#Cryptoassets

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28 11, 2022

DAILY112822

2022-11-28T16:52:04-05:00November 28th, 2022|2- Daily Briefing|

Fed Staff Paper Counters CBDC First-Mover Arguments

Supporting the Fed’s decision not to move quickly on CBDC (see FSM Report CBDC10), a new Fed staff paper found little evidence of any national first-mover advantages, running counter to many lawmakers’ concerns about the US falling behind China or Europe (see Client Report CBDC13).  The paper argues that the speed of technological innovation, the ability of large economies to dictate technology standards, and the ability of subsequent movers to improve on the design of first movers minimizes any early advantages gained in international payments.  It also reiterates the Fed’s view that the dollar’s position as the global reserve currency is not at risk, citing the slow nature of historical financial transitions.

Basel Turns Focus To NBFI Interconnectedness, Leverage-Ratio Risk

Continuing the global-regulatory focus on nonbank financial intermediation (see Client Report NBFI2), the Basel Committee last week concluded that continued NBFI sector growth poses financial-stability concerns and highlighted interconnectedness risks and inadequate management practices.  Specific concerns center on due-diligence failures, margining practices, and limit frameworks.  The Committee also identifies regulatory arbitrage regarding the leverage ratio, providing no explanation of what this might entail.  Additional areas of concern include NBFI counterparty exposure through derivatives and securities financing, leveraged lending, prime brokerage, and cryptoasset services.

Daily112822.pdf

21 11, 2022

DAILY112122

2022-11-21T17:37:05-05:00November 21st, 2022|2- Daily Briefing|

FRB-NY Considers Why Deposit Rates are Now So Sticky

As Karen Petrou’s talk last week noted, Democrats and the CFPB have charged that exploitation explains why bank deposit rates now lag Fed rate hikes.  Today’s post from the Federal Reserve Bank of New York finds a steady decline in bank deposit-rate matches to Fed rate hikes since 1994, but also identifies market factors that largely explain rate sluggishness.  The study estimates the “deposit beta” – i.e., the difference between FOMC hikes and all deposit rates (including non-interest paying funds) found in BHC data.

Senate Dems Demand Digital-Asset Crackdown

Following last week’s hearings with the banking agencies (see Client Report REFORM214), Chairman Brown (D-OH) and Senate Banking Democrats today sent letters urging Vice Chair Barr, Acting Chairman Gruenberg, and Acting Comptroller Hsu to review SoFi’s digital asset activities, accusing the firm of improperly expanding its crypto trading following commitments not to do so when it was granted licenses as a national bank and BHC.  Following the playbook of pressing for rules and enforcement rather than new law, Senators point to a new SoFi service they believe is not only an “expanded” digital-asset activity despite a commitment to wind down these impermissible activities, but also is dangerous to investors and unsafe and unsound.

Daily112122.pdf

16 11, 2022

REFORM215

2022-11-22T15:02:46-05:00November 16th, 2022|5- Client Report|

HFSC Session Brings Crypto Action to Fore, “Holistic” Capital Under Scrutiny

HFSC today largely focused bank regulators on the same range of questions posed at yesterday’s Senate Banking session (see Client Report REFORM214).  However, Chairwoman Waters (D-CA) emphasized the importance of federal legislation in sharp contrast to Chairman Brown (D-OH), also announcing a hearing in December on FTX.  Ranking Member McHenry (R-NC), who will become HFSC chairman in the next Congress, concurred with the chairwoman’s views on the need for digital-finance statutory reform.  However, he took strong issue with inter-agency policy with regard to new capital rules, merger restrictions, and third-party relationship constraints.  Republican members also targeted Vice Chairman Barr’s holistic capital review, arguing that banks are currently well capitalized and that additional standards would hamper lending.  Mr. Barr indicated that an SLR rewrite is part of the holistic review but not immediately necessary to quell Treasury-market volatility or illiquidity.  As discussed in more detail below, regulators promised banking-sector crypto rules at least as stringent as Basel’s proposal.

