#LCR – Federal Financial Analytics

16 04, 2024

DAILY041624

Eliza Allen2024-04-16T17:10:39-04:00April 16th, 2024|2- Daily Briefing|

House GOP Takes on New Merger Guidelines

The House Small Business Committee today sent a GOP letter to the FTC and Justice Department strongly protesting new merger guidelines (see FSM Report MERGER13) on grounds that they sharply curtail needed small-business capital.

House Hikes Iran Sanctions

Working through a series of sanctions bills in the wake of recent geopolitical developments, the House yesterday voted 294-105 to advance H.R. 5921, a bill introduced by Rep. Huizenga (R-MI) that prohibits Treasury from authorizing transactions by U.S. financial institutions in connection with Iranian imports or exports other than food, medicine, and other humanitarian assistance.

House Passes Bill Targeting China-Iran Petroleum Trade

Continuing its response to recent geopolitical events, the House yesterday voted by a 383-11 margin to pass H.R. 5923, a bill from Reps. Lawler (R-NY) and Gottheimer (D-NJ) that would require the President to periodically determine if any Chinese financial institutions have purchased petroleum or petroleum products from Iran, stating that U.S. financial institutions also may not open or maintain certain accounts with Chinese institutions that have done so.

Warren Again Targets OCC Merger Decisions

Continuing recent attacks on the OCC’s approach to mergers, Sens. Warren (D-MA) and Blumenthal (D-CT) yesterday sent a letter to Acting Comptroller Hsu sharply criticizing the agency’s decision first to allow NYCB to acquire Flagstar bank and then do the same shortly thereafter for Signature.

OCC Toughens LCR, NSFR via New Reporting Requirements

The OCC today sought public comment as required by law for …

2 04, 2024

DAILY040224

Eliza Allen2024-04-03T11:33:54-04:00April 2nd, 2024|2- Daily Briefing|

Bowman Attacks “Regulation by Application”

FRB Governor Bowman today expressed concerns about the regulatory agencies’ evolving approach to M&A, stating that pending reforms may exacerbate existing procedural problems such as long delays and regulatory uncertainty that may undermine the viability of banks.

OFR Examines Stress-Event LCR

The OFR today published a brief examining the performance of components of the LCR on U.S. GSIBs in response to the COVID-19 shock.

FRB-PHL: Majority of Consumers Receptive to CBDC

The Federal Reserve Bank of Philadelphia today released a report on CBDCs, finding that a majority of consumers were generally receptive to a U.S. CBDC despite obstacles to widespread CBDC consumer adoption.

Daily040224.pdf…

22 01, 2024

DAILY012224

Eliza Allen2024-01-22T16:57:16-05:00January 22nd, 2024|2- Daily Briefing|

FRB Reconsiders Interchange-Fee Cuts

Bowing to critics in the banking industry and on the Board, the Federal Reserve today extended the comment period on its debit-card interchange fee proposal (see FSM report INTERCHANGE12) by a surprisingly-long ninety days to May 12. The extension is in part due to the Board’s decision to publish additional interchange fee cap data which may have persuaded the Board that the initial data analysis supporting a mandatory pricing reduction was incorrect.

OIG Finds Reserve-Bank Trades Legal, But Problematic

The Federal Reserve’s Office of the Inspector General (OIG) today released long-awaited reviews of personal trades by former Dallas and Boston Reserve Bank Presidents two years ago that raised numerous and often vociferous assertions of conflicts of interest. Indeed, Sen. Warren (D-MA) stated that she believed these epitomized a “culture of corruption” at the Fed, introducing bipartisan legislation to force considerably more transparency at the Reserve Banks.

FSB Plans Global Run-Risk Buffers

The head of the Financial Stability Board, Secretary General John Schindler, today briefed media on the global regulator’s plans to brief the G20 in October about viral-run risk and the standards needed to avert it. Mr. Schindler said little about what the FSB is likely to propose although the Basel Committee is now considering rewrites to global LCR and NSFR standards likely to be reflected in the FSB’s recommendations.

