#FSOC

25 03, 2024

DAILY032524

2024-03-25T16:46:05-04:00March 25th, 2024|2- Daily Briefing|

House GOP Resolution Challenges FSOC Designation Guidance

HFSC Vice-Chairman Hill (R-AR) introduced H.J. Res 120 on Friday to disapprove of FSOC’s guidance on nonbank financial company systemic designations (see FSM Report SIFI36).  The CRA resolution follows GOP criticism of the guidance at recent hearings (see Client Report FSOC30) and S.3601 from Sens. Rounds (R-SD) and Sinema (I-AZ), which would require FSOC to consider “alternative approaches” prior to systemic designation.

Hsu, Cook Warn Banks re AI Fair-Lending Risk

Acting Comptroller Hsu today stressed the importance that banks understand their use cases for AI and utilize it in a controlled manner, reiterating longstanding agency concerns about bad learning models leading to credit discrimination (see FSM Report AI).  FRB Gov. Cook today also noted that, while the FRB cannot address inequality within its mandate, it can and is looking to ensure that AI use does not lead to unfair lending.

Daily032524.pdf

13 02, 2024

DAILY021324

2024-02-13T17:42:19-05:00February 13th, 2024|2- Daily Briefing|

Durbin Tries Another Approach to Advance Card-Fee Limits

After trying various ways to bring his credit-card fee bill to the floor, Senate Judiciary Committee Chair and Majority Leader Durbin (D-IL) has scheduled a hearing on this controversial bipartisan measure (see FSM Report INTERCHANGE10).

FinCEN Reaches SEC Agreement to Bring Investment Advisers Under AML/CFT Standards

As it has repeatedly promised, FinCEN today revised a 2015 proposal and issued a new one to subject investment advisers to AML and CFT requirements similar to, but still less restrictive than, those that have long governed banks.

HFSC Rallies to Crypto AML/CFT Defense

The HFSC staff memo on Thursday’s Digital-Assets Subcommittee hearing makes it clear that cryptoasset entities will be given a strong platform from which to resist calls in the Senate to subject cryptoasset transactions to AML and sanctions law.

Gensler Reinforces AI Concerns

In remarks today, SEC Chair Gensler acknowledged AI’s benefits in a manner consistent with the President’s executive order (see Client Report AI3), but then launched into a sharp critique of its risks in line with the agency’s pending rule in this arena.

Bowman Takes Fed Accountability, Transparency to Task

In an essay today, FRB Gov. Bowman emphasized that regulatory accountability does not undermine the independence also essential to a sound, innovative banking system.

Gensler Turns to Bank/Hedge-Fund Interconnection

In addition to his speech on AI earlier today, SEC Chair Gensler today engaged in a wide-ranging discussion of key financial policy questions.

Daily021324.pdf

9 02, 2024

Al021224

2024-02-09T16:40:01-05:00February 9th, 2024|3- This Week|

Are We Wasting Your Time?

We most assuredly hope not, but watching Congress last week was deeply dispiriting not only when it comes to the most critical issues of the day, but also to essential financial-policy decisions.  Our in-depth reports on Tuesday’s HFSC hearing with Secretary Yellen (see Client Report FSOC30) and Thursday’s Senate follow-up (see Client Report FSOC31) laid out key topics discussed and what was said as we always do.  But what we said about what was said was largely inconsequential because almost nothing of real note was said.  The exception came on Thursday when the Secretary intimated that near-term action may begin to deal with the systemic risk FSOC fears from nonbank mortgage companies.  But even here she was elliptical and no senator made any effort to pin her down.  Instead, they – like their House counterparts and the secretary – reiterated partisan talking points about the economy, inflation, and the debt.  But, reading between the lines in our reports and our other analyses illuminates a remarkable number of likely, meaningful Congressional actions on issues of immediate financial policy import assuming NYCB doesn’t fail and absorb the little bandwidth Congress seems to have for financial policy.

