#equality – Federal Financial Analytics

23 04, 2024

DAILY042324

Eliza Allen2024-04-23T16:38:38-04:00April 23rd, 2024|2- Daily Briefing|

New Fed Study: Economic Inequality Key to Growing NBFI Role, Systemic Risk

A new Fed staff note builds on prior research to show not just the link between economic inequality and financial instability, but also how heightened systemic risk due to factors such as NBFI growth is driven by economic inequality. The study for the first time finds significant correlations between economic inequality and the growing role of nonbank asset managers, investors, and short-term wholesale lenders, observing the proven link between NBFIs and financial-system amplification.

Asset-Manager Passivity Standards Set for Thursday Rewrite

As anticipated, the FDIC has set this Thursday as the date at which it will address concerns that index-fund and other asset managers are no longer passive investors in banking organizations and thus may warrant BHC designation. We will of course analyze the FDIC’s action immediately after it is released and then provide clients with an in-depth analysis of a proposal that, depending on how far it goes, could not only bring some NBFIs within the regulatory perimeter, but also have a negative impact on banking-organization market capitalization.

Daily042324.pdf…

10 04, 2024

DAILY041024

Eliza Allen2024-04-10T17:24:00-04:00April 10th, 2024|2- Daily Briefing|

OCC Merger Deadline Extended, De Facto Policy Remains

Responding to industry requests, the OCC today extended the comment deadline on its merger proposal (see FSM Report MERGER14) until June 15 from April 15.

Gruenberg Defends FDIC GSIB-Resolution Readiness

Rejecting criticism from its own inspector-general and others including Karen Petrou, FDIC Chair Gruenberg today stated that the agency is indeed ready to resolve a U.S. GSIB and that any such resolution will exert market discipline on shareholders and BHC counterparties.

Hsu Presses Banks to Expand Account Access for Immigrants

Focusing on increasing banking access for immigrants, Acting Comptroller Hsu today told banks to consider risk-based adjustments to their account screening processes to accept more forms of identification for account openings such as municipal IDs and consular ID cards.

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25 03, 2024

DAILY032524

Eliza Allen2024-03-25T16:46:05-04:00March 25th, 2024|2- Daily Briefing|

House GOP Resolution Challenges FSOC Designation Guidance

HFSC Vice-Chairman Hill (R-AR) introduced H.J. Res 120 on Friday to disapprove of FSOC’s guidance on nonbank financial company systemic designations (see FSM Report SIFI36). The CRA resolution follows GOP criticism of the guidance at recent hearings (see Client Report FSOC30) and S.3601 from Sens. Rounds (R-SD) and Sinema (I-AZ), which would require FSOC to consider “alternative approaches” prior to systemic designation.

Hsu, Cook Warn Banks re AI Fair-Lending Risk

Acting Comptroller Hsu today stressed the importance that banks understand their use cases for AI and utilize it in a controlled manner, reiterating longstanding agency concerns about bad learning models leading to credit discrimination (see FSM Report AI). FRB Gov. Cook today also noted that, while the FRB cannot address inequality within its mandate, it can and is looking to ensure that AI use does not lead to unfair lending.

Daily032524.pdf…

6 02, 2024

DAILY020624

Eliza Allen2024-02-06T16:33:54-05:00February 6th, 2024|2- Daily Briefing|

Agencies Begin Pro Forma Reg Review Likely to Take on New Urgency

The FRB, FDIC, and OCC today released the first of the requisite ten-year request for comment on the extent to which existing rules are outdated or unduly burdensome. We will shortly provide clients with an in-depth analysis of the request if it goes beyond the nominal inquiries in the past that led to little meaningful regulatory reform.

Senate GOP Turns to FHFA, FHLB on “Woke” Standards

Criticizing what they call the FHFA’s and FHLBs “politically contentious social agendas,” Senate Banking Republicans Hagerty (R-TN), Tillis (R-NC), Britt (R-AL), and Vance (R-OH) sent a letter to FHFA Director Thompson late yesterday arguing that several FHLB pilot programs are “racially discriminatory” and defy congressional intent. They also argue that the pilot programs highlight a potential gap in FHFA oversight because the final rule governing Fannie and Freddie pilot programs does not also apply to the FHLBs.

