#First Republic

29 11, 2023

DAILY112923

2023-11-29T16:51:26-05:00November 29th, 2023|2- Daily Briefing|

FDIC’s OIG Presses for Non-Capital PCA Triggers, Additional Supervisory Reform

The FDIC’s OIG report on First Republic’s failure is at least as scathing as its SBNY post-mortem.

Treasury Launches Anti-Crypto Enforcement Campaign

In remarks today from Deputy Secretary Wally Adeyemo, Treasury officially launched its anti-crypto sanctions and AML campaign.

Basel Proposes Sweeping Climate-Risk Disclosure Standards

Following the FSB’s finding that most banks were failing to provide meaningful climate disclosures, the Basel Committee today issued proposed climate-risk disclosure standards.

3Q Report Highlights AOCI Risk

The FDIC’s 3Q banking-condition report includes a stunning 22.5 percent rise in the total of HTM and AFS unrealized losses, which now stand at $683.9 billion.

Senate Banking Opens Private-Credit Inquiry

Senate Banking Chair Brown (D-OH) and Sen. Reed (D-RI) today asked FRB Vice Chair Barr, Acting Comptroller Hsu, and FDIC Chair Gruenberg to look into the risks private credit poses to the banking system.

Daily112923.pdf

20 11, 2023

DEPOSITINSURANCE122

2023-11-21T10:40:15-05:00November 20th, 2023|1- Financial Services Management|

DIF Special Assessment

As the law requires and the FDIC Chairman promised after SVB and Signature Bank were declared systemic, the FDIC has finalized its proposed approach to imposing a systemic assessment to reimburse the Deposit Insurance Fund (DIF) for the resolution costs related to uninsured deposits following a systemic designation. The FDIC will do so via an assessment covering IDIs with uninsured-deposit holdings above $5 billion that have assets over $5 billion. This exempts most smaller banks, with the FDIC adopting this approach on grounds that it justly penalizes large IDIs it believes benefited the most from these systemic rescues.

DEPOSITINSURENCE122.pdf

6 10, 2023

FedFin Assessment: Basel Lays Big Plans for Basel V

2023-10-06T14:47:18-04:00October 6th, 2023|The Vault|

As we noted yesterday, the Basel Committee’s October meeting concluded not only with plans for new disclosure consultations, but also a report on lessons learned from the 2023 crisis.  We have long considered the “end-game” standards so substantive as to constitute Basel IV; now, as this report details, Basel is laying plans for Basel V via new liquidity, interest-rate, capital, and structural changes to the current construct.  We thus focus on the supervisory and regulatory action steps Basel posits as necessary responses to the financial-market volatility sparked earlier this year by SVB, SBNY, FRC, and CS’s failures.  While Basel states that none of its recommendations necessarily presages near-term global standards, …

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

6 10, 2023

REFORM228

2023-10-06T11:45:12-04:00October 6th, 2023|5- Client Report|

FedFin Assessment: Basel Lays Big Plans for Basel V

As we noted yesterday, the Basel Committee’s October meeting concluded not only with plans for new disclosure consultations, but also a report on lessons learned from the 2023 crisis.  We have long considered the “end-game” standards so substantive as to constitute Basel IV; now, as this report details, Basel is laying plans for Basel V via new liquidity, interest-rate, capital, and structural changes to the current construct.  We thus focus on the supervisory and regulatory action steps Basel posits as necessary responses to the financial-market volatility sparked earlier this year by SVB, SBNY, FRC, and CS’s failures.  While Basel states that none of its recommendations necessarily presages near-term global standards, they warrant review not only as likely precursors to at least some new proposals, but also as guides to what is top of mind for national regulators beyond finalizing end-game capital rules and dealing with home-country matters such as resolvability.  If Basel proposes only some of the regulatory revisions it has in mind or, as the Fed clearly intends, the U.S. does so ahead of time, larger banks will face significant revisions to the LCR and NSFR, capital add-ons for interest-rate outliers, and express ring-fencing to prevent a CS repeat – i.e., a case in which the parent company met applicable standards but key subsidiaries fell far short.

REFORM228.pdf

15 09, 2023

Al091823

2023-09-15T16:53:45-04:00September 15th, 2023|3- This Week|

Let It Be Resolved…

Or, maybe not.  As detailed below, FedFin has delved into the depths of three new proposals designed to ensure that any big U.S. bank that isn’t made still more impregnable by all the new rules proposed and to come is also indestructible.  Karen Petrou has written about the wisdom – if there is any – of making big banks de facto utilities, but this will occur only if all of the new rules work as intended.  We’ve had our doubts about that with regard to recent proposals, and our review of the new resolution proposals raises still greater concerns.

Al091823.pdf

11 09, 2023

M091123

2023-09-11T09:40:12-04:00September 11th, 2023|6- Client Memo|

The PCA Cure for Much That Ails New Banking Rules

It’s a cliché, but it’s also true that one can’t beat something with nothing, especially in Washington.  This is an axiom well worth remembering when it comes to all of the new capital and resolution rules befalling the nation’s biggest banks.  I don’t think they need to be beaten back in their entirety – much in the proposals fixes vital flaws.  But the agencies have done a remarkably poor job conjuring the impact of each of these sweeping proposals, let alone their cumulative impact in the context of all the other rules and the grievous supervisory lapses that contributed to recent failures no matter all the rules that could well have sufficed if enforced.  Thus, the most obvious problems with this new construct are opacity, complexity, and most importantly reasonable doubts that, even with all these sharpened arrows, supervisors will still fail to draw their bows and then fire early and often.  All too much in the new rules is false science, as even a cursory read of the impact analyses makes painfully clear.  Instead of setting standards on lofty, unproven models, safeguards should rely on an engineering axiom:  use warning lights that force prompt and corrective action.  Think of the ground warning in an airplane followed by urgent “pull-up” commands and then go to work on the banking dashboard with clear, enforceable rules and new PCA thresholds forcing supervisory action and accountability.

