#financial-stability report – Federal Financial Analytics

23 10, 2023

SYSTEMIC97

Arezou Rafikian2023-10-23T11:37:12-04:00October 23rd, 2023|5- Client Report|

FedFin Assessment: FRB Tries to Link Stability Conclusions to Regulatory Objectives

As promised, this in-depth report assesses Friday’s semiannual financial-stability report from the Federal Reserve. As in its most recent reports, the Fed again eschews any clear conclusion about financial stability even as it observes that some risks are hard to quantify and thus may be overlooked. Prior reports of “moderate” risk were shortly followed as in 2020 with considerable systemic challenge, leading the Fed thereafter and in this report to limit itself principally to quantification of emerging issues with few conclusions and, other than with regard to banks, no direct regulatory recommendations. Where the Fed points to significant systemic challenges, it does so only by citing third-party survey results.

SYSTEMIC97.pdf…

9 05, 2023

SYSTEMIC96

Arezou Rafikian2023-05-09T11:25:24-04:00May 9th, 2023|5- Client Report|

Fed Frets About Banks, Nonbanks, Hedge Funds

Perhaps because its last financial-stability report (see Client Report SYSTEMIC94) was contradicted just five months later by a systemic-risk designation, the Federal Reserve’s latest report eschews a conclusion about prospective risk in favor of a review of current concerns. As noted upon the report’s release, these include a somewhat less effusive view of bank resilience than has characterized prior reports but the Board nonetheless views the banking system as sound and recent failures as essentially idiosyncratic. The report is, however, concerned with midsized-bank CRE concentrations and the near-term impact of macroeconomic factors and deposit outflows on credit availability, noting as Chairman Powell did last week that this could adversely affect economic growth.

SYSTEMIC96.pdf…

7 11, 2022

SYSTEMIC94

Eliza Allen2022-11-07T12:43:37-05:00November 7th, 2022|5- Client Report|

Fed Systemic-Risk Fears Cloaked in Cautious Financial-Stability Report

As we noted Friday afternoon, the Federal Reserve then released its semi-annual financial-stability report in an effort not only to comply with its protocols, but likely also to attract as little attention as possible, with the release and even the report saying only as much about growing risk as the Fed thinks is essential to preserve its credibility. In this report, we provide an in-depth assessment not only of the Fed’s latest risk landscape, but also of the steps it recommends be deployed to mitigate it to the extent these are also noted in a largely statistical analysis. As is often the case, the Fed uses aggregate or average data to assess household financial risk, a methodology we fear obscures distributional effects for the majority of households. The data – e.g., re non-financial business leverage – are also often as of the end of the report’s data run, not forward-looking. Where projections are forward-looking – e.g., re non-investment grade or private business leverage – the Fed report generally notes concerns without making clear how acute these may be or the probability that drivers that could significantly and adversely affect them. Still, as noted earlier today, its discussion of residential-mortgage risk is surprisingly sobering. The Fed also remains deeply troubled by prime and tax-exempt MMF run risk.

SYSTEMIC94.pdf…

4 11, 2022

DAILY110422

Eliza Allen2022-11-04T17:11:14-04:00November 4th, 2022|2- Daily Briefing|

Big Banks Pressed on Sluggish, Inequitable Deposit-Rate Hikes

Advancing an initiative with political “legs,” Sen. Jack Reed (D-RI) has demanded answers from the nation’s largest banks on why small-deposit rates have barely budged even as the Fed sharply hiked interest rates now reflected in higher loan costs.

FRB-NY Official Details Wholesale CBDC Prototype

Remarks today from a senior FRB-NY official, Michelle Neal, continued the Fed’s ambivalent stand on a CBDC (see FSM Report CBDC10).

Fed Fixes Advanced-Approach Glitches

The FRB is proposing to implement three changes to Regulation Q data collection/disclosure rules governing advanced-approach capital adequacy at BHCs, SLHCs, and state member banks.

Fed to Name Master-Account Names

Reflecting ongoing concerns on Capitol Hill, the Fed is proposing to make what our analysis suggests were opaque payment-system access guidelines (see FSM Report PAYMENT24) “a bit more transparent.”

Toomey Presses for SLR Rewrite

Ranking Senate Banking Member Toomey (R-PA) today released his letter to Chairman Powell cautioning the central bank not to handle any Treasury-market liquidity events with new backstop facilities.

Waters Adds To Fed’s Political Woes

In a letter today, HFSC Chairwoman Waters (D-CA) joined Sens. Warren (D-MA), Brown (D-OH), and Hickenlooper (D-CO) in sharply criticizing the recent Fed “super-sized” rate hike.

Fed Worry Level Goes Up

The Federal Reserve likely hoped for the torpor of a Friday afternoon to quell frightened replies to the latest financial-stability report released today.

Daily110422.pdf…

3 10, 2022

Karen Petrou: As Markets Thunder, FSOC Snores

Arezou Rafikian2022-10-03T10:00:54-04:00October 3rd, 2022|The Vault|

Later today, the FSOC will open its sanctum for what promises to be a brief session of largely political theatrics. One can only hope that the rarefied air of the Council’s closed-door meeting elevates actual action addressing growing signs of financial instability. Sadly, FSOC’s record of timely intervention ahead of any systemic event since its creation – and I count at least four – is dismal as are the Fed’s see-no-evil financial stability reports. As of this writing, the U.S. is on the precipice of another “dash for cash” and no one – not the bond market, mutual funds, MMFs, investors – has any sandbags at the ready beyond faith that the Fed will bail them all out all over again. Loose lips sink financial systems, but lips that are zipped only because they have nothing useful to say do the same and then some.

As each FSOC annual and Fed financial-stability report makes clear, these guardians of stability quickly spotted “shadow-banking” risks that deeply worried them after the 2008 debacle. Still neither did much about them beyond pointing fingers even as flares streaked across the market warning of looming systemic shocks. As we predicted as early as 2011, asymmetric systemic regulation accelerates systemic-risk migration from regulated institutions with established contingency plans and central-bank backstops to entities largely or even entirely outside the regulatory perimeter on which financial stability has comes almost entirely to depend. This is a classic “money-for-nothing” set-up in which entities operate at increased profitability thanks to …

3 10, 2022

M100322

Eliza Allen2022-10-03T11:27:39-04:00October 3rd, 2022|6- Client Memo|

As Markets Thunder, FSOC Snores

Later today, the FSOC will open its sanctum for what promises to be a brief session of largely political theatrics. One can only hope that the rarefied air of the Council’s closed-door meeting elevates actual action addressing growing signs of financial instability. Sadly, FSOC’s record of timely intervention ahead of any systemic event since its creation – and I count at least four – is dismal as are the Fed’s see-no-evil financial stability reports. As of this writing, the U.S. is on the precipice of another “dash for cash” and no one – not the bond market, mutual funds, MMFs, investors – has any sandbags at the ready beyond faith that the Fed will bail them all out all over again. Loose lips sink financial systems, but lips that are zipped only because they have nothing useful to say do the same and then some.

m100322.pdf…