#FSB – Page 5 – Federal Financial Analytics

22 03, 2023

FedFin Assessment: GSIB Rules Set For Post-CS Rewrite

Arezou Rafikian2023-03-22T16:34:58-04:00March 22nd, 2023|The Vault|

In this report, we assess the implications of recent events on two assumptions underlying current U.S. and global policy affecting GSIBs and those considered domestic SIBs: first, all are likely to be well insulated from illiquidity and/or insolvency and, when this is not the case, then orderly resolution without taxpayer bailout can be readily deployed. Credit Suisse’s failure and subsequent, subsidized acquisition is just one of the “Minsky moments” rattling regulators and other policy-makers, with the conclusions drawn from all of them surely to lead to significant reevaluation of each of these assumptions. To be sure, CS was an outlier in terms of idiosyncratic culture-and-control problems, but the Swiss regulatory and resolution system is considered reasonably robust, thus making the bank’s failure…

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

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22 03, 2023

GSIB21

Eliza Allen2023-03-22T10:52:22-04:00March 22nd, 2023|5- Client Report|

FedFin Assessment: GSIB Rules Set For Post-CS Rewrite

In this report, we assess the implications of recent events on two assumptions underlying current U.S. and global policy affecting GSIBs and those considered domestic SIBs: first, all are likely to be well insulated from illiquidity and/or insolvency and, when this is not the case, then orderly resolution without taxpayer bailout can be readily deployed. Credit Suisse’s failure and subsequent, subsidized acquisition is just one of the “Minsky moments” rattling regulators and other policy-makers, with the conclusions drawn from all of them surely to lead to significant reevaluation of each of these assumptions. To be sure, CS was an outlier in terms of idiosyncratic culture-and-control problems, but the Swiss regulatory and resolution system is considered reasonably robust, thus making the bank’s failure a global policy concern. The flood of deposits out of regional banks to the largest U.S. banks also further concentrates the sector, a result the Fed and Department of Justice will view with alarm even though they recognize that recent events are not the fault of the largest banking organizations. In this report, we assess implications for U.S. merger policy, OLA, TLAC, resolution planning, and other standards. See our Client Report RESOLVE49 for a discussion of capital and liquidity standards, Client Report DEPOSITINSURANCE118 for revisions to FDIC thresholds, and Client Report LIQUIDITY33 for run-specific policy actions.

GSIB21.pdf…

9 03, 2023

DAILY030923

Eliza Allen2023-03-09T16:52:09-05:00March 9th, 2023|2- Daily Briefing|

Barr Emphasizes Steep Barriers to Bank Crypto, Retail CBDC

In remarks today, FRB Vice Chair Barr reiterated that banks should take an extremely cautious approach when engaging with cryptoassets or counterparties and stressed the need to include stablecoins within the regulatory perimeter. For the first time, the Fed made it clear that, while it is open to DLT, smart-contract, and similar payment-system innovations, it is dubious that any will have near-term benefits and all require careful regulatory design.

Expected Battle Lines Form Over CFPB Future

As predicted, today’s HFSC Subcommittee hearing on the CFPB was a partisan and raucous session, with Republicans focusing most strongly on legal and constitutional issues around the Bureau’s funding and enforcement authority and Democrats defending both its legality and effectiveness. Much will come of this in terms of HFSC and floor votes, but we expect no statutory change in this Congress under this President.

Hill Sets Table for Bipartisan Crypto Action

Today’s Digital Assets Subcommittee hearing was considerably more conciliatory than the CFPB session earlier today, with Chairman Hill (R-AR) making clear in his opening statement that he is not launching a partisan attack against the SEC, the banking agencies, or the White House. He hopes instead to press bipartisan legislation, thanking former Chair Waters (D-CA) for her work on stablecoins and emphasizing the need not only for new law there, but also across the array of pending digital-asset questions.

Daily030923.pdf…

6 03, 2023

DAILY030623

Eliza Allen2023-03-06T16:54:30-05:00March 6th, 2023|2- Daily Briefing|

GOP Revs Up Fight Vs. Big-Bank Capital Hikes

Firing a fusillade ahead of capital rewrites expected late this month, Senate Banking Republicans late Friday sent FRB Chairman Powell a letter arguing strongly against capital increases and laying out a strong view that the agencies are required by law to tailor key standards.

BIS Project Finds Retail-CBDC Cross-Border Benefits

In a project boosting retail CBDC, the BIS Innovation Hub today announced the results of Project Icebreaker, a cross-border retail CBDC pilot between Sweden, Norway, and Israel.

