#financial-stability – Federal Financial Analytics

15 11, 2022

REFORM214

Max Camateros-Mann2022-11-22T15:27:38-05:00November 15th, 2022|5- Client Report|

Crypto, Deposit Rates, Capital Top Senate Discussion

At today’s Senate Banking oversight hearing with the banking agencies, Chairman Brown (D-OH) generally applauded the work of regulators, emphasizing the need for tough standards, like-kind rules for bigtech companies, and an inquiry into why depositor interest rates lag Fed rate hikes along lines posed earlier by Sen. Reed (D-RI). FDIC Acting Chairman Gruenberg concurred, criticizing banks for sluggish rates. Ranking Member Toomey (R-PA) reiterated his longstanding complaints about regulators straying outside their mission in areas such as climate change. He also called for SLR relief to reduce Treasury-market risk and opposed pending large-bank resolution guidance (see FSM Report LIVINGWILL19) on grounds that it is unnecessary.

REFORM214.pdf…

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…

GSE-110722

William Cross2022-11-07T11:11:35-05:00November 7th, 2022|4- GSE Activity Report|

Don’t Scare the Children

In its latest financial-stability report, the Fed is at pains to provide dozens of pages of helpful data with the few systemic-risk conclusions the Board ventures couched in careful prose designed to assure critics that the Fed knows well what’s going on without expressing any views that might suggest serious trouble looms or hint that any of what it surveys will alter the Fed’s course in terms of monetary policy, regulatory actions, or systemic considerations. Still, its assessment of residential housing is far more pessimistic than its last report, acknowledging for the first time that, as we warned a while back, seemingly robust amounts of borrower home equity can evaporate quickly in a high-priced market flush with high-LTV mortgages. This is an important early warning sign both for markets and of upcoming actions in areas such as mortgage risk-based capital.

GSE110722.pdf…