#Hsu – Federal Financial Analytics

25 04, 2024

DAILY042524

Eliza Allen2024-04-25T17:12:36-04:00April 25th, 2024|2- Daily Briefing|

FSB Tackles CCP Resolvability

Continuing its NBFI work, the FSB today released final CCP-resolution standards. The standards call on systemic-CCP regulators to have tools and backstops specific to orderly resolution in addition to those deployed to ensure rapid recovery under the FSB’s recent actions addressing margining and CCP liquidity.

FDIC Considers, Tables Passivity Proposals

As anticipated, the FDIC today took up proposals to address concerns regarding index-fund managers’ compliance with passivity commitments. Surprisingly, there were two competing proposals, both of which were withdrawn prior to a vote.

BIS Head Suggests NBFIs Get a Targeted Global Standard-Setter

BIS General Manager Carstens this week said that there is insufficient global momentum to address the risks posed by NBFIs, asking international bank supervisors to consider the need for a committee akin to Basel for NBFIs.

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19 04, 2024

Al042224

Shane Smith2024-04-19T16:59:15-04:00April 19th, 2024|3- This Week|

The Run to Liquidity Regulation

There were early-warning tremors last week signaling that new liquidity rules are coming, with the Wall Street Journal on Friday forecasting an inter-agency proposal in what we expect to be early May. But, while a liquidity rewrite has been obvious since at least Acting Comptroller Hsu’s preview in January, what the proposal will detail is far from clear. Although Mr. Hsu and Vice Chair Barr are signaling structural change to the current liquidity construct, FRB Gov. Bowman insists that supervisory – not regulatory – standards should ensure that banks are resilient in the face of liquidity stress. The only area where she appears to agree with Messrs. Hsu and Barr pertains to discount-window lending. All of the agencies appear lined up to take last year’s inter-agency guidance on discount-window readiness and turn it into a rule that mandates actual preparation by all IDIs – and possibly – but far from certainly – including prepositioning collateral assets. The proposal is likely also to address collateral integrity to limit the risk to the Federal Reserve and, indeed, a troubled bank if assets are pledged to Home Loan Banks but urgently needed for the discount window. No word if the Fed also plans to address the FedWire closing times that made Signature’s collateral problem even worse (see Client Report REFORM222), but don’t wait up.

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10 04, 2024

DAILY041024

Eliza Allen2024-04-10T17:24:00-04:00April 10th, 2024|2- Daily Briefing|

OCC Merger Deadline Extended, De Facto Policy Remains

Responding to industry requests, the OCC today extended the comment deadline on its merger proposal (see FSM Report MERGER14) until June 15 from April 15.

Gruenberg Defends FDIC GSIB-Resolution Readiness

Rejecting criticism from its own inspector-general and others including Karen Petrou, FDIC Chair Gruenberg today stated that the agency is indeed ready to resolve a U.S. GSIB and that any such resolution will exert market discipline on shareholders and BHC counterparties.

Hsu Presses Banks to Expand Account Access for Immigrants

Focusing on increasing banking access for immigrants, Acting Comptroller Hsu today told banks to consider risk-based adjustments to their account screening processes to accept more forms of identification for account openings such as municipal IDs and consular ID cards.

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4 04, 2024

Daily040424

Arezou Rafikian2024-04-04T17:00:02-04:00April 4th, 2024|2- Daily Briefing|

Hsu, Gruenberg Skirt CRA Legal Battle

The CRA-related remarks today from Acting Comptroller Hsu and Chair Gruenberg were considerably more muted than those yesterday from Vice Chair Barr, although Mr. Gruenberg expressly defends the new rule despite the pending legal challenge.

FRB-NY: Life, P&C Insurance Poses Climate Risk to Financial Markets

The Federal Reserve Bank of New York yesterday posted a brief focusing on financial-market risk due to climate change, concluding that there is some of potentially systemic magnitude. This finding is based on a nine-month-old staff report focusing specifically on the insurance sector.

FDIC Presses Banks to do More in LMI Communities

Previewed in remarks by Chair Gruenberg this morning, the FDIC today released its economic inclusion strategic plan calling on banks to invest in LMI and underbanked communities.

