#FRB Dallas – Federal Financial Analytics

22 01, 2024

DAILY012224

Eliza Allen2024-01-22T16:57:16-05:00January 22nd, 2024|2- Daily Briefing|

FRB Reconsiders Interchange-Fee Cuts

Bowing to critics in the banking industry and on the Board, the Federal Reserve today extended the comment period on its debit-card interchange fee proposal (see FSM report INTERCHANGE12) by a surprisingly-long ninety days to May 12. The extension is in part due to the Board’s decision to publish additional interchange fee cap data which may have persuaded the Board that the initial data analysis supporting a mandatory pricing reduction was incorrect.

OIG Finds Reserve-Bank Trades Legal, But Problematic

The Federal Reserve’s Office of the Inspector General (OIG) today released long-awaited reviews of personal trades by former Dallas and Boston Reserve Bank Presidents two years ago that raised numerous and often vociferous assertions of conflicts of interest. Indeed, Sen. Warren (D-MA) stated that she believed these epitomized a “culture of corruption” at the Fed, introducing bipartisan legislation to force considerably more transparency at the Reserve Banks.

FSB Plans Global Run-Risk Buffers

The head of the Financial Stability Board, Secretary General John Schindler, today briefed media on the global regulator’s plans to brief the G20 in October about viral-run risk and the standards needed to avert it. Mr. Schindler said little about what the FSB is likely to propose although the Basel Committee is now considering rewrites to global LCR and NSFR standards likely to be reflected in the FSB’s recommendations.

Daily012224.pdf…

28 11, 2023

DAILY112823

Eliza Allen2023-11-28T16:35:09-05:00November 28th, 2023|2- Daily Briefing|

FRB-Dallas: Reciprocal Deposits Require Policy Attention

The Federal Reserve Bank of Dallas today released a staff study revaluating reciprocal deposits in the wake of SVB’s failure, concluding that policy-makers should reconsider concentration limits imposed in 2018 in conjunction with brokered-deposit constraints (see FSM Report DEPOSITINSURANCE108).

FRB-NY: OEFs Create Run-Run Risk

The Federal Reserve Bank of New York today released a staff study concluding that open-end funds (OEFs) experienced acute outflows after SVB failed, bank deposits received de facto unlimited insurance, and the FRB established the TBFP.

Chopra Testimony Ducks Tough Questions Ahead of Hearings

CFPB Director Chopra’s testimony for forthcoming hearings with HFSC and Senate Banking this week largely recaps Bureau action since his last appearance before Congress in June, with Mr. Chopra focusing on consumer debt issues highlighted in the CFPB’s recent consumer credit card market report.

FSB Wants Action on Crypto Vertical Integration

The FSB today released a report concluding that, while multifunction crypto-asset intermediaries (MCIs) currently pose limited financial-stability threat, cryptoasset stress events such as those that occurred over the past year present spillover risks to banks with concentrated deposit exposures to firms reliant on cryptoassets.

Basel Presses Supervisors to Enforce GSIB Data-Aggregation Standards

The Basel Committee today released a report finding that only two of the 31 GSIBs are fully compliant with its Principles for effective risk data aggregation and risk reporting (see FSM Report RISKMANAGEMENT7).

Daily112823.pdf…

28 06, 2023

DAILY062823

Eliza Allen2023-06-28T17:21:14-04:00June 28th, 2023|2- Daily Briefing|

Biden Predicts End to Overdrafts

In a speech today detailing “Bidenomics”, President Biden continued his administration’s campaign against “junk fees,” specifically targeting overdrafts.

Fed Branch Approval Faced Unusual Bowman Protest

With a cryptic statement, FRB Gov. Bowman has taken the unusual step of protesting a branch application which she and all other governors approved. The issue appears to be the fact that two commenters objected to the branch application on grounds that the bank (Vantage in Texas) discriminates against African American borrowers. The Fed’s formal approval notes only these comments and otherwise approves of the bank’s fair-lending record, also noting its satisfactory CRA rating and the fact that the bank is principally a commercial lender.

Fed Finds Big Banks Resilient, Still Wants More Rules

The Fed’s stress-test release today attempts to meld both the Board’s finding that banks are not only resilient, but also “well-positioned” for a severe recession with Vice Chairman Barr’s plans to rewrite an array of new rules (see Client Report FEDERALRESERVE72) that stress tests are only one measure of strength the “resilient” evidence itself.

