#holistic capital – Federal Financial Analytics

10 07, 2023

CAPITAL228

Max Camateros-Mann2023-07-10T12:49:19-04:00July 10th, 2023|5- Client Report|

Going Up?

FRB Vice Chairman Barr’s speech today outlines near-term U.S. regulatory-capital policy, confirming our earlier assessment that a sweeping proposal will soon be released. There are few surprises in the speech, which outlines a “holistic” construct comprised of U.S. action on the “endgame” rules and revisions presaged in the Fed’s response to SVB’s failure (see Client Report REFORM221). As detailed in this new FedFin report, the agencies also plan to retain the GSIB surcharge largely as is despite technical flaws in order to reduce GSIB size and give super-regionals a fighting chance.

CAPITAL228.pdf…

3 07, 2023

M070323

Eliza Allen2023-07-03T12:09:08-04:00July 3rd, 2023|6- Client Memo|

The Unintended Consequence Of Capital Hikes Isn’t Less Credit, It’s More Risk

As was evident throughout Chairman Powell’s most recent appearances before HFSC and Senate Banking, conflict between capital and credit availability characterizes what is to come of the “end-game” capital rules set for imminent release. The trade-off is said to be between safer banks and a sound economy, but this is far too simple. As we’ve seen over and over again as capital rules rise, credit availability stays the same or even increases. What changes is who makes the loans and what happens to borrowers and the broader macro framework, which in the past has been irrevocably altered. The real trade-off is thus between lending from banks and the stable financial intermediation this generally ensures and lending from nonbanks and the risks this raises not just to financial stability, but also to economic equality.

M070323.pdf…

3 07, 2023

Karen Petrou: The Unintended Consequence Of Capital Hikes Isn’t Less Credit, It’s More Risk

Eliza Allen2023-07-03T12:08:54-04:00July 3rd, 2023|The Vault|

As was evident throughout Chairman Powell’s most recent appearances before HFSC and Senate Banking, conflict between capital and credit availability characterizes what is to come of the “end-game” capital rules set for imminent release. The trade-off is said to be between safer banks and a sound economy, but this is far too simple. As we’ve seen over and over again as capital rules rise, credit availability stays the same or even increases. What changes is who makes the loans and what happens to borrowers and the broader macro framework, which in the past has been irrevocably altered. The real trade-off is thus between lending from banks and the stable financial intermediation this generally ensures and lending from nonbanks and the risks this raises not just to financial stability, but also to economic equality.

As post-2008 history makes clear, banks do not stop lending when capital requirements go up; they stop taking certain balance-sheet risks based on how the sum total of often-conflicting risk-based, leverage, and stress-test rules drives their numbers. That all these rules push and pull banks in often-different directions is at long last known to the Fed based on Vice Chair Barr’s call for a “holistic review”. Whether it plans to do anything about them and their adverse impact on the future of regulated financial intermediation remains to be seen. Until something is done, banks will look across the spectrum of capital rules, spot the highest requirement, and then figure out how best to remain profitable …

19 05, 2023

Al052223

Eliza Allen2023-05-19T17:03:18-04:00May 19th, 2023|3- This Week|

Well, That Was Interesting!

As we anticipated, a series of hearings last week clarified what the banking agencies plan, what Congress thinks about it, and what’s soon to come. Based on the reports cited below, we draft the following conclusions from the hearings, testimony, and reaction thereto:

Al052223.pdf…

9 03, 2023

GSE-030923

Eliza Allen2023-03-09T15:28:01-05:00March 9th, 2023|4- GSE Activity Report|

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.

GSE-030923.pdf…

8 03, 2023

FedFin: Red Light For Retail CBDC

Arezou Rafikian2023-03-08T17:02:10-05:00March 8th, 2023|The Vault|

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….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

8 03, 2023

FEDERALRESERVE73

Max Camateros-Mann2023-03-10T10:07:22-05:00March 8th, 2023|5- Client Report|

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.

FEDERALRESERVE73.pdf…

6 03, 2023

DAILY030623

Eliza Allen2023-03-06T16:54:30-05:00March 6th, 2023|2- Daily Briefing|

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 …

8 02, 2023

DAILY020823

Eliza Allen2023-02-08T17:36:06-05:00February 8th, 2023|2- Daily Briefing|

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.

Daily020823.pdf…

6 02, 2023

Karen Petrou: It’s Game-On for End-Game Capital Regulation

Arezou Rafikian2023-02-06T10:56:45-05:00February 6th, 2023|The Vault|

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 …