#nonbanks – Federal Financial Analytics

16 04, 2024

DAILY041624

Eliza Allen2024-04-16T17:10:39-04:00April 16th, 2024|2- Daily Briefing|

House GOP Takes on New Merger Guidelines

The House Small Business Committee today sent a GOP letter to the FTC and Justice Department strongly protesting new merger guidelines (see FSM Report MERGER13) on grounds that they sharply curtail needed small-business capital.

House Hikes Iran Sanctions

Working through a series of sanctions bills in the wake of recent geopolitical developments, the House yesterday voted 294-105 to advance H.R. 5921, a bill introduced by Rep. Huizenga (R-MI) that prohibits Treasury from authorizing transactions by U.S. financial institutions in connection with Iranian imports or exports other than food, medicine, and other humanitarian assistance.

House Passes Bill Targeting China-Iran Petroleum Trade

Continuing its response to recent geopolitical events, the House yesterday voted by a 383-11 margin to pass H.R. 5923, a bill from Reps. Lawler (R-NY) and Gottheimer (D-NJ) that would require the President to periodically determine if any Chinese financial institutions have purchased petroleum or petroleum products from Iran, stating that U.S. financial institutions also may not open or maintain certain accounts with Chinese institutions that have done so.

Warren Again Targets OCC Merger Decisions

Continuing recent attacks on the OCC’s approach to mergers, Sens. Warren (D-MA) and Blumenthal (D-CT) yesterday sent a letter to Acting Comptroller Hsu sharply criticizing the agency’s decision first to allow NYCB to acquire Flagstar bank and then do the same shortly thereafter for Signature.

OCC Toughens LCR, NSFR via New Reporting Requirements

The OCC today sought public comment as required by law for …

12 04, 2024

Al041524

Eliza Allen2024-04-12T16:37:57-04:00April 12th, 2024|3- This Week|

The CFPB Stand-Off

On Tuesday, the HFSC Financial Institutions Subcommittee holds yet another hearing which Republicans hope will so embarrass the CFPB that their decades-long quest to redesign or even kill it gains traction ahead of critical litigation and the national election. The nominal topic of the hearing is the Bureau’s financial audit, and Republicans will surely make as much of it as they can to damage Director Chopra’s leadership. However, the real target is the Bureau’s race to finalize a series of substantive actions ahead of its own political challenges should litigation and the election go against it. The most immediate rule on the GOP’s firing line is the credit-card late-fee standard (see FSM Report CREDITCARD37), a rule now enmeshed in court decisions and challenges of unprecedented intricacy that nonetheless appear likely leading to a near-term injunction blocking the rule as lenders devoutly desire.

Al041524.pdf…

11 04, 2024

RESOLVE51

Eliza Allen2024-04-11T14:22:52-04:00April 11th, 2024|5- Client Report|

FedFin Assessment: FDIC Plan to Resolve GSIBs Fails to Answer Many Key Questions

In its first public statement since 2013 about how it would execute an SPOE resolution (see FSM Report RESOLVE23), the FDIC yesterday released a report Chair Gruenberg described as demonstrating the FDIC’s readiness to resolve a U.S. GSIB and the process it has developed for doing so under the orderly liquidation authority (OLA) provided in the Dodd-Frank Act (see FSM Report SYSTEMIC30). As detailed in this FedFin report, the FDIC’s goal is to set stakeholder expectations regarding what to expect in an OLA resolution of a U.S. GSIB, but much reiterates current law and prior actions such as GSIB filings related to their resolution plans and the FRB’s TLAC standards (see FSM Report TLAC6). Although perhaps released by the Chairman at least in part to assert FDIC capabilities at a time of internal stress and Congressional criticism, it remains unclear the extent to which the FDIC is ready and able to execute the protocols it describes. The paper principally addresses only SPOE resolutions, which it states are best suited to OLA without making clear what it would do if a GSIB chose MPOE (none have so far although this is permitted under the living-will rules), a regional bank found to be systemic used MPOE (as several do), or if resolution involves a nonbank, where MPOE might well be preferable.

