#liquidity – Page 2 – Federal Financial Analytics

16 02, 2024

Al021924

Shane Smith2024-02-16T15:54:42-05:00February 16th, 2024|3- This Week|

Bagehot’s Legacy

HFSC Financial Institutions Chair Barr (R-KY) last week invoked the patron saint of central banks, Walter Bagehot, reminding his hearing (see Client Report LIQUIDITY34) that central banks are to use their lender-of-last-resort powers only for solvent banks and then only at a premium. To do other, Bagehot said and Mr. Barr repeated, is to encourage moral hazard, the sin the chair went on to attribute to the modern-day Federal Reserve. He also floated legislation to curb the Fed’s 13(3) emergency-liquidity powers, legislation on which he will have a surprising ally, Sen. Elizabeth Warren (D-MA). She is a long-time advocate of tougher restrictions on Fed emergency liquidity (see FSM Report FEDERALRESERVE21). Still, we think the odds of legislation in this Congress are small, with Congress, the agencies, and banks sure instead to focus on what will be demanded of them in terms of discount-window readiness, FedWire resilience, FHLB access, and additional liquidity. Vice Chair Barr is less enthusiastic than Acting Comptroller Hsu about new liquidity standards, but much is afoot and thus so are we. More to come…

Al021924.pdf…

14 02, 2024

DAILY021424

Eliza Allen2024-02-14T17:29:47-05:00February 14th, 2024|2- Daily Briefing|

Global Regulators Propose Ways to Limit Variation-Margining Stress

As promised, CPMI and IOSCO have issued a discussion paper on CCP and clearing-member variation-margin practices. The global agencies propose eight principles to enhance the likelihood that margins will be covered in stress situations, a continuing challenge based on a recent IMF paper finding that up to a third of EU active-derivatives users would not be able to meet variation-margin calls under stress and would thus turn to liquidating MMF shares or other assets in a manner likely to amplify market stress.

HFSC Deploys Power of the Purse to Pressure FinCEN

As anticipated, today’s HFSC hearing with Treasury and FinCEN was highly partisan, with Republicans continuing to blast FinCEN for what they call SAR surveillance and now threatening to block any increased funding for FinCEN until it also improves beneficial-ownership reporting to the GOP’s liking. Rep. Loudermilk (R-GA) also criticized FinCEN for failing to release the statutorily-mandated BSA review and the $10,000 threshold review.

Barr Sees Banking System as Strong, Liquid

In remarks today, FRB Vice Chair Barr emphasized that, despite pockets of risk and CRE worries, the banking system is sound and he sees no liquidity-risk concerns across the financial system. Still, March 2023 taught hard lessons, he said, with banks since taking significant steps to reduce HTM holdings and enhance liquidity resilience.

Daily021424.pdf…

6 02, 2024

DAILY020624

Eliza Allen2024-02-06T16:33:54-05:00February 6th, 2024|2- Daily Briefing|

Agencies Begin Pro Forma Reg Review Likely to Take on New Urgency

The FRB, FDIC, and OCC today released the first of the requisite ten-year request for comment on the extent to which existing rules are outdated or unduly burdensome. We will shortly provide clients with an in-depth analysis of the request if it goes beyond the nominal inquiries in the past that led to little meaningful regulatory reform.

Senate GOP Turns to FHFA, FHLB on “Woke” Standards

Criticizing what they call the FHFA’s and FHLBs “politically contentious social agendas,” Senate Banking Republicans Hagerty (R-TN), Tillis (R-NC), Britt (R-AL), and Vance (R-OH) sent a letter to FHFA Director Thompson late yesterday arguing that several FHLB pilot programs are “racially discriminatory” and defy congressional intent. They also argue that the pilot programs highlight a potential gap in FHFA oversight because the final rule governing Fannie and Freddie pilot programs does not also apply to the FHLBs.

SEC Finalizes Contentious Treasury-Market Registration Standards

The SEC today voted 3-2 to approve a revised version of an earlier proposal subjecting certain hedge funds and other Treasury-market participants to registration and SRO regulation, thus reducing their competitive advantages vis-à-vis banks in the secondary-dealer arena. The new approach uses a qualitative test based on the extent to which a covered entity acts as a market-maker as well as Treasury investor.

Daily020624.pdf…

5 02, 2024

DAILY020524

Eliza Allen2024-02-05T16:54:06-05:00February 5th, 2024|2- Daily Briefing|

Bowman Opposes Tech Self-Regulation, Highlights Emerging Risks

In remarks Friday on the future of banking, FRB Gov. Bowman joined Acting Comptroller Hsu in expressing concern over supervisory and governance complacency, especially when it comes to interest-rate and liquidity risk. The speech picks up on Karen Petrou’s memo last week, pointing to the way in which regulators now appear focused principally on new rules, not emerging risks including those from fraud-renewed threats and third-party vendors. Ms. Bowman thus urges greater accountability for banks based on third-party actions not only to enhance risk management, but also to reduce migration risk.

