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16 11, 2022

DAILY111622

2022-11-16T17:14:29-05:00November 16th, 2022|2- Daily Briefing|

Treasury Calls for Tough Fintech and Bank-Partnership Protection, Prudential Standards

Treasury has completed a long-pending study of the extent to which nonbank fintechs compete with banks and how this affects financial stability and consumer protection.  We will shortly provide clients with an in-depth analysis of this report, for which Karen Petrou was extensively interviewed as now noted publicly in the appendix.  The report was ordered by the Secretary in compliance with President Biden’s competition order (see Client Report MERGER6), finding that nonbank fintechs directly compete with banks and thus may reduce current concentration levels, sure to influence the inter-agency bank-merger policy that remains to be finalized.

Williams Presses for NBFI Standards

In remarks today, FRB-NY President John Williams said that the central bank should not adjust monetary policy to address the price-stability challenges of volatile Treasury markets and that financial-stability questions have generally been well-addressed as evident in the sound U.S. banking system.  Noting recent findings in the latest staff report (see Client Report TMARKET3), Mr. Williams also called for structural changes to NBFIs along lines also laid out by the FSB (see Client Report NBFI2), arguing that MMFs and other NBFIs must be a market source of strength, not of vulnerability requiring rescue beyond the Fed’s new standing facility.

G20 Blesses FSB, Basel Work Plans

In addition to top-priority concerns such as Ukraine, the G-20 Leader’s Declaration today tackled the usual financial-policy agenda, supporting the FSB’s recent NBFI report (see Client

8 11, 2022

DAILY110822

2022-11-08T16:54:50-05:00November 8th, 2022|2- Daily Briefing|

EU Council Eases Basel End-Game Rules

Ahead of U.S. action on what is now being called the Basel “end-game,” the Council of the European Union today announced a set of compromises and delays to finalize the standard.  The output floors (see FSM Report CAPITAL220) will apply at both the parent banking group and subsidiary banks, but EU banks will have the discretion to consolidate capital at the highest parent level in each EU nation.  The Council release provides no details, indicating only “technical improvements” were made to the Basel credit-, market-, and operational- risk standards and small banks now have unspecified breaks, including with regard to disclosure.

BIS: CBDC Could Boost Deposit Rates, Small Banks

A new BIS staff paper differentiates its analysis of CBDC’s monetary-policy transmission impact by distinguishing between the extent to which large and small U.S. banks respond to different rates paid in interest on reserves (IOR).  Large banks are found to be unresponsive to IOR changes, making CBDC necessary to force them to increase rates on deposits via the competition channel rather than a traditional monetary-policy tool.  To the extent this reasoning takes hold, it could prove potent with Democrats who not only often favor CBDC, but are also increasingly angry about what they see as large-bank failures to raise deposit rates in lock-step with Fed hikes.

Daily110822.pdf

2 11, 2022

DAILY110222

2022-11-02T16:14:20-04:00November 2nd, 2022|2- Daily Briefing|

SEC Turns to Swing Pricing, Structural OEF Redesign

As anticipated, the SEC today voted 3-2 to advance swing pricing and other structural changes to open-end funds (OEFs).  Key to this proposal is to the Commission’s controversial MMF draft (see FSM Report MMF19) is swing pricing, with Chairman Gensler laying out how he believes swing pricing would end first-mover advantage and thus improve fund stability.  The proposal also imposes stiff new liquidity standards, with Commissioner Uyeda dissenting from this and the rest of the proposal on grounds that only bank-loan funds have proven to be demonstrably illiquid under stress.

BIS Announces DeFi Foreign Exchange Pilot for CBDCs

Continuing its CBDC pilots, the BIS today announced the launch of Project Mariana, a system seeking to use DeFi protocols to automate CBDC foreign-exchange settlements.  Project Mariana will operate in Switzerland, France, and Singapore, exchanging wholesale CBDCs.  The BIS is interested in exploring the application and design of automated market markers in wholesale CBDC exchanges, the effectiveness of a supra-regional network for cross-border settlement, and potential governance models of wholesale CBDCs.