REFORM215.pdf

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15 11, 2022

REFORM214

2022-11-22T15:27:38-05:00November 15th, 2022|5- Client Report|

Crypto, Deposit Rates, Capital Top Senate Discussion

At today’s Senate Banking oversight hearing with the banking agencies, Chairman Brown (D-OH) generally applauded the work of regulators, emphasizing the need for tough standards, like-kind rules for bigtech companies, and an inquiry into why depositor interest rates lag Fed rate hikes along lines posed earlier by Sen. Reed (D-RI).  FDIC Acting Chairman Gruenberg concurred, criticizing banks for sluggish rates.  Ranking Member Toomey (R-PA) reiterated his longstanding complaints about regulators straying outside their mission in areas such as climate change.  He also called for SLR relief to reduce Treasury-market risk and opposed pending large-bank resolution guidance (see FSM Report LIVINGWILL19) on grounds that it is unnecessary.

REFORM214.pdf

10 11, 2022

DAILY111022

2022-11-10T17:35:13-05:00November 10th, 2022|2- Daily Briefing|

Inter-Agency Treasury-Market Rewrite Progresses

Treasury’s Inter-Agency Working Group on Treasury Market Surveillance (IAWG) today released a progress report on its efforts to guide action to stabilize the Treasury marketplace.

Fed Reg Report Highlights Future Priorities

The Fed today released its semiannual Supervision and Regulation Report, reiterating that banks entered 2022 in historically sound financial shape and outlined its priorities based on the potential risks of changing market conditions.

FSB NBFI Report Highlights Liquidity, Systemic Risk

The FSB today released a progress report on improving the resilience of non-bank financial intermediation (NBFI), recommending a number of enhancements to the current policy toolkit to better mitigate liquidity and financial stability risk.

CFPB Spotlights Cryptoasset Complaints

The CFPB today published a bulletin analyzing cryptoasset complaints the Bureau has received since 2018, observing a large spike in these complaints over the past two years and concluding that fraud, theft, hacks, and scams are widespread problems affecting participants in crypto markets.

CFPB Continues Furnisher Accountability Campaign

The CFPB today continued its campaign for furnisher accountability by issuing a circular upholding the Bureau’s belief that consumer credit reporting agencies and furnishers must conduct a reasonable investigation of non-frivolous consumer disputes and that failure to do so may subject them to CFPB enforcement under the FCRA.

CFPB Modifies Nonbank Financial-Company Standards

The CFPB today acted again by fiat to amend what it calls its procedural rule (see FSM Report CONSUMER41) revising its “dormant” authority and, as we noted in our analysis, creating a sweeping …

9 11, 2022

Al090522

2022-11-09T16:27:23-05:00November 9th, 2022|3- This Week|

Summer’s Over

Last week marked the end of meteorological summer and this week the end of Congressional recesses and the bit of downtime global and U.S. regulators and other officials allow themselves.  We’re gearing up for a busy session ahead of the midterms in which U.S. regulators will try to finalize as much as they can as fast as they can to avoid political obstacles should the GOP gain Congressional control and members of Congress position bills for possible enactment in the lame-duck or, should anything occur before then, as riders to a must-pass bill.  Last week did include an important announcement of a new initiative assessing the future of the Federal Home Loan Banks which, as we noted, raises big issues about a little-noticed GSE with big implications for housing policy, funding strategy, and much more….

Al090522.pdf

20 10, 2022

DAILY102022

2022-10-20T17:36:06-04:00October 20th, 2022|2- Daily Briefing|

Fed Staff Study: Climate Risk-Based Capital Impossible for Foreseeable Future

FRB staff released a stylized study of one critical climate-risk policy question:  the extent to which banks should hold capital against it.  Members of Congress have suggested this over recent years (see FSM Report GREEN9) and the BIS at the outset of its thinking recommended both “brown-penalty” and “green-incentive” capital charges (see Client Report GREEN).

FSB Presses for MMF, Open-End Rules; Government-Bond CCPs

Continuing its NBFI focus (see Client Report NBFI), the FSB today issued new recommendations to address government-security market illiquidity.