Al021224.pdf

8 02, 2024

FSOC31

2024-02-08T14:30:15-05:00February 8th, 2024|5- Client Report|

NonBank Mortgage Companies Are Prime SIFI Target

Treasury Secretary Yellen’s hearing today before Senate Banking followed the path set in Tuesday’s HFSC session (see Client Report FSOC30), with Ms. Yellen refusing to take a stand on matters such as the capital rules and banking-agency supervisory effectiveness.  Republicans in sparse attendance used the session to reiterate their critique of FSOC’s systemic-designation standard (see FSM Report SIFI36) and the capital rules; Democrats were most focused on defending Bidenomics.  However, questioning touched on NBFI risk with a particular focus on nonbank mortgage companies; the secretary reiterated conclusions about possible systemic risks laid out in FSOC’s most recent report (see Client Report FSOC29), now going further to say that one or another nonbank mortgage company could fail under market stress.  As we noted when FSOC standards were released, nonbank mortgage companies are top targets for systemic intervention, with Ms. Yellen’s comment today focused on individual companies suggesting that this might come via designation, not activity-and-practice standards.  There was little focus on NYCB today, but much attention to CRE risk; the secretary reiterated that it is worrisome for smaller banks, but not systemic.

FSOC31.pdf

2 02, 2024

Al020524

2024-02-02T16:12:41-05:00February 2nd, 2024|3- This Week|

Systemic Show-Down

As seems always the case, the Treasury Secretary’s appearance before Congress this week reporting on FSOC’s work will feature a lot more partisan wrangling than policy insight.  We will nonetheless glean what we can, with snippets possibly of greater import than usual because Democrats are pushing FSOC harder than ever to be more than the “book-report club” described by CFPB Director Chopra (see Client Report CONSUMER54).

Al020524.pdf

29 01, 2024

M012924

2024-01-29T15:16:08-05:00January 29th, 2024|6- Client Memo|

The Risks New Capital Rules Can’t Cure

Part one of my end-game assessment was last week’s memo laying out the growing odds that the agencies will be forced to issue a new proposal which hopefully makes better sense than the current one.  Part two here points out how the agencies have so tightly wrapped themselves around the capital rule’s axle that they are unable to see how many even more critical challenges are going unaddressed.  Risks overlooked are often risks even the toughest capital rules cannot contain because the cost of new capital rules actually contributes to the arbitrage and risk-migration accelerating the pace of systemic-risk transformation.  This is a negative feedback loop if ever there were one.

m012924.pdf

29 01, 2024

Karen Petrou: The Risks New Capital Rules Can’t Cure

2024-01-29T09:29:45-05:00January 29th, 2024|The Vault|

Part one of my end-game assessment was last week’s memo laying out the growing odds that the agencies will be forced to issue a new proposal which hopefully makes better sense than the current one.  Part two here points out how the agencies have so tightly wrapped themselves around the capital rule’s axle that they are unable to see how many even more critical challenges are going unaddressed.  Risks overlooked are often risks even the toughest capital rules cannot contain because the cost of new capital rules actually contributes to the arbitrage and risk-migration accelerating the pace of systemic-risk transformation.  This is a negative feedback loop if ever there were one.

The new capital rules will be outdated by the time they are finalized because financial institutions of all persuasions will take advantage of every bit of regulatory-arbitrage opportunity within and across borders.  That the banking agencies and FSOC aren’t even thinking about how this might happen makes it still more likely that they will.  This is not to say that no changes to capital rules are warranted.  Some changes are overdue, but capital rules crafted in a vacuum will not stand up to real-world circumstance.

The collective book reports issued by the Federal Reserve in its semi-annual systemic forecast and the FSOC’s annual reports are remarkably backward-looking.  Focused more on not saying anything too frightening and bolstering ongoing initiatives, these tomes have long been and sadly still are poor auguries of risks to come perhaps all too soon.

Even …

18 01, 2024

DAILY011824

2024-01-18T16:58:16-05:00January 18th, 2024|2- Daily Briefing|

Basel Head Backs U.S. End-Game

In an FT interview today, the Basel Committee’s chair, Pablo Hernández de Cos, unsurprisingly endorsed the U.S. end-game proposal, indirectly but firmly rebutting assertions that it is at variance with global norms.

