#NBFI – Federal Financial Analytics

25 09, 2023

Al092523

Eliza Allen2023-09-25T11:00:27-04:00September 25th, 2023|3- This Week|

Systemic Steps

We held this weekly update on Friday because Washington was awash with rumors that FSOC would issue final versions of proposed systemic-evaluation standards (see FSM Report SYSTEMIC95) along with a new designation methodology (see FSM Report SIFI35). As it turned out, FSOC said so little in its closed-door meeting readout that it didn’t suffice even for a client alert, let alone a weekly. Still, something is coming soon and, when it does, it will start yet another partisan and sometimes even emotional debate over financial regulation redefining the sector’s strategic landscape.

Al092523.pdf…

5 09, 2023

DAILY090523

Eliza Allen2023-09-05T17:16:52-04:00September 5th, 2023|2- Daily Briefing|

FSB Considers Resolution Construct Revamp

In addition to calling for full and consistent implementation of the Basel III framework, the FSB head’s letter to the G20 today stresses that this year’s bank failures challenge long-held views about deposit stickiness and the speed of bank runs, leading international standard-setters now to consider unspecified policy changes to the resolution construct.

BIS Study: Fed, FDIC Reassurances Offset Bank Run Risk

Contributing to analysis of viral runs and how to stop them, a new paper from BIS staff concludes that public communication from the Fed on banking system stability and from the FDIC on deposit insurance during crises can mitigate systemwide run risk, while similar statements from political figures such as President Biden are less effective.

IMF: Money Laundering Undermines Financial Stability

The IMF yesterday published a blog post on money laundering’s financial-stability impact, concluding that cross-border illicit payments result in equity-price declines, higher CDS costs, elevated perceived credit risk, and declines in deposits for the individual banks involved. The blog also states that there is a contagion dynamic as a result of spillover effects between targeted banks and other banks within the region.

Daily090523.pdf…

25 07, 2023

DAILY072523

Eliza Allen2023-07-25T17:18:26-04:00July 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…

25 07, 2023

FedFin Analysis: U.S. Merger Policy

Arezou Rafikian2023-07-25T17:18:51-04:00July 25th, 2023|The Vault|

Building on a request for comment, the Department of Justice (DOJ) and Federal Trade Commission (FTC) have now proposed specific revisions to U.S. merger policy that significantly redirect the manner in which M&A transactions – even if only for minority positions – will be considered. Although this is only a draft statement, it tracks much of what President Biden laid out in his 2021 executive order on U.S. competition policy and actions since then by the DOJ and the FTC. As a result, the guidelines are more of a roadmap providing clarity than a new approach unless the final version differs substantively in any major way or future Administrations adopt a different policy. Near-term U.S. merger policy makes it considerably more difficult to finalize horizontal, vertical, and even minority holdings, a challenge likely to be particularly acute in U.S. financial services where government agencies believe there is …

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

24 07, 2023

MERGER12

Eliza Allen2023-07-24T17:03:59-04:00July 24th, 2023|1- Financial Services Management|

U.S. Merger Policy

Building on a request for comment, the Department of Justice (DOJ) and Federal Trade Commission (FTC) have now proposed specific revisions to U.S. merger policy that significantly redirect the manner in which M&A transactions – even if only for minority positions – will be considered. Although this is only a draft statement, it tracks much of what President Biden laid out in his 2021 executive order on U.S. competition policy and actions since then by the DOJ and the FTC. As a result, the guidelines are more of a roadmap providing clarity than a new approach unless the final version differs substantively in any major way or future Administrations adopt a different policy. Near-term U.S. merger policy makes it considerably more difficult to finalize horizontal, vertical, and even minority holdings, a challenge likely to be particularly acute in U.S. financial services where government agencies believe there is undue concentration in banking, payment, private-equity, and other sectors. The clarity and specifics of the guidelines will give firms a clearer understanding of obstacles to possible transactions as well as risks to those that have been previously consummated. However, the guidelines are statements of agency policy based on their read of law, not a binding legal action. As a result, merger participants who believe that their transactions were unduly denied and companies ordered to shed certain operations may still seek legal redress in the courts.

