Now What?
As detailed in our reports earlier this week on Powell’s appearance before Senate Banking and HFSC, much was said about the pending rewrite of big-bank capital standards. As we’ve noted, this matters a lot to the comparative advantage of GSEs, nonbank mortgage players, and banks large and small. As a result, we here go in depth on what Powell said – and mostly didn’t – about what’s next on these critical standards.
At today’s HFSC hearing, Chairman Powell modulated his hawkish stance just a bit, continuing as he long has done to refuse to take a stand on fiscal policy while advocating for rapid debt-limit action. Pressed by Republicans for CBDC updates, the chairman today was the most specific of any Fed official to date, stating that a retail CBDC would require express Congressional authorization even though this may not be the case for a wholesale-focused instrument. As yesterday (see Client Report FEDERALRESERVE72), Republicans pushed hard against the Vice Chairman’s holistic-capital review, leading Mr. Powell to say that he hopes for Board consensus on both end-game rules and broader rewrites but cannot assure this will be the case despite the Board’s consensus culture….
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Red Light For Retail CBDC
At today’s HFSC hearing, Chairman Powell modulated his hawkish stance just a bit, continuing as he long has done to refuse to take a stand on fiscal policy while advocating for rapid debt-limit action. Pressed by Republicans for CBDC updates, the chairman today was the most specific of any Fed official to date, stating that a retail CBDC would require express Congressional authorization even though this may not be the case for a wholesale-focused instrument. As yesterday (see Client Report FEDERALRESERVE72), Republicans pushed hard against the Vice Chairman’s holistic-capital review, leading Mr. Powell to say that he hopes for Board consensus on both end-game rules and broader rewrites but cannot assure this will be the case despite the Board’s consensus culture.
GOP Revs Up Fight Vs. Big-Bank Capital Hikes
Firing a fusillade ahead of capital rewrites expected late this month, Senate Banking Republicans late Friday sent FRB Chairman Powell a letter arguing strongly against capital increases and laying out a strong view that the agencies are required by law to tailor key standards.
BIS Project Finds Retail-CBDC Cross-Border Benefits
In a project boosting retail CBDC, the BIS Innovation Hub today announced the results of Project Icebreaker, a cross-border retail CBDC pilot between Sweden, Norway, and Israel.
GOP Will Deploy IGs To Demand Fed, CFPB, SEC Reform
In addition to a hearing that morning with Chairman Powell, the full HFSC will call federal banking agencies on the carpet Wednesday for “wasteful” spending and other governance issues.
Dems Beg Gensler Not to Scrap Scope 3 Climate Disclosures
Responding to intense GOP opposition to the SEC’s climate disclosure proposal, fifty Congressional Democrats led by Sen. Warren (D-MA) sent a letter to SEC Chairman Gensler today urging him not to scale the proposal back, especially its Scope 3 provisions.
Treasury Wants Fast NBFI, OEF, Crypto Standards
Treasury International Affairs Under-Secretary Jay Shambaugh today outlined U.S. priorities, emphasizing not only the importance of containing Russia and countering new threats, but also quickly advancing numerous global initiatives.
Hsu Pushes To Start The End Game
Acting Comptroller Hsu today reiterated his determination to act as quickly as possible on Basel’s end-game rules, noting the interagency statement last year that this would soon be done without providing …
Biden Puts His Stamp On CFPB Credit-Card Fee Controls
Scuttling industry expectations that the CFPB’s credit-card fee clampdown will never be implemented, President Biden last night zeroed in on his administration’s campaign to eliminate “junk” fees, including “exorbitant” overdraft fees and credit card late fees.
Senate GOP Launches Anti-Woke Attack
Accelerating the GOP’s anti-woke endeavor, Sen. Kevin Cramer (R-SD) and 36 GOP senators have introduced S. 293 to impose strict sanctions on banks that provide or deny financial services for what the senators consider political reasons.
Treasury: Happy In The Cloud If It Doesn’t Rain
In its long-awaited report today on the systemic implications of cloud computing, Treasury today encouraged more rapid adoption even as it pointed to systemic-risk considerations.
HFSC Subcomm: Privacy Compromise May Not Prove Impossible
Today’s kick-off hearing by HFSC’s Subcommittee on Financial Institutions and Monetary Policy suggested that Chairman Barr (R-KY) will move deliberately on his priorities even as full Committee Chairman McHenry (R-NC) pursues higher-profile items such as anti-China policy.
BIS Renews Campaign For Bigtech Systemic Standards
Reiterating longstanding BIS concerns about bigtech platforms, General Manager Agustín Carstens today updated the changes he believes are urgently needed to address growing systemic risk in this sector.
