#LIBOR – Federal Financial Analytics

18 12, 2023

FSOC29

Eliza Allen2023-12-18T11:36:07-05:00December 18th, 2023|5- Client Report|

FedFin Assessment: FSOC Worries A Lot, Watches, Waits

This year’s FSOC report trods much old ground with two exceptions. The first pertains to a new focus on artificial intelligence, machine learning, and new, generative technologies. That said, the report does little beyond highlight this risk and include it among all the others federal agencies are told to monitor. Private credit now also alarms FSOC, with insurance company investment in this sector of particular systemic concern in concert with the sectors’ CRE and junk-bond exposures, offshore reinsurance, and PE ownership. As detailed in this report, banks are found to be resilient and have ample capital even as the report supports consideration of pending regulatory revisions. Banking agencies are also asked to monitor uninsured-deposit levels and assess run-risk in light of social media and other accelerants. In sharp contrast to more alarmist statements in the past and extensive Treasury reports (see Client Report CRYPTO32), this year’s report downplays cryptoasset risk because federal regulators are said to have taken steps to contain it. The report also reiterates FSOC’s continuing focus on cyber and climate risk, with the closed session preceding the meeting considering a framework being developed by the OCC to measure and monitor financial risks and bank exposures. Agencies are also encouraged to pursue comparable, “decision-useful” climate disclosures. The LIBOR transition is considered a success and no longer poses a systemic risk.

FSOC29.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…

3 07, 2023

DAILY070323

Eliza Allen2023-07-03T16:12:30-04:00July 3rd, 2023|2- Daily Briefing|

UK Targets PE/Private-Credit Interconnections

Although U.S. regulators have begun to talk about inter-connections (see FSM Report SYSTEMIC95), the Bank of England’s top official for international finance today laid out new U.K. policy to address them. Specifically, Nathanaël Benjamin addressed counterparty risk with particular attention to bank private-equity and private-credit exposures. Mr. Benjamin’s concern is principally that, should the U.S. not pull off a soft landing, this sector could experience severe stress that could quickly migrate to asset management.

IOSCO Sticks With SOFR

Acting on concerns often expressed by SEC Chairman Gensler, IOSCO today published its final assessment of USD LIBOR, judging two credit-sensitive alternatives problematic and blessing limited use of certain term SOFRs. The most immediate consequences of this will be to make the Fed still less likely to permit banks to use the limited credit-sensitive exemptions provided in its final alternative-benchmark rule (see FSM Report LIBOR9), with IOSCO emphasizing its point with specific reference to this option by urging only cautious use of these rates and suggesting that regulators (presumably outside the U.S.) review their permissibility.

Daily070323.pdf…

16 06, 2023

Daily061623

Eliza Allen2023-06-16T16:49:58-04:00June 16th, 2023|2- Daily Briefing|

Waller Separates Monetary, Stability Policy

FRB Gov. Waller today defended recent rate hikes against criticism that they undermine financial stability, noting that monetary and stability policy are inter-related but must generally be addressed with different tools.

Brown-Scott Clawback Bill Adds Enforcement Teeth

In his first legislative mark-up since assuming the chairmanship in 2021, Banking Committee Chairman Brown (D-OH) will convene voting next Wednesday on compromise compensation-reform legislation on which he and Ranking Member Scott (R-SC) have agreed.

Hsu Warns of Tokenized-Settlement, AI Risk

Acting Comptroller Hsu’s speech today highlights both the benefits and risks of tokenization and AI, urging parallel development of new technologies and essential controls.

Democrats Try Again To Mandate TILA, CFPB Small-Business Authority

Banking Committee member Sen. Menendez (D-NJ) yesterday introduced legislation (S. 2021) along with Small Business Committee Ranking Member Velazquez (D-NY) (H.R. 4192) to extend TILA protections to small business lending, also giving the CFPB authority in this sector.

Fed Fears Little Systemic Risk

The financial-stability discussion in today’s report from the Federal Reserve ahead of next week’s hearings generally reiterates conclusions from the most recent Fed financial-stability report (see Client Report SYSTEMIC96): banks are generally sound and resilient and, despite MMF worries, most other vulnerabilities are of only moderate systemic concern.

Fed’s Long-Awaited Master-Account Database Goes Live

Conceding to a long-resisted and now statutory demand (see FSM Report PAYMENT25), the Federal Reserve today published the first database detailing who has or seeks access to Reserve Bank master accounts and services.…

26 04, 2023

Daily042623

Arezou Rafikian2023-04-27T10:27:37-04:00April 26th, 2023|2- Daily Briefing|

Senate Banking Housing Plans Focus on Affordability, Access

At today’s Senate Banking hearing on affordable housing, Chairman Brown (D-OH) framed the committee’s legislative agenda in his opening statement but did not indicate any timing or future action.

CFPB Targets Piggyback-Mortgage Collection

The CFPB today issued guidance on debt collection practices it asserts violate the Fair Debt Collection Practices Act by attempting to collect time-barred debt where the statute of limitations has expired.

Comment Deadline Set For Sweeping FHFA Equitable Housing NPR

The Federal Register today includes FHFA’s NPR codifying Sandra Thompson’s equitable- and fair housing agenda in a body of rule that future directors would find more difficult to reverse and FHFA could enforce with more punitive standards.

