So Much to Do…
Last week, we continued our assessment of the policy questions confronting federal regulators and Congress as they simultaneously investigate recent failures and position themselves to get as much out of them as possible to achieve long-cherished reform goals. Although there will be no decisive action until the Fed and FDIC submit their reports and answers to lots of letters that trickle in, important directional signs are coming into view.
In this report, we drill down on prior forecasts (see Client Report REFORM219) of near-term regulatory action to identify the revisions sure to be prioritized as NEC Director Brainard and FDIC Chairman Gruenberg seek to reverse rules finalized over their objections when they were in the minority. Ms. Brainard does not have a direct role dictating what the Fed will do given central-bank independence, but she has a good deal of influence as evidenced most recently by the White House action list. Acting Comptroller Hsu was not casting formal votes over these years, but he was an influential staff leader in this area and clearly has his own list – see for example his efforts on bank merger and resolution policy (see FSM Report RESOLVE48). We expect he will concur with Vice Chairman Barr and Mr. Gruenberg if they all advance the rewrites to the tailoring rules to which Ms. Brainard and Mr. Gruenberg so strongly objected….
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FedFin Assessment: Top Brainard, Gruenberg Regulatory Rewrites
In this report, we drill down on prior forecasts (see Client Report REFORM219) of near-term regulatory action to identify the revisions sure to be prioritized as NEC Director Brainard and FDIC Chairman Gruenberg seek to reverse rules finalized over their objections when they were in the minority. Ms. Brainard does not have a direct role dictating what the Fed will do given central-bank independence, but she has a good deal of influence as evidenced most recently by the White House action list. Acting Comptroller Hsu was not casting formal votes over these years, but he was an influential staff leader in this area and clearly has his own list – see for example his efforts on bank merger and resolution policy (see FSM Report RESOLVE48). We expect he will concur with Vice Chairman Barr and Mr. Gruenberg if they all advance the rewrites to the tailoring rules to which Ms. Brainard and Mr. Gruenberg so strongly objected.
FDIC Joins CFPB Targeting UDAP
The FDIC today published Consumer Compliance Supervisory Highlights showing that UDAP violations related to NSF representment constituted the second highest number of total citations and were by far the largest number of serious citations in 2022. The FDIC reiterates August guidance that third-party arrangements related to re-presented items may present numerous risks. We note that the FDIC’s UDAP focus is new under Chairman Gruenberg and comes at a time when the CFPB is expanding the reach of its own UDAAP enforcement powers with a focus in part on overdrafts and NSF practices.
IMF Staff Highlight New Systemic Risk: Geopolitical Stress
At a panel event today, IMF staff reported that their model-based study in the IMF’s global financial stability report found that geopolitical risks and global fragmentation gravely threaten financial stability by weakening interconnectivity between geopolitical blocs. Their model found that increased fragmentation results in reduced cross-border banking between blocs, higher lending costs, substantial diversification losses among G7 countries, and reduced bank profitability. Staff also drew a link between the war in Ukraine and the recent banking crisis, arguing that the war’s inflationary pressures led to an aggressive monetary policy reaction, revealing bank vulnerability to interest rate risk.
FedFin Forecast: Probable Changes to Bank Supervision, Regulation, Law
With Thursday’s White House announcement, we know that the Administration will do its best to support Fed and FDIC efforts to color recent events as a failure of Republican-led rulemaking, not also one of agency supervisory acumen, speed, and even competence. So far, key Democrats are instead pursuing a two-track strategy: complaining mightily about Trump-era rules but also joining with Republicans to cite an array of supervisory lapses they want quickly remediated by new standards, new rules, and – if need be – also by new law. Indeed, on Friday, Democrats made it clear that they want considerably more from the Administration than the fixes on which the agencies prefer to focus. Given how much is in motion and how much could advance, this report details FedFin’s forecast for near-term action in each of these arenas, focusing on matters with broad industry impact rather than specific SVB/Signature- enforcement issues. We thus provide forecast for immediate supervisory actions, those Congress will demand, new rules (tailoring and beyond), and the few legislative initiatives we believe have a reasonable chance of passage and Presidential approval.
Yellen Calls for Bank, Nonbank Regulatory Rewrite
Implicitly confirming press reports that the White House will soon press for tougher bank rules, Treasury Secretary Yellen today said that, as beneficial as the rules imposed since the great financial crisis have been, more stringent standards are necessary.