MERGER12.pdf…

6 07, 2023

DAILY070623

Eliza Allen2023-07-06T16:55:22-04:00July 6th, 2023|2- Daily Briefing|

Basel Redesigns Global Bank-Supervision Construct

As promised at its last meeting, the Basel Committee today released a public consultation on revisions to its 2012 core supervisory principles (see FSM Report REFORM92).

Accommodative CRE Policy Goes Live

Publication in the Federal Register today makes effective a finalized policy statement issued by the banking agencies and NCUA late last week on how financial institutions are to handle troubled commercial real estate (CRE) loans.

Senate Dems Demand CFPB Voice-Cloning Action

Following his letter to large bank CEOs regarding AI fraud, Chairman Brown (D-OH) along with Sens. Menendez (D-NJ), Reed (D-RI), and Smith (D-MN) today sent a letter to Director Chopra urging action against AI-related financial scams.

FSB Turns to GSIB Resolvability

The FSB’s plenary today announced that recent events have spurred it to assess the resolvability of GSIBs and other large banks, providing neither timeline nor focus for this work.

FRB-NY Study Advances Wholesale Digital Currency

Although making clear that it sets no new policy nor endorses any CBDC action, the Federal Reserve Bank of New York’s Innovation Center published a DLT proof-of-concept finding that shared ledgers can effectively support both wholesale domestic interbank and cross-border payments.

Daily070623.pdf…

20 06, 2023

DAILY062023

Eliza Allen2023-06-20T17:15:39-04:00June 20th, 2023|2- Daily Briefing|

ECB Targets Bank Risk to NBFIs

A speech earlier today from the ECB’s top bank supervisor makes it clear that the EU is pressing ahead with FSOC’s proposed limits on bank inter-connections with NBFIs (see FSM Report SYSTEMIC95). Karen Petrou’s memo today also addresses this issue.

New M&A Policy Sets High Bar For Banking-Agency Approval, Increases Odds Of DOJ Rejection

Making M&A a good deal harder to pull off, Assistant Attorney General Jonathan Kanter today redefined U.S. bank-merger policy in light of comments on a recent RFI (see FSM Report MERGER10) and dramatic changes since current policy was set in 1995. The new approach reflects Biden Administration competition policy (see Client Report MERGER6) and will make it considerably more difficult for banks of all sizes to win DOJ approval if the banking agencies approve their proposed transaction after getting a new, likely more dire competitive-factor report from the Department of Justice.

FRB-KC: Community Banks Better Capitalized than GSIBs

The Kansas City Fed today released an analysis of 2022 bank capital, finding that community banks continued to hold higher levels of capital compared to G-SIBS: ten percent to six percent, respectively. The study also found that G-SIB supplementary leverage ratios (SLR) increased thirty basis points to 5.94 percent, the first increase since the beginning of the pandemic, excluding the impact of the Fed’s temporary capital relief.

Daily062023.pdf…

30 05, 2023

Daily053023

Eliza Allen2023-05-30T17:13:13-04:00May 30th, 2023|2- Daily Briefing|

Fed Study Validates Bank/Shadow-Bank Interconnections, Systemic Risk

A new study by staff from the Federal Reserve Banks of Boston and New York evaluates the banking-sector impact of fire sales across multiple NBFI segments, finding numerous bank vulnerabilities to nonbanks not only through direct exposures, but also through complex, indirect channels.

McHenry Protests U.S. Outbound-Investment Constraints

HFSC Chairman McHenry (R-NC) sent a letter to Secretary Yellen late Friday demanding information about a potential executive order that would enable CFIUS to prohibit or require notification of outbound investments into China, stating that the Administration’s interest in capital controls necessitates Congressional oversight.

