#leverage

11 10, 2023

DAILY101123

2023-10-11T16:47:36-04:00October 11th, 2023|2- Daily Briefing|

Bowman Targets U.S. Leverage Ratio, NBFIs

In remarks during the Morocco IMF/Bank meeting today, FRB Gov. Bowman contrasted U.S. bank resilience with the IMF’s findings yesterday on potential vulnerabilities as rates rise and macroeconomic conditions soften.

FSB Reiterates Stability Concerns

The FSB’s latest work plan reiterates all it most recently said to the G20.

CFPB Barrels Down on “Basic” Banking Fees

In conjunction with a new White-House junk-fee initiative, the CFPB today issued “guidance” – i.e., essentially a final rule – banning large banks and credit unions from collecting “unreasonable” fees for what the Bureau considers reasonable and “basic” account information.

SEC Throws Wrench into TLAC Standards

As we noted yesterday, the FSB’s assessment of the global resolution framework’s effectiveness found significant glitches it urges national regulators quickly to address via standards such as those now pending in the U.S. to bring smaller banking organizations into the resolution-planning regime (see FSM Report LIVINGWILL23).

OFR Study: Short-Selling Does Not Harm Financial Stability

OFR today released a model-based study that finds no evidence that short-selling adversely affects financial stability.

Daily101123.pdf

29 09, 2023

DAILY092923

2023-09-29T16:49:25-04:00September 29th, 2023|2- Daily Briefing|

FSB Head Signals Limits on – Not Just Look at – NBFI Leverage

As the FSOC finalizes a new U.S. systemic framework, FSB chair Klaas Knot today told the FT that the Board along with international standard-setters is conducting a review of nonbank leverage in an effort to improve bank-NBFI interconnections and ultimately limit nonbank borrowing.  The express focus on specific leverage constraints goes beyond the FSB’s more general statements to date.  Mr. Knot also highlighted imposing tougher collateral requirements for investment fund borrowing against higher-risk securities.

OIG: FDIC Inability to Deploy OLA Acute, Could Hike Systemic Risk

The FDIC’s OIG today released a polite, but still withering criticism of the FDIC’s inability to use OLA over a decade after Dodd-Frank gave it sweeping powers to address systemic-risk resolutions without resorting to bailouts.  Specifically, the OIG found that, while the FDIC has made some progress readying OLA-readiness since 2010, it failed to establish key elements needed to use this authority under stress, especially if this stress occurred in an entity other than a U.S. GSIB holding company.  However, the FDIC is not operationally ready to resolve a GSIB HC under OLA, nor does it have policies, procedures, or the operational capacity to do so for other entities or in scenarios where multiple systemic-risk failures are possible.

Daily092923.pdf

15 09, 2023

DAILY091523

2023-09-15T16:55:06-04:00September 15th, 2023|2- Daily Briefing|

Warren Adds Interest-Rate Risk to Fed Concerns

Heightening her attack on Fed interest-rate hikes, Sen. Warren (D-MA) yesterday pressed Treasury Secretary Yellen for FSOC action addressing interest-rate risks.  Those she highlights include unrealized bond losses, CRE hazard, and challenges in the leveraged-loan market.  Citing Moody’s recent credit downgrade of 10 regional banks, Ms. Warren voiced concern that interest rate risk still poses a systemic threat in these three areas and urged FSOC to act quickly to mitigate risk without suggesting specific actions.

Daily091523.pdf

14 09, 2023

DAILY091423

2023-09-14T16:47:09-04:00September 14th, 2023|2- Daily Briefing|

IOSCO Proposes Leveraged Loan, CLO Best Practices

IOSCO today released a consultation report proposing best practices for leveraged loans and CLOs that address origination and refinancing, EBITDA and documentation transparency, aligning interests from loan origination to end investors, managing conflicts of interest throughout the intermediation chain, and disclosures.

