#financial-stability

23 10, 2023

GSE-102323

2023-10-23T16:39:05-04:00October 23rd, 2023|4- GSE Activity Report|

Spotting SPVs

As noted in our report earlier today, the Federal Reserve’s latest financial-stability report expresses deep misgivings about complex securitizations.  This flies directly in the face of its recent decision to liberalize the capital treatment for credit-linked notes involving bankruptcy-remote SPVs, yet more evidence that the U.S. has a central bank of many silos that interact infrequently, if at all.

GSE-102323.pdf

20 10, 2023

DAILY102023

2023-10-20T17:21:03-04:00October 20th, 2023|2- Daily Briefing|

Senate AI Measure Tackles Financial Services

The text of the key Senate AI bill, S. 3050, has now become available.

Banking Agencies Offer Olive Branch

Reflecting strong pressure and recent FRB Chair Powell statements, the FRB today announced the launch of an open data collection assessing the rule’s effects – an issue on which many bank comment letters and Congressional Republicans have been scathing.

GOP Renew Funding Campaign vs. CFPB via Fed Losses

HFSC Vice Chairman Hill (R-AR) yesterday reintroduced legislation pressuring both the Fed and CFPB by prohibiting the Fed from transferring its earnings to the Bureau if the Fed incurs an operating loss.

FinCEN Highlights Hamas Sanction Red Flags

Reflecting ongoing Congressional pressure and recent Treasury sanctions, FinCEN today issued an alert reminding financial institutions to remain vigilant for suspicious activity related to Hamas funding sources.

Fed Stays Stoic on Financial-Stability Outlook

The FRB today released is semiannual financial-stability report differing little from the relatively-sanguine outlook in its May report (see Client Report SYSTEMIC94).

Daily102023.pdf

31 08, 2023

DAILY083123

2023-08-31T16:04:01-04:00August 31st, 2023|2- Daily Briefing|

BIS Report: Big Tech in Insurance Poses Financial Stability Risks

The BIS Financial Stability Institute (FSI) released a report today highlighting the financial stability risks associated with big tech’s entry into insurance, noting that a big tech specific regulatory approach may be warranted.  The report finds big tech has a significant footprint in the insurance industry as a service provider but its activities as risk carriers or intermediaries are limited.  Thus, financial stability concerns stem from the concentration of technology services and linkages between financial institutions and commercial activities.

Fed Study: Fintech Partnerships Arbitrage National-Bank Preemption Power

A new study by Federal Reserve staff finds that strategic bank-fintech partnerships heavily and profitably target near- and low-prime consumers in states with restrictive interest rate ceilings.  Thus, fintech partnerships – termed “rent-a-bank” arrangements by critics – in fact arbitrage national-bank preemption powers in states with strict usury ceilings.  This is said to be due in large part to mainstream-bank and non-fintech aversion to higher-risk customers at lower interest rates.

Daily083123.pdf

31 08, 2023

GSE-083123

2023-08-31T09:24:25-04:00August 31st, 2023|4- GSE Activity Report|

The Secondary-Market Suggestion Box

As we noted yesterday, the global banking, securities, and insurance regulators who comprise the Financial Stability Board (FSB) are heading back to look again at securitization to see if the post-08 framework it crafted still works.  The FSB is in our view increasingly irrelevant to home- and host-country rulemaking, but that’s not to say it’s totally toothless.  If – and this is a big if – the FSB comes up with concrete suggestions in key areas such as revisions to regulatory capital or risk-retention standards, U.S. agencies will take a hard look.

GSE-083123.pdf

18 08, 2023

Al082123

2023-08-22T09:52:13-04:00August 18th, 2023|3- This Week|

Capital Regulation Deconstructed

Last week, we provided clients with several more in-depth analyses of the interagency capital proposal.  Of particular note is our wrap-up report (see Client Report CAPITAL234) which looks hard at the agencies’ own quantitative and qualitative impact assessments to see what the raw numbers say, how the numbers comport with current data and market realities, and – most importantly – how to interpret the agencies’ qualitative conclusions in light of these analytics, as well as our understanding of many of the studies on which key assumptions are premised.  As the report details, we agree that the agencies’ rationale for every possible capital woe – that anything is better than a financial crisis – is right.  But it’s only right if the result of the rules is to make financial crises less likely and that, as our reports make clear, is far from assured.  Many provisions of each key section combined with overall quantitative results could well prove profoundly destabilizing.

Al082123.pdf

7 11, 2022

SYSTEMIC94

2022-11-07T12:43:37-05:00November 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

7 11, 2022

GSE-110722

2022-11-07T11:11:35-05:00November 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

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