiums, and talk turns to still more federal coverage at still greater risk not just to insured banks, but also to taxpayers.  Pure FDIC privatization remains impossible, but target risk transfers warrant careful, but quick consideration.

Privatization was last seriously discussed when Congress rewrote FDIC coverage in 2006.  This was a halcyon time when the FDIC was so sanguine about all the rules put in place after the S&L and bank crises that its 2007 study confidently predicted that systemic risk was a thing of the past, uninsured deposits would never again be covered, and the Deposit Insurance Fund more than sufficed for any systemic situation.

Of course, the great financial crisis that began later that same year put the lie to all this happy talk.  Privatization proposals now aren’t anywhere near as happy nor do they repeat past assertions that, with FDIC privatization, the nation could also dispense with bank regulation.  Instead, and for good reason, talk has now returned to private options because, without them, moral hazard seems sure to be embedded in a financial system that is still more shadowy.

A modern rethink of FDIC privatization must …

20 03, 2023

FedFin on: The Collateral Damage of the Banking Crisis

2023-03-20T14:30:07-04:00March 20th, 2023|The Vault|

In this report, we build on FedFin’s in-depth reports about recent bank failures to detail new risks for all of the innocent bystanders in the U.S. mortgage market along with a not so-innocent bystander:  the Federal Home Loan Banks.  We note also some take-aways FHFA may draw from the crisis with regard to GSE regulation, resolution, and supervision.  In short, things will be different assuming they don’t get worse and then still more of a paradigm shift.

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

19 08, 2022

FedFin: The Social-Impact Say-So

2023-01-04T11:19:39-05:00August 19th, 2022|The Vault|

We look here at an interesting idea from three senior Fannie Mae officials: an index to measure a Single-Family MBS’s social impact.  The proposal seeks to enable socially conscious investors to support affordable housing for underserved communities while balancing the needs of mortgage borrowers, investors, and market function.  It also reflects the objectives laid out in Fannie Mae’s Equitable Housing Finance Plan such as providing social impact data and boosting low-income and minority homeownership. …

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


21 04, 2022

FedFin: Risk-On CRT for a Risk-Off Market?

2023-03-02T10:38:46-05:00April 21st, 2022|The Vault|

In our last CRT analysis, we looked at transaction viability under the Basel IV rewrite set for rapid release once key Fed nominees are finally confirmed.  Now, we turn to another viability consideration: the extent to which CRT can thrive in spite of these capital obstacles and accomplish a vital purpose spelled out in a recent Urban Institute report: enhance equitable finance as FHFA demands.  In short, we hope so, but it won’t be easy.

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

17 12, 2021

FedFin: Building Buffers

2023-05-22T15:57:33-04:00December 17th, 2021|The Vault|

As noted on Thursday, FHFA continues to tread carefully through the big-bank rulebook, adopting standards said to be like-kind that aren’t quite so similar when it comes to critical details.  The latest proposal demands capital planning in a construct akin to the one Democrats favored as the agencies finalized the big-bank stress capital buffer (SCB) minus express restrictions on capital distributions.  Although the SCB will make Fannie and Freddie more resilient, it also steepens the climb out of conservatorship unless some new capital comes along.

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

15 09, 2021

FedFin on: GSEs Get a New, If Familiar, Gig

2023-08-03T14:58:42-04:00September 15th, 2021|The Vault|

As noted yesterday, Treasury and the FHFA pulled the Trump PSPA’s plug, although importantly and widely overlooked is that this is true only when it comes to near-term asset-purchase considerations.  Still, with this action atop all the others redefining Fannie and Freddie since Sandra Thompson took over, the GSEs are being reconfigured into agents of Administration policy in concert with being still more critical agencies for housing finance.

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

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