IMF Article Calls SVB Resolution “Riskless Capitalism”

An article in the IMF’s forthcoming Finance and Development magazine issue argues that SVB’s uninsured depositors enjoyed “riskless capitalism,” concluding that high moral hazard-risks will persist without incentives for depositor due diligence.

FTC Demands Greater Debit-Card Data Access

The FTC today finalized a consent order requiring Mastercard to provide competing card networks with the customer account information necessary to process debit payments, alleging that the company illegally withheld that information to prevent merchants from using its competitors or Mastercard-branded debit cards saved in e-wallets outside of traditional networks.

Daily053023.pdf…

18 04, 2023

DAILY041823

Eliza Allen2023-04-18T17:03:30-04:00April 18th, 2023|2- Daily Briefing|

FRB-NY Finds NBFIs a Source of Systemic Risk Over the Centuries

Reflecting renewed interest in “narrow banks,” the Federal Reserve Bank of New York blog posted evidence of systemic risk from nonbanks in the absence of any banks at all.

Stablecoin Compromise Faces Steep Challenges

As noted yesterday, HFSC’s Digital Asset Subcommittee is set for a Wednesday hearing clearly intended to lay the groundwork for near-term action on Chairman McHenry’s (R-NC) longstanding goal of enacting stablecoin legislation.

Despite Failures, DIF Restoration Ahead Of Schedule

At the FDIC Board’s meeting today, FDIC staff said that – while the timing for restoring the DIF to its 1.35% statutory minimum remains uncertain – the DIF could reach its statutory minimum ahead of time and by 2024.

Bowman Remains Staunch CBDC Skeptic

Reiterating that any U.S. CBDC requires Congressional approval, Gov. Bowman today also reiterated her longstanding skepticism to any such instrument.

CFPB Plans Timing Study to Buttress Junk-Fee Regs

The Federal Register today includes a CFPB comment request on its “Junk Fees Timing Study,” which would be part of a series of online lab experiments testing differences in consumer choices across different information presentations.

Warren, Reed Demand OFR Use Subpoenas To Obtain Systemic Data

Sens. Warren (D-MA) and Reed (D-RI) today urged OFR Acting Director Martin to fill data gaps around financial stability risks posed by climate change, cryptocurrencies, and repo markets.

Daily041823.pdf…

4 04, 2023

DAILY040423

Eliza Allen2023-04-04T16:59:13-04:00April 4th, 2023|2- Daily Briefing|

House Republicans Launch Attack On New Small-Business Reporting Rule

House Republicans including Reps. Williams (R-TX), Barr (R-KY), and Ogles (R-TN) today introduced a resolution to overturn the CFPB’s small business data collection final rule via the Congressional Review Act.

Bipartisan Leaders Demand End to AML “Escape Hatch”

Accelerating the odds for a significant FinCEN rewrite, HFSC Chairman McHenry (R-NC), Senate Banking Chairman Brown (D-OH), Ranking Member Waters (D-CA) and a group of bipartisan lawmakers today sent a letter to Secretary Yellen and FinCEN Acting Director Das emphatically stating that FinCEN’s latest beneficial ownership proposal undermines the intent of the Corporate Transparency Act (see FSM Report AML133) by allowing an “escape hatch” through which firms can continue to do business with a customer even if they are unable to collect beneficial-ownership information.

IMF Says NBFIs Should Have Central-Bank Backing

The IMF’s financial-stability report includes a new chapter on NBFIs. Largely echoing all the concerns and policy recommendations in continuing FSB calls for NBFI standards, the Fund goes on to advocate also for NBFI access to central-bank backstops.

Global Regulators Like Look Of Systemic Insurance Standards, U.S. Implementation

IAIS today published a report assessing the implementation of its holistic supervisory framework across national jurisdictions, concluding that results demonstrate a “very positive outcome.” This is reflected in strong implementation of the holistic framework standards and good levels of observance across many of the standards, including by U.S. states.

Daily040423.pdf…