SEC Finalizes Contentious Treasury-Market Registration Standards

The SEC today voted 3-2 to approve a revised version of an earlier proposal subjecting certain hedge funds and other Treasury-market participants to registration and SRO regulation, thus reducing their competitive advantages vis-à-vis banks in the secondary-dealer arena. The new approach uses a qualitative test based on the extent to which a covered entity acts as a market-maker as well as Treasury investor.

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18 01, 2024

DAILY011824

Eliza Allen2024-01-18T16:58:16-05:00January 18th, 2024|2- Daily Briefing|

Basel Head Backs U.S. End-Game

In an FT interview today, the Basel Committee’s chair, Pablo Hernández de Cos, unsurprisingly endorsed the U.S. end-game proposal, indirectly but firmly rebutting assertions that it is at variance with global norms.

The Shape of Liquidity Rules to Come

Previewing the construct of what may soon be the anticipated inter-agency proposal addressing liquidity-risk lessons-learned, Acting Comptroller Hsu today argued that the liquidity coverage ratio’s treatment of retail depositors (see FSM Report LIQUIDITY17) does not address likely depositor herding as they run for the exit.

Rounds, Sinema Press for SIFI-Designation Rollback

Senate Banking Committee Member Rounds (R-SD) alongside Sen. Sinema (I-AZ) introduced S.3601, legislation to codify 2019 standards (see FSM report SIFI35) adding significantly more obstacles to systemic designation compared to FSOC’s new approach (see FSM report SIFI36).

Steele’s Good-Bye Presses for More Tough Standards

In his last speech in office, Assistant Secretary for Financial Institutions Graham Steele today called for reassessment of the treatment of unrealized gains or losses not just under the capital rules, but also in the liquidity standards (where they are in fact to some degree now captured).

House Democrats Damn Capital Proposal With Faint Praise

In this report, we begin our assessment of Congressional end-game comment letters.

Senate Letters Slam Capital Proposal’s Tax-Equity Risk Weight Changes

Here, we turn to several Senate letters on the end-game proposal.

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12 01, 2024

DAILY011224

Eliza Allen2024-01-12T15:31:11-05:00January 12th, 2024|2- Daily Briefing|

Emmer, HFSC GOP Reintroduce FSOC Oversight Measure

Following a hearing earlier this week at which GOP Members reiterated longstanding FSOC criticism, House Majority Whip Emmer (R-MN) has reintroduced legislation along with ten other HFSC Republicans to bring FSOC under congressional appropriations.

HFSC Bipartisan AI Task Force Already Divided on Key Priorities

Reflecting growing concern about AI’s risks (see Client Report FSOC29), HFSC Chairman McHenry (R-NC) and Ranking Member Waters (D-CA) yesterday announced the creation of a bipartisan AI Working Group to be led by Digital Assets Subcommittee Chairman Hill (R-AR) and Ranking Member Lynch (D-MA).

House Passes Measures to Check Chinese Economic Power

The House today passed several bills addressing the role of China in IMF and World Bank policy and a renewed attempt to limit what many Members of Congress consider Chinese currency manipulation (H. R. 839).

The Fed Becomes a Big Loser

The Federal Reserve System today released its preliminary FY23 financial results, the first look into the System’s operating condition above and beyond its significant mark-to-market losses.

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3 01, 2024

DAILY010324

Eliza Allen2024-01-03T16:38:18-05:00January 3rd, 2024|2- Daily Briefing|

EBA Plans Full-Bore NBFI Crackdown

We will shortly provide clients with an in-depth analysis of notable changes to call reporting released for comment late last year. Today’s Financial Times interviews José Manuel Campa, the chair of the European Banking Authority (EBA), whose comments on NBFIs make it clear that, as we expected, the U.S. action is part of a broader global push to map bank/NBFI interconnections and then curtail them. The EBA is also planning to stress-test these interconnections, a move we expect also from the Fed when it moves forward on Vice Chair Barr’s multi-scenario test plans.

