16 02, 2024


2024-02-16T15:54:42-05:00February 16th, 2024|3- This Week|

Bagehot’s Legacy

HFSC Financial Institutions Chair Barr (R-KY) last week invoked the patron saint of central banks, Walter Bagehot, reminding his hearing (see Client Report LIQUIDITY34) that central banks are to use their lender-of-last-resort powers only for solvent banks and then only at a premium.  To do other, Bagehot said and Mr. Barr repeated, is to encourage moral hazard, the sin the chair went on to attribute to the modern-day Federal Reserve.  He also floated legislation to curb the Fed’s 13(3) emergency-liquidity powers, legislation on which he will have a surprising ally, Sen. Elizabeth Warren (D-MA).  She is a long-time advocate of tougher restrictions on Fed emergency liquidity (see FSM Report FEDERALRESERVE21).  Still, we think the odds of legislation in this Congress are small, with Congress, the agencies, and banks sure instead to focus on what will be demanded of them in terms of discount-window readiness, FedWire resilience, FHLB access, and additional liquidity.  Vice Chair Barr is less enthusiastic than Acting Comptroller Hsu about new liquidity standards, but much is afoot and thus so are we.  More to come…


14 09, 2023


2023-09-14T16:47:09-04:00September 14th, 2023|2- Daily Briefing|

IOSCO Proposes Leveraged Loan, CLO Best Practices

IOSCO today released a consultation report proposing best practices for leveraged loans and CLOs that address origination and refinancing, EBITDA and documentation transparency, aligning interests from loan origination to end investors, managing conflicts of interest throughout the intermediation chain, and disclosures.

Durbin, Marshall Press Credit-Card Interchange Bill

Reiterating concerns expressed last month and comments yesterday on the Senate floor, Senate Whip and Judiciary Chairman Durbin (D-IL) and Sen. Marshall (R-KS) were joined this time by Sen. Welch (D-VT) and four House Members calling on Visa and Mastercard to reverse planned fee hikes.

GAO Presses for FSOC Power to Regulate, Not Just Designate

The GAO today issued a report recommending that Congress consider legislation allowing FSOC to compel regulatory action, arguing that this would better accomplish the Council’s mission because FSOC currently has limited power to respond to systemic risk.

HFSC GOP Highlight CBDC Privacy Concerns

As anticipated, HFSC Digital Assets GOP Members continued their staunch opposition to a U.S. CBDC, with Subcommittee Chairman Hill (R-AR) and Majority Whip Emmer (R-MN) asserting that private innovation can modernize payments without the risk of government surveillance.

Brown Doubles Down on Opposition to House Crypto Bill

Making it still more clear that he is not supportive of pending House cryptoasset legislation, Senate Banking Chairman Brown (D-OH) today sent a letter to Treasury Secretary Yellen, SEC Chairman Gensler, and CFTC Chairman Benham asking for views on where new authority may be needed.


24 07, 2023

Karen Petrou: Three Critical FedNow Questions: FedWhy? FedWhen? FedBetter?

2023-07-24T09:28:43-04:00July 24th, 2023|The Vault|

FedNow went live – or at least got out of bed – on Thursday.  This is about ten years after the Board first acknowledged that faster payments would be better payments.  Maybe late is better than never given the importance of instant payments, but FedNow’s anti-climactic launch raises three fundamental questions:  FedWhy?  FedWhen? And, FedBetter?

Let me turn first to FedWhy. The U.S. central bank thinks one of its fundamental civic obligations is controlling the payment system, a conclusion reached more as a result of envy – every other big central bank gets to play with its payment system – than by the private sector’s failure to ensure safe, sound, and speedy payments.  Congress knew this in 1980 and the Fed’s payment authority is thus conditional, not that you would know this by looking at the Fed’s various payment offerings and most especially FedNow.

Congress hesitantly allowed the Fed to offer payment services largely because the Fed asked for payment powers.  Statutory approval was grudging, demanding that the Fed provide payment services only after meeting certain conditions, including calculating a “private-sector adjustment factor” or PSAF to ensure that the central bank didn’t crowd out private payment systems.

However, every calculation of every PSAF ever since 1980 has been a masterful sleight-of-hand that allows the central bank to dominate payments.  Nothing about FedNow – whose costs have largely been a closely-guarded secret – suggests its PSAF is anything other than another rationale for the Fed to control payments.

That might …

4 10, 2021


2023-06-28T15:36:45-04:00October 4th, 2021|2- Daily Briefing|

Fed Staff Study Ratifies GSIB Scoring; We’re Not So Sure
Late last week, the Fed published a new staff note using a novel approach – high-frequency stock trading – to identify SIFIs. Looking to determine if one firm’s negative stock return creates market-wide contagion risk in a short time period, the study finds that the eight U.S. designated GSIBs demonstrate this systemic market correlation.

USPS Experiments with New Banking Services
Following an American Prospect story today, a number of news sources have confirmed that the U.S. Postal Service has launched a pilot postal-banking proof of concept.

Warren Demands Still More Retribution for Fed Trading Practices
Based in part on news today that Vice Chairman Clarida also engaged in trading some believe has the appearance of impropriety, Sen. Warren (D-MA) has expanded her campaign demanding not just a Federal Reserve inquiry, but now also an SEC investigation.

Fed Plans Single-Day Implementation for ISO 20022 in 2023
The FRB today issued notice that Reserve Banks will adopt the ISO 20022 message format for the Fedwire Funds Service.

Gensler’s Next Grilling
Ahead of its hearing with SEC Chair Gensler tomorrow, HFSC’s majority staff memo indicates that the session will cover the full SEC agenda.


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