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25 03, 2024

DAILY032524

Eliza Allen2024-03-25T16:46:05-04:00March 25th, 2024|2- Daily Briefing|

House GOP Resolution Challenges FSOC Designation Guidance

HFSC Vice-Chairman Hill (R-AR) introduced H.J. Res 120 on Friday to disapprove of FSOC’s guidance on nonbank financial company systemic designations (see FSM Report SIFI36). The CRA resolution follows GOP criticism of the guidance at recent hearings (see Client Report FSOC30) and S.3601 from Sens. Rounds (R-SD) and Sinema (I-AZ), which would require FSOC to consider “alternative approaches” prior to systemic designation.

Hsu, Cook Warn Banks re AI Fair-Lending Risk

Acting Comptroller Hsu today stressed the importance that banks understand their use cases for AI and utilize it in a controlled manner, reiterating longstanding agency concerns about bad learning models leading to credit discrimination (see FSM Report AI). FRB Gov. Cook today also noted that, while the FRB cannot address inequality within its mandate, it can and is looking to ensure that AI use does not lead to unfair lending.

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12 03, 2024

DAILY031224

Eliza Allen2024-03-12T16:59:10-04:00March 12th, 2024|2- Daily Briefing|

Hsu Says Opsrisk Not Cured by Capital, Liquidity

In remarks today on operational resilience, Acting Comptroller Hsu notes that operational risk is not “a problem that capital or liquidity can solve.” Karen Petrou has noted this most recently with regard to the operational-risk capital rules included in the current proposal, which are founded on the longstanding regulatory assumption that capital indeed buffers operational risk.

Senate Talk of Affordable Housing Turns to FHLB Role

At today’s Senate Banking Committee affordable-housing hearing, Chairman Brown (D-OH) again called for the Fed to cut interest rates to address the crisis. The hearing also touched on the role FHLBs can play, with Sen. Lummis (R-WY) stating her intentions to work with the system to expand its impact on the housing supply shortage.

CFPB to Proceed to Mortgage-Fee Rulemaking

NEC Director Brainard today said that the CFPB will pursue a rule or similar action to curtail mortgage-closing “junk” costs along the lines we identified following last week’s Bureau post in conjunction with the new White House competition strike force.

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11 03, 2024

DAILY031124

Eliza Allen2024-03-11T17:15:23-04:00March 11th, 2024|2- Daily Briefing|

Hagerty Demands Signature-Asset Sale Answers ASAP

Sen. Bill Hagerty (R-TN) yesterday sent a letter to Chair Gruenberg questioning the FDIC’s adherence to requirements in its auction process during the sale of Signature Bank’s loan portfolio, accusing the FDIC of making political choices inconsistent with its least-cost mandate.

Scott Again Calls for Gruenberg Resignation

Adding to GOP pressure on FDIC Chair Gruenberg, Senate Banking Ranking Member Scott (R-SC) yesterday sent a letter reiterating his demand that Mr. Gruenberg step down.

BTFP Demise if FHLB Opportunity

As anticipated, the BTFP window closed today.

FDIC’s Hill Wants New Blockchain, Liquidity Standards

FDIC Vice Chair Hill today said there are “significant downsides” to the agency’s current approach to blockchain, describing its message and that of the inter-agency policy (see Client Report CRYPTO32) as “don’t bother trying.”

Warren Tries to Divide Powell from Other Regulators to Conquer Capital Regs

Following her grilling of Chair Powell last week regarding his decision to intervene in setting the new capital rules, Sen. Warren (D-MA) yesterday sent a letter to Vice Chair Barr, Chair Gruenberg, and Acting Comptroller Hsu asking them if pressure from big banks has “weakened your resolve.”

GAO Wants FinCEN to Move Better, Faster

Reinforcing longstanding bank complaints about the current AML regime, GAO today published a report finding that FinCEN needs to improve transparency surrounding its progress implementing the Anti-Money Laundering Act of 2020 (see FSM Report AML132).

Biden Presses for Statutory Change Boosting FHLB Affordable-Housing Contributions

President Biden’s FY25 …

7 03, 2024

DAILY030724

Eliza Allen2024-03-07T16:51:03-05:00March 7th, 2024|2- Daily Briefing|

HFSC GOP Press Discount-Window Reform, Slow-Go on Liquidity Risk

Building on questioning at a recent HFSC hearing (see Client Report LIQUIDITY34), Financial Institutions Subcommittee Chair Barr (R-KY) led all Republican members of his subcommittee in a letter to Chair Powell, Chair Gruenberg, and Acting Comptroller Hsu urging them to address stigma and operational issues associated with the discount window.

