As promised, this FedFin report provides an in-depth analysis of FSOC’s 2022 annual report, focusing on findings with near-term policy implications. As always, the report is lengthy and includes many observations and market details that provide insight into Treasury and member-agency-staff thought. Much in it reiterates concerns about short-term funding markets, CCPs, and….
FSOC Targets Usual Suspects but Also Points to Big-BHC, Nonbank Mortgage Systemic Risk
As promised, this FedFin report provides an in-depth analysis of FSOC’s 2022 annual report, focusing on findings with near-term policy implications. As always, the report is lengthy and includes many observations and market details that provide insight into Treasury and member-agency-staff thought. Much in it reiterates concerns about short-term funding markets, CCPs, and investment funds (with FSOC for the first time urging regulators to look not only at MMFs and OEFs, but also at collective investment vehicles). As previously noted, the report is relatively sanguine about digital-asset systemic risk but, also reiterates findings in FSOC’s report (see Client Report CRYPTO33) demanding rapid action on a raft of reforms in this high-risk sector. What surprised us is the discussion of large BHCs, which departs from longstanding Fed and FSOC comfort in the post-GFC regulatory regime for this sector.
Inter-Agency Treasury-Market Rewrite Progresses
Treasury’s Inter-Agency Working Group on Treasury Market Surveillance (IAWG) today released a progress report on its efforts to guide action to stabilize the Treasury marketplace.
Fed Reg Report Highlights Future Priorities
The Fed today released its semiannual Supervision and Regulation Report, reiterating that banks entered 2022 in historically sound financial shape and outlined its priorities based on the potential risks of changing market conditions.
FSB NBFI Report Highlights Liquidity, Systemic Risk
The FSB today released a progress report on improving the resilience of non-bank financial intermediation (NBFI), recommending a number of enhancements to the current policy toolkit to better mitigate liquidity and financial stability risk.
CFPB Spotlights Cryptoasset Complaints
The CFPB today published a bulletin analyzing cryptoasset complaints the Bureau has received since 2018, observing a large spike in these complaints over the past two years and concluding that fraud, theft, hacks, and scams are widespread problems affecting participants in crypto markets.
CFPB Continues Furnisher Accountability Campaign
The CFPB today continued its campaign for furnisher accountability by issuing a circular upholding the Bureau’s belief that consumer credit reporting agencies and furnishers must conduct a reasonable investigation of non-frivolous consumer disputes and that failure to do so may subject them to CFPB enforcement under the FCRA.
CFPB Modifies Nonbank Financial-Company Standards
Williams Emphasizes Treasury-Market Failures
FRB-NY President John Williams today reinforced the principles laid out in the recent Inter-Agency Working Group on Treasury Market Surveillance report (see Client Report TMARKET2) – i.e., the “imperative of resilience.”
OFR: U.S. Financial Stability at Mid-Range, Too Soon to Judge Climate Risk
OFR today released its 2021 annual report, concluding that overall risks to U.S. financial stability remain in the medium range. Notably, the report generally downplays risks resulting from climate change, arguing these are difficult to quantify and thus deferring conclusion until more data are available.
Waller Breaks with PWG on Limiting Stablecoins to Banks
Although FRB Chair Powell has not yet decided on the need for CBDC, Fed Gov. Waller today opposed it on grounds that private innovation suffices to ensure U.S. payments innovation. This sets up a conflict should Mr. Powell’s endorse CBDC after pending discussion the draft or if Gov. Brainard takes over the chair.
JEC Reviews Crypto Construct
At today’s Joint Economic Committee hearing on cryptoassets, Chairman Beyer (D-VA) urged Congress to update the crypto regulatory framework to better protect consumers, prevent insider trading, and ensure economic stability in part by preventing runs on cryptoassets.
Taking Their Time On the Treasury Market
As Mark Calabria made clear earlier this year, reform of the Treasury market has direct, major impact on that for agency debt and MBS. Indeed, given ongoing Treasury-obligation issuance uncertainties at a time of brute-force fiscal policy along with continuing debt-ceiling drama, the two high-quality liquid assets are tied at the hip even if bank liquidity rules don’t recognize this. We thus review the new inter-agency Treasury-market report for its agency impact at a time of growing bond-market volatility. As our in-depth analysis of the new report makes clear, we had to look hard for near-term implications and, after doing our best, came away largely empty-handed.
Treasury-Market Reform Construct Leaves Much to Decide, Do
In this report, we build on our initial analysis of Monday’s report from the Inter-Agency Working Group on Treasury Market Surveillance (IAWG). Comprising the Treasury, the Fed, the SEC, the CFTC, and the Federal Reserve Bank of New York, the Working Group’s report narrows the scope of reforms to be discussed at next week’s closed FSOC meeting and then taken up by both the Group and FSOC. Hints about what staff may think best may be inferred from the report by virtue of where attention is focused and hints about near-term decisions are offered. From this, we infer that central clearing is a top-priority consideration and that all of the agencies support SEC Chairman Gensler’s announced plans to bring many broker-dealers in the Treasury sector under SEC authority.
Fed Ramps Up Worries, Outlines Preferred MMF Option
Late yesterday, the Federal Reserve released its most recent financial-stability report. As in its predecessor earlier this year (see Client Report SYSTEMIC91), this report takes a cautious view, counting on continuing bank resilience to counteract old worries, such as asset-price bubbles, along with containing at least some new fears. These now include meme-driven equity market volatility, Chinese leveraged debt, and emerging-market fragility. In this report, we assess the policy implications of the Fed’s findings without going into detail on data or methodology. Surprisingly, in light of the recent FSOC report (see Client Report GREEN11), climate risk is now less of a high-profile Fed systemic concern, with the Board saying its planned actions are “broadly aligned” with FSOC recommendations. Perhaps the most concrete remedy outlined in the report pertains to MMF resilience, with the Fed reiterating its preference for some form of swing pricing, minimum balances at risk, and/or capital buffers.
BIS Research Survey Finds Few Structural, Policy Impediments to Fast-Acting CBDC
A new BIS paper assesses CBDC’s impact across the full spectrum of economic activity given the centrality of data, moving the research discussion beyond the “reserves for all” approach (i.e., FedAccounts) on which much public debate focuses. This work thus tackles critical privacy, competition, integrity, and stability issues largely left aside in the BIS’s recent formulation of retail-facing CBDC. Press today indicate that the French have given tentative support to a wholesale-facing CBDC even as they raise the questions this BIS paper seeks to answer.
HFSC Dems Urge LGBTQ+ Financial Guidance
Ahead of its hearing examining financial-inclusion barriers for the LGBTQ+ community, HFSC’s majority staff memo indicates the Diversity and Inclusion Subcommittee will tomorrow debate draft legislation that would require federal financial regulators to issue guidance on LGBTQ+ inclusion.
Inter-Agency Treasury-Market Rewrite Takes Shape
Ahead of a conference next month, the Intra-Agency Working Group on Treasury Market Surveillance today set principles to guide further action to stabilize the U.S. Treasury marketplace.
Hsu Demands Top-Down Climate-Risk Management
Acting Comptroller Hsu today followed up last week’s announcement of near-term OCC climate-risk guidance for big banks with a set of questions he urges directors use to press senior management to action. Noting that directors should challenge any managerial confidence that climate risk is indeed being well addressed, the goal of this inquiry is climate-risk readiness by the end of next year.
Bowman Reiterates Need for Servicer Readiness, Regulation
Fed Gov. Bowman today …