#FSOC

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3 10, 2022

Karen Petrou: As Markets Thunder, FSOC Snores

2022-10-03T10:00:54-04:00October 3rd, 2022|The Vault|

Later today, the FSOC will open its sanctum for what promises to be a brief session of largely political theatrics. One can only hope that the rarefied air of the Council’s closed-door meeting elevates actual action addressing growing signs of financial instability. Sadly, FSOC’s record of timely intervention ahead of any systemic event since its creation – and I count at least four – is dismal as are the Fed’s see-no-evil financial stability reports. As of this writing, the U.S. is on the precipice of another “dash for cash” and no one – not the bond market, mutual funds, MMFs, investors – has any sandbags at the ready beyond faith that the Fed will bail them all out all over again. Loose lips sink financial systems, but lips that are zipped only because they have nothing useful to say do the same and then some.

As each FSOC annual and Fed financial-stability report makes clear, these guardians of stability quickly spotted “shadow-banking” risks that deeply worried them after the 2008 debacle. Still neither did much about them beyond pointing fingers even as flares streaked across the market warning of looming systemic shocks. As we predicted as early as 2011, asymmetric systemic regulation accelerates systemic-risk migration from regulated institutions with established contingency plans and central-bank backstops to entities largely or even entirely outside the regulatory perimeter on which financial stability has comes almost entirely to depend. This is a classic “money-for-nothing” set-up in which entities operate at increased profitability thanks to …

3 10, 2022

M100322

2022-10-03T11:27:39-04:00October 3rd, 2022|6- Client Memo|

As Markets Thunder, FSOC Snores

Later today, the FSOC will open its sanctum for what promises to be a brief session of largely political theatrics.  One can only hope that the rarefied air of the Council’s closed-door meeting elevates actual action addressing growing signs of financial instability.  Sadly, FSOC’s record of timely intervention ahead of any systemic event since its creation – and I count at least four – is dismal as are the Fed’s see-no-evil financial stability reports.  As of this writing, the U.S. is on the precipice of another “dash for cash” and no one – not the bond market, mutual funds, MMFs, investors – has any sandbags at the ready beyond faith that the Fed will bail them all out all over again.  Loose lips sink financial systems, but lips that are zipped only because they have nothing useful to say do the same and then some.

m100322.pdf

30 09, 2022

Al100322

2022-10-03T13:32:03-04:00September 30th, 2022|3- This Week|

FSOC Does What Again?

Later on Monday, we’ll advise clients of the FSOC meeting’s outcome.  Open sessions of this august council are so infrequent that we view them with great anticipation – or we would if the agendas made known to the public addressed critical systemic-risk concerns.  These there are a’plenty as interest rates rise, geopolitical risk grows, and much more might well go amiss, but FSOC is planning to tell the public little more than where its various reports and internal deliberations stand.  These are on matters of note such as climate risk and cloud computing, but what’s to come of them beyond telling the public not to worry much is hard to discern.  More may come in the wake of Treasury’s various, ground-breaking cryptoasset-policy reports (see Client Report CBDC14, Client Report CRYPTO32, GSE Activity Report Can you see CBDC, and FSM Report AML136).  So, as always, we’ll be monitoring, analyzing, and alerting you ASAP.  Still, we wish we had more to say about some of the most important issues of these days in this market.

Al100322.pdf

16 09, 2022

DAILY091622

2022-10-13T10:14:58-04:00September 16th, 2022|2- Daily Briefing|

Treasury Presses For CBDC, Fast Payments With Nonbank Access

We will shortly provide clients with an in-depth analysis of each of the Administration’s policy-setting crypto reports, but draw your attention now to key payment-system recommendations.

Treasury Presses Crypto Reg Framework, New Role for CFPB

Continuing our series on the Administration’s crypto policy reports, we turn now to the paper on overall cryptoasset regulation.

Administration Also Plans Focus on Crypto Crime, Market Risk

In addition to the reports assessed in earlier alerts on CBDC, the payments system, and cryptoasset regulation, the administration today released numerous other digital asset policy actions.

Warren Demands Treasury Address Crypto’s Financial Stability, Sanctions Risk

Even as the White House released numerous cryptoasset reports today and Treasury called for action on several fronts, Sen. Warren (D-MA) demands more.

Daily091622.pdf

9 09, 2022

DAILY090922

2022-10-24T12:01:09-04:00September 9th, 2022|2- Daily Briefing|

White House Reaffirms Anti-Algo Stand

The White House late yesterday announced core bigtech policy principles.  These are extremely general and do not go as far in areas such as antitrust that progressives sought.

U.S. Announces Start of Work on Basel “End Game”

Ahead of what might otherwise have been a fractious Basel Committee meeting, the Fed, OCC, and FDIC today reaffirmed the U.S. commitment to finalize what FRB Vice Chair Barr Wednesday called the Basel III “end-game.”

Basel Chair Announces Preliminary AI Priorities

Pablo Hernández de Cos, Chair of the Basel Committee, announced today the work that regulators plan on AI and algorithmic decision-making.

OFR Details Climate Data-Sharing Efforts

Acting OFR Director James Martin today addressed the need for integrated climate-related financial data and challenges to forecasting and modeling climate risk.

Liang Stresses Climate-Resiliency

Treasury Under Secretary Liang today reiterated an array of agency and Administration climate-risk priorities, emphasizing ongoing Treasury and FSOC climate resiliency efforts and underscoring Treasury’s commitment to a net-zero economy.

Treasury To Issue Price-Cap Sanction Guidance

Deputy Treasury Secretary Wally Adeyemo today made it clear that enforcement of the anti-Russia oil-price caps will depend not only on restricting shipping insurance, but also doing so for financial and payment services.

Daily090922.pdf

7 09, 2022

DAILY090722

2022-11-09T16:08:53-05:00September 7th, 2022|2- Daily Briefing|

Hsu Expands on Crypto, Climate, Merger, Systemic Actions

Acting Comptroller Hsu today made it clear that – contrary to assertions from Sen. Warren (D-MA) and others – his decision not to rescind prior OCC crypto charters and related rulings does not mean the agency is taking anything other than a cautious approach to cryptoassets.  He also indicated that the slow-down in interagency action is warranted as it gives officials time to understand recent shocks to this sector.

New Brainard Position Suggests Fed CBDC Thinking Advances

In addition to hawkish anti-inflation remarks, Fed Vice Chair Brainard today appeared to back away from her prior comments espousing an expansive view of how a U.S. CBDC might work (see Client Report CBDC13).  Now calling CBDC a “neutral settlement layer” affording additional stability and opposing a consumer-facing model.

Barr Takes Stage With Bold Plans For Capital, Resolution, Mergers

In his maiden speech today, Fed supervisory Vice Chair Michael Barr made several significant announcements.  Reiterating the support for holistic capital regulation noted during his confirmation, Mr. Barr confirmed that the Fed will undertake a sweeping review of standards to address unintended consequences without reducing capital requirements.  The Board will also begin action on the Basel “end-game” later this fall.

Daily090722.pdf

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