#Dimon

6 12, 2023

GSIB23

2023-12-06T14:20:19-05:00December 6th, 2023|5- Client Report|

Moderate Democrats Continue to Voice End-Game Doubts

The agencies’ capital proposal (see FSM Report CAPITAL230) unsurprisingly dominated discussion at today’s Senate Banking hearing with big bank CEOs.  Also unsurprisingly, Republicans and the CEOs sharply criticized what they called insufficient economic analysis and downstream lending impact.  Despite positioning themselves for a defense of the Fed’s GSIB surcharge proposal (see FSM Report GSIB22), the proposal received little attention from Committee Democrats or, for that matter, Republicans or the CEOs.

GSIB23.pdf

4 12, 2023

M120423

2023-12-04T11:03:03-05:00December 4th, 2023|6- Client Memo|

Why Curbing Banks Won’t Curtail Private Credit

Last Wednesday, Sens. Brown and Reed wrote to the banking agencies pressing them to cut the cords they believe unduly bind big banks to private-credit companies.  The IMF and Bank of England have also pointed to systemic-risk worries in this sector, as have I.  Still, FSOC is certainly silent and perhaps even sanguine.  This is likely because FSOC is all too often nothing more than the “book-report club” Rohit Chopra described, but it’s also because it plans to use its new systemic-risk standards to govern nonbanks outside the regulatory perimeter by way of cutting the banking-system connections pressed by the senators.  Nice thought, but the combination of pending capital rules and the limits of FSOC’s reach means it’s likely to be just thought, not the action needed ahead of the private-credit sector’s fast-rising systemic risk.

m120423.pdf

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4 12, 2023

Karen Petrou: Why Curbing Banks Won’t Curtail Private Credit

2023-12-04T11:03:15-05:00December 4th, 2023|The Vault|

Last Wednesday, Sens. Brown and Reed wrote to the banking agencies pressing them to cut the cords they believe unduly bind big banks to private-credit companies.  The IMF and Bank of England have also pointed to systemic-risk worries in this sector, as have I.  Still, FSOC is certainly silent and perhaps even sanguine.  This is likely because FSOC is all too often nothing more than the “book-report club” Rohit Chopra described, but it’s also because it plans to use its new systemic-risk standards to govern nonbanks outside the regulatory perimeter by way of cutting the banking-system connections pressed by the senators.  Nice thought, but the combination of pending capital rules and the limits of FSOC’s reach means it’s likely to be just thought, not the action needed ahead of the private-credit sector’s fast-rising systemic risk.

One might think that banks would do all they can to curtail private-credit competitors rather than enable them as the senators allege and much recent data substantiate.  But big banks back private capital because big banks will do the business they can even when regulators block them from doing the business they want.  Jamie Dimon for one isn’t worried that JPMorgan will find itself out in the cold.

Of course, sometimes banks should be forced out of high-risk businesses.  There is some business banks shouldn’t do because it’s far too risky for entities with direct and implicit taxpayer backstops.  This is surely the case with some of the wildly-leveraged loans private-credit companies …

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

17 07, 2023

Karen Petrou: Counter-Cyclicality is One Critical Missing Piece of Barr’s Unholistic Construct

2023-07-17T16:55:22-04:00July 17th, 2023|The Vault|

Banks and Republicans are beating up on Michael Barr for much in his new capital construct.  The furor focuses on the high cost of the new capital rules, cost glossed over in Mr. Barr’s talk via an over-arching assumption that banks can readily do without two years of post-dividend retained earnings.  Maybe they can; investors not so much.  This is a big problem, but a little-noticed one also warrants more scrutiny:  the decision to leave untouched and apparently not even considered the U.S. version of the counter-cyclical capital buffer (CCyB).  This makes the new framework still more procyclical and even less holistic.  CCyBs have worked well around the world and a well-designed one in the U.S. would obviate the need for some – not all, but some – of Mr. Barr’s most counter-productive ideas even as it makes banks more resilient, the financial system safer, and the economy less volatile.

What are CCyBs?  The basic idea is that these are capital charges triggered in good times that are released under stress, making banks and the economies they serve better able to ride out macroeconomic boom-bust cycles.  The final U.S. version of the global CCyB framework acknowledges this global standard, but it goes on to say only that the Federal Reserve will know a boom or bust when it sees it and will do something about it via some sort of CCyB should it feel inclined to do so possibly after a rulemaking process on the up- and down-sides that …

17 07, 2023

M071723

2023-07-17T09:36:14-04:00July 17th, 2023|6- Client Memo|

Counter-Cyclicality is One Critical Missing Piece of Barr’s Unholistic Construct

Banks and Republicans are beating up on Michael Barr for much in his new capital construct.  The furor focuses on the high cost of the new capital rules, cost glossed over in Mr. Barr’s talk via an over-arching assumption that banks can readily do without two years of post-dividend retained earnings.  Maybe they can; investors not so much.  This is a big problem, but a little-noticed one also warrants more scrutiny:  the decision to leave untouched and apparently not even considered the U.S. version of the counter-cyclical capital buffer (CCyB).  This makes the new framework still more procyclical and even less holistic.  CCyBs have worked well around the world and a well-designed one in the U.S. would obviate the need for some – not all, but some – of Mr. Barr’s most counter-productive ideas even as it makes banks more resilient, the financial system safer, and the economy less volatile.

M071723.pdf

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