GOP Will Deploy IGs To Demand Fed, CFPB, SEC Reform

In addition to a hearing that morning with Chairman Powell, the full HFSC will call federal banking agencies on the carpet Wednesday for “wasteful” spending and other governance issues.

Dems Beg Gensler Not to Scrap Scope 3 Climate Disclosures

Responding to intense GOP opposition to the SEC’s climate disclosure proposal, fifty Congressional Democrats led by Sen. Warren (D-MA) sent a letter to SEC Chairman Gensler today urging him not to scale the proposal back, especially its Scope 3 provisions.

Treasury Wants Fast NBFI, OEF, Crypto Standards

Treasury International Affairs Under-Secretary Jay Shambaugh today outlined U.S. priorities, emphasizing not only the importance of containing Russia and countering new threats, but also quickly advancing numerous global initiatives.

Hsu Pushes To Start The End Game

Acting Comptroller Hsu today reiterated his determination to act as quickly as possible on Basel’s end-game rules, noting the interagency statement last year that this would soon be done without providing …

23 02, 2023

DAILY022323

Eliza Allen2023-02-23T16:48:42-05:00February 23rd, 2023|2- Daily Briefing|

Agencies Strengthen Defenses vs. Crypto-Related Funding

As FedFin forecast when significant bank crypto-related deposit exposures came to light (see Client Report CRYPTO38), the banking agencies today issued guidance telling banks to monitor and mitigate risks related to resulting liquidity risk.

FSB Sets Out Key Cross-Border Payments Action Items

The Financial Stability Board today released a list of actions for implementing the G20’s Roadmap for Enhancing Cross-border Payments, including three priorities. These are payment system interoperability and extension; legal, regulatory and supervisory finalizing frameworks; and cross-border data exchange and message standards.

IMF Presses CBDC, New “Unified Ledger”

A new IMF blog post advocates for public sector implementation of new payment technologies including tokenization, encryption, and programmability to improve cross-border payments, limit counterparty risk, and facilitate AML and other compliance.

FHFA Proposes GSE-Capital Revamp

FHFA today sought comment on several significant revisions to the regulatory-capital rules governing Fannie and Freddie. As we will detail in a forthcoming in-depth report, several of these changes concede to comments rejected as the current rules were finalized.

Daily022323.pdf…

21 02, 2023

DAILY022123

Eliza Allen2023-02-21T16:39:53-05:00February 21st, 2023|2- Daily Briefing|

Nonbank Corporate Finance Stokes Systemic, Macro Risk

A new BIS paper supports bank assertions that nonbank corporate finance is considerably more procyclical in terms of its threat to financial stability and macroeconomic growth than that conducted by regulated companies. This risk-arbitrage question is germane not only to the ongoing debate about NBFI regulation, but also efforts to ensure that U.S. “end-game” capital rules sharply reduce the RWA for lower-risk corporate obligations.

FSB Fears Systemic Risk from Bank, CCP Commodity Risk

A new FSB report today assesses systemic risk posed by the oil, gas, and wheat commodity markets given its highly-leveraged and illiquid nature and its deep interconnections into the global banking system. Global regulators conclude that bank exposures in general are “manageable,” but some banks and CCPs have significant sector exposure and thus risk. Commodity firms have recently reduced liquidity risk, but they also hiked credit and market risk at a time of tightening that exacerbates them, leading the FSB to describe emerging risks and detail the data gaps that make it challenging to draw clear conclusions.

FSB Prioritizes Crypto, NBFIs

The FSB head’s letter to the G20 yesterday reiterates priorities outlined in his November letter, stating that global regulators will deliver a joint paper with the IMF later this year synthesizing policy findings and regulatory issues around cryptoassets. The FSB will also continue to prioritize NBFI supervision (see Client Report NBFI2), re-emphasizing the importance of studying hidden leverage and addressing liquidity mismatches in open-end funds.

Daily022123.pdf…

21 02, 2023

Karen Petrou: FSOC’s NBFI Plans Will Cost Big Banks Dearly

Arezou Rafikian2023-02-21T11:15:33-05:00February 21st, 2023|The Vault|

Although the always-inscrutable FSOC’s read-out of its last meeting was clear only with respect to approval of prior meeting minutes, the brief mention of ongoing U.S. work to address nonbank financial intermediation (NBFI) was so tantalizing that we ventured down darkened corners of key agencies to get a read-out of our own. Two conclusions came to light: the U.S. will take tough action on limiting bank/NBFI interconnections in its pending bank capital rewrite and FSOC is fine with the SEC’s recent MMF and open-end fund proposals even if pretty much no one else is.