Gruenberg Gives No Clue as to Timing, Content of Inter-Agency Crypto Guidance

In remarks today, Acting Chairman Gruenberg reiterated the risks laid out in the FSOC digital asset report (see Client Report CRYPTO33), repeated warnings against misrepresenting FDIC deposit insurance, and announced forthcoming interagency crypto guidance without providing any details or timeline.

Bipartisan Senators Press Secondary Sanctions for Enactment

Sens. Toomey (R-PA) and Van Hollen (D-MD) released a readout of a conversation with the Ukrainian Ambassador on the upcoming G7 Russian oil price cap, positioning their oil sanctions amendment for inclusion in the National Defense Authorization Act (NDAA) in light of the Ambassador’s support for it.

Warren Calls for Stronger, More Transparent CFPB Remittance Rule

Joined by four Senate Democrats, Sen. Warren (D-MA) today sent a letter to CFPB Director Chopra asking that the agency strengthen its remittance rule to ensure greater transparency for exchange rates and fees it …

17 10, 2022

CRYPTO34

2022-10-24T11:26:12-04:00October 17th, 2022|1- Financial Services Management|

Global Cryptoasset/Stablecoin Standards

Speaking for global banking, securities, and insurance regulators, the Financial Stability Board has taken its firmest stand to date on cryptoassets and outlined high-level and often principles-based global standards to govern them going forward.  Although generally limited to financial stability and often couched in broad terms, these global standards would generally track the very crypto-cautious stand taken by U.S. regulators as well as policy set by the Securities and Exchange Commission, not that also of the Commodity Futures Trading Commission when it comes to cryptoassets that cross traditional sectoral boundaries.

CRYPTO34.pdf

17 10, 2022

DAILY101722

2022-10-17T17:11:36-04:00October 17th, 2022|2- Daily Briefing|

FRB KC: Distrust, Wealth Gap Behind Black Consumer Crypto Appeal

A new article from the Federal Reserve Bank of Kansas City reviews multiple factors that contribute to cryptocurrency’s appeal to Black consumers, an issue initially highlighted by Karen Petrou in an op-ed in September of 2021.  Key factors include the racial wealth gap, the “generational” distrust of financial institutions, crypto’s accessibility and perceived stability compared to traditional financial institutions, and increasing comfort with digital technology.  The article’s conclusions are grounded in an array of survey data reiterating significant statistical disparities in equity ownership and median household wealth between white and black households, correlating these with higher proportional crypto ownership of Black compared to white adults.

Daily101722.pdf

12 10, 2022

DAILY101222

2022-10-12T16:58:59-04:00October 12th, 2022|2- Daily Briefing|

ECB Staff: Retail CBDC Success May Hang on Interest-Rate Inducements

A new paper from European Central Bank staff looks not so much at CBDC policy objectives, but at whether central banks can achieve them and still satisfy the needs of retail depositors and businesses.  Based in part on two small, failed CBDC ventures, the paper concludes that CBDC adoption will prove harder than policy focused CBDC analyses suggest.

Barr Accepts Crypto Activities In Banks But Demands New Safety Rules, Consumer Standards

Although he did not adopt Acting Comptroller Hsu’s attack yesterday on cryptoassets, Fed Vice Chair Barr today made it clear that the Fed believes, as it and global regulators repeatedly say, that the same risks should be covered by the same rules.  Mr. Barr does believe that cryptoasset activities may be appropriate for banks if appropriate standards and internal controls are in place, noting that the Fed is now moving past its own supervisory guidance (see FSM Report CRYPTO31) to work with the FDIC and OCC to craft additional standards.

IOSCO Releases Global Online Marketing, Enforcement Standards

IOSCO today increased its focus on digitalization, moving away from longstanding edicts regarding monitoring to a set of specific standards for supervision and enforcement.  IOSCO urges supervisors to require firms to have online marketing-and-distribution standards as well as protocols governing online onboarding.

Daily101222.pdf

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