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29 09, 2023

DAILY092923

2023-09-29T16:49:25-04:00September 29th, 2023|2- Daily Briefing|

FSB Head Signals Limits on – Not Just Look at – NBFI Leverage

As the FSOC finalizes a new U.S. systemic framework, FSB chair Klaas Knot today told the FT that the Board along with international standard-setters is conducting a review of nonbank leverage in an effort to improve bank-NBFI interconnections and ultimately limit nonbank borrowing.  The express focus on specific leverage constraints goes beyond the FSB’s more general statements to date.  Mr. Knot also highlighted imposing tougher collateral requirements for investment fund borrowing against higher-risk securities.

OIG: FDIC Inability to Deploy OLA Acute, Could Hike Systemic Risk

The FDIC’s OIG today released a polite, but still withering criticism of the FDIC’s inability to use OLA over a decade after Dodd-Frank gave it sweeping powers to address systemic-risk resolutions without resorting to bailouts.  Specifically, the OIG found that, while the FDIC has made some progress readying OLA-readiness since 2010, it failed to establish key elements needed to use this authority under stress, especially if this stress occurred in an entity other than a U.S. GSIB holding company.  However, the FDIC is not operationally ready to resolve a GSIB HC under OLA, nor does it have policies, procedures, or the operational capacity to do so for other entities or in scenarios where multiple systemic-risk failures are possible.

Daily092923.pdf

29 09, 2023

M092923

2023-09-29T11:41:36-04:00September 29th, 2023|6- Client Memo|

How a Shut-Down Stokes Systemic Risk

Although there’s been some talk of what a government shut-down does to the SEC, there’s lots, lots more to worry about.  Risks are out there, risks that should be taken very, very seriously by the Members of Congress who seem to think that more chaos stokes their political fortunes.  Perhaps it does, but it could well do a lot of damage to their finances, not to mention those of all the voters who might well bear a reasonable grudge.

M092923.pdf

29 09, 2023

Karen Petrou: How a Shut-Down Stokes Systemic Risk

2023-09-29T11:41:22-04:00September 29th, 2023|The Vault|

Although there’s been some talk of what a government shut-down does to the SEC, there’s lots, lots more to worry about.  Risks are out there, risks that should be taken very, very seriously by the Members of Congress who seem to think that more chaos stokes their political fortunes.  Perhaps it does, but it could well do a lot of damage to their finances, not to mention those of all the voters who might well bear a reasonable grudge.

Where’s the systemic scary place?  Or, better said, places?  Some are right in front of us; others lurk in the closet waiting to pounce.

What worries me the most in the immediate future is the ability of bad actors to exploit what could be lightly- or even unguarded portals into critical financial market infrastructure.  There are of course many, many bad actors out there with the sophistication and/or state sponsorship quickly to test and then attack critical points in the payment, settlement, and clearing systems and/or the grids on which they rely.

As I discussed on Tuesday, not all providers of critical financial market infrastructure are under the hopefully-eagle eyes of the federal banking agencies which, funded outside federal appropriations, will remain open.  Some fall under the SEC or CFTC, agencies that will be hobbled, and some critical providers are wholly outside the regulatory perimeter.  Even if their nodes of market access seem small, disruption has a bad habit of migrating at lightning speed.  Even if power outages are …

27 09, 2023

DAILY092723

2023-09-27T16:36:21-04:00September 27th, 2023|2- Daily Briefing|

FinCEN Bows to BOI Pressure

Responding to bipartisan concerns, FinCEN today issued an NPR to extend the beneficial ownership information (BOI) report filing deadline from thirty to ninety days for companies created or registered in 2024.

Chopra Considering Refi, Point Rules

The CFPB today released its annual report on residential mortgage lending, finding that mortgage applications, originations, and affordability declined significantly in 2022 while costs, loan denials, HELOC originations, and the percentage of cash-out refinances all increased.

