#FMU

11 04, 2024

RESOLVE51

2024-04-11T14:22:52-04:00April 11th, 2024|5- Client Report|

FedFin Assessment: FDIC Plan to Resolve GSIBs Fails to Answer Many Key Questions

In its first public statement since 2013 about how it would execute an SPOE resolution (see FSM Report RESOLVE23), the FDIC yesterday released a report Chair Gruenberg described as demonstrating the FDIC’s readiness to resolve a U.S. GSIB and the process it has developed for doing so under the orderly liquidation authority (OLA) provided in the Dodd-Frank Act (see FSM Report SYSTEMIC30).  As detailed in this FedFin report, the FDIC’s goal is to set stakeholder expectations regarding what to expect in an OLA resolution of a U.S. GSIB, but much reiterates current law and prior actions such as GSIB filings related to their resolution plans and the FRB’s TLAC standards (see FSM Report TLAC6).  Although perhaps released by the Chairman at least in part to assert FDIC capabilities at a time of internal stress and Congressional criticism, it remains unclear the extent to which the FDIC is ready and able to execute the protocols it describes.  The paper principally addresses only SPOE resolutions, which it states are best suited to OLA without making clear what it would do if a GSIB chose MPOE (none have so far although this is permitted under the living-will rules), a regional bank found to be systemic used MPOE (as several do), or if resolution involves a nonbank, where MPOE might well be preferable.

RESOLVE51.pdf

8 03, 2024

DAILY030824

2024-03-08T16:54:53-05:00March 8th, 2024|2- Daily Briefing|

Biden Continues Junk Fee Campaign

The President continued his attack on junk fees in the State of the Union, applauding the CFPB’s new credit-card late fee rule.  The President also boasted about recent monetary data, calling the American economy “the envy of the world” and called for Congress to pass Sen. Casey’s (D-PA) bill to stop shrinkflation.

FRB Finalizes FMU OpsRisk Update

The FRB today unanimously voted to finalize an update to rules governing operational risk-management for certain systemically-important financial market utilities (FMUs).

CFPB Lays Groundwork for Mortgage Closing-Cost Regulation

Continuing its campaign against junk fees, the CFPB today released a blog post focusing on mortgage closing cost fees, stating that the agency will issue rules and guidance “as necessary” to improve competition and affordability in the coming months.  The post states that median total loan costs increased 22 percent on home purchase loans from 2021 to 2022, noting that many of these costs are fixed and not affected by interest rates.

Daily030824.pdf

18 12, 2023

FSOC29

2023-12-18T11:36:07-05:00December 18th, 2023|5- Client Report|

FedFin Assessment: FSOC Worries A Lot, Watches, Waits

This year’s FSOC report trods much old ground with two exceptions.  The first pertains to a new focus on artificial intelligence, machine learning, and new, generative technologies.  That said, the report does little beyond highlight this risk and include it among all the others federal agencies are told to monitor.  Private credit now also alarms FSOC, with insurance company investment in this sector of particular systemic concern in concert with the sectors’ CRE and junk-bond exposures, offshore reinsurance, and PE ownership.  As detailed in this report, banks are found to be resilient and have ample capital even as the report supports consideration of pending regulatory revisions.  Banking agencies are also asked to monitor uninsured-deposit levels and assess run-risk in light of social media and other accelerants.  In sharp contrast to more alarmist statements in the past and extensive Treasury reports (see Client Report CRYPTO32), this year’s report downplays cryptoasset risk because federal regulators are said to have taken steps to contain it.  The report also reiterates FSOC’s continuing focus on cyber and climate risk, with the closed session preceding the meeting considering a framework being developed by the OCC to measure and monitor financial risks and bank exposures.  Agencies are also encouraged to pursue comparable, “decision-useful” climate disclosures.  The LIBOR transition is considered a success and no longer poses a systemic risk.

FSOC29.pdf

13 12, 2023

DAILY121323

2023-12-13T16:50:12-05:00December 13th, 2023|2- Daily Briefing|

HFSC Oversight Subcomm Revisits Iran Sanctions

Today’s HFSC Oversight Subcommittee hearing focused on the Biden Administration’s recent efforts to limit terrorist funding from Iran.  Chairman Huizenga (R-MI) questioned the need for the November 14th renewal of a waiver that allows Iraq to pay Iran for electricity, calling for increased pressure on Iran following Hamas’s October 7th attack.

SEC Sets Out Treasury Central-Clearing Construct

As anticipated, the SEC this morning voted 4-1 to mandate central clearing for Treasury securities used in many repo and reverse-repo transactions, modifying the proposal in key respects still unsatisfactory to Commissioner Peirce.  The rule addresses continuing concerns about Treasury-market fragility, in part by reducing the number of highly-leveraged hedge-fund transactions.

GAO Reaches Equivocal Verdict on Digital-Asset Crypto Evasion Risk

Addressing Congressional concerns such as those in the Warren-Marshall crypto-compliance bill, the GAO today issued a report finding that digital assets pose risk to U.S. sanction implementation and enforcement despite mitigating factors that may reduce certain risks.