The Shape of Liquidity Rules to Come

Previewing the construct of what may soon be the anticipated inter-agency proposal addressing liquidity-risk lessons-learned, Acting Comptroller Hsu today argued that the liquidity coverage ratio’s treatment of retail depositors (see FSM Report LIQUIDITY17) does not address likely depositor herding as they run for the exit.

Rounds, Sinema Press for SIFI-Designation Rollback

Senate Banking Committee Member Rounds (R-SD) alongside Sen. Sinema (I-AZ) introduced S.3601, legislation to codify 2019 standards (see FSM report SIFI35) adding significantly more obstacles to systemic designation compared to FSOC’s new approach (see FSM report SIFI36).

Steele’s Good-Bye Presses for More Tough Standards

In his last speech in office, Assistant Secretary for Financial Institutions Graham Steele today called for reassessment of the treatment of unrealized gains or losses not just under the capital rules, but also in the liquidity standards (where they are in fact to some degree now captured).

House Democrats Damn Capital Proposal With Faint Praise

In this report, we begin our assessment of Congressional end-game comment letters.

Senate Letters Slam Capital Proposal’s Tax-Equity Risk Weight Changes

Here, we turn to several Senate letters on the end-game proposal.

Daily011824.pdf

12 01, 2024

DAILY011224

2024-01-12T15:31:11-05:00January 12th, 2024|2- Daily Briefing|

Emmer, HFSC GOP Reintroduce FSOC Oversight Measure

Following a hearing earlier this week at which GOP Members reiterated longstanding FSOC criticism, House Majority Whip Emmer (R-MN) has reintroduced legislation along with ten other HFSC Republicans to bring FSOC under congressional appropriations.

HFSC Bipartisan AI Task Force Already Divided on Key Priorities

Reflecting growing concern about AI’s risks (see Client Report FSOC29), HFSC Chairman McHenry (R-NC) and Ranking Member Waters (D-CA) yesterday announced the creation of a bipartisan AI Working Group to be led by Digital Assets Subcommittee Chairman Hill (R-AR) and Ranking Member Lynch (D-MA).

House Passes Measures to Check Chinese Economic Power

The House today passed several bills addressing the role of China in IMF and World Bank policy and a renewed attempt to limit what many Members of Congress consider Chinese currency manipulation (H. R. 839).

The Fed Becomes a Big Loser

The Federal Reserve System today released its preliminary FY23 financial results, the first look into the System’s operating condition above and beyond its significant mark-to-market losses.

Daily011224.pdf

10 01, 2024

DAILY011024

2024-01-10T17:00:41-05:00January 10th, 2024|2- Daily Briefing|

HFSC’s HUD Hearing to Trod Partisan Ground

HFSC’s majority staff memo on Thursday’s hearing with HUD Secretary Fudge makes it still clearer that the session will focus on affordable housing, homelessness, and public-housing agencies in cities such as New York and Washington, D.C.

HFSC GOP Slams DOL Fiduciary Rule

At today’s HFSC Capital Markets Subcommittee hearing on the DOL’s Fiduciary Rule, Subcommittee Chairwoman Wagner (R-MO) argued that the proposal should be withdrawn, calling it a partisan effort to eliminate “junk fees.”

HFSC Takes Partisan Approach to FSOC

At today’s HFSC Digital Assets Subcommittee hearing on FSOC’s systemic-designation framework (see FSM Report SYSTEMIC98), Subcommittee Chairman Hill (R-AR) questioned FSOC’s approach to addressing systemic risk, claiming that the Council’s revised guidance is vulnerable to abuse and unintended consequences.

CFPB Small-Business Reg Survives

Senate Republicans tried today to override the President’s veto of the Congressional Review Act resolution approved by both Houses of Congress to repeal the CFPB’s small-business reporting rule.

Daily011024.pdf

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