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20 03, 2023

DAILY032023

2023-03-20T17:07:20-04:00March 20th, 2023|2- Daily Briefing|

HFSC Sets Plan For Crisis Review

In what may be an effort to buy some time as the banking crisis hopefully eases and tempers cool, HFSC Chairman McHenry (R-NC) and Ranking Member Waters (D-CA) late Friday asked GAO to conduct an immediate review of recent bank failures, insider actions, and related policy actions such as the March 12 systemic rescue and new Fed facility.

Warren Piles On To Powell With New IG Study

Sen. Warren (D-MA) in a letter Saturday applied even more pressure on the banking agencies by urging the Fed’s, FDIC’s, and Treasury’s IGs to conduct independent investigations of the bank as well as “regulatory and supervisory problems” leading to failures, renewing claims that Chair Powell is especially culpable.

McHenry, Scott Take Gloves Off For Fed, FDIC Investigation

HFSC Chairman McHenry (R-NC) and Ranking Senate Banking Member Scott (R-SC) today sent letters to Chair Powell and Chair Gruenberg, making it clear that – for all Mr. McHenry’s more conciliatory statements – Republicans are launching an investigation premised on potential missteps by the Fed and/or FDIC warranting rapid remediation.

House GOP Conservatives Oppose Liberalized FDIC-Coverage Ceiling

Countering demands for an end to FDIC insurance ceilings not only from Sen. Warren (D-MA), but also from their GOP peers, the very conservative House Freedom Caucus today released a statement demanding an end to what it calls “big government bailouts.”

Daily032023.pdf

20 03, 2023

FedFin Analysis: Possible Cures for a Viral Run

2023-03-20T16:12:34-04:00March 20th, 2023|The Vault|

Among the most vexing issues in the wake of SVB’s failure is the extent to which social media may have led to the first “viral run,” a run akin to the meme-stock volatility that lead the SEC and others to fear a new form of “flash-crash” risk.  In this report, we assess current policy options related to deposit runs resulting from social media, an issue cited frequently by HFSC Chairman McHenry (R-NC) as a top priority as he begins work on post-SVB financial standards.  We note some remedies – e.g., a ban on deposit-related communication were they permissible under various constitutional and statutory free-speech edicts.

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

20 03, 2023

LIQUIDITY33

2023-03-20T16:12:26-04:00March 20th, 2023|5- Client Report|

FedFin Analysis: Possible Cures for a Viral Run

Among the most vexing issues in the wake of SVB’s failure is the extent to which social media may have led to the first “viral run,” a run akin to the meme-stock volatility that lead the SEC and others to fear a new form of “flash-crash” risk.  In this report, we assess current policy options related to deposit runs resulting from social media, an issue cited frequently by HFSC Chairman McHenry (R-NC) as a top priority as he begins work on post-SVB financial standards.  We note some remedies – e.g., a ban on deposit-related communication were they permissible under various constitutional and statutory free-speech edicts.  In this report, we thus assess tools more readily at hand that federal regulators might deploy now that social media’s destabilizing impact has been recognized, noting the challenges of forestalling runs without at the same time providing opinions on individual banking organizations or issuing preemptive systemic protections that would have the effect of eliminating deposit-insurance limits.  This report will thus also assess other options, including standards prohibiting deposit-related “exclusivity” requirements, dedicated Fed liquidity facilities, and revisions to the liquidity rules.  Options to revise FDIC coverage to address this risk through structural changes to coverage thresholds will be detailed in a forthcoming Petrou op-ed.

LIQUIDITY33.pdf

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.…

20 03, 2023

GSE-032023

2023-03-20T13:51:11-04:00March 20th, 2023|4- GSE Activity Report|

The Collateral Damage Of The Banking Crisis

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.

GSE-032023.pdf

20 03, 2023

Karen Petrou: Three Fast, Urgent Fixes to U.S. Bank Supervision and One Major Change to End Bailouts

2023-03-20T11:35:24-04:00March 20th, 2023|The Vault|

In the wake of recent bank failures, much has rightly been said about how supervisors failed to act even though warning claxons blared.  Nothing that happened to Silvergate, SVB, or Signature is due to forces beyond supervisory control, but there are deep, structural weaknesses in how banks have long been supervised.  How long?  I went back to my 2001 Senate Banking testimony about what was then the largest-ever failure to find that many of the lessons that should have been learned never sunk in.

Given that this hearing was in 2001, a good deal of what I said about bank capital requirements was about Basel I and is thus long out of date.  However, one key point isn’t:  the capital triggers used to spark prompt corrective action (PCA) were and are an unduly-simplistic way to identify the need for rapid supervisory intervention.

Silvergate, SVB, and Signature were all “well” capitalized right up to the brink of collapse because each of the banks in its own way arbitraged the capital rules to enormous – and obvious – advantage.  Nothing in law or rule bars bank supervisors from stepping in well before PCA ratios sink but nothing seems to stir supervisors to do so.  1991’s PCA requirements were an important advance at the time, but it was outdated only a decade later.  Now, it’s a dangerous supervisory distraction.

