FRB

6 09, 2023

FedFin on: Long-Term Debt Requirements

2023-09-07T16:38:46-04:00September 6th, 2023|The Vault|

Building on an advance notice of proposed rulemaking, the banking agencies have issued several proposals to enhance the resolvability of large banking organizations not covered by stringent GSIB standards.  Among these is a proposal mandating long-term debt (LTD) to increase regional-bank total loss-absorbing capacity (TLAC) and, the agencies believe, reduce resolution costs and/or increase the FDIC’s options, thus avoiding the systemic designation and costly resolutions that occurred for regional banks earlier this year.  The LTD requirements for category II, III, and IV banking organizations do not go as far as those mandated for GSIBs, based instead exclusively on a “capital-refill” construct in which eligible LTD is issued in amounts the agencies believe sufficient to provide enough capital-equivalent funding to achieve the proposal’s expected results.

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

11 08, 2023

FedFin on : Stablecoin/Tokenization Activities

2023-08-11T16:25:47-04:00August 11th, 2023|The Vault|

In conjunction with issuing a new supervisory policy for “novel” activities, the FRB has instituted a new process requiring non-objection letters before state member banks proceed with stablecoin or dollar-tokenization activities.  Although the new non-objection process makes it clear that Fed approval will require clear adherence to a raft of policy and legal obligations, the non-objection process clears the way for state member banks to offer products with a growing role in retail and wholesale payment, settlement, and clearing activities.

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

1 05, 2023

Karen Petrou: What the FRB and FDIC Left Out: Why They Still Can’t Shutter Regional Banks Without a Bailout

2023-05-03T15:38:36-04:00May 1st, 2023|The Vault|

Although the Fed’s “unflinching” self-assessment of SVB’s inglorious demise and the FDIC’s still more exculpatory analysis of SBNY talk much of supervisory gaffes, neither addresses a critical unanswered question:  why were both agencies so ill-prepared for such large resolutions?  That they were is still more grievous when it comes to First Republic, where the agencies are flat-footed even though they’ve had over a month of warnings that FRC might not make it.  As the Fed says, a banking system without failure is a financial system without intermediation.  It and the FDIC clearly know that failures are inevitable, but still turn to one or another form of the taxpayer bailouts U.S. policy-makers swore after 2008 would never again disfigure the nation’s financial system.  The agencies did not answer the urgent question of why even mid-sized bank resolutions are still systemic or lead to still more concentrated market power, but we must and then hold them as accountable for this failure as for all the others mentioned or not in each of their reports.

Are regional banks truly systemic or is it just that the FDIC doesn’t know what to do with them?  Mass regional-bank failures are clearly problematic, but would these be likely if the FDIC knew how to resolve mid-sized banks when supervisors spot problems or, failing that as seems sadly likely, if a regional bank comes unglued?  The FDIC is clearly ill-prepared to handle them even when the bank is the principal subsidiary of a non-complex BHC as is …

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