First to the capital rewrites and how costly they could be. In its most recent NBFI review, the FSB took sharp issue with the extent to which the U.S. has taken sufficient steps to curb the inter-connected risks to NBFIs evident even before the 2020 market collapse. We expect the banking agencies not only to issue the end-game rules discussed in my last memo, but also to make good on the U.S. promise to Basel well before the game nominally ended with the 2017 revisions.

This means new capital standards costing banks big when it comes to bank equity investments in funds and higher risk weightings for exposures to unregulated financial institutions. It also means new capital requirements absorbing “step-in” risk – i.e., the extent to which reputational risk forces banks to stand by their off-balance sheet funds, SIVs, or other instrumentalities. Two banks in fact supported affiliated funds in MMFs during the 2020 …

21 02, 2023

M022123

Eliza Allen2023-02-21T11:15:27-05:00February 21st, 2023|6- Client Memo|

FSOC’s NBFI Plans Will Cost Big Banks Dearly

Although the always-inscrutable FSOC’s read-out of its last meeting was clear only with respect to approval of prior meeting minutes, the brief mention of ongoing U.S. work to address nonbank financial intermediation (NBFI) was so tantalizing that we ventured down darkened corners of key agencies to get a read-out of our own. Two conclusions came to light: the U.S. will take tough action on limiting bank/NBFI interconnections in its pending bank capital rewrite and FSOC is fine with the SEC’s recent MMF and open-end fund proposals even if pretty much no one else is.

m022123.pdf…

16 02, 2023

DAILY021623

Eliza Allen2023-02-16T16:46:08-05:00February 16th, 2023|2- Daily Briefing|

House GOP Slams Beneficial-Ownership Database

Reiterating longstanding concerns, HFSC Chairman McHenry (R-NC) and National Security, Illicit Finance, and International Financial Institutions Subcommittee Chairman Luetkemeyer (R-MO) submitted a comment letter today strongly opposing FinCEN’s latest beneficial ownership NPR.

House GOP Decries SEC Crypto-Custody Construct

Reflecting GOP concerns about the SEC’s new custody proposal as well as broad GOP objections to much of what Chairman Gensler does, HFSC Republicans today tweeted that the proposal will not ensure sufficient investor safeguards in part because restrictions on bank custody services remain.

Biden Order Reasserts Racial-Equity Agenda

Reiterating much of his last racial-equity executive order, President Biden today issued an order directing federal agencies to establish equity teams and comprehensive strategies to implement the order’s new equity initiatives.

FSB Pledges Further Work on DeFi Financial-Stability Risks

The FSB today released a report finding that DeFi’s financial stability risks are limited but may grow should linkages increase to traditional finance.

CFPB: Unfair Credit-Card Competition Evident Via Data Suppression

Following strongly-worded letters to six credit card lenders last May, the CFPB today concluded that these companies have suppressed payment data for competitive purposes.

FHFA Floats Single-Family ESG Bonds

Building on its equitable-finance initiative, FHFA today released a request for input on the benefits and risks of Fannie and Freddie single family social bonds.

Daily021623.pdf…

24 01, 2023

DAILY012423

Eliza Allen2023-01-24T16:47:35-05:00January 24th, 2023|2- Daily Briefing|

FSB Chair Presses Need to Finalize Global Crypto Standards

In remarks today, FSB Chair Klaas Knot reiterated FSB’s 2023 priorities regarding NBFI, crypto, and climate change risks, also emphasizing that the FSB seeks to improve financial resilience rather than predicting the cause of the next financial crisis.

McHenry, Hill Suggest Crypto Action Plan

In a new tweet, HFSC Chairman McHenry (R-NC) emphasized the crypto plan he discussed earlier in a media interview.

Brown, Van Hollen Press Tough TLAC, Regional-Bank Resolvability Rule

Senate Banking Committee Chairman Brown (D-OH) and Sen. Van Hollen (D-MD) sent a letter to FDIC Chairman Gruenberg and FRB Vice Chair Barr late yesterday praising the agencies’ recent ANPR on large bank resolution standards (see FSM Report RESOLVE48), calling for TLAC that prevents taxpayer bailouts in the event of failure.

CFPB Kicks Off Credit Card Regulatory Rewrite

Following its credit card late-fee notice of proposed rulemaking (see FSM Report CREDITCARD35), the CFPB today sought comment on the credit card sector as a whole for its biennial review of the industry.

Daily012423.pdf…