#FRB NY – Federal Financial Analytics

7 03, 2023

DAILY030723

Eliza Allen2023-03-07T16:44:19-05:00March 7th, 2023|2- Daily Briefing|

FRB-NY Renews Culture Analyses With Fintech Focus

Although the New York Fed’s corporate-culture efforts were high profile in the wake of the great financial crisis, attention has shifted to matters leading the Reserve Bank to retool its effort. In remarks today, James Hennessy, head of this work at the New York Fed, announced that focus has turned to how the digital transformation affects corporate culture, looking for example at how new entrants affect bank decision-making. This appears to be a reference to a new inter-agency worry: that fintech or similar partnerships are driven more by bank profit considerations than attention at the same time to risk management and consumer protection.

Daily030723.pdf…

27 02, 2023

DAILY022723

Eliza Allen2023-02-27T16:39:49-05:00February 27th, 2023|2- Daily Briefing|

FRB-NY: CRA Now Makes No Measurable Difference

As the banking agencies wrestle with their still-unfinished CRA rule (see FSM Report CRA32), the Federal Reserve Bank of New York today released a staff report concluding that the law has little to no impact on like-kind household credit in target areas. Using data available only to the Fed, the report finds that banks largely meet CRA in target areas by acquiring existing mortgage loans, not making new ones.

SCOTUS Re CFPB Has Broad Ramifications

In a case with significant implications not only for the CFPB, but also other financial agencies, the Supreme Court today agreed to review the Fifth Circuit’s decision invalidating CFPB funding via transfers from the Federal Reserve’s income rather than annual Congressional appropriation.

CFPB Puts A Repeat Offender Out Of Business

Wielding the hammer Director Chopra claimed when he announced his campaign against repeat offenders, the CFPB today used the powers it argues derive from its authorizing law (see FSM Report CONSUMER14) to put a nonbank mortgage lender out of business. In this case, RMK Financial was found to have persistently violated a 2015 agreement under consumer-finance laws and rules to mislead veterans about the terms of their VA and FHA mortgages.

Daily022723.pdf…

6 02, 2023

DAILY020623

Eliza Allen2023-02-06T16:57:16-05:00February 6th, 2023|2- Daily Briefing|

FRB-NY Confirms Regional-Bank Struggle Following LIBOR Transition

A new Federal Reserve Bank of New York staff study and blog post reaffirms many regional-bank fears about the LIBOR transition not fully allayed by compromise provisions in the Fed’s recent benchmark-setting regulation (see FSM Report LIBOR9). Focusing on the credit-line sector (which is largely unfunded), the paper finds that the likely cost of bank wholesale funding under stress will sharply exceed that earned on corporate-line drawdowns priced to SOFR, with these spreads likely especially wide for regional banks. The paper’s models and data thus lead to the conclusion that the shift to SOFR will decrease line availability.

Barr Prioritizes Privacy, Small-Bank Capital, FSOC Restraints

A new staff memo provides not only the agenda for Wednesday’s House Financial Institutions & Monetary Policy Subcommittee, but also the priorities Chairman Barr (R-KY) will pursue with regard to financial regulation. Key concerns are encouraging fintech, data privacy (a priority issue also for Chairman McHenry), facilitating de novo charters, and holding the banking agencies accountable. Bills on which a record will be established is one yet to be introduced to revise the Gramm-Leach-Bliley Act’s privacy standards to stipulate federal preemption, expand coverage and give consumers rights akin to those now also under consideration by the CFPB for a limited number of banking activities (see FSM Report DATA3).

Daily020623.pdf…

18 01, 2023

DAILY011823

Eliza Allen2023-01-18T16:37:19-05:00January 18th, 2023|2- Daily Briefing|

FSB Pledges Further Work on Bank NBFI Capital Exposures, MMFs, OEFs

The FSB today published an update on its non-bank financial intermediation (NBFI) reforms, finding that further progress is needed in implementing capital requirements for bank exposures to investment funds and large exposures.

