#Holistic – Federal Financial Analytics

26 10, 2023

DAILY102623

Eliza Allen2023-10-26T16:48:48-04:00October 26th, 2023|2- Daily Briefing|

Senate Banking Focuses on Rapid-Fire Administration Action to Sanction Iran, Curb Hamas, Govern Crypto

Today’s Senate Banking Hearing on Illicit Finance and Terrorism showcased continued bipartisan support for stronger Iranian sanctions as well as for secondary sanctions on traditional financial institutions and cryptoasset firms facilitating terrorism. In addition to highlighting their bipartisan measure targeting DeFi-related money laundering and sanctions evasion, Sens. Reed (D-RI) and Warner (D-VA) noted that they are working on a bill that would apply secondary sanctions on banks and DeFi entities that transact with foreign parties that facilitate terrorist financing.

Bipartisan Small-Business Leadership Opens New End-Game Front

Opening a new front of Congressional concern about the capital proposal’s credit impacts, House Small Business Economic Growth Subcommittee Chairman Meuser (R-PA) along with Ranking Member Landsman (D-OH) and two others today sent a letter to FRB Chairman Powell and Vice Chair Barr “imploring” them to commission a comprehensive review of the capital proposal’s effects on small business lending. They also ask that all the agencies counteract any negative repercussions of the proposal, noting that this might entail significantly easing capital requirements.

Daily102623.pdf…

25 09, 2023

m092523

Arezou Rafikian2023-09-25T09:26:11-04:00September 25th, 2023|6- Client Memo|

How to Right the Raft of New Rules

What struck me most about the HFSC hearing at which I testified last week was how lukewarm Democrats are to the new rules unless they feel compelled to defend the White House or core political objectives. When the partisan spotlight dimmed, more than a few Democrats said that the rules might have both small and even significant perverse consequences. Given that GOP-led repeal of the rules is impossible and court overturn is at best a lengthy process, hard work to get the rules more to the middle is essential. Even if large banks still think the rules are bad, they’ll be better and that’s all to the good.

m092523.pdf…

25 09, 2023

Karen Petrou: How to Right the Raft of New Rules

Arezou Rafikian2023-09-25T09:28:19-04:00September 25th, 2023|The Vault|

What struck me most about the HFSC hearing at which I testified last week was how lukewarm Democrats are to the new rules unless they feel compelled to defend the White House or core political objectives. When the partisan spotlight dimmed, more than a few Democrats said that the rules might have both small and even significant perverse consequences. Given that GOP-led repeal of the rules is impossible and court overturn is at best a lengthy process, hard work to get the rules more to the middle is essential. Even if large banks still think the rules are bad, they’ll be better and that’s all to the good.

What’s the how-to? In short, it’s a concerted campaign to fix the most problematic technical confusions in the massive body of new rules – these are manifest and manifold, focusing hard on obvious flaws and saving raging debates such as those over how big banks should be for another day. I think this approach is best not only because it avoids political landmines, but also because it works.

In the mid-2000s, a group of custody banks with which we worked laid out numerous unintended consequences in the Basel II approach to operational risk-based capital. By the time this landed in the final Basel III rules, it wasn’t great, but it was a lot, lot better in terms of actually capitalizing real risk at savings mounting to billions in what would have been unnecessary regulatory capital.

My testimony lays out a road-map of …

17 07, 2023

Karen Petrou: Counter-Cyclicality is One Critical Missing Piece of Barr’s Unholistic Construct

Arezou Rafikian2023-07-17T16:55:22-04:00July 17th, 2023|The Vault|

Banks and Republicans are beating up on Michael Barr for much in his new capital construct. The furor focuses on the high cost of the new capital rules, cost glossed over in Mr. Barr’s talk via an over-arching assumption that banks can readily do without two years of post-dividend retained earnings. Maybe they can; investors not so much. This is a big problem, but a little-noticed one also warrants more scrutiny: the decision to leave untouched and apparently not even considered the U.S. version of the counter-cyclical capital buffer (CCyB). This makes the new framework still more procyclical and even less holistic. CCyBs have worked well around the world and a well-designed one in the U.S. would obviate the need for some – not all, but some – of Mr. Barr’s most counter-productive ideas even as it makes banks more resilient, the financial system safer, and the economy less volatile.

