#FTX – Page 2 – Federal Financial Analytics

12 12, 2022

m121222

Arezou Rafikian2022-12-12T15:50:00-05:00December 12th, 2022|6- Client Memo|

Where New Crypto Enforcement, Regulatory Action Will Land

As we’ve learned over the years, a memo written is a memo shared. So it was with my last note on what were then little-noticed links between the tumultuous cryptosphere and what regulators assured us was a banking sector aloof from these violent downdrafts. Sens. Warren and Smith then picked up the examples of several bank/crypto hot spots. The result of new facts combined with heightened political risk will surely lead the bank regulators to follow the tried-and-true strategy of slapping a lot of enforcement actions around before agency heads are hauled up to the Hill. Other than stablecoin legislation, new crypto law is uncertain, but after all the enforcement actions will also surely come new banking crypto regulation….

m121222.pdf…

12 12, 2022

Karen Petrou: Where New Crypto Enforcement, Regulatory Action Will Land

Arezou Rafikian2022-12-12T15:50:07-05:00December 12th, 2022|The Vault|

As we’ve learned over the years, a memo written is a memo shared. So it was with my last note on what were then little-noticed links between the tumultuous cryptosphere and what regulators assured us was a banking sector aloof from these violent downdrafts. Sens. Warren and Smith then picked up the examples of several bank/crypto hot spots. The result of new facts combined with heightened political risk will surely lead the bank regulators to follow the tried-and-true strategy of slapping a lot of enforcement actions around before agency heads are hauled up to the Hill. Other than stablecoin legislation, new crypto law is uncertain, but after all the enforcement actions will also surely come new banking crypto regulation.

First, though, to incoming enforcement actions as these lay the groundwork for next-gen regulation. Any bank with big crypto exposures no matter how otherwise pristine is already under its examiner’s gun in terms of immediate demands for an inventory of all crypto actions anytime for anyone. The senators include this in their asks, looking for names as well as activities and customers. But the banking agencies were surely already hot on this trail.

Any bank that failed to mind its prior-notice manners will surely get a public drubbing so that regulators can point to a host of cases that uncover all risks anywhere they lurk. And banks now casting covetous eyes on cheap crypto assets will get a talking to from Washington if their own internal risk managers haven’t already …

9 12, 2022

Al121222

Eliza Allen2022-12-09T16:52:30-05:00December 9th, 2022|3- This Week|

Crypto Countdown

Crypto week will kick off Tuesday with an early-morning Peterson Economic Institute seminar at which Managing Partner Karen Petrou will preview not just two days of big box-office hearings, but also the outlook for bank regulation in the wake of growing Congressional interest into what the agencies knew, when they knew it, and why they appear to have done nothing about numerous risks with far-reaching policy impact if not also cost to the FDIC – see Karen Petrou’s last memo for who’s involved and what’s at risk as well as the letter sent late last week by Sens. Warren (D-CA) and Smith (D-NH) picking up on it. We will of course be watching and then analyzing the House and Senate hearings featuring FTX. We know already that both sessions will be a wild ride into territory of considerable danger for Sam Bankman Fried likely of little consequence to the broader policy questions roiling the future of cryptoassets and the actual action Congress and key agencies will take to define it.

Al121222.pdf…

8 12, 2022

DAILY120822

Eliza Allen2022-12-08T17:14:56-05:00December 8th, 2022|2- Daily Briefing|

Comment Deadline Set For Fed’s Climate-Risk Management Principles

The Federal Register today includes the Fed’s comment request on proposed climate risk-management standards that would guide banking organizations with assets over $100 billion (see FSM Report CLIMATE15).

Basel: Climate Risk Not Ready for Capital Requirements

The Basel Committee today published a clarification by way of FAQs to its recently-finalized climate-risk management principles (see FSM Report CLIMATE14).

Warren, Smith Turn FTX Spotlight on Banking Agencies

As predicted in Karen Petrou’s memo on Monday, Congressional interest has now turned to the role of banks and their regulators in the FTX debacle.