Daily062823.pdf…

19 05, 2023

DAILY051923

Eliza Allen2023-05-19T17:03:07-04:00May 19th, 2023|2- Daily Briefing|

Bowman Strengthens Stand Against New Rules, Possible Supervisory Overkill

In case anyone doubted her meaning last week, FRB Gov. Bowman today repeated her strong opposition to the regulatory rewrites spelled out in what at first seemed the Fed’s but is now apparently only Vice Chairman Barr’s report (see Client Report REFORM221). Ms. Bowman also reiterates her call for an independent study, continued tailoring, and improved supervision.

Bills To Reduce Regulatory Independence Advance

As anticipated at his last hearing, HFSC Financial Institutions Subcommittee Chairman Barr (R-KY) has now formally introduced three regulatory transparency bills. We will shortly provide clients with in-depth analyses of these bills, which we expect quickly to proceed to mark-up on largely party-line votes.

Warren Pounces On Reports Of Treasury-Bond Assessment Proposal

Sen. Warren (D-MA) yesterday sent a strongly-worded letter to FDIC Chairman Gruenberg demanding that the FDIC reject reported big bank plans to replenish the DIF with at-par Treasury bonds rather than the proposed special assessment (see FSM Report DEPOSITINSURANCE120).

BIS’s Carstens Dismisses Crypto, Calls For Tighter Non-bank Controls

In a wide-ranging speech today, BIS General Manager Agustín Carstens sharply criticized cryptocurrencies and called for greater regulation of the nonbank sector to avert a systemic financial crisis.

Daily051923.pdf…

18 05, 2023

DAILY051823

Eliza Allen2023-05-18T16:51:22-04:00May 18th, 2023|2- Daily Briefing|

FRB-NY: SLR, Other Bank Stress Led to ONRRP Growth

A new post from the Federal Reserve Bank of New York summarizes a recent staff report analyzing the ONRRP’s explosive growth. As we have noted before, the study confirms that the combination of a revised SLR and strong deposit in flows in 2021 severely stressed bank balance-sheet capacity, leading large institutions to push deposits to sponsored MMFs. Indeed, bank-sponsored MMFs had larger inflows than independent MMFs at this time and banks with tighter capital ratios moved disproportionately more funds to their sponsored MMFs.

Reserve Banks Reconsider Liquidity-Backstop Standards, Set-Up

FRB-Dallas President Logan today reinforced findings in recent bank failures about the importance of advance planning for accessing FRB liquidity, urging banks to have legal documentation and collateral arrangements well in advance of possible stress. Presaging standards we expect shortly from the banking agencies, she also urged regular operational dry runs to ensure ready access to funding sources such as Home Loan Banks and Fed liquidity windows, noting that this would reduce discount-window stigma.

Daily051823.pdf…

26 09, 2022

DAILY092622

Eliza Allen2022-09-26T17:13:15-04:00September 26th, 2022|2- Daily Briefing|

EU Banks Placate Investors vs. Protecting Capital

As pressure mounts on bank capital requirements (see Client Report REFORM213), the IMF has released a study finding that European banks could not have reduced capital distributions during the first year of the pandemic but for supervisory restrictions. This study is models-based and thus dependent on its assumptions. It also does not cover U.S. banks and conditions in each region may differ, but the study concludes that EU banks did not discount future expectations of economic conditions or profitability.

FRB Dallas Paper Finds CBDCs Enhance Financial Inclusion

The Federal Reserve Bank of Dallas today published a working paper finding that both a low fixed-cost/rate and a high fixed-cost/rate CBDC facilitate inclusion without harming intermediation, although the lower fixed-cost/rate option results in greater inclusion by encouraging households now relying on cash to participate in the financial system. It also found that a CBDC that increases inclusion does not necessarily decrease intermediation if the banking sector is not perfectly competitive, as its definition suggests is now the case.

Daily092622.pdf…

29 08, 2022

Karen Petrou: Why Failing to Focus on Economic Equality Flummoxes Fed Policy

Arezou Rafikian2023-01-04T10:22:48-05:00August 29th, 2022|The Vault|

August doldrums always seem to power up spirals of will-he or won’t-he speculation about the Fed’s Jackson Hole meeting because there usually isn’t all that much else to talk about economically-speaking. This year is different because this year has revealed the Fed as a central bank without a compass at a time of extraordinarily strong winds towards the rocks. Still, in all the punditry over whether the Fed can somehow maneuver to Jay Powell’s “softish landing,” there’s one missing, critical factor: inequality and what the Fed must do about it or, if it won’t, what we must do about the Fed.