HFSC GOP Presses Gensler on Banking-Reg Cumulative Impact

During Chairman Gensler’s as-always contentious HFSC hearing today, Rep. Barr (R-KY) asked if the SEC is in consultation with the Federal Reserve regarding the combined CRE effects of recent SEC proposals and the Basel III endgame standards (see Client Report CAPITAL234).

Carstens Says Law Must Catch Up To CBDC

BIS General Manager Agustín Carstens today emphatically called for rapid development of clear CBDC legal frameworks based on defined rights and obligations for privacy, AML compliance, and user choice.

Daily092723.pdf

25 09, 2023

DAILY092523

2023-09-25T16:05:07-04:00September 25th, 2023|2- Daily Briefing|

IMF Report: CBDC Designs Could Boost Financial Inclusion

On Friday, the IMF released a report concluding that a well-designed CBDC could foster financial inclusion and act as an entry point for the unbanked to the broader financial system.  This will strengthen Democratic demands for a U.S. CBDC, but we expect GOP opposition to remain firm and the Fed’s posture to retain its current focus on wholesale CBDCs.

FRB-NY: Stablecoins, MMFs Have Same Dynamic Runs

An FRB New York study today concludes that stablecoin investors behaved similarly to MMF investors in numerous recent runs.  Staff found that investors consider a stablecoin to have been effectively depegged once its price drops below $0.99 which triggers a run and mirrors the dynamics of MMFs “breaking the buck.”

Senate Dems Target SIFI Designation, Scenarios to Curb Climate Risk

Senator Warren (D-MA) along with Sens. Sanders (I-VT), Heinrich (D-NM), Markey (D-MA), Whitehouse (D-RI), and Merkley (D-OR) today released a letter dated last Wednesday to Treasury Secretary Yellen and Climate Counselor Zindler calling on the Department to significantly increase the urgency with which it targets climate-related financial risk.

Daily092523.pdf

25 09, 2023

Al092523

2023-09-25T11:00:27-04:00September 25th, 2023|3- This Week|

Systemic Steps

We held this weekly update on Friday because Washington was awash with rumors that FSOC would issue final versions of proposed systemic-evaluation standards (see FSM Report SYSTEMIC95) along with a new designation methodology (see FSM Report SIFI35).  As it turned out, FSOC said so little in its closed-door meeting readout that it didn’t suffice even for a client alert, let alone a weekly.  Still, something is coming soon and, when it does, it will start yet another partisan and sometimes even emotional debate over financial regulation redefining the sector’s strategic landscape.

Al092523.pdf

20 09, 2023

DAILY092023

2023-09-20T17:11:25-04:00September 20th, 2023|2- Daily Briefing|

Brown, Rounds Agree: AI Credit-Underwriting Warrants Regulatory Attention

At today’s Senate Banking hearing on AI in financial services, Chairman Brown (D-OH) argued that AI should be governed by the same rules as the rest of the financial system, with new law necessary if existing rules prove inadequate.

HFSC FinCEN Bills Draw Bipartisan Support

HFSC Chairman McHenry (R-NC) at today’s markup praised the scope of bipartisan support on today’s FinCEN, sanctions, and other national security bills.

HFSC Delays Bipartisan Sanction Bill Vote

Today’s HFSC markup also considered two bills addressing sanctions policy: H.R. 5512 from Rep. Sherman (D-CA) to require bank subsidiaries to comply with sanctions on Russia and Belarus and H.R. 760 from Rep. Barr (R-KY) imposing blocking sanctions on Chinese defense or surveillance companies and the third-party companies that supply them.

HFSC Dems Continue Strongly Opposing GOP Anti-CBDC Measure

The bipartisan spirit of today’s HFSC markup dissipated as Members fiercely debated H.R. 5403 from Majority Whip Emmer (R-MN), a bill that would bar the Fed from issuing a CBDC to individuals.

Gruenberg: New Shadow Bank Standards Would Cure a Capital Proposal Problem

FDIC Chairman Gruenberg today gave remarks arguing that FSOC along with OFR should establish a new reporting framework to assess the financial stability risks posed by nonbanks and ensure that public reporting is sufficient for market participants to understand nonbank counterparty risk.

