#IDI

11 04, 2024

RESOLVE51

2024-04-11T14:22:52-04:00April 11th, 2024|5- Client Report|

FedFin Assessment: FDIC Plan to Resolve GSIBs Fails to Answer Many Key Questions

In its first public statement since 2013 about how it would execute an SPOE resolution (see FSM Report RESOLVE23), the FDIC yesterday released a report Chair Gruenberg described as demonstrating the FDIC’s readiness to resolve a U.S. GSIB and the process it has developed for doing so under the orderly liquidation authority (OLA) provided in the Dodd-Frank Act (see FSM Report SYSTEMIC30).  As detailed in this FedFin report, the FDIC’s goal is to set stakeholder expectations regarding what to expect in an OLA resolution of a U.S. GSIB, but much reiterates current law and prior actions such as GSIB filings related to their resolution plans and the FRB’s TLAC standards (see FSM Report TLAC6).  Although perhaps released by the Chairman at least in part to assert FDIC capabilities at a time of internal stress and Congressional criticism, it remains unclear the extent to which the FDIC is ready and able to execute the protocols it describes.  The paper principally addresses only SPOE resolutions, which it states are best suited to OLA without making clear what it would do if a GSIB chose MPOE (none have so far although this is permitted under the living-will rules), a regional bank found to be systemic used MPOE (as several do), or if resolution involves a nonbank, where MPOE might well be preferable.

RESOLVE51.pdf

10 04, 2024

DAILY041024

2024-04-10T17:24:00-04:00April 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.

Daily041024.pdf

27 03, 2024

DAILY032724

2024-03-27T16:47:24-04:00March 27th, 2024|2- Daily Briefing|

FRB-Cleveland Study: Banks Beat Capital-Rule Reaper

One of the major complaints banks have raised with the pending end-game capital rules is that the proposed transition period for final implementation does not soften the blow as the agencies argue.

Treasury Points to AI Fraud, Cyber Risk; Presses for New Rules, Best Practices

Adhering to the President’s AI executive order (see Client Report AI3), Treasury today assessed AI risk in the financial sector, concluding that further work is required to address AI-related fraud and cybersecurity risks.

FRB-NY: Mid-Size Regionals Show Deposit/Asset Recovery

A new report from Federal Reserve Bank of New York staff finds that the 2023 failures had little lasting impact on bank deposit costs and funding practices save for banks between the $50 to $250 billion level the study dubs “super-regionals.”

KC Fed: Core-System Providers May Have Undue Market Power

A new report from Kansas City Fed staff finds that three core-system providers dominate this critical sector, making it difficult for depository institutions and especially smaller banks to obtain better service levels.

Daily032724.pdf

25 03, 2024

M032524

2024-03-25T11:45:52-04:00March 25th, 2024|6- Client Memo|

How the FDIC Fails and Why It Matters So Much

Last January, we sent a forecast of likely regulatory action and what I called a “philosophical reflection” on the contradiction between the sum total of rules premised on unstoppable taxpayer rescues and U.S. policy that no bank be too big to fail.  Much in our forecast is now coming into public view due to Chair Powell and Vice Chair Barr; more on that to come, but these rules like the proposals are still premised on big-bank blow-outs.  I thus turn here from the philosophical to the pragmatic when it comes to bank resolution, picking up on a stunning admission in the FDIC’s proposed merger policy to ponder what’s really next for U.S. banks regardless of what any of the agencies say will result from all the new rules.

m032524.pdf

25 03, 2024

Karen Petrou: How the FDIC Fails and Why It Matters So Much

2024-03-25T11:45:45-04:00March 25th, 2024|The Vault|

Last January, we sent a forecast of likely regulatory action and what I called a “philosophical reflection” on the contradiction between the sum total of rules premised on unstoppable taxpayer rescues and U.S. policy that no bank be too big to fail.  Much in our forecast is now coming into public view due to Chair Powell and Vice Chair Barr; more on that to come, but these rules like the proposals are still premised on big-bank blow-outs.  I thus turn here from the philosophical to the pragmatic when it comes to bank resolution, picking up on a stunning admission in the FDIC’s proposed merger policy to ponder what’s really next for U.S. banks regardless of what any of the agencies say will result from all the new rules.

Let me quote at some length from the FDIC’s proposed merger policy:

“In particular, the failure of a large IDI could present greater challenges to the FDIC’s resolution and receivership functions, and could present a broader financial stability threat. For various reasons, including their size, sources of funding, and other organizational complexities, the resolution of large IDIs can present significant risk to the Deposit Insurance Fund (DIF), as well as material operational risk for the FDIC. In addition, as a practical matter, the size of an IDI may limit the resolution options available to the FDIC in the event of failure.”

In short, the FDIC wants to block most big-bank mergers because it can’t ensure orderly resolution of a large insured depository …

29 01, 2024

CONSUMER55

2024-01-29T15:15:54-05:00January 29th, 2024|1- Financial Services Management|

NSF Fees

The CFPB has followed up a controversial proposal to set prices for larger-bank overdrafts exempt from certain consumer standards with a proposal to simply ban certain non-sufficient fund (NSF) fees when banks decide in real time to decline a consumer-payment request.  The Bureau readily acknowledges that banks in fact generally do not now charge NSF fees in these cases, but it fears they might and wishes to preemptively prohibit this as part of the Administration’s campaign against “junk fees.”  Although the rule is aimed principally at electronic declinations, it would apply to check and ACH transactions as declination capability grows via instant-payment system adoption.