HFSC GOP Demands FHFA Reverse LLPA Changes

HFSC Chairman McHenry (R-NC) and Rep. Davidson (R-OH) sent a letter to FHFA Director Thompson today demanding that the agency reverse changes to the GSEs loan level pricing adjustments (LLPAs).

LIBOR Transition Still Too Slow, Agencies Say

The Fed, FDIC, NCUA, OCC, and CFPB along with state bank and state credit union regulators today issued a joint statement reminding supervised institutions that USD LIBOR panels will end on June 30.

FDIC, OCC Deploy UDAP Powers for Targeted Deposit Fees

So far without the Fed, the FDIC and OCC today released supervisory guidance asserting that authorize-positive, settle-negative (ASPN) charges are an unfair practice under UDAAP criteria and present consumer compliance risk.

HFSC GOP Leaders Press Banking Agencies on Digital “Chokepoint” Policy

HFSC Chairman McHenry (R-NC) was …

6 02, 2023

DAILY020623

Eliza Allen2023-02-06T16:57:16-05:00February 6th, 2023|2- Daily Briefing|

FRB-NY Confirms Regional-Bank Struggle Following LIBOR Transition

A new Federal Reserve Bank of New York staff study and blog post reaffirms many regional-bank fears about the LIBOR transition not fully allayed by compromise provisions in the Fed’s recent benchmark-setting regulation (see FSM Report LIBOR9). Focusing on the credit-line sector (which is largely unfunded), the paper finds that the likely cost of bank wholesale funding under stress will sharply exceed that earned on corporate-line drawdowns priced to SOFR, with these spreads likely especially wide for regional banks. The paper’s models and data thus lead to the conclusion that the shift to SOFR will decrease line availability.

Barr Prioritizes Privacy, Small-Bank Capital, FSOC Restraints

A new staff memo provides not only the agenda for Wednesday’s House Financial Institutions & Monetary Policy Subcommittee, but also the priorities Chairman Barr (R-KY) will pursue with regard to financial regulation. Key concerns are encouraging fintech, data privacy (a priority issue also for Chairman McHenry), facilitating de novo charters, and holding the banking agencies accountable. Bills on which a record will be established is one yet to be introduced to revise the Gramm-Leach-Bliley Act’s privacy standards to stipulate federal preemption, expand coverage and give consumers rights akin to those now also under consideration by the CFPB for a limited number of banking activities (see FSM Report DATA3).

Daily020623.pdf…

26 01, 2023

DAILY012623

Eliza Allen2023-01-26T16:44:02-05:00January 26th, 2023|2- Daily Briefing|

Effective Date Set for LIBOR Termination

The Federal Register today includes the FRB’s final rule Implementing the Adjustable Interest Rate (LIBOR) Act, setting the rule’s effective date as February 27. As noted (see FSM Report LIBOR9), the final rule settles many LIBOR transition questions in favor of SOFR, leaving numerous complex implementation questions up in the air despite this added certainty.

Fed Study Finds Card Rewards Result in $15 Billion Wealth Transfer

A new Federal Reserve staff study finds that credit-card rewards annually redistribute approximately $15.1 billion a year to more financially-sophisticated consumers. This result is likely to weigh heavily into debate later this year if, as we expect, Sen. Durbin (D-IL) reintroduces legislation to force card-routing alternatives to Visa and Mastercard (see FSM Report INTERCHANGE10).

ISDA Lays Groundwork for Crypto Rules, Law

The self-regulatory body for global derivatives, ISDA, today released a contractual framework for digital-asset derivatives. These are now likely to be widely adopted by major financial institutions but may not resolve legal-ownership issues when cryptoasset entities use intermediaries or other avenues into global capital markets that obscure contractual rights.

Daily012623.pdf…

3 01, 2023

DAILY010323

Eliza Allen2023-01-03T16:56:20-05:00January 3rd, 2023|2- Daily Briefing|

Update re U.S. LIBOR Standards

In case you missed it, we want to alert you to one of FedFin’s time-critical reports that was sent over the holidays: LIBOR9, which details the Fed’s new alternate benchmarks as even harder bargaining over legacy contracts begins early this year. As we note, the final rule is a faithful reiteration of much of what was in the law mandating it (see FSM Report LIBOR7), narrowing the range of disputes over who wins or loses via which benchmark replacement may or may not be contractually authorized.

US Agencies Raise Red Flag Before Crypto Exposures

Starting the New Year off with a crypto bang, the federal banking agencies today issued a very cautionary statement reiterating and broadening the risks attendant to crypto activities and the care banks need to take conducting them. The statement also promises additional action, which we think very likely to include U.S. versions of the stringent new Basel standards. We will shortly send clients our in-depth analyses of this global policy which now erects a strong firewall between banking organizations and all but the most carefully-structured, regulated cryptoasset exposures or activities.

Daily010323.pdf…

28 12, 2022

LIBOR9

Arezou Rafikian2023-01-03T14:18:55-05:00December 28th, 2022|1- Financial Services Management|

Legacy-Contract LIBOR Replacement Benchmarks

Shortly before its statutory year-end deadline, the Federal Reserve finalized its proposal defining legacy-contract benchmarks when there is no clear, practicable contractual fallback rate.

LIBOR9.pdf…

19 12, 2022

FedFin on: FSOC Targets Usual Suspects but Also Points to Big-BHC, Nonbank Mortgage Systemic Risk

Arezou Rafikian2023-01-03T15:56:33-05:00December 19th, 2022|The Vault|

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….

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