#DIF

14 06, 2023

CONSUMER51

2023-06-14T16:55:35-04:00June 14th, 2023|5- Client Report|

Chopra Holds His Own Under GOP SVB, Consumer-Protection Attack

With Rep. Andy Barr (R-KY) leading the attack with an accusation of CFPB “McCarthyism,” today’s HFSC hearing with Director Chopra tracked much in yesterday’s Senate Banking session.  As before, Republicans strongly attacked the credit-card late-fee proposal (see FSM Report CREDITCARD36) and new small-business reporting requirements.  However, the lengthy session also allowed Members on both sides of the aisle to probe issues to which Senate Banking failed to turn.  One of these was the FDIC’s decision to establish bridge banks for SVB and Signature and to sell FRC to JPM.  Mr. Chopra vigorously denied any role of what some have called progressive ideology in opposing bids for SVB, noting also systemic concerns at that time partly due to fears about Credit Suisse.  The agency’s controversial data-rights proposal will be out in October, with Director Chopra saying also that the proposal covers nonbanks by virtue of the data to be covered.  Provider cyber-security will also be addressed.  This report covers additional high-impact issues at the hearing including AI, UDAAP, and systemic designation.

CONSUMER51.pdf

31 05, 2023

DAILY053123

2023-05-31T17:00:40-04:00May 31st, 2023|2- Daily Briefing|

IMF: Housing Risk Not At GFC Level, Still Worrisome

While falling home prices are unlikely to trigger another financial crisis, an IMF blog post today finds that a drop could still harm the global economic outlook.

FDIC Tries Guarded Optimism

The FDIC’s first-quarter report on the condition of the U.S. banking industry was guardedly optimistic, but that in part appears to be due to the way in which the agency foresees its problems.  Problem banks are up by 4 to 43 with $58 billion in assets among them.

End-Game Starts Soon

FRB Governor and Vice-Chair nominee Jefferson today expanded on the Fed’s financial-stability objectives, resolutely disavowing any of the credit-allocation ambitions Republicans sometimes ascribe to its work on climate risk.

CFPB Small-Business Disclosures Go Live

The Federal Register today includes the CFPB’s controversial final rule on small business data collection published late March which the Bureau says will increase transparency in small business lending, promote economic development, and combat unlawful discrimination.

FHA Expands Pandemic Mortgage Relief As Rates Rise

FHA today requested comment on a new loss mitigation proposal called the Payment Supplement Partial Claim allowing servicers to use FHA funds to bring a borrower’s mortgage current and temporarily reduce principal payments.

Daily0523123.pdf

24 05, 2023

DAILY052423

2023-05-24T17:16:58-04:00May 24th, 2023|2- Daily Briefing|

New Fed Paper Shows Link Between Twitter, Market Sentiment, Run Risk

A new FRB staff paper uses natural-language models and social-media data to craft a “twitter sentiment index” (TSI) that is then compared to actual market conditions.

Democrats Press Clawback, Regulatory Fixes as HFSC Considers Transparency Measures

Today’s HFSC mark-up so far has focused on one of Rep. Barr’s (R-KY) three regulatory transparency bills, with Democrats proposing a series of amendments without any deciding votes.

House Oversight Panel Focuses On Supervisory Accountability, Reform

At today’s hearing of the Financial Services Subcommittee of House Oversight on bank failures and supervision at the San Francisco Fed, Subcommittee Chairwoman McClain (R-MI) opened with a series of sharply-worded questions on who oversaw the bank, what factors might have distracted them from traditional supervision, why glaring risk factors were not more forcefully addressed, whether regulators were unduly complacent, whether the Fed and FDIC used all of their regulatory tools, and if the agencies have been objective and transparent in their bank failure post-mortems as well as their accounts of the systemic risk exception.

Markup Votes Postponed for Transparency, LLPA Bills

Since our last alert, Democrats continued to submit amendments for Rep Barr’s (R-KY) transparency bill at today’s HFSC markup and party lines cemented over Rep. Davidson’s (R-OH) LLPA bill.

Daily052423.pdf

19 05, 2023

DAILY051923

2023-05-19T17:03:07-04:00May 19th, 2023|2- Daily Briefing|

Bowman Strengthens Stand Against New Rules, Possible Supervisory Overkill

In case anyone doubted her meaning last week, FRB Gov. Bowman today repeated her strong opposition to the regulatory rewrites spelled out in what at first seemed the Fed’s but is now apparently only Vice Chairman Barr’s report (see Client Report REFORM221).  Ms. Bowman also reiterates her call for an independent study, continued tailoring, and improved supervision.

Bills To Reduce Regulatory Independence Advance

As anticipated at his last hearing, HFSC Financial Institutions Subcommittee Chairman Barr (R-KY) has now formally introduced three regulatory transparency bills.  We will shortly provide clients with in-depth analyses of these bills, which we expect quickly to proceed to mark-up on largely party-line votes.

Warren Pounces On Reports Of Treasury-Bond Assessment Proposal

Sen. Warren (D-MA) yesterday sent a strongly-worded letter to FDIC Chairman Gruenberg demanding that the FDIC reject reported big bank plans to replenish the DIF with at-par Treasury bonds rather than the proposed special assessment (see FSM Report DEPOSITINSURANCE120).

BIS’s Carstens Dismisses Crypto, Calls For Tighter Non-bank Controls

In a wide-ranging speech today, BIS General Manager Agustín Carstens sharply criticized cryptocurrencies and called for greater regulation of the nonbank sector to avert a systemic financial crisis.