HFSC Reports FinCEN, Sanctions, CBDC Bills

HFSC today unanimously reported H.R 760 sanctioning Chinese defense companies, H.R. 5512 requiring bank subsidiaries to comply with sanctions …

20 09, 2023

GSE-092023

2023-09-20T09:32:14-04:00September 20th, 2023|4- GSE Activity Report|

It’s Not Over…

Or maybe it is, but not everyone has heard.  Earlier this week, Rep. Andrew Ogles (R-TN) introduced H. R. 5549 to require Treasury to give Congress a complete plan to end the GSEs’ conservatorship.  Our forecast:  don’t wait up.  Our observation:  it’s interesting that a conservative freshman hasn’t given up even though there’s no sign that his leadership has any interest reviving this idea.  This is far too early and far too little to suggest a leading indicator to renewed Republican interest in tackling the GSEs now that Pat Toomey is gone from the Senate, but it’s noteworthy nonetheless.

GSE-092023.pdf

14 09, 2023

DAILY091423

2023-09-14T16:47:09-04:00September 14th, 2023|2- Daily Briefing|

IOSCO Proposes Leveraged Loan, CLO Best Practices

IOSCO today released a consultation report proposing best practices for leveraged loans and CLOs that address origination and refinancing, EBITDA and documentation transparency, aligning interests from loan origination to end investors, managing conflicts of interest throughout the intermediation chain, and disclosures.

Durbin, Marshall Press Credit-Card Interchange Bill

Reiterating concerns expressed last month and comments yesterday on the Senate floor, Senate Whip and Judiciary Chairman Durbin (D-IL) and Sen. Marshall (R-KS) were joined this time by Sen. Welch (D-VT) and four House Members calling on Visa and Mastercard to reverse planned fee hikes.

GAO Presses for FSOC Power to Regulate, Not Just Designate

The GAO today issued a report recommending that Congress consider legislation allowing FSOC to compel regulatory action, arguing that this would better accomplish the Council’s mission because FSOC currently has limited power to respond to systemic risk.

HFSC GOP Highlight CBDC Privacy Concerns

As anticipated, HFSC Digital Assets GOP Members continued their staunch opposition to a U.S. CBDC, with Subcommittee Chairman Hill (R-AR) and Majority Whip Emmer (R-MN) asserting that private innovation can modernize payments without the risk of government surveillance.

Brown Doubles Down on Opposition to House Crypto Bill

Making it still more clear that he is not supportive of pending House cryptoasset legislation, Senate Banking Chairman Brown (D-OH) today sent a letter to Treasury Secretary Yellen, SEC Chairman Gensler, and CFTC Chairman Benham asking for views on where new authority may be needed.

Daily091423.pdf

14 09, 2023

CAPITAL235

2023-09-14T14:23:57-04:00September 14th, 2023|5- Client Report|

GOP Blasts Basel End-Game Regs, Dems Seek a Few Changes

With HFSC Chairman McHenry (R-NC) leading the way, GOP Members of the panel’s Financial Institutions Subcommittee today blasted the banking agencies’ end-game proposal (see Client Report CAPITAL234).  Republicans were unanimous in joining leadership’s attack on the proposal’s process and substance, pointing to what they called incomplete impact analyses, an inexplicably short comment period, and adverse macroeconomic and regional-bank implications.  Democrats led by Ranking Member Waters (D-CA) were more restrained and in some cases supported the proposal, but concerns were also noted with specific provisions (e.g., re the treatment of certain mortgage and securitization assets) and the interface with the pending CRA final rule.  We continue to expect the banking agencies to hold firm to the proposal in broad terms and make minimal, if any, changes to the comment deadline.  However, pressure from Republicans and the industry could well force renewed and what many would consider improved impact analyses designed not only to allay political opposition, but also the courts if litigation challenges the final rule.

CAPITAL235.pdf

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