Powell Reiterates: Capital Rules Will Change

Today’s Senate Banking hearing with Chair Powell covered much of the same ground as the Chair’s appearance before HFSC (see Client Report FEDERALRESERVE75) with Democrats focusing on housing affordability and Republicans expressing their satisfaction with Mr. Powell’s statement that the Basel III proposal may have to be withdrawn and re-proposed.

House Judiciary Now Says 12 Large Banks Colluded with FinCEN

Prior to the House Judiciary’s Select Subcommittee on the Weaponization of the Federal Government hearing today on large bank “collusion,” the subcommittee yesterday published a report finding that FinCEN and the FBI engaged in backchannel discussions with large financial institutions to gather private financial data.

BCBS Proposes GSIB Window-Dressing Revisions

As anticipated, the Basel Committee on Banking Supervision today released a consultation on revisions to the GSIB assessment framework concerning window dressing.

House Republican Targets Interest on Reserves

Following up on yesterday’s HFSC hearing (see Client Report FEDERALRESERVE75), Rep. Davidson (R-OH) has introduced legislation (H.R. 7562) to prevent Federal Reserve Banks from paying interest on excess reserves.

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27 02, 2024

Daily022724

Arezou Rafikian2024-02-27T16:49:32-05:00February 27th, 2024|2- Daily Briefing|

Barr Presses for Counterparty-Risk Management

FRB Vice Chair Barr today called for large banks to ensure that counterparty exposures are well managed according to actions he describes, announcing no new Fed initiatives in this arena. Mr. Barr was particularly focused on the need for banks to ensure sound margining and to dynamically adjust margins and other risk buffers.

FSB Cites SEC MMF Global Leadership

The FSB today released its thematic peer review report on MMF reforms, generally finding that global progress on its 2021 MMF rule (see FSM Report MMF18) has been inconsistent across jurisdictions. However, U.S. progress is detailed, with the FSB noting key points in the agency’s 2023 MMF rule (see FSM Report MMF20) despite ongoing concerns about lingering risks such as vulnerability to large and sudden redemption pressure due to large MMF holdings of risky assets.

Fed Staff: Private Credit Poses Banking, Insurance, Systemic Risk

Reflecting concerns most recently expressed by Acting Comptroller Hsu and FSOC (see Client Report FSOC29), the Fed’s new staff paper on private credit contains not only a taxonomy about this fast-growing sector, but also a warning of emerging systemic risk. Differing from the Fed’s May 2023 financial-stability assessment of low risk (see Client Report SYSTEMIC96), the paper argues for greater systemic-risk focus due to illiquidity, rising corporate leverage and default risk, and the extent to which large amounts of “dry powder” and the need to compete with banks for higher-quality loans lead to still …

26 02, 2024

DAILY022624

Eliza Allen2024-02-26T16:36:24-05:00February 26th, 2024|2- Daily Briefing|

BIS: More Bank Competition Leads to Increased Credit Risk

A new BIS paper looks at a question critical to the debate over bank-merger policy: the extent to which competition drives bank risk-based pricing decisions in corporate lending and, by extension, other credit markets.

OCC Proposes Changes to FOIA Procedures

The OCC today proposed several changes to its FOIA procedures, including allowing expedited processing requests and appeals of denials of these requests and those for fee waivers.

Warren, Progressives Expand Blast on CapOne/Discover Deal to Encompass OCC Merger Proposal

Following other Democratic attacks on the CapOne/Discover merger and her own, Sen. Warren (D-MA) continued her challenge in a letter also signed by twelve House Democrats.

CFPB Takes Precedent-Setting Step Bringing Nonbanks Under Supervision

The CFPB late Friday released its first contested finding that a nonbank is subject to its supervision following the establishment in 2022 of a process for bringing nonbanks under its supervisory wings (see FSM Report CONSUMER44).

Senate Republicans Introduce Anti-CBDC Bill

Sen. Cruz (R-TX) alongside Sens. Hagerty (R-TN), Scott (R-FL), Budd (R-NC) and Braun (R-IN) today introduced a bill to prohibit the Fed from directly or indirectly issuing a CBDC or even using CBDC as a monetary-policy tool.

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