FSB Heightens Focus on CCP, Insurer Resolvability

After over at least a decade of talking about nonbank resolvability, the FSB today announced that addressing it has become an “urgent” priority.

OCC’s Risk Inventory Continues To Target Deposit, Operational, Climate, Crypto Risk

As with its June 23 report on bank risks, the OCC’s December inventory reiterates concerns such as deposit outflow due to rate hikes, operational risks due to cyber-threats and third-party relationships, and compliance and credit risks.

Warren, Smith Back DOL Disqualification Proposal

Tackling yet another “big-bank” concern, Sens. Warren (D-MA) and Smith (D-MN) sent a letter today applauding the Department of Labor’s Employee Benefits Security Administration (EBSA) proposal to disqualify banks found guilty of criminal misconduct from being qualified professional asset managers.

Daily120822.pdf …

6 12, 2022

DAILY120622

Eliza Allen2022-12-06T16:40:03-05:00December 6th, 2022|2- Daily Briefing|

FSB Again Ratifies Focus on Crypto, Climate, Macro Risks

Following its meeting today, the FSB Plenary announced 2023 priorities to be finalized in January. Focus will center on heightened monitoring of financial stability risks, enhanced NBFI and CCP resilience, work on the global crypto regulatory framework, cross-border payments reform, cyber and operational resilience, and financial risks from climate change.

FinCEN Targets De-Risking Compliance

Pointing to possible enforcement actions, Treasury Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg today noted FinCEN concerns with the extent to which institutions apply a rules-based approach to de-risking rather than a risk-based one, leaving it vulnerable to fast-changing risks and without access to valuable suspicious activity information.

Warren, GOP Senators Put Silvergate On FTX Hotseat

Reflecting at least some bipartisan agreement on the need for new crypto standards, Sens. Warren (D-MA), Kennedy (R-LA), and Marshall (R-KS) late yesterday sent a letter to the CEO of Silvergate Bank demanding detailed information regarding its relationship with FTX and FTX affiliates.

GOP Threatens Woke Asset Managers With BHC Designation

The Senate Banking GOP report today on ESG asset management contains an interesting aside about the extent to which passive ownership of banking organizations could make the three largest asset managers de facto BHCs.

Brown Fires First Shot in 2023 ILC Wars

Putting down a market for the next Congress, Senate Banking Chairman Brown and two Democratic colleagues today introduced their bill end bar ILC charters for nonbank parents.

Daily120622.pdf…

5 12, 2022

Karen Petrou: Bank Canaries in the Crypto Mineshaft

Arezou Rafikian2022-12-05T16:34:33-05:00December 5th, 2022|The Vault|

Just because crypto hasn’t triggered a systemic collapse doesn’t mean that it won’t be the perpetrator of quiet banking crashes. We would do well to remember that the 2008 calamity came shortly after the collapse of small subprime-mortgage finance companies. These would have been proverbial dead canaries had anyone looked down the mineshaft. And, even as the U.S. subprime crashes formed into a single, torrential crisis, bank regulators confidently foretold no systemic impact because they comfortably believed that no bank had undue exposure to high-risk mortgages. So bank regulators still say now when it comes to crypto and let’s hope the outcome is different this time. However, bits and pieces of bank wreckage are already to be found in FTX’s rubble and may well surface as the crypto tide continues to ebb. No bank shipwrecks have emerged, but some of the wreckage has the look of a sizeable hull.

The most tantalizing bit of banking wreckage is a super-tiny Washington State bank which FTX appears to have surreptitiously acquired. As the New York Times reported, one of FTX’s affiliates last March invested more than double all the capital previously held in Farmington State Bank, doing so in a carefully-structured way to avoid triggering legal control thresholds. The bank is the nation’s 26^th smallest and, after this generous investment, it deposits went up about 600 percent from its initial $10 million level via four new accounts. Sill more intriguingly, Farmington’s crypto ties via shadow owners appear to go back to …