Many rules determine the terms of combat in key financial markets, but none is as fundamental as bank-capital standards because every decision a bank makes first factors capital costs or benefits. These are axiomatic because, even if every other business assumption a company makes is good, a financial product or service will still prove unprofitable if capital requirements are high enough to doom returns sufficient for insatiable investors. Said by some only to be a tidy Basel III clean-up, the Basel IV “end-game” capital rules set to come in the next month or so are actually a substantive recalibration of which businesses make banks how much money compared to all the competitors empowered over the years by the happy – if highly risky – absence of like-kind requirements. It’s thus no wonder that it’s already game-on for the future of the end-game regulations.
As we’ve noted in recent client updates, Rep. Andy Barr (R-KY) now chairs the HFSC subcommittee with power over both financial-institution regulation and monetary policy. Although one of his first bills in this Congress deals only with loosening capital rules for de novo banks (H.R. 758), he has made it very clear that he fears that the new big-bank capital construct will prove unduly costly and anti-competitive. Senate Banking Ranking Member Tim Scott (R-SC) said the same thing in more guarded tones when he released his priorities, making it clear that the GOP has its eyes on the new capital rules.
No coincidence, conservative critics are …
It’s Game-On for End-Game Capital Regulation
Many rules determine the terms of combat in key financial markets, but none is as fundamental as bank-capital standards because every decision a bank makes first factors capital costs or benefits. These are axiomatic because, even if every other business assumption a company makes is good, a financial product or service will still prove unprofitable if capital requirements are high enough to doom returns sufficient for insatiable investors. Said by some only to be a tidy Basel III clean-up, the Basel IV “end-game” capital rules set to come in the next month or so are actually a substantive recalibration of which businesses make banks how much money compared to all the competitors empowered over the years by the happy – if highly risky – absence of like-kind requirements. It’s thus no wonder that it’s already game-on for the future of the end-game regulations.
Basel Blesses Basel III
In its own version of a holistic review, the Basel Committee today pronounced itself satisfied with the post-GFC regime. Although the new construct increased complexity, Basel finds no redundancy nor any adverse effects. Banks that were forced to raise the most capital and liquidity as a result of these reforms saw the greatest reduction in their cost of capital and, while these banks may have reduced lending, credit availability across the banking system generally increased.
FSB Advances Preliminary OEF Reforms
In its latest policy conclusions on open-end funds (OEFs), the Financial Stability Board praises its 2017 policies as a success but then goes on to describe the sector’s liquidity risk as still so high as to warrant new global standards. The FSB and IOSCO now recommend that national regulators quickly review disclosure and stress-testing practices and improve them as briefly described in this release. The agencies will also advance proposals for public comment that would, among other things, require OEFs either to ensure they can meet daily redemption demands or set a longer redemption period.
FDIC, FRB-NY Highlight AOCI Losses
In remarks accompanying the banking-sector 3Q report, Acting FDIC Chairman Gruenberg noted that unrealized losses on AFS/HTM securities now total $690 billion, up 47 percent from just the second quarter. This issue is also highlighted in remarks today from the head of supervision at the Federal Reserve Bank of New York, but neither she nor Mr. Gruenberg indicates if the agencies plan any action in this arena.
Brown Talks Civil Rights, GOP Attacks CFPB
Although Chairman Brown (D-OH) used today’s Fair Lending hearing to renew discussion of his 2020 legislation bringing financial institutions under the Civil Rights Act (see FSM Report FAIRLEND9), most of the focus at the session was on the CFPB.
House Panel Blasts Fintech PPP Practices, Seeks Investigation
A new report from the Select Committee on the Coronavirus investigating the role of fintechs in PPP fraud concludes that fintechs failed to implement appropriate oversight and fraud-prevention strategies despite accruing “massive” profits from administration fees.
Barr Talks Even Tougher on Bank Capital Rewrite
Although Vice Chairman Barr today confirmed statements to the Senate Banking Committee (see Client Report REFORM214) that his holistic-capital review is under way without any immediate conclusions, he also emphasized that it will ensure that ample capitalization is sufficient for severe stress and creates incentives for prudent lending. Current capital levels are, he said, at the low end of what research suggests they should be.
Things To Come
Last week, banking-agency supervisory heads found themselves before Congressional Committees that – at least in the House – will look very different in the next Congress. As Karen Petrou’s remarks last week made clear, only some legislation will be enacted into law, but many inquiries and investigations will put the Fed, OCC, and FDIC on very hot seats. The heat will be hottest on the right when it comes to HFSC and around the circumference of the seat in the Senate, where only the little bit that’s left of the middle is likely to view many banking-agency actions with the deference that was once the norm for all but the highest-profile or most-disastrous calls.