Hsu Sets Dual OCC Mission: Safety, Fairness
In remarks today, Acting Comptroller Hsu emphatically echoed statements of other top regulators that the banking system is safe and sound, emphasizing that the OCC is monitoring the market and is prepared to use its tools to protect the system.
Basel Updates Global Liquidity, Operational Standards
Although the U.S. has still not even proposed the Basel IV “end-game” standards, the Basel Committee continues to refine them and today issued its latest set of FAQs.
White House Sets Reg-Reform Agenda
As anticipated early this morning, the White House has issued a statement calling on federal banking agencies to roll back rules the President describes as weakening “common-sense bank safety and supervision.”
Senate Dems Press Agencies to Strengthen Capital Rules
Following this week’s hearings (see Client Report REFORM218), Sens. Warren (D-MA), Blumenthal (D-CT), and Duckworth (D-IL) sent a letter to Vice Chair Barr, Chairman Gruenberg, and Acting Comptroller Hsu urging them to strengthen large-bank capital requirements.
CFPB Stands By Its Small-Business Reporting Rules
Despite strong industry and GOP opposition, the CFPB today finalized its small business data collection rulemaking in a sweeping final rule the Bureau says will increase transparency in small business lending, promote economic …
HFSC Focuses on Supervision, Clawbacks, Process, New Resolution and Run-Risk Options
Today’s HFSC hearing on recent bank failures was more partisan than yesterday’s Senate Banking session (see Client Report REFORM217). Still, there were significant areas of agreement evidenced not only through the marathon hearing, but also at its end, when Chairman McHenry (R-NC) and Ranking Member Waters (D-CA) agreed that they are frustrated with the regulators’ testimony, want more supervisory accountability, and will demand reforms once promised internal investigations are concluded. Several new issues were brought out today, including why the FedWire closing times precluded liquidity support that might have sustained SVB liquidity, whether TLAC should be required at banks of all sizes, tactics to quell viral runs, and whether tough new rules will cover mid-sized banks and/or community institutions.
Barr Keeps CRA Hope Alive
Ahead of what is certainly going to be a trying HFSC hearing later today, FRB Vice Chairman Barr told an audience that pending CRA rules (see FSM Report CRA32) are still in the works, declining to provide any completion timeline.
Chopra Expands Post-SVB Policy Action Items
In remarks posted after a panel discussion yesterday, CFPB director and FDIC board member Rohit Chopra reaffirmed Chairman Gruenberg’s comments that changes are likely to capital and liquidity rules, but added action related to interest-rate risk management, resolution planning and stress-testing to the to-do list.
Senate Finance Dems Demand Tougher Penalties, Enforcement to Prevent Swiss Tax-Evasion Activities
Senate Finance Democrats today released a damning investigative report accusing Credit Suisse of persistently and often criminally enabling U.S. tax evasion despite a 2014 plea agreement with the U.S. Chairman Wyden (D-OR) presses for additional civil and criminal actions, noting that the UBS acquisition does not “wipe the slate clean.”
Bipartisan Senate Clawback Bill Reaches to BHC Investors, Creditors
Preempting Chairman Brown’s plans to introduce clawback legislation (see Client Report REFORM217), Sens. Warren (D-MA), Cortez Masto (D-NV), Hawley (R-MO), and Braun (R-IN) today introduced their own bill to do so.
CFPB Sets Comment Deadline For Controversial Credit Card Proposal
The Federal Register today includes the CFPB’s proposed rule on Credit Card Penalty Fees.
Senate Banking Demands Supervisory Accountability, Transparency, Reform
Today’s Senate Banking hearing was extremely well-attended by Senators on both sides of the aisle clearly looking first to understand what precipitated recent bank failures, who is to blame, and what should be done next. Republicans argued that current law gives the Fed considerable discretion without the need for statutory change. Although FRB Vice Chairman Barr initially sought to emphasize the need for new rules without blaming old ones, he ultimately admitted that the Fed indeed could and can govern risky banking organizations regardless of size.
Today’s Senate Banking hearing was extremely well-attended by senators on both sides of the aisle clearly looking first to understand what precipitated recent bank failures, who is to blame, and what should be done next. Republicans argued that current law gives the Fed considerable discretion without the need for statutory change. Although FRB Vice Chairman Barr initially sought to emphasize the need for new rules without blaming old ones, he ultimately admitted that the Fed indeed could and can govern risky banking organizations regardless of size….
The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…