Daily110222.pdf

25 10, 2022

DAILY102522

2022-10-25T17:08:46-04:00October 25th, 2022|2- Daily Briefing|

Setting Stage for US Action, UK Regulators Target Bigtech Consumer-Finance Market Power

Focusing principally on competition, the UK’s Financial Conduct Authority (FCA) today released a discussion paper investigating bigtech’s entry into payments, deposit, consumer-credit, and insurance.

With Yellen Backing, SEC Central-Clearing NPR Advances

The Federal Register today includes the SEC’s proposal requiring that market clearinghouses submit certain secondary-market transactions for clearing along with the small percentage now already centrally-cleared.

FDIC Reports Significant Financial Inclusion Progress

Showing significant improvements in financial inclusion, the FDIC today released its biennial under- and unbanked household survey.

CFPB to Require Almost-Open Banking

At long last and as recently promised, the CFPB later this week will start a rulemaking process that would ultimately require financial institutions to share personal data with a consumer upon his or her request.

Democrats Get Ready To Blame The Fed

Continuing progressive critiques of the FOMC’s anti-inflation fight, Senate Banking Chairman Brown (D-OH) has written to FRB Chairman Powell sharply protesting current Fed policy.

Daily102522.pdf

20 10, 2022

DAILY102022

2022-10-20T17:36:06-04:00October 20th, 2022|2- Daily Briefing|

Fed Staff Study: Climate Risk-Based Capital Impossible for Foreseeable Future

FRB staff released a stylized study of one critical climate-risk policy question:  the extent to which banks should hold capital against it.  Members of Congress have suggested this over recent years (see FSM Report GREEN9) and the BIS at the outset of its thinking recommended both “brown-penalty” and “green-incentive” capital charges (see Client Report GREEN).

FSB Presses for MMF, Open-End Rules; Government-Bond CCPs

Continuing its NBFI focus (see Client Report NBFI), the FSB today issued new recommendations to address government-security market illiquidity.

Gruenberg Gives No Clue as to Timing, Content of Inter-Agency Crypto Guidance

In remarks today, Acting Chairman Gruenberg reiterated the risks laid out in the FSOC digital asset report (see Client Report CRYPTO33), repeated warnings against misrepresenting FDIC deposit insurance, and announced forthcoming interagency crypto guidance without providing any details or timeline.

Bipartisan Senators Press Secondary Sanctions for Enactment

Sens. Toomey (R-PA) and Van Hollen (D-MD) released a readout of a conversation with the Ukrainian Ambassador on the upcoming G7 Russian oil price cap, positioning their oil sanctions amendment for inclusion in the National Defense Authorization Act (NDAA) in light of the Ambassador’s support for it.

Warren Calls for Stronger, More Transparent CFPB Remittance Rule

Joined by four Senate Democrats, Sen. Warren (D-MA) today sent a letter to CFPB Director Chopra asking that the agency strengthen its remittance rule to ensure greater transparency for exchange rates and fees it …

3 10, 2022

Karen Petrou: As Markets Thunder, FSOC Snores

2022-10-03T10:00:54-04:00October 3rd, 2022|The Vault|

Later today, the FSOC will open its sanctum for what promises to be a brief session of largely political theatrics. One can only hope that the rarefied air of the Council’s closed-door meeting elevates actual action addressing growing signs of financial instability. Sadly, FSOC’s record of timely intervention ahead of any systemic event since its creation – and I count at least four – is dismal as are the Fed’s see-no-evil financial stability reports. As of this writing, the U.S. is on the precipice of another “dash for cash” and no one – not the bond market, mutual funds, MMFs, investors – has any sandbags at the ready beyond faith that the Fed will bail them all out all over again. Loose lips sink financial systems, but lips that are zipped only because they have nothing useful to say do the same and then some.