CFPB Tells Examiners To Look At Servicer Fees, Foreclosure Process

The CFPB today released updated Mortgage Servicing Examination Procedures reflecting newly identified consumer risks since its 2016 update as well as pandemic-era servicing changes.

FRB-NY: Small Banks Behind Recent Discount Window Lending Spike

A new post from FRB-NY staff looks at why discount-window lending has recently increased, providing data that make it still more interesting that Silvergate chose emergency support from Home Loan Banks, not the Fed.

Daily011823.pdf…

12 01, 2023

DAILY011223

Eliza Allen2023-01-12T16:51:37-05:00January 12th, 2023|2- Daily Briefing|

OCC Tightens Fair-Lending Review

Acting Comptroller Hsu took the occasion today of release of a new fair-lending manual to emphasize the OCC’s commitment to ending credit discrimination.

McHenry Chairmanship Starts With CFPB Confrontation

In his first financial-policy action since becoming HFSC Chairman, Rep. Patrick McHenry (R-NC) today blasted the Bureau and its “reckless” Director for what he described as expanding its authority beyond congressional intent.

FRB-NY Staff Renew Debate Over FBO Liquidity, Market Impact

A new post from FRB-NY staff assesses the funding strategies of FBO branches and agencies to judge their current impact setting dollar-liquidity pricing in the U.S. wholesale funding market.

OFR Cites Heightened Systemic Risk, MMF Worries

In its annual report on 2021, OFR has concluded that financial stability risks are generally elevated due to macroeconomic tightening, inflation, climate change and volatility in Treasury, crypto, and commodity markets.

DOJ Lands Unprecedented Redlining Settlement

Continuing the Administration’s racial-equity campaign, the Department of Justice today announced an historic settlement with City National Bank.

Daily011223.pdf…

9 01, 2023

DAILY010923

Eliza Allen2023-01-09T16:42:26-05:00January 9th, 2023|2- Daily Briefing|

FRB Staff Criticizes GSIB Climate Action Plans

A new FRB staff paper assesses GSIB climate-action plans, finding them better but still wanting with regard to risk measurement, disclosure, and management as well as the alignment of financing activities with stated net-zero targets. The paper largely depends on GSIB disclosures, likely not only leading authors to call for improvements given the well-known early stage of these releases, but also making uncertain its analysis of opaque areas such as internal policy alignment. The study notes the lack of standardization in GSIB disclosures, efforts, and terminology but does not seem to address it in reaching its conclusions.

FRB-NY Staff Find Banks Target Repurchases to Constrain Capital Distribution

Reaching no conclusions about the wisdom of the Fed’s 2020 restrictions on bank capital distributions, a new blog post from FRB-NY staff finds that changes in repurchases account for almost all of the movement in bank shareholder payout since the pandemic and that the greater volatility of repurchases relative to dividends reflects long held trends. This is because changes to repurchases are more discretionary than “highly visible” dividend changes.

Daily010923.pdf…

21 12, 2022

DAILY122122

Eliza Allen2022-12-21T16:53:18-05:00December 21st, 2022|2- Daily Briefing|

FRBNY Blog: DeFi Addresses Crypto Risks, Tech, Legal Concerns Remain

Addressing the extent to which some of crypto could survive the current calamity, FRB NY staff in a blog post today argue that DeFi could resolve some of the risks apparent in recent crypto collapses if – and only if – technological and legal risks are addressed. Features inherent to DeFi – e.g., self-custody, automated governance controls, and transparent distributed ledgers – address the asset custody, governance, and disclosure failures central to recent collapses.

Daily122122.pdf…

1 12, 2022

DAILY120122

Eliza Allen2022-12-01T17:57:37-05:00December 1st, 2022|2- Daily Briefing|

FDIC, FRB-NY Highlight AOCI Losses

In remarks accompanying the banking-sector 3Q report, Acting FDIC Chairman Gruenberg noted that unrealized losses on AFS/HTM securities now total $690 billion, up 47 percent from just the second quarter. This issue is also highlighted in remarks today from the head of supervision at the Federal Reserve Bank of New York, but neither she nor Mr. Gruenberg indicates if the agencies plan any action in this arena.