House GOP Expands Attack on Fed Work With Global Bodies

Continuing previous attacks on Federal Reserve Banks and federal banking agencies’ work with global entities, HFSC Chair McHenry (R-NC) and Financial Institutions Subcommittee Chair Barr (R-KY) sent letters today to the San Francisco and New York Reserve Banks disputing what they describe as undue cooperation with the Network for Greening the Financial System (NGFS) and Bank for International Settlements (BIS).

Daily020524.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…

9 01, 2024

DAILY010924

Eliza Allen2024-01-09T16:48:15-05:00January 9th, 2024|2- Daily Briefing|

Bowman Now Tackles Supervisory Transparency

In remarks late yesterday, FRB Gov. Bowman added a new concern: supervisory transparency. She indicated that the Fed’s supervisory expectations have changed to the point at which some state agencies think the Fed goes too far, but banks have no way of anticipating possible supervisory injunctions. As a result, she argues for near-term transparency via public notice-and-comment guidance or rulemaking.

Barr Bows a Bit

Answering questions today, FRB Vice Chair Barr indicated that the BTFP may well close on March 11, emphasizing the importance of adhering to the Fed’s emergency-liquidity mandate. That said, loans will be extended until the one-year anniversary and may remain until 2025. He also outlined a significant compromise on the operational-risk section of the end-game rules (see FSM Report OPSRISK22), more closely aligning the proposal with the Basel standards as our outlook anticipated.

Daily010924.pdf…

20 12, 2023

DAILY122023

Eliza Allen2023-12-20T16:49:55-05:00December 20th, 2023|2- Daily Briefing|

CFPB Small-Business Reporting Reg Remains

In conjunction with his expected veto last night of legislation that would have overturned the CFPB’s small-business reporting rule, President Biden indicated that the Bureau’s rule is central to CRA implementation and would bring transparency to small-business lending.

FSB, IOSCO Try Get-Tough Approach to OEF Illiquidity

As promised, the FSB and IOSCO today finalized recommendations designed to enhance OEF resilience.

HFSC GOP Demands CFPB Nonbank Delay, Clarification

HFSC Chairman McHenry (R-NC) and nineteen Committee Republicans sent a letter to CFPB Director Chopra urging the Bureau to extend by thirty days the comment deadline for its proposal to supervise large nonbank payment providers (see FSM Report PAYMENT27).

FERC Passive-Ownership Inquiry Poses Challenges to Funds, Banks

The Federal Energy Regulatory Commission has opened another avenue scrutinizing the extent to which large asset managers may control the companies in which they invest.

FDIC Approves Significantly Revised Sign, Advertising Standards

The FDIC Board today unanimously approved a final rule modernizing requirements for use of the FDIC’s official sign and clarifying what constitutes misrepresentation and misuse of the FDIC’s name or logo.

Daily122023.pdf…

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…

15 12, 2023

DAILY121523

Eliza Allen2023-12-15T17:31:25-05:00December 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 …

7 12, 2023

DAILY120723

Eliza Allen2023-12-07T16:42:01-05:00December 7th, 2023|2- Daily Briefing|

BIS: CCP Collateral Holdings Pose Systemic Risk

A new BIS study looks at the risk that the transformation of OTC markets to centrally-cleared ones has in turn transformed markets based in part on know-your-counterparty into those dependent principally on collateral backing margin positions – an inherently more fragile market structure.

White House Presses FHLB Affordable-Housing Action

In remarks today, National Economic Advisor Lael Brainard not only highlighted the Biden Administration’s actions to address housing affordability, but also mentioned plans for new financing programs.

Ambitious CFPB Regulatory Plans Come Into View

The CFPB’s fall 2023 regulatory agenda provides status updates for several significant rulemaking items.

Basel to Set IRR, Window-Dressing, Crypto Standards

The Basel Committee’s year-end meeting advanced plans to address interest-rate risk (IRR) with a concrete agreement to issue a new consultation later this month updating current global IRR standards (see FSM Report IRR7).

BIS Points to MMF Risk When Rates Rise

Another new BIS paper concludes that the record size of MMFs poses significant threat to dollar-funding market stability.

OCC Warns Banks of AI Risk, Possible Supervisory Action

Reflecting growing Congressional, regulatory, and industry concerns over AI, today’s OCC semiannual risk assessment for federal banks states that national banks should be mindful of AI risks as these fall under current supervisory procedures.

Senate GOP Goes for Gruenberg’s Jugular

Despite efforts by the FDIC to reassure critics about its independent investigation, Senate Banking Republicans today fired off a ferocious letter demanding that FDIC Chair Gruenberg immediately resign …