Brown Presses Bank CEOs on Servicemember Rights

A week after the GSIB CEOs came before the Senate Banking Committee (see Client Report GSIB23), Banking Committee Chair Brown (D-OH) today sent a letter to the CEOs of the four largest consumer banks encouraging them to ensure that active-duty servicemembers obtain all the financial benefits to which they are entitled.

Daily121323.pdf

9 11, 2023

SYSTEMIC98

2023-11-09T13:06:42-05:00November 9th, 2023|1- Financial Services Management|

Systemic-Risk Determinations

Rejecting the Trump Administration’s hands-off approach to designating systemically-important nonbank financial institutions or activities and practices, the Biden Administration’s FSOC has finalized its bifurcated proposals to designate systemic entities and another laying out an analytical approach to identifying systemic risk that would then guide firm and activity designation as well as Council staff coordination with primary federal regulators.  This is likely to lead to new additional systemic entity-based designations, rules, product or service prohibitions/restrictions, and/or firm-specific supervisory action.  The final framework is as comprehensive as the proposal, meaning that U.S. systemic standards could extend far more widely than is now the case even if firm-specific nonbank designations are few and far between.

SYSTEMIC98.pdf

3 11, 2023

DAILY110323

2023-11-03T17:39:35-04:00November 3rd, 2023|2- Daily Briefing|

FSOC Advances Designation Framework, Ready to Deploy

The FSOC today voted unanimously to finalize the Council’s analytic framework for financial stability risk identification (see FSM Report SYSTEMIC95) and guidance on nonbank financial company systemic designations (see FSM Report SIFI35).  FedFin will soon provide clients with in-depth reports on each item.  In addition to minor clarifications to the analytic framework, the Council importantly decided not to add cost-benefit analysis.  Further, the final nonbank designation guidance is unchanged from the proposal, meaning that designation standards will not require a determination of imminent threat to financial stability.

Daily110323.pdf

26 04, 2023

FedFin on: Systemic-Risk Determinations

2023-04-26T16:59:28-04:00April 26th, 2023|The Vault|

Rejecting the Trump Administration’s hands-off approach to designating systemically-important nonbank financial institutions or activities and practices, the Biden Administration’s FSOC has bifurcated this construct with one proposal on designating entities and another that lays out an analytical approach to identifying systemic risk that would then guide firm and activity designation as well as Council staff coordination with primary federal regulators leading to new rules, product or service prohibitions/restrictions, or firm-specific supervisory action. If the final framework is as comprehensive as this proposal and FSOC is as actively engaged as its plan requires, then U.S. systemic standards could extend far more widely than is now the case even if firm-specific nonbank designations are few and far between…

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

26 04, 2023

SYSTEMIC95

2023-04-26T13:51:20-04:00April 26th, 2023|1- Financial Services Management|

Systemic-Risk Determinations

Rejecting the Trump Administration’s hands-off approach to designating systemically-important nonbank financial institutions or activities and practices, the Biden Administration’s FSOC has bifurcated this construct with one proposal on designating entities and another that lays out an analytical approach to identifying systemic risk that would then guide firm and activity designation as well as Council staff coordination with primary federal regulators leading to new rules, product or service prohibitions/restrictions, or firm-specific supervisory action. If the final framework is as comprehensive as this proposal and FSOC is as actively engaged as its plan requires, then U.S. systemic standards could extend far more widely than is now the case even if firm-specific nonbank designations are few and far between.

SYSTEMIC95.pdf

19 12, 2022

FedFin on: FSOC Targets Usual Suspects but Also Points to Big-BHC, Nonbank Mortgage Systemic Risk

2023-01-03T15:56:33-05:00December 19th, 2022|The Vault|

As promised, this FedFin report provides an in-depth analysis of FSOC’s 2022 annual report, focusing on findings with near-term policy implications.  As always, the report is lengthy and includes many observations and market details that provide insight into Treasury and member-agency-staff thought.  Much in it reiterates concerns about short-term funding markets, CCPs, and….

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

19 12, 2022

FSOC28

2022-12-19T13:00:38-05:00December 19th, 2022|5- Client Report|

FSOC Targets Usual Suspects but Also Points to Big-BHC, Nonbank Mortgage Systemic Risk

As promised, this FedFin report provides an in-depth analysis of FSOC’s 2022 annual report, focusing on findings with near-term policy implications.  As always, the report is lengthy and includes many observations and market details that provide insight into Treasury and member-agency-staff thought.  Much in it reiterates concerns about short-term funding markets, CCPs, and investment funds (with FSOC for the first time urging regulators to look not only at MMFs and OEFs, but also at collective investment vehicles).  As previously noted, the report is relatively sanguine about digital-asset systemic risk but, also reiterates findings in FSOC’s report (see Client Report CRYPTO33) demanding rapid action on a raft of reforms in this high-risk sector.  What surprised us is the discussion of large BHCs, which departs from longstanding Fed and FSOC comfort in the post-GFC regulatory regime for this sector.

FSOC28.pdf

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