Daily012224.pdf…

18 01, 2024

DAILY011824

Eliza Allen2024-01-18T16:58:16-05:00January 18th, 2024|2- Daily Briefing|

Basel Head Backs U.S. End-Game

In an FT interview today, the Basel Committee’s chair, Pablo Hernández de Cos, unsurprisingly endorsed the U.S. end-game proposal, indirectly but firmly rebutting assertions that it is at variance with global norms.

The Shape of Liquidity Rules to Come

Previewing the construct of what may soon be the anticipated inter-agency proposal addressing liquidity-risk lessons-learned, Acting Comptroller Hsu today argued that the liquidity coverage ratio’s treatment of retail depositors (see FSM Report LIQUIDITY17) does not address likely depositor herding as they run for the exit.

Rounds, Sinema Press for SIFI-Designation Rollback

Senate Banking Committee Member Rounds (R-SD) alongside Sen. Sinema (I-AZ) introduced S.3601, legislation to codify 2019 standards (see FSM report SIFI35) adding significantly more obstacles to systemic designation compared to FSOC’s new approach (see FSM report SIFI36).

Steele’s Good-Bye Presses for More Tough Standards

In his last speech in office, Assistant Secretary for Financial Institutions Graham Steele today called for reassessment of the treatment of unrealized gains or losses not just under the capital rules, but also in the liquidity standards (where they are in fact to some degree now captured).

House Democrats Damn Capital Proposal With Faint Praise

In this report, we begin our assessment of Congressional end-game comment letters.

Senate Letters Slam Capital Proposal’s Tax-Equity Risk Weight Changes

Here, we turn to several Senate letters on the end-game proposal.

Daily011824.pdf…

1 12, 2023

DAILY120123

Eliza Allen2023-12-01T16:39:15-05:00December 1st, 2023|2- Daily Briefing|

Barr Outlines Rationale for LCR, NSFR Rewrite

FRB Vice Chair Barr today reiterated his views that banks must be much better prepared to use the Fed discount-window, this time emphasizing that operational readiness entails regular testing of actual transactions at regular intervals as well as robust collateral pre-positioning.

Reed Presses Synthetic-Securitization Controls

Following his comments at recent hearings (see Client Report REFORM229), Sen. Reed (D-RI) late yesterday sent a letter to FRB Vice Chair Barr, FDIC Chair Gruenberg, and Acting Comptroller Hsu urging them to evaluate CRT transaction risk on financial stability grounds and, should they find an uptick in synthetic securitizations, request public comment on possible remedies to the risks Sen. Reed identifies.

Pending Veto, House Votes Against CFPB

As anticipated (see Client Report CONSUMER53), the House today voted 221 to 202 to authorize Congressional Review Act withdrawal of the CFPB’s small business reporting rule.

OCC Readies Research for Liquidity-Reg Rewrite

Likely readying itself for the raft of new liquidity proposals presaged in Michael Barr’s talk earlier today, the OCC today issued a call for papers on depositor behavior, bank liquidity, and run risk.

Daily120123.pdf…

6 10, 2023

FedFin Assessment: Basel Lays Big Plans for Basel V

Arezou Rafikian2023-10-06T14:47:18-04:00October 6th, 2023|The Vault|

As we noted yesterday, the Basel Committee’s October meeting concluded not only with plans for new disclosure consultations, but also a report on lessons learned from the 2023 crisis. We have long considered the “end-game” standards so substantive as to constitute Basel IV; now, as this report details, Basel is laying plans for Basel V via new liquidity, interest-rate, capital, and structural changes to the current construct. We thus focus on the supervisory and regulatory action steps Basel posits as necessary responses to the financial-market volatility sparked earlier this year by SVB, SBNY, FRC, and CS’s failures. While Basel states that none of its recommendations necessarily presages near-term global standards, …