CONSUMER55.pdf

8 01, 2024

M010824

2024-01-08T11:25:26-05:00January 8th, 2024|6- Client Memo|

Reflections on Regulatory Failure and a Better Way

Earlier today, we released our 2024 regulatory outlook, a nice summary of which may be found on Politico’s Morning Money.  As I reviewed the draft, I realized how much of what the agencies plan is doomed to do little of what has long been needed to insulate the financial system from repeated shock.  This is a most wearisome thought that then prompted the philosophical reflection also to be found in this brief.  It asks why lots more bank rules do so little for financial resilience yet are always followed by still more rules and then an even bigger bust.   I conclude that financial policy should be founded on Samuel Johnson’s observation that, “when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.”  That is, redesign policy from one focused on endless, ever-more-complex rules spawning still larger bureaucracies into credible, certain, painful resolutions to concentrate each financial institution’s mind and that of a market that would no longer be assured of bailout or backstop.

m010824.pdf

8 01, 2024

Karen Petrou: Reflections on Regulatory Failure and a Better Way

2024-01-08T11:25:21-05:00January 8th, 2024|The Vault|

Earlier today, we released our 2024 regulatory outlook, a nice summary of which may be found on Politico’s Morning Money.  As I reviewed the draft, I realized how much of what the agencies plan is doomed to do little of what has long been needed to insulate the financial system from repeated shock.  This is a most wearisome thought that then prompted the philosophical reflection also to be found in this brief.  It asks why lots more bank rules do so little for financial resilience yet are always followed by still more rules and then an even bigger bust.   I conclude that financial policy should be founded on Samuel Johnson’s observation that, “when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.”  That is, redesign policy from one focused on endless, ever-more-complex rules spawning still larger bureaucracies into credible, certain, painful resolutions to concentrate each financial institution’s mind and that of a market that would no longer be assured of bailout or backstop.

We know in our everyday lives that complex rules backed by empty threats lead to very bad behavior.  For example, most parents do not get their kids to brush their teeth by issuing an edict reading something like:

It has long been demonstrated that brushing your teeth from top to bottom, tooth-by-tooth, flossing hereafter and using toothpaste meeting specifications defined herein will achieve cleaner teeth, a brighter smile, improved public acceptance of the tooth-bearer, and lower cost to …

15 12, 2023

DAILY121523

2023-12-15T17:31:25-05:00December 15th, 2023|2- Daily Briefing|

Crypto Measures Await Next Session

As anticipated, HFSC Chair McHenry (R-NC) was able to fend off concerted efforts by Sens. Brown (D-OH) and Warren (D-MA) to add the Warren-Marshall crypto bill to the National Defense Authorization Act.

FSOC to Target Hedge Funds, Nonbank Mortgage Companies

The readout from Treasury on yesterday’s FSOC meeting provides insight into the Council’s executive session suggesting significant near-term systemic action regarding hedge funds.

FSB Plans Broad Rewrite of Public Backstops, GSIFI Resolvability, Operational Readiness

The FSB’s 2023 Resolution Report today advises banks and public sector authorities to be prepared to access public sector funding in resolution, with the Board planning to review whether existing public sector backstops are adequate to meet potential failure scenarios.

Brown Renews Bipartisan Quest to Constrain Nonbank Banks

Advancing the big-tech concerns he most recently voiced before GSIB CEOs (see Client Report GSIB23), Senate Banking Chairman Brown (D-OH) has introduced S. 3538, bipartisan legislation to impose bank regulation on non-bank parent companies of insured depository institutions.

DOJ Targets Fraudulent Microtransactions

Cracking down on unauthorized bank account charges, the DOJ today announced multiple actions against “sham” companies alleged to have used misrepresentations or unauthorized charges to steal money from consumers’ financial accounts.

CRS Warns Credit Card Act Could Result In Risky Retailer Payment Networks

The CRS this week issued a report analyzing the Durbin-Marshall Credit Card Competition Act, S.1838 (see FSM Report INTERCHANGE10), projecting that fee caps will have a greater impact on transaction fees than competition, with …

20 11, 2023

DEPOSITINSURANCE122

2023-11-21T10:40:15-05:00November 20th, 2023|1- Financial Services Management|

DIF Special Assessment

As the law requires and the FDIC Chairman promised after SVB and Signature Bank were declared systemic, the FDIC has finalized its proposed approach to imposing a systemic assessment to reimburse the Deposit Insurance Fund (DIF) for the resolution costs related to uninsured deposits following a systemic designation. The FDIC will do so via an assessment covering IDIs with uninsured-deposit holdings above $5 billion that have assets over $5 billion. This exempts most smaller banks, with the FDIC adopting this approach on grounds that it justly penalizes large IDIs it believes benefited the most from these systemic rescues.

DEPOSITINSURENCE122.pdf

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