What are CCyBs? The basic idea is that these are capital charges triggered in good times that are released under stress, making banks and the economies they serve better able to ride out macroeconomic boom-bust cycles. The final U.S. version of the global CCyB framework acknowledges this global standard, but it goes on to say only that the Federal Reserve will know a boom or bust when it sees it and will do something about it via some sort of CCyB should it feel inclined to do so possibly after a rulemaking process on the up- and down-sides that …

17 07, 2023

M071723

Arezou Rafikian2023-07-17T09:36:14-04:00July 17th, 2023|6- Client Memo|

Counter-Cyclicality is One Critical Missing Piece of Barr’s Unholistic Construct

Banks and Republicans are beating up on Michael Barr for much in his new capital construct. The furor focuses on the high cost of the new capital rules, cost glossed over in Mr. Barr’s talk via an over-arching assumption that banks can readily do without two years of post-dividend retained earnings. Maybe they can; investors not so much. This is a big problem, but a little-noticed one also warrants more scrutiny: the decision to leave untouched and apparently not even considered the U.S. version of the counter-cyclical capital buffer (CCyB). This makes the new framework still more procyclical and even less holistic. CCyBs have worked well around the world and a well-designed one in the U.S. would obviate the need for some – not all, but some – of Mr. Barr’s most counter-productive ideas even as it makes banks more resilient, the financial system safer, and the economy less volatile.

M071723.pdf…

4 04, 2023

DAILY040423

Eliza Allen2023-04-04T16:59:13-04:00April 4th, 2023|2- Daily Briefing|

House Republicans Launch Attack On New Small-Business Reporting Rule

House Republicans including Reps. Williams (R-TX), Barr (R-KY), and Ogles (R-TN) today introduced a resolution to overturn the CFPB’s small business data collection final rule via the Congressional Review Act.

Bipartisan Leaders Demand End to AML “Escape Hatch”

Accelerating the odds for a significant FinCEN rewrite, HFSC Chairman McHenry (R-NC), Senate Banking Chairman Brown (D-OH), Ranking Member Waters (D-CA) and a group of bipartisan lawmakers today sent a letter to Secretary Yellen and FinCEN Acting Director Das emphatically stating that FinCEN’s latest beneficial ownership proposal undermines the intent of the Corporate Transparency Act (see FSM Report AML133) by allowing an “escape hatch” through which firms can continue to do business with a customer even if they are unable to collect beneficial-ownership information.

IMF Says NBFIs Should Have Central-Bank Backing

The IMF’s financial-stability report includes a new chapter on NBFIs. Largely echoing all the concerns and policy recommendations in continuing FSB calls for NBFI standards, the Fund goes on to advocate also for NBFI access to central-bank backstops.

Global Regulators Like Look Of Systemic Insurance Standards, U.S. Implementation

IAIS today published a report assessing the implementation of its holistic supervisory framework across national jurisdictions, concluding that results demonstrate a “very positive outcome.” This is reflected in strong implementation of the holistic framework standards and good levels of observance across many of the standards, including by U.S. states.

Daily040423.pdf…

7 03, 2023

FEDERALRESERVE72

Arezou Rafikian2023-03-07T16:06:02-05:00March 7th, 2023|5- Client Report|

Battle Lines Form Over Capital Rewrite

Although Chairman Powell’s testimony kept exclusively to monetary policy, today’s Senate Banking hearing seemed only to go through the motions set at previous hearings with regard to inflation, growth, and the Fed’s long-term objectives. Real energy was reserved for regulatory-policy questions, most notably future bank capital standards. As anticipated, Republicans were unified in a series of questions all focused on the extent to which Chairman Powell will allow Vice Chairman Barr’s holistic-capital exercise to result in the higher capital standards Mr. Barr says are warranted for the largest banks.

FEDERALRESERVE72.pdf…