5 12, 2022

M120522

Eliza Allen2023-01-08T12:44:14-05:00December 5th, 2022|6- Client Memo|

Bank Canaries in the Crypto Mineshaft

Just because crypto hasn’t triggered a systemic collapse doesn’t mean that it won’t be the perpetrator of quiet banking crashes. We would do well to remember that the 2008 calamity came shortly after the collapse of small subprime-mortgage finance companies. These would have been proverbial dead canaries had anyone looked down the mineshaft. And, even as the U.S. subprime crashes formed into a single, torrential crisis, bank regulators confidently foretold no systemic impact because they comfortably believed that no bank had undue exposure to high-risk mortgages. So bank regulators still say now when it comes to crypto and let’s hope the outcome is different this time. However, bits and pieces of bank wreckage are already to be found in FTX’s rubble and may well surface as the crypto tide continues to ebb. No bank shipwrecks have emerged, but some of the wreckage has the look of a sizeable hull.

m120522.pdf…

30 11, 2022

DAILY113022

Eliza Allen2022-11-30T17:09:02-05:00November 30th, 2022|2- Daily Briefing|

Brown Again Asks Treasury for Crypto Action, Recommendations

In a letter today, Senate Banking Chairman Brown (D-OH) continued his press for regulators to do something soon about cryptoassets. He called on Secretary Yellen to work quickly with regulators to advance the policy recommendations in recent Treasury reports (see Client Report CRYPTO32), noting in particular his concerns with vertical integration, calling for rules as well as recommendations regarding any needed statutory changes.

Confirmation Seems Assured for Full FDIC Board

At today’s confirmation hearing, Republicans raised numerous concerns with Acting Chairman Gruenberg, but appear reconciled to accepting his nomination in order to win confirmation for the two Republican nominees who would fill out the board. Ranking Member Toomey (R-PA) blasted Mr. Gruenberg over the alleged “power grab” last year and his support for climate risk initiatives, but the bulk of questioning centered around cryptoassets.

Brown Presses CFPB to Stop Silent Second Foreclosures

Chairman Brown (D-OH) today sent a letter today to CFPB Director Chopra urging the Bureau to sanction servicers foreclosing on “zombie” second liens. These are second liens that were often piggybacks in pre-2008 high-LTV mortgages designed to ensure that first loans could be sold to the GSEs without private mortgage insurance.

Daily113022.pdf…

29 11, 2022

DAILY112922

Eliza Allen2022-11-30T11:20:13-05:00November 29th, 2022|2- Daily Briefing|

Fed Finalizes Revisions to Interchange Survey

After finalizing a controversial proposal opening up debit-card routing (see FSM Report INTERCHANGE11), the FRB has also set changes to reporting on interchange-fees proposed in July. The final requirements track the proposal, gathering data now on reporting changes when multiple networks are involved in processing transactions as well as revising the survey to prevent overcounting certain transactions.

Senate Finance Chair Challenges Crypto-Exchange Conduct

Continuing Congressional pressure on crypto following FTX’s collapse, Senate Finance Chairman Wyden (D-OR) today sent six letters to some of the largest crypto exchanges to determine if the factors leading to FTX’s collapse are widespread. It is unclear what Sen. Wyden intends to do with the information he requests given that his panel does not have jurisdiction over the conflicts of interest and related concerns he cites, but it can surely call hearings and at the least build a record for the kind of legislation Mr. Wyden may support.

Daily112922.pdf…

21 11, 2022

M112122

Arezou Rafikian2022-11-21T16:48:57-05:00November 21st, 2022|6- Client Memo|

What Will Be Done, Not Just Said, To Fix FTX

The only question left unanswered about FTX is whether it was a purposeful scam as more than a few clients conclude or a case of implacable forces ending the era of easy money that just got the better of another wunderkind whose awesome skills turned out to be largely confined to costumery conveying inspired innovation to all too many vulnerable investors and gullible politicians. No matter which it is or even – as I think – if it’s a bit of both, FTX is a debacle that will change U.S. financial policy for the better unless FTX drives still more crypto chaos that then spills over to core financial infrastructure and intermediation.

m112122.pdf…