M091123.pdf

11 09, 2023

Karen Petrou: The PCA Cure for Much That Ails New Banking Rules

2023-09-11T09:40:05-04:00September 11th, 2023|The Vault|

It’s a cliché, but it’s also true that one can’t beat something with nothing, especially in Washington.  This is an axiom well worth remembering when it comes to all of the new capital and resolution rules befalling the nation’s biggest banks.  I don’t think they need to be beaten back in their entirety – much in the proposals fixes vital flaws.  But the agencies have done a remarkably poor job conjuring the impact of each of these sweeping proposals, let alone their cumulative impact in the context of all the other rules and the grievous supervisory lapses that contributed to recent failures no matter all the rules that could well have sufficed if enforced.  Thus, the most obvious problems with this new construct are opacity, complexity, and most importantly reasonable doubts that, even with all these sharpened arrows, supervisors will still fail to draw their bows and then fire early and often.  All too much in the new rules is false science, as even a cursory read of the impact analyses makes painfully clear.  Instead of setting standards on lofty, unproven models, safeguards should rely on an engineering axiom:  use warning lights that force prompt and corrective action.  Think of the ground warning in an airplane followed by urgent “pull-up” commands and then go to work on the banking dashboard with clear, enforceable rules and new PCA thresholds forcing supervisory action and accountability.

The need for new PCA triggers is even more urgent than I thought when I first outlined

8 09, 2023

DAILY090823

2023-09-08T16:06:25-04:00September 8th, 2023|2- Daily Briefing|

Barr Backs Away from CBDC, Stands Firm vs. Stablecoins

FRB Vice Chair Barr today for the first time sided firmly with Chair Powell in approaching CBDCs with caution, if at all.  Mr. Barr also emphasized not only that the Fed will not proceed with a CBDC without Executive Branch approval, but also now says that it would require “authorizing legislation,” not just Congressional “approval.”

Examining CBDC and Wholesale Payments

The FDIC today released an internal – but not necessarily independent – review of First Republic’s failure, largely saying that FDIC supervisory staff could have done better identifying emerging risks without strongly criticizing actions ahead of the bank’s collapse.  This is blamed on factors evident at the time: e.g., rapid growth, poor liquidity and interest-rate risk management.

Fed Study: CBDC Unnecessary for Successful Wholesale Tokenization

As JPMorgan and other companies continue to advance wholesale digital payments and Chair Powell has suggested (see Client Report FEDERALRESERVE73) that he may be open to wholesale CBDC, a new Fed staff study finds that tokenized wholesale payment systems do not require a new form of central-bank money.

Daily090823.pdf

29 08, 2023

DAILY082923

2023-08-29T16:55:20-04:00August 29th, 2023|2- Daily Briefing|

Agencies Advance Controversial Long-Term Debt, Resolution Proposals

The FDIC, OCC, and FRB today tackled several critical resolution issues in the wake of recent bank failures, proposals that raise strong objections from regional banks despite FDIC and FRB unanimity today on at least one of them.  As anticipated, the FDIC and FRB approved an NPR that would impose minimum long-term debt requirements for banks and BHCs with assets over $100 billion, with the FDIC and Fed boards voting unanimously in favor even as FRB Gov. Bowman strongly dissented despite a three-year transition period.  Similar to the ANPR floating this rule (see FSM Report RESOLVE48), the proposal would require large banks to hold a minimum amount of eligible long-term debt equal to the greater of six percent of risk weighted assets, 3.5% of average total consolidated assets, or 2.5% of total leverage exposure for banks subject to the SLR.

Daily082923.pdf

9 08, 2023

DAILY080923

2023-08-09T16:35:20-04:00August 9th, 2023|2- Daily Briefing|

Brown, Other Senate Dems Demand Fast Action on Fed Merger Policy Rewrite

Building on Sen. Warren’s (D-MA) longstanding Fed criticism, Chairman Brown (D-OH) along with Sens. Warren, Reed (D-RI), and Fetterman (D-PA) today directly demanded a substantive and speedy rewrite of Fed merger policy to ensure that statutory requirements related to financial-stability impact are met.  The letter not only criticizes past mergers Sen. Warren has long said are “rubber-stamped” and JPMorgan’s acquisition of First Republic, but also cites the Fed’s decision to allow UBS to acquire Credit Suisse.

Waters Doubles Down On Opposition To GOP Stablecoin Bill

In stark contrast to HFSC Chairman McHenry’s (R-NC) comments praising PayPal’s new payment stablecoin, Ranking Member Waters (D-CA) today sharply criticized the product and the risks its poses  given that the HFSC GOP has advanced a bill she thinks both highly problematic and unlikely to be enacted.

Daily080923.pdf

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