#FSOC

4 12, 2023

M120423

2023-12-04T11:03:03-05:00December 4th, 2023|6- Client Memo|

Why Curbing Banks Won’t Curtail Private Credit

Last Wednesday, Sens. Brown and Reed wrote to the banking agencies pressing them to cut the cords they believe unduly bind big banks to private-credit companies.  The IMF and Bank of England have also pointed to systemic-risk worries in this sector, as have I.  Still, FSOC is certainly silent and perhaps even sanguine.  This is likely because FSOC is all too often nothing more than the “book-report club” Rohit Chopra described, but it’s also because it plans to use its new systemic-risk standards to govern nonbanks outside the regulatory perimeter by way of cutting the banking-system connections pressed by the senators.  Nice thought, but the combination of pending capital rules and the limits of FSOC’s reach means it’s likely to be just thought, not the action needed ahead of the private-credit sector’s fast-rising systemic risk.

m120423.pdf

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4 12, 2023

Karen Petrou: Why Curbing Banks Won’t Curtail Private Credit

2023-12-04T11:03:15-05:00December 4th, 2023|The Vault|

Last Wednesday, Sens. Brown and Reed wrote to the banking agencies pressing them to cut the cords they believe unduly bind big banks to private-credit companies.  The IMF and Bank of England have also pointed to systemic-risk worries in this sector, as have I.  Still, FSOC is certainly silent and perhaps even sanguine.  This is likely because FSOC is all too often nothing more than the “book-report club” Rohit Chopra described, but it’s also because it plans to use its new systemic-risk standards to govern nonbanks outside the regulatory perimeter by way of cutting the banking-system connections pressed by the senators.  Nice thought, but the combination of pending capital rules and the limits of FSOC’s reach means it’s likely to be just thought, not the action needed ahead of the private-credit sector’s fast-rising systemic risk.

One might think that banks would do all they can to curtail private-credit competitors rather than enable them as the senators allege and much recent data substantiate.  But big banks back private capital because big banks will do the business they can even when regulators block them from doing the business they want.  Jamie Dimon for one isn’t worried that JPMorgan will find itself out in the cold.

Of course, sometimes banks should be forced out of high-risk businesses.  There is some business banks shouldn’t do because it’s far too risky for entities with direct and implicit taxpayer backstops.  This is surely the case with some of the wildly-leveraged loans private-credit companies …

30 11, 2023

CONSUMER54

2023-11-30T14:26:00-05:00November 30th, 2023|5- Client Report|

Chopra Breezes Through Senate Banking as Senators Revisit Concerns Over AI, FRC Bidding Process

Today’s Senate Banking hearing with Director Chopra was even more cordial than yesterday’s HFSC session (see Client Report CONSUMER53) even though Republicans continued to criticize the Bureau’s recent rulemakings.  Today’s hearing also showcased renewed focus on JPM’s controversial acquisition of FRC, with Sen. Vance (R-OH) grilling Mr. Chopra about the bidding process.  Director Chopra emphasized that the least-cost test was adhered to and insisted that JPM’s bid was found to be higher than PNC’s, although he promised to provide the senator with more information.  Chairman Brown (D-OH) raised serious concerns over AI lending decisions and explainability, while Sen. Warner (D-VA) called it an issue “tailor-made” for FSOC.

CONSUMER54.pdf

16 11, 2023

DAILY111623

2023-11-16T16:40:39-05:00November 16th, 2023|2- Daily Briefing|

Global Supervisors Press Direct, Indirect CSP Oversight

Global financial supervisors today highlighted cloud-service provider systemic risk, pointing to an issue also of longstanding FSOC concern.

Barr Takes Surprising AOCI Turn

In remarks today focused on Treasury-market risk, FRB Vice Chair Barr also surprisingly said that “most banks” do not need to report unrealized securities gains and losses in capital although supervisors are stepping up surveillance in this area.

McHenry Escalates FDIC Revelations to Official Probe

Following bipartisan outrage regarding the FDIC’s harassment scandal at Senate Banking and HFSC hearings this week, HFSC Chairman McHenry (R-NC) today announced that his Committee will investigate the FDIC as well as Chairman Gruenberg for alleged misconduct.