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

6 10, 2023

REFORM228

Eliza Allen2023-10-06T11:45:12-04:00October 6th, 2023|5- Client Report|

FedFin Assessment: Basel Lays Big Plans for Basel V

As we noted yesterday, the Basel Committee’s October meeting concluded not only with plans for new disclosure consultations, but also a report on lessons learned from the 2023 crisis. We have long considered the “end-game” standards so substantive as to constitute Basel IV; now, as this report details, Basel is laying plans for Basel V via new liquidity, interest-rate, capital, and structural changes to the current construct. We thus focus on the supervisory and regulatory action steps Basel posits as necessary responses to the financial-market volatility sparked earlier this year by SVB, SBNY, FRC, and CS’s failures. While Basel states that none of its recommendations necessarily presages near-term global standards, they warrant review not only as likely precursors to at least some new proposals, but also as guides to what is top of mind for national regulators beyond finalizing end-game capital rules and dealing with home-country matters such as resolvability. If Basel proposes only some of the regulatory revisions it has in mind or, as the Fed clearly intends, the U.S. does so ahead of time, larger banks will face significant revisions to the LCR and NSFR, capital add-ons for interest-rate outliers, and express ring-fencing to prevent a CS repeat – i.e., a case in which the parent company met applicable standards but key subsidiaries fell far short.

REFORM228.pdf…

26 09, 2023

DAILY092623

Eliza Allen2023-09-26T16:36:09-04:00September 26th, 2023|2- Daily Briefing|

BIS Analysis Blasts Lax Capital Regs, But We See Study Flaws

A new BIS paper uses confidential data to defend tough regulatory capital charges because bank internal measures of expected loss (EL) are “excessively optimistic.” However, this critique in our view is applicable only to internal models. It might be said that standardized-approach charges are also unduly optimistic if based on EL, but the entire Basel construct is intended to cover only EL, with loan-loss reserves, capital-conservation-buffers, the leverage ratio, and stress tests supposed to do the rest.

Basel Sees Large Bank Capital Improvements, Slight Liquidity Reductions

The Basel Committee today released the results of its monitoring exercise for the second half of 2022, finding that the largest banks’ capital ratios increased above pre-pandemic levels while liquidity coverage ratios declined. Under the fully phased-in Basel III framework, the average common equity tier 1 capital ratio increased from 12.5% to 12.7% for Group 1 banks from the first half of 2022 to the end of the year. Group 1 banks also reported regulatory capital shortfalls of $3.42 billion under this framework as of December 31, 2022, all of which was GSIB Tier II capital.

Daily092623.pdf…

21 09, 2023

DAILY092123

Eliza Allen2023-09-21T16:52:36-04:00September 21st, 2023|2- Daily Briefing|

Hill Stands by Opposition to Pending Rules, Presses for Holistic Liquidity Approach

Reflecting his votes on all of the recent proposals, FDIC Vice Chairman Hill today criticized recent rulemakings as an overreaction to March bank failures and urged regulators to carefully consider the proposals’ aggregate effects amid uncertain economic conditions. Although he reiterated his general support for the LTD proposal (see FSM Report TLAC9), Mr. Hill argued that the FDIC should focus more on regional bank resolvability via a weekend sale. He also pushed for a more holistic approach to liquidity requirements, arguing that they should be more durable for a wider range of stress events and better reflect bank behavior in times of stress.

Daily092123.pdf…

28 07, 2023

DAILY072823

Eliza Allen2023-07-28T17:09:55-04:00July 28th, 2023|2- Daily Briefing|

FSOC Considers Nonbank Systemic Risk, Credit-Based LIBOR Replacements

At today’s FSOC meeting, participants as usual said nothing about the closed-door agenda, which notably featured more discussion of the systemic risk that may be posed by nonbank mortgage servicers. Different agencies presented their work to address this risk, which was also flagged when FSOC finalized its new approach to identifying systemic risk (see FSM Report SYSTEMIC95). Whether FSOC as a whole is satisfied with FHFA and Ginnie actions and even if these agencies think their work to date suffices will determine the extent to which FSOC intervenes, but the session reinforced the systemic importance accorded to nonbank mortgage firms and the potential for additional action.

Agencies Take Action to Enhance Emergency Liquidity, Whitewash Discount Window

As presaged at Chair Powell’s press conference earlier this week, the banking agencies today issued liquidity-planning guidance designed both to ensure adequate preparation for acute liquidity stress and take the stigma off discount-window draws. The guidance deals only with liquidity planning and thus does not alter the treatment of discount-window funding for purposes of the LCR, admonishing banks to take account of the hard lessons of the March bank failures and prepare for runs and other extreme-stress scenarios.

Daily072823.pdf…