As each FSOC annual and Fed financial-stability report makes clear, these guardians of stability quickly spotted “shadow-banking” risks that deeply worried them after the 2008 debacle. Still neither did much about them beyond pointing fingers even as flares streaked across the market warning of looming systemic shocks. As we predicted as early as 2011, asymmetric systemic regulation accelerates systemic-risk migration from regulated institutions with established contingency plans and central-bank backstops to entities largely or even entirely outside the regulatory perimeter on which financial stability has comes almost entirely to depend. This is a classic “money-for-nothing” set-up in which entities operate at increased profitability thanks to …

3 10, 2022

M100322

2022-10-03T11:27:39-04:00October 3rd, 2022|6- Client Memo|

As Markets Thunder, FSOC Snores

Later today, the FSOC will open its sanctum for what promises to be a brief session of largely political theatrics.  One can only hope that the rarefied air of the Council’s closed-door meeting elevates actual action addressing growing signs of financial instability.  Sadly, FSOC’s record of timely intervention ahead of any systemic event since its creation – and I count at least four – is dismal as are the Fed’s see-no-evil financial stability reports.  As of this writing, the U.S. is on the precipice of another “dash for cash” and no one – not the bond market, mutual funds, MMFs, investors – has any sandbags at the ready beyond faith that the Fed will bail them all out all over again.  Loose lips sink financial systems, but lips that are zipped only because they have nothing useful to say do the same and then some.

m100322.pdf

15 09, 2022

DAILY091522

2022-10-13T11:49:04-04:00September 15th, 2022|2- Daily Briefing|

Financial Transactions to Get More Stringent CFIUS Scrutiny

The President today issued an executive order (EO) redefining key criteria used by the Committee on Foreign Investment in the U.S. (CFIUS).

BNPL Faces DOA Consumer Standards

In conjunction with issuing a lengthy report, CFPB Director Chopra today announced that he has directed staff to work on new interpretive rules or guidance for the BNPL sector.

Basel Battles On

Acting as anticipated following instructions from on-high, the Basel Committee today “exchanged views” on pending crypto regulation (see FSM Report CRYPTO29) – terminology suggesting the committee has yet to reach agreement on this controversial consultation despite a request by central bankers and supervisory heads to finalize standards by year end.

Fed Joins Agencies with CRE Workout Policy

After a delay doubtless reflecting the need to run policies by Michael Barr, the FRB today proposed the same CRE-workout policies released for comment in early August by the OCC, FDIC, and NCUA.

Waters Tries Late-Game CRA Tackle

Chairwoman Waters (D-CA) today announced that she has introduced legislation to update the CRA, making the standards tougher for banks but – as far as known so far – failing to extend the law’s reach to nonbanks as urged by CFPB Director Chopra and Sen. Warren (D-CA), among others.

Daily091522.pdf

14 09, 2022

DAILY091422

2022-10-13T11:57:25-04:00September 14th, 2022|2- Daily Briefing|

Pressure Mounts for Basel Finales

The Basel Committee’s oversight body of central bankers and top supervisors has pressed nations quickly to finalize the Basel III “end-game” rules referenced not only in FRB Vice Chairman Barr’s maiden speech, but also in a statement shortly before this meeting by all of the U.S. banking agencies.

FSB Continues Work on FMI Resolvability

The FSB today announced a survey to gather feedback on its FMI Intermediary information framework to judge how to best ensure resolvability, seeking views from FMI service providers, firms subject to resolution planning, and bank resolution authorities.

CFPB, FTC Press for Furnisher Accountability

The CFPB today joined the FTC in filing an amicus brief taking strong issue with the position that furnishers of credit information have legal discretion over their investigations of indirect credit disputes (i.e., those with debt collectors acting on the furnisher’s behalf).

SEC Proposes Treasury-Market Conversion to Central Clearing

Moving to adopt its preferred solution to Treasury-market fragility, the SEC today voted 5-0 to issue a proposal requiring that market clearinghouses – i.e., FICC, require their members (generally clearing banks) to submit certain secondary-market transactions for clearing along with the small percentage now already centrally-cleared.

Gensler Stands by Tough Crypto, MMF, Climate Policy

Ahead of testimony tomorrow before the Senate Banking Committee, SEC Chairman Gensler’s testimony reaffirmed the chairman’s strong stand on its crypto jurisdiction, reiterating that crypto markets should be subject to like-kind capital rules and that registration is necessary for most crypto tokens …

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