Global Regulators Set Crypto Custody Standards

IOSCO today issued final standards for cryptoassets in securities markets, codifying its prior stand that protections such as those against conflicts of interest and embedded vertical-integration risks should be managed for cryptoassets in the same manner regulators and supervisors address them in fiat-asset transactions.

Daily111623.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

31 10, 2023

FedFin Assessment: New White House AI Policy Promises New KYC Requirements, Banking-Agency Guidance

2023-10-31T13:33:25-04:00October 31st, 2023|The Vault|

In this report, we assess the detailed executive order (EO) issued late Monday afternoon after days of private showings of selected versions. Much in the EO’s binding provisions address near-term AI-related threats to national-security, pandemic-risk, and infrastructure vulnerabilities and much related to AI-related opportunities derive from internal procedures Mr. Biden urges the federal government to develop along with workforce protections and biomedical research. The EO also reiterates the Administration’s values and presses agencies to work still harder on voluntary industry standards that many have been drafting or disagreeing on since the White House and Congress first called attention to AI risk. What comes of these provisions in the EO remains to be seen, but the Administration has also used tools such as the Defense Production Act’s authorization for direct economic intervention to mandate an array of new AI commercial and technology safeguards.

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

31 10, 2023

AI3

2023-10-31T10:58:11-04:00October 31st, 2023|5- Client Report|

FedFin Assessment:  New White House AI Policy Promises New KYC Requirements, Banking-Agency Guidance

In this report, we assess the detailed executive order (EO) issued late Monday afternoon after days of private showings of selected versions.  Much in the EO’s binding provisions address near-term AI-related threats to national-security, pandemic-risk, and infrastructure vulnerabilities and much related to AI-related opportunities derive from internal procedures Mr. Biden urges the federal government to develop along with workforce protections and biomedical research.  The EO also reiterates the Administration’s values and presses agencies to work still harder on voluntary industry standards that many have been drafting or disagreeing on since the White House and Congress first called attention to AI risk.  What comes of these provisions in the EO remains to be seen, but the Administration has also used tools such as the Defense Production Act’s authorization for direct economic intervention to mandate an array of new AI commercial and technology safeguards.

AI3.pdf

20 10, 2023

DAILY102023

2023-10-20T17:21:03-04:00October 20th, 2023|2- Daily Briefing|

Senate AI Measure Tackles Financial Services

The text of the key Senate AI bill, S. 3050, has now become available.

Banking Agencies Offer Olive Branch

Reflecting strong pressure and recent FRB Chair Powell statements, the FRB today announced the launch of an open data collection assessing the rule’s effects – an issue on which many bank comment letters and Congressional Republicans have been scathing.

GOP Renew Funding Campaign vs. CFPB via Fed Losses

HFSC Vice Chairman Hill (R-AR) yesterday reintroduced legislation pressuring both the Fed and CFPB by prohibiting the Fed from transferring its earnings to the Bureau if the Fed incurs an operating loss.

FinCEN Highlights Hamas Sanction Red Flags

Reflecting ongoing Congressional pressure and recent Treasury sanctions, FinCEN today issued an alert reminding financial institutions to remain vigilant for suspicious activity related to Hamas funding sources.

Fed Stays Stoic on Financial-Stability Outlook

The FRB today released is semiannual financial-stability report differing little from the relatively-sanguine outlook in its May report (see Client Report SYSTEMIC94).

Daily102023.pdf

6 10, 2023

DAILY100623

2023-10-06T14:46:53-04:00October 6th, 2023|2- Daily Briefing|

Chopra Has Big Plans for Payments

Likely assuming the coast is clear after the Supreme Court seemed reluctant to undo its charter earlier this week, CFPB Director Chopra today announced a series of steps designed to give the Bureau considerably more control over the payment system.  First, the agency plans to issue supplemental orders to “certain” bigtech companies – doubtless PayPal – to ascertain stablecoin plans and how this affects consumer data.

Waller Still Sees Little Need for CBDC

Governor Waller today continued his skeptical CBDC stance, noting that Fed work on the product is largely motivated by preparedness concerns.  Nonetheless, any US CBDC will be two-tier with direct retail CBDC requiring Fed master account access not permitted under current law.  Mr. Waller also strongly disputed claims that CBDCs such as those in China pose a threat to the US dollar and countered suggestions that FedNow is a CBDC-precursor, emphasizing that its primary purpose is to speed payments.

Daily100623.pdf

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