Daily051923.pdf

15 05, 2023

M051523

2023-05-15T11:52:42-04:00May 15th, 2023|6- Client Memo|

How An Ill-Designed Special Assessment Is Sure To Scramble The Structure Of Federal Deposit Insurance

As our forthcoming in-depth analysis will detail, the FDIC’s proposed special assessment raises a raft of policy problems not contemplated by the FDIC despite a steep price tag warranting careful thought at a time of financial instability and recessionary risk.  The FedFin analysis will detail the proposal, what the FDIC thinks, and what the proposal might do to whom, but here’s my opinion:  the FDIC’s decision to allocate blame for SVB and Signature’s failures to a select group of surviving larger banks is a politically-expedient violation of the principal of insurance and a terrible precedent for the future of federal deposit coverage.

M051523.pdf

15 05, 2023

Karen Petrou: How An Ill-Designed Special Assessment Is Sure To Scramble The Structure Of Federal Deposit Insurance

2023-05-15T11:52:36-04:00May 15th, 2023|The Vault|

As our forthcoming in-depth analysis will detail, the FDIC’s proposed special assessment raises a raft of policy problems not contemplated by the FDIC despite a steep price tag warranting careful thought at a time of financial instability and recessionary risk.  The FedFin analysis will detail the proposal, what the FDIC thinks, and what the proposal might do to whom, but here’s my opinion:  the FDIC’s decision to allocate blame for SVB and Signature’s failures to a select group of surviving larger banks is a politically-expedient violation of the principal of insurance and a terrible precedent for the future of federal deposit coverage.

First problem: the FDIC assigns blame to a large group of bigger banks even though its own analysis of the SVB and SBNY failures points to a different underlying reason for the systemic designation.  In the proposal, the FDIC targets large holdings of uninsured deposits even though both its post-mortem and the Fed’s of the two systemic failures cites bad management as the most important cause of death.  Both agencies do note the new risks posed by social-media runs that hastened the banks’ passing, but each also makes it clear that these new-age runs are an endemic challenge to bank resilience, not a risk unique to SVB and Signature or other banks with large amounts of uninsured deposits.  The FDIC proposal contains no explanation of why uninsured-depositories are the systemic rescue’s fall guys even though these deposits aren’t the cause of the two bank failures and the risks …

18 04, 2023

DAILY041823

2023-04-18T17:03:30-04:00April 18th, 2023|2- Daily Briefing|

FRB-NY Finds NBFIs a Source of Systemic Risk Over the Centuries

Reflecting renewed interest in “narrow banks,” the Federal Reserve Bank of New York blog posted evidence of systemic risk from nonbanks in the absence of any banks at all.

Stablecoin Compromise Faces Steep Challenges

As noted yesterday, HFSC’s Digital Asset Subcommittee is set for a Wednesday hearing clearly intended to lay the groundwork for near-term action on Chairman McHenry’s (R-NC) longstanding goal of enacting stablecoin legislation.

Despite Failures, DIF Restoration Ahead Of Schedule

At the FDIC Board’s meeting today, FDIC staff said that – while the timing for restoring the DIF to its 1.35% statutory minimum remains uncertain – the DIF could reach its statutory minimum ahead of time and by 2024.

Bowman Remains Staunch CBDC Skeptic

Reiterating that any U.S. CBDC requires Congressional approval, Gov. Bowman today also reiterated her longstanding skepticism to any such instrument.

CFPB Plans Timing Study to Buttress Junk-Fee Regs

The Federal Register today includes a CFPB comment request on its “Junk Fees Timing Study,” which would be part of a series of online lab experiments testing differences in consumer choices across different information presentations.

Warren, Reed Demand OFR Use Subpoenas To Obtain Systemic Data

Sens. Warren (D-MA) and Reed (D-RI) today urged OFR Acting Director Martin to fill data gaps around financial stability risks posed by climate change, cryptocurrencies, and repo markets.

Daily041823.pdf

17 04, 2023

M041723

2023-04-17T12:01:55-04:00April 17th, 2023|6- Client Memo|

Why FDIC Privatization Isn’t a Pipe Dream

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.

M041723.pdf

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 …

11 04, 2023

DAILY041123

2023-04-11T16:56:01-04:00April 11th, 2023|2- Daily Briefing|

FRB-NY Finds Still Sticker Deposit Rates, Tougher Fed Policy Transmission

A new post from Federal Reserve Bank of New York staff concludes that, even as deposit funding declines, banks remain liquid due to less rate-sensitive sources such as time deposits and FHLB advances.  As we noted when assessing a prior FRB-NY deposit post, these analyses go beyond conventional deposit-flight and unfair-competition arguments to show the complexity of funding-market behavior during periods of rising interest rates.  The latest post brings the prior study through the end of 2022, showing continuing lags between the fed funds rate and interest-bearing deposit rates through the fourth quarter.

Chopra Wants Expanded FDIC Coverage, Payment-System Guardrails, Comp Reform

In remarks today, CFPB Director Chopra called for tailoring DIF assessments to protect community banks and to expand coverage to payroll and certain other accounts.  He also said that current law may give regulators the tools needed to deal with viral runs via systemic designations for certain payment systems and/or providers.  He did not explain how this would be accomplished in practice (e.g., mandatory speed bumps, etc.).

Daily041123.pdf

Go to Top