Durbin, Marshall Press Credit-Card Interchange Bill

Reiterating concerns expressed last month and comments yesterday on the Senate floor, Senate Whip and Judiciary Chairman Durbin (D-IL) and Sen. Marshall (R-KS) were joined this time by Sen. Welch (D-VT) and four House Members calling on Visa and Mastercard to reverse planned fee hikes.

GAO Presses for FSOC Power to Regulate, Not Just Designate

The GAO today issued a report recommending that Congress consider legislation allowing FSOC to compel regulatory action, arguing that this would better accomplish the Council’s mission because FSOC currently has limited power to respond to systemic risk.

HFSC GOP Highlight CBDC Privacy Concerns

As anticipated, HFSC Digital Assets GOP Members continued their staunch opposition to a U.S. CBDC, with Subcommittee Chairman Hill (R-AR) and Majority Whip Emmer (R-MN) asserting that private innovation can modernize payments without the risk of government surveillance.

Brown Doubles Down on Opposition to House Crypto Bill

Making it still more clear that he is not supportive of pending House cryptoasset legislation, Senate Banking Chairman Brown (D-OH) today sent a letter to Treasury Secretary Yellen, SEC Chairman Gensler, and CFTC Chairman Benham asking for views on where new authority may be needed.

Daily091423.pdf

6 09, 2023

Daily090623

2023-09-07T09:07:08-04:00September 6th, 2023|2- Daily Briefing|

FSB Focuses on NBFI Liquidity, Leverage with Few Concrete Actions

Following its report recommending resolution-policy review, the FSB today continued its G20 reports with two focusing on NBFIs.  The most substantive of these addresses sector liquidity.  Recommendations here include adoption of pending OEF standards, continuing review of margining and work to determine if NBFI systemic-risk standards are warranted.

Fed Study: Big Bank Branches May Better Serve Customers

Fed staff have issued a report suggesting that new large bank branches tend to grow faster than new ones at small banks because large bank branches are favored by customers seeking lower prices or greater value.

IMF Outlines Post-SVB Supervision Standards

In an opaque but nonetheless stinging rebuke to U.S. bank supervision, the IMF today released a working paper emphasizing the importance of supervisors having the will and ability to act on effective supervision, recommending that supervisors are given strong operational independence and accountability, clarity regarding the primacy of their safety-and-soundness mandate, adequate resources, and legal protection.

Daily090623.pdf

29 08, 2023

DAILY082923

2023-08-29T16:55:20-04:00August 29th, 2023|2- Daily Briefing|

Agencies Advance Controversial Long-Term Debt, Resolution Proposals

The FDIC, OCC, and FRB today tackled several critical resolution issues in the wake of recent bank failures, proposals that raise strong objections from regional banks despite FDIC and FRB unanimity today on at least one of them.  As anticipated, the FDIC and FRB approved an NPR that would impose minimum long-term debt requirements for banks and BHCs with assets over $100 billion, with the FDIC and Fed boards voting unanimously in favor even as FRB Gov. Bowman strongly dissented despite a three-year transition period.  Similar to the ANPR floating this rule (see FSM Report RESOLVE48), the proposal would require large banks to hold a minimum amount of eligible long-term debt equal to the greater of six percent of risk weighted assets, 3.5% of average total consolidated assets, or 2.5% of total leverage exposure for banks subject to the SLR.

Daily082923.pdf

26 07, 2023

CAPITAL229

2023-07-26T14:30:18-04:00July 26th, 2023|5- Client Report|

FedFin Assessment: What to Watch in the Regulatory-Capital Rewrite

As promised, we plan in-depth coverage of the Fed and FDIC meetings tomorrow as well as of the capital rewrites they are set to propose no matter all the warning shots from Congressional Republicans.  In this report, we provide an overview of each of the rules the agencies will propose based on key issues in the Basel end-game standards they will finally advance.  We do not focus on details or how the U.S. may adapt these rules except where public releases have provided advance insight.  Instead, we highlight key issues to provide vital background and context of tomorrow’s actions as well as key decision points on which comment and political advocacy are sure to center.