The Fed is fond of blaming fiscal policy for economic inequality, but U.S. fiscal policy has been awesomely stimulative since the pandemic struck and the U.S. has still grown ever more unequal in terms of both income and wealth. This is because ultra-accommodative monetary policy stokes inequality and, at the scale practiced by the Federal Reserve, towers over even trillions of fiscal stimulus. As a result, the U.S. didn’t get the Fed’s promise of “robust growth” accompanied by only a bit of “transitory” inflation. Of course, we instead got a crushing combination of high-flying inflation that will leave long-lasting scars on vulnerable households even if it meaningfully abates as some now hope.

The Fed thinks itself aloof from any inequality accountability because it cloaks itself in the mantle of “maximum employment” as armor against any inequality-effect assertions. It was in fact this focus solely on employment …

29 08, 2022

m082922

Arezou Rafikian2023-01-04T10:21:36-05:00August 29th, 2022|6- Client Memo|

Why Failing to Focus on Economic Equality Flummoxes Fed Policy

August doldrums always seem to power up spirals of will-he or won’t-he speculation about the Fed’s Jackson Hole meeting because there usually isn’t all that much else to talk about economically-speaking. This year is different because this year has revealed the Fed as a central bank without a compass at a time of extraordinarily strong winds towards the rocks. Still, in all the punditry over whether the Fed can somehow maneuver to Jay Powell’s “softish landing,” there’s one missing, critical factor: inequality and what the Fed must do about it or, if it won’t, what we must do about the Fed.

m082922.pdf…

8 08, 2022

DAILY080822

Eliza Allen2023-01-04T12:56:23-05:00August 8th, 2022|2- Daily Briefing|

Progressives Press Price Controls

Last week, a group of progressive Democrats and CBC members introduced H.R. 8658, legislation designed to press the President to institute price controls and give him greater authority to do so. The bill is supported by major labor unions and consumer/public-advocacy groups which argue that price controls are essential to prevent profiteering in goods such as energy and food and services such as rental housing. The measure includes no express provisions affecting financial services, but additional discussion of it is likely to provoke calls also for lower and fewer bank fees, higher consumer deposit rates, and reduced mortgage rates.

FRB-Dallas: Fed Policy Hiked Current Inflation

A new Federal Reserve Bank of Dallas study reaches a conclusion likely to exacerbate criticism of current monetary policy: the 2020 flexible-average inflation targeting (FAIT) construct increased inflation over what would otherwise have been predicted by 1.8 percentage points on average. Models-based and thus an assessment FAIT on a preferred construct, the paper also finds that FAIT may have large effects over short time periods due to delayed intervention. These delays can, the study notes, have the FOMC’s intended effect of preventing the Fed from over-reacting to transitory shocks; the study does not provide insights into whether delays and the 1.8 pp increase was appropriate given that inflation did not prove transitory and may now have become more difficult to combat.

Daily080822.pdf…

14 07, 2022

DAILY071422

Eliza Allen2023-01-06T15:12:22-05:00July 14th, 2022|2- Daily Briefing|

FSB Climate-Risk Progress Report Underscores Disclosure Standards, Improved Data

The FSB today released a climate-risk progress report that also details near-term actions. These include not only the statement to the G20 in October noted in yesterday’s G20 report, but also a status report in September from the Task Force on Climate-Related Financial Disclosures (TCFD) on industry progress toward adopting its climate disclosure recommendations.

CFPB, OCC Slam BofA for UI-Fraud Lapses

The OCC and CFPB today issued a $225 million enforcement order against Bank of America related to unemployment-insurance and public-benefit fraud that led the bank to improperly withhold prepaid-card payments to legitimate recipients.

BIS Builds “Central Bank Liquidity Bridges”

Continuing its work to promote better cross-border payments, the BIS today floated the idea of “central-bank liquidity bridges” to overcome current frictions in the bank-dominated sector.

Clarida and Powell Cleared, but OIG Still Reviewing Fed Ethics

The Office of the Inspector General at the Fed today cleared former Vice Chair Clarida and Chairman Powell of ethics violations that have dogged them as recently as a letter yesterday from Senate Democrats.

Daily071422.pdf…