RESOLVE51.pdf…

29 03, 2024

GSE-032924

Eliza Allen2024-03-29T11:08:37-04:00March 29th, 2024|4- GSE Activity Report|

Heading Your Way?

Following FSOC’s fulminations about nonbank mortgage companies, FHFA in 2023 heightened its supervisory standards mandating GSE prudential governance of eligible seller servicers. A new OIG report likes most of this a lot, but wants structural improvements in how FHFA executes its obligations and ensures Fannie and Freddie do the same. A bit of this will brush off on other counterparties, most likely MIs.

GSE-032924.pdf…

25 03, 2024

DAILY032524

Eliza Allen2024-03-25T16:46:05-04:00March 25th, 2024|2- Daily Briefing|

House GOP Resolution Challenges FSOC Designation Guidance

HFSC Vice-Chairman Hill (R-AR) introduced H.J. Res 120 on Friday to disapprove of FSOC’s guidance on nonbank financial company systemic designations (see FSM Report SIFI36). The CRA resolution follows GOP criticism of the guidance at recent hearings (see Client Report FSOC30) and S.3601 from Sens. Rounds (R-SD) and Sinema (I-AZ), which would require FSOC to consider “alternative approaches” prior to systemic designation.

Hsu, Cook Warn Banks re AI Fair-Lending Risk

Acting Comptroller Hsu today stressed the importance that banks understand their use cases for AI and utilize it in a controlled manner, reiterating longstanding agency concerns about bad learning models leading to credit discrimination (see FSM Report AI). FRB Gov. Cook today also noted that, while the FRB cannot address inequality within its mandate, it can and is looking to ensure that AI use does not lead to unfair lending.

Daily032524.pdf…

4 03, 2024

M030424

Eliza Allen2024-03-04T11:50:09-05:00March 4th, 2024|6- Client Memo|

The Madness of a Model and its Unfounded Policy Conclusion

As the pending U.S. capital rules head into their own end-game, there is finally a good deal of talk about an issue long neglected in both public discourse and banking-agency thinking: the extent to which higher bank capital rules accelerate credit-market migration. Simple assertions that more capital means less credit are, as I’ve noted before, simplistic. One must consider how banks reallocate credit exposures to optimize capital impact and, still more importantly, how the credit obligations banks decide to leave behind take a hike. Now comes a new paper the Financial Times touts concluding that, thanks to shadow banks, “we can jack up capital requirements more.” Maybe, but not judging by this study’s design. Even with considerable charity, it can be given no better than the “very creative” grade which kind primary-school teachers accord nice tries.

M030424.pdf…

4 03, 2024

Karen Petrou: The Madness of a Model and its Unfounded Policy Conclusion

Eliza Allen2024-03-04T11:50:02-05:00March 4th, 2024|The Vault|

As the pending U.S. capital rules head into their own end-game, there is finally a good deal of talk about an issue long neglected in both public discourse and banking-agency thinking: the extent to which higher bank capital rules accelerate credit-market migration. Simple assertions that more capital means less credit are, as I’ve noted before, simplistic. One must consider how banks reallocate credit exposures to optimize capital impact and, still more importantly, how the credit obligations banks decide to leave behind take a hike. Now comes a new paper the Financial Times touts concluding that, thanks to shadow banks, “we can jack up capital requirements more.” Maybe, but not judging by this study’s design. Even with considerable charity, it can be given no better than the “very creative” grade which kind primary-school teachers accord nice tries.

The paper in question is by Bank of International Settlements staff. It looks empirically – or so it says – at what it calls the U.S. banking sector’s share since the 1960s of what it lugubriously calls “informationally-sensitive loans.” It documents a lot of numbers said to demonstrate lower bank lending share, using a model founded on both erroneous data and wild leaps to conclude in a fit of circular reasoning that more nonbank lending explains why there is less bank lending. In the study’s words, “intermediaries themselves have adjusted their business models.” What might have led banks to decades of technological intransigence and strategic indolence is neither clearly explained nor verified.