CAPITAL229.pdf

25 07, 2023

DAILY072523

2023-07-25T17:18:26-04:00July 25th, 2023|2- Daily Briefing|

Key Democrat Takes On Fed Rate Hikes

Ahead of today’s FOMC meeting, Joint Economic Committee Chair Heinrich (D-NV) yesterday sent a letter to Fed Chair Powell cautioning against additional policy tightening.

Second HFSC Markup Targets Stablecoins, Regulatory Restrictions, ESG

Thursday’s HFSC has now added another day to its mark-up calendar this week, moving the stablecoin and ESG bills to Thursday doubtless in order to avoid an endurance contest before the August recess and still meet Chairman McHenry’s (R-NC) commitments.

Senate GOP Tries to Block Capital Rewrite

Just days before the banking agencies take up new capital rules, Senate Banking Ranking Member Scott (R-SC) and ten other committee Republicans sent a letter to Chairman Powell demanding greater transparency and prior consultation.

Waters Presses FHFA for FHLB Reform

Following FHFA listening sessions and in anticipation of a final report this September on the FHLB system, HFSC Ranking Member Waters (D-CA) late yesterday sent a letter to FHFA Director Thompson laying out a series of recommendations to significantly reform the system.

Ag Committees Slam SEC Custody Proposal

In a letter to SEC Chairman Gensler released today, Senate Agriculture Committee Ranking Member Boozman (R-AR) and Chairwoman Stabenow (D-MI) along with House Ag. Committee Chairman Thompson (R-PA) and Ranking Member Scott (D-GA) raised strong objections to what they called serious flaws in the SEC’s proposed custody rule (see FSM Report CUSTODY5).

Warren, Scott Renew Fed-Ethics Campaign

Continuing their bipartisan campaign against the Fed, Sens. Warren (D-MA) and Scott (R-FL) yesterday sent a letter

30 09, 2021

GSE-093021a

2023-07-31T15:48:19-04:00September 30th, 2021|4- GSE Activity Report|

Crazy for CRT

Now that we have FHFA’s comment deadline – November 26 – we expand our initial analysis of FHFA’s capital rewrite into a more detailed assessment of its strategic impact.  How key industry sectors view this new approach will very much depend on what each sector wants – those who want CRT got almost all they desired while those who want bank capital parity lost still more ground to Fannie and Freddie.  Assuming the final rule advances ASAP along proposed lines – and we think it will – and combined with the liberalized PSPA, CRTs will define mortgage securitization across anything close to a conventional conforming loan and all the higher-risk products the GSEs can purchase again.

GSE-093021a.pdf

27 09, 2021

Daily092721

2023-07-31T16:11:17-04:00September 27th, 2021|2- Daily Briefing|

FRB-NY Climate Stress Test Reveals Large Capital Shortfalls
A new Federal Reserve Bank of New York paper proposes a climate stress-test methodology which, when deployed, finds significant systemic risk due to large bank capital shortfalls during periods of sharp transition risk.

Timeline Set for GSE Capital Rewrite
The Federal Register today includes FHFA’s proposed changes to the GSEs capital framework. As detailed in our in-depth report, the rule would actively promote CRT and rewrite the leverage ratio, making risk-based capital the GSEs’ binding constraint.

Gensler Ramps Predictive-Analytics Threat Up to Systemic Risk
Following his Senate Banking appearance earlier this month (see Client Report INVESTOR18), SEC Chairman Gensler today reiterated his focus on digital engagement practices (DEPs), warning that predictive data analytics could increase systemic risk due to increased data- source concentration, herding, and interconnectedness.

McHenry Attacks Treasury for “Social Agenda,” Warns of Chinese Threat
Ahead of Treasury Secretary Yellen’s appearance before HFSC this Thursday, Ranking Member McHenry (R-PA) blasted Biden administration financial policy on grounds that it advantages China at cost to U.S. national interest.

Daily092721.pdf

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