Women Do Too Know

The Federal Reserve Board this week has issued a staff note finding that the so-called financial literacy gender gap is largely driven by study design, not gender differences in financial literacy. This has considerable implications for many financial-literacy programs now specifically targeted to women. The note finds that women are much more likely than men to utilize the “don’t know” choice even though men and women actually respond incorrectly at similar rates.

Daily010324.pdf…

22 12, 2023

DAILY122223

Eliza Allen2023-12-29T10:01:49-05:00December 22nd, 2023|2- Daily Briefing|

President Imposes Sweeping Secondary Sanctions

Responding to ongoing evidence that sanctions are not working as hoped despite recent Treasury assurances they are, the President today issued a sweeping executive order and Treasury laid out secondary sanctions for financial institutions found to facilitate Russian Federation finances related to its “war machine.” We will shortly provide clients with an in-depth analysis of these actions which pose significant threats to dollar-clearing access for financial institutions that have so far been largely outside the reach of existing sanctions.

Treasury Requests Feedback for Financial Inclusion Strategy

Following a statutory directive, Treasury today issued an RFI to develop a national strategy for financial inclusion. We will shortly provide clients with an in-depth report on the RFI. Noting significant disparities in banking-system access for LMI, low-wealth, Black, and Hispanic households as well as discrepancies in rates of stock and business ownership between white, Black, and Hispanic households, the RFI invites recommendations for policy, government programs, financial products, technology, and other tools and market infrastructure.

Brown Prioritizes Housing, ILC Bill, AI in 2024

The Senate Banking Committee today released its policy outlook entering 2024 prioritizing affordable housing, enacting the ILC-powers bill (see FSM Report ILC17), and AI financial-sector policy (likely here picking up the Warner-Kennedy bill we will shortly assess in depth).

Daily122223.pdf

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21 11, 2023

DAILY112023

Eliza Allen2023-11-21T10:36:54-05:00November 21st, 2023|2- Daily Briefing|

Thompson: No Regulatory “Silos” in a Crisis

Reiterating much in FHFA’s sweeping FHLB report, FHFA Director Thompson today reinforced suggestions that FHLBs can avoid acting as lenders of last resort because there are no regulatory “silos” in a crisis.

IMF Reconsiders CBDC

On Friday, the IMF updated its CBDC work, concluding that it is prudent for most countries to consider CBDC implementation even though nations are increasingly hesitant to do so.

IMF: Nations Should Block Fintech Reg Arbitrage

A new IMF study finds that Fintechs adversely affect bank profitability, concluding that “well-designed” fintech regulations are necessary to foster a level bank-fintech playing field.

House Opens New Front vs. FDIC

Following an official HFSC investigation and a raft of letters from Democrats and Republicans, House Oversight Subcommittee on Health and Financial Services Chairwoman McClain (R-MI) along with Rep. Biggs (R-AZ) today sent a letter to Chairman Gruenberg requesting briefings, documents, and communications regarding harassment and workplace practices.

Daily112023.pdf…

17 11, 2023

Al112023

Eliza Allen2023-11-17T16:34:27-05:00November 17th, 2023|3- This Week|

That’s Different

As we noted in our in-depth reports last week, Congressional hearings with top bank supervisors are always eventful, but rarely game-changers. This proved to be the case when FRB Vice Chair Barr, Acting Comptroller Hsu, and FDIC Chair Gruenberg came before Senate Banking (see Client Report REFORM229) and HFSC (see Client Report REFORM230). One surprising takeaway affects policy and the other is political, but each has the potential to change the end-game landscape as well as that of the Biden Administration’s financial rulemaking for the rest of the President’s term.

Al112023.pdf…