What else noted in 2001 remains an urgent fix?  Over two decades ago, I urged the FDIC to reinstate the high-growth early-warning system it …

20 03, 2023

M032023

2023-03-20T11:35:13-04:00March 20th, 2023|6- Client Memo|

Three Fast, Urgent Fixes to U.S. Bank Supervision and One Major Change to End Bailouts

In the wake of recent bank failures, much has rightly been said about how supervisors failed to act even though warning claxons blared.  Nothing that happened to Silvergate, SVB, or Signature is due to forces beyond supervisory control, but there are deep, structural weaknesses in how banks have long been supervised.  How long?  I went back to my 2001 Senate Banking testimony about what was then the largest-ever failure to find that many of the lessons that should have been learned never sunk in.

m032023.pdf

17 03, 2023

DAILY031723

2023-03-17T16:53:13-04:00March 17th, 2023|2- Daily Briefing|

Biden Positions White House On Side Of SVB/SBNY Enforcement Actions

Reflecting growing political heat as SVB/SBNY revelations continue, President Biden today called on Congress to toughen enforcement penalties for senior management at failed banks.  As noted on the fact sheet accompanying the formal request to Congress, the White House believes current law makes it unduly difficult for regulators to claw back executive compensation following a receivership and/or to bar individuals from further banking-industry employment.

HUD Reinstates Tough Disparate-Impact Standard

HUD today announced a final rule rescinding a 2020 rule governing Fair Housing Act disparate impact claims (see FSM Report FAIRLEND8) and restoring a 2013 discriminatory effects rule (see FSM Report FAIRLEND4).  The fact sheet accompanying the announcement claimed that the complications added in 2020 rule would have made it “virtually impossible” for HUD and private plaintiffs to prove discrimination.

Waters Pledges Bill on Failed-Bank Execs, Pushes Incentive-Comp Regs

Shortly after the President called on Congress to toughen penalties for failed bank executives, HFSC Ranking Member Waters (D-CA) sent a letter today to Fed, FDIC, and SEC leadership announcing she is crafting legislation to do so.  The letter also reiterated Democratic calls for the agencies to hold SVB and SBNY executives accountable and urged them to finalize longstanding compensation rules (see FSM Report COMPENSATION30), which Ms. Waters demanded include strong clawback provisions.

Daily031723.pdf

17 03, 2023

FedFin Assessment: Future of U.S. Bank Capital, Liquidity, Structural Regulation

2023-03-17T16:50:38-04:00March 17th, 2023|The Vault|

In this report, we continue our policy postmortem of SVB/SBNY and, now, so much more.  Prior reports have assessed the overall political context (see Client Report RESOLVE49) and likely changes to FDIC insurance (see Client Report DEPOSITINSURANCE118), with a forthcoming Petrou op-ed in Barron’s focusing on specific ways to reform federal deposit insurance to protect only the innocent.  In this report, we look at some key regulatory changes likely as the banking agencies reevaluate the regional-bank capital, liquidity, and the IDI/BHC construct.  As noted in our initial assessment and thereafter, we do not expect meaningful legislative action on the Warren, et. al. bill to repeal “tailoring” requirements, but we do expect bipartisan political pressure not just for supervisory accountability (see another forthcoming report), but also regulatory revisions.

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

17 03, 2023

REFORM216

2023-03-17T14:27:00-04:00March 17th, 2023|5- Client Report|

FedFin Assessment:  Future of U.S. Bank Capital, Liquidity, Structural Regulation

In this report, we continue our policy postmortem of SVB/SBNY and, now, so much more.  Prior reports have assessed the overall political context (see Client Report RESOLVE49) and likely changes to FDIC insurance (see Client Report DEPOSITINSURANCE118), with a forthcoming Petrou op-ed in Barron’s focusing on specific ways to reform federal deposit insurance to protect only the innocent.  In this report, we look at some key regulatory changes likely as the banking agencies reevaluate the regional-bank capital, liquidity, and the IDI/BHC construct.  As noted in our initial assessment and thereafter, we do not expect meaningful legislative action on the Warren, et. al. bill to repeal “tailoring” requirements, but we do expect bipartisan political pressure not just for supervisory accountability (see another forthcoming report), but also regulatory revisions.  While Republicans strongly opposed tougher capital rules when Chairman Powell appeared before them just last week (see Client Report FEDERALRESERVE73), we expect them now only to make token statements of concern about any changes that do not adversely affect smaller banking organizations.  In addition to looking at specific regulatory rewrites, this report assesses timing, noting in particular how the pending end-game rules could serve as the vehicle for changes the agencies hope to muster quickly in order to minimize demands for structural change to their own powers.

REFORM216.pdf

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