Brown Talks Civil Rights, GOP Attacks CFPB

Although Chairman Brown (D-OH) used today’s Fair Lending hearing to renew discussion of his 2020 legislation bringing financial institutions under the Civil Rights Act (see FSM Report FAIRLEND9), most of the focus at the session was on the CFPB.

House Panel Blasts Fintech PPP Practices, Seeks Investigation

A new report from the Select Committee on the Coronavirus investigating the role of fintechs in PPP fraud concludes that fintechs failed to implement appropriate oversight and fraud-prevention strategies despite accruing “massive” profits from administration fees.

Barr Talks Even Tougher on Bank Capital Rewrite

Although Vice Chairman Barr today confirmed statements to the Senate Banking Committee (see Client Report REFORM214) that his holistic-capital review is under way without any immediate conclusions, he also emphasized that it will ensure that ample capitalization is sufficient for severe stress and creates incentives for prudent lending. Current capital levels are, he said, at the low end of what research suggests they should be.

Daily120122.pdf…

21 11, 2022

DAILY112122

Eliza Allen2022-11-21T17:37:05-05:00November 21st, 2022|2- Daily Briefing|

FRB-NY Considers Why Deposit Rates are Now So Sticky

As Karen Petrou’s talk last week noted, Democrats and the CFPB have charged that exploitation explains why bank deposit rates now lag Fed rate hikes. Today’s post from the Federal Reserve Bank of New York finds a steady decline in bank deposit-rate matches to Fed rate hikes since 1994, but also identifies market factors that largely explain rate sluggishness. The study estimates the “deposit beta” – i.e., the difference between FOMC hikes and all deposit rates (including non-interest paying funds) found in BHC data.

Senate Dems Demand Digital-Asset Crackdown

Following last week’s hearings with the banking agencies (see Client Report REFORM214), Chairman Brown (D-OH) and Senate Banking Democrats today sent letters urging Vice Chair Barr, Acting Chairman Gruenberg, and Acting Comptroller Hsu to review SoFi’s digital asset activities, accusing the firm of improperly expanding its crypto trading following commitments not to do so when it was granted licenses as a national bank and BHC. Following the playbook of pressing for rules and enforcement rather than new law, Senators point to a new SoFi service they believe is not only an “expanded” digital-asset activity despite a commitment to wind down these impermissible activities, but also is dangerous to investors and unsafe and unsound.

Daily112122.pdf…

16 11, 2022

DAILY111622

Eliza Allen2022-11-16T17:14:29-05:00November 16th, 2022|2- Daily Briefing|

Treasury Calls for Tough Fintech and Bank-Partnership Protection, Prudential Standards

Treasury has completed a long-pending study of the extent to which nonbank fintechs compete with banks and how this affects financial stability and consumer protection. We will shortly provide clients with an in-depth analysis of this report, for which Karen Petrou was extensively interviewed as now noted publicly in the appendix. The report was ordered by the Secretary in compliance with President Biden’s competition order (see Client Report MERGER6), finding that nonbank fintechs directly compete with banks and thus may reduce current concentration levels, sure to influence the inter-agency bank-merger policy that remains to be finalized.

Williams Presses for NBFI Standards

In remarks today, FRB-NY President John Williams said that the central bank should not adjust monetary policy to address the price-stability challenges of volatile Treasury markets and that financial-stability questions have generally been well-addressed as evident in the sound U.S. banking system. Noting recent findings in the latest staff report (see Client Report TMARKET3), Mr. Williams also called for structural changes to NBFIs along lines also laid out by the FSB (see Client Report NBFI2), arguing that MMFs and other NBFIs must be a market source of strength, not of vulnerability requiring rescue beyond the Fed’s new standing facility.

G20 Blesses FSB, Basel Work Plans

In addition to top-priority concerns such as Ukraine, the G-20 Leader’s Declaration today tackled the usual financial-policy agenda, supporting the FSB’s recent NBFI report (see Client …