What …

26 02, 2024

DAILY022624

Eliza Allen2024-02-26T16:36:24-05:00February 26th, 2024|2- Daily Briefing|

BIS: More Bank Competition Leads to Increased Credit Risk

A new BIS paper looks at a question critical to the debate over bank-merger policy: the extent to which competition drives bank risk-based pricing decisions in corporate lending and, by extension, other credit markets.

OCC Proposes Changes to FOIA Procedures

The OCC today proposed several changes to its FOIA procedures, including allowing expedited processing requests and appeals of denials of these requests and those for fee waivers.

Warren, Progressives Expand Blast on CapOne/Discover Deal to Encompass OCC Merger Proposal

Following other Democratic attacks on the CapOne/Discover merger and her own, Sen. Warren (D-MA) continued her challenge in a letter also signed by twelve House Democrats.

CFPB Takes Precedent-Setting Step Bringing Nonbanks Under Supervision

The CFPB late Friday released its first contested finding that a nonbank is subject to its supervision following the establishment in 2022 of a process for bringing nonbanks under its supervisory wings (see FSM Report CONSUMER44).

Senate Republicans Introduce Anti-CBDC Bill

Sen. Cruz (R-TX) alongside Sens. Hagerty (R-TN), Scott (R-FL), Budd (R-NC) and Braun (R-IN) today introduced a bill to prohibit the Fed from directly or indirectly issuing a CBDC or even using CBDC as a monetary-policy tool.

Daily022624.pdf…

26 02, 2024

M022624

Eliza Allen2024-02-26T11:06:35-05:00February 26th, 2024|6- Client Memo|

The Unintended Consequences of Blocking the Credit-Card Merger

There is no doubt that the banking agencies have approved all too many dubious merger applications along with charter conversions of convenience. However, the debate roiling over the Capital One/Discover merger harkens to an earlier age of thousands more prosperous small banks all operating strictly within a perimeter guarded by top-notch consumer, community, and prudential regulators. Whether this ever existed is at best uncertain. What is for sure is that all this nostalgia for a halcyon past will hasten a future dominated by GSIBs and systemic-scale nonbanks still operating outside flimsy regulatory guardrails.

M022624.pdf…

26 02, 2024

Karen Petrou: The Unintended Consequences of Blocking the Credit-Card Merger

Eliza Allen2024-04-12T09:46:02-04:00February 26th, 2024|The Vault|

There is no doubt that the banking agencies have approved all too many dubious merger applications along with charter conversions of convenience. However, the debate roiling over the Capital One/Discover merger harkens to an earlier age of thousands more prosperous small banks all operating strictly within a perimeter guarded by top-notch consumer, community, and prudential regulators. Whether this ever existed is at best uncertain. What is for sure is that all this nostalgia for a halcyon past will hasten a future dominated by GSIBs and systemic-scale nonbanks still operating outside flimsy regulatory guardrails.

The best way to demonstrate this awkward certainty is to run a counter-factual – that is, think about what the world would look like if opponents of the Capital One/Discover deal get their way. Would we quickly see a return to card competition housed firmly within a tightly-regulated system? Would the payment system be loosed from Visa and Mastercard’s grip? Would merchants see the dawn of a new era of itsy-bitsy interchange fees? Would card rates plummet and rewards stay splendiferous? I very much doubt it. Space here does not permit a detailed assessment of the analytics underlying my conclusions, so let’s go straight to each of them.

First, banning the CapOne/Discover deal would not ensure robust card competition under strict bank regulation. JPMorgan’s and American Express’ formidable stakes could grow because credit-card lending is a business dependent on economies of scale and scope vital to capital-efficiency through the secondary market. However, large banks will …