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….
FSOC Targets Usual Suspects but Also Points to Big-BHC, Nonbank Mortgage Systemic Risk
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 investment funds (with FSOC for the first time urging regulators to look not only at MMFs and OEFs, but also at collective investment vehicles). As previously noted, the report is relatively sanguine about digital-asset systemic risk but, also reiterates findings in FSOC’s report (see Client Report CRYPTO33) demanding rapid action on a raft of reforms in this high-risk sector. What surprised us is the discussion of large BHCs, which departs from longstanding Fed and FSOC comfort in the post-GFC regulatory regime for this sector.
Nonbanks Get Unwelcome FSOC Attention
As promised Friday when FSOC’s annual report was released, we here go into depth on its implications for residential housing. Most notable to us in the lengthy report was its continuing concern about residential-housing price vulnerability, its new focus on MBS-market volatility, and specific action steps to address longstanding fears about nonbank mortgage originators and servicers.
FinCEN Advances Beneficial-Ownership Privacy Constraints
Following its finalization of the beneficial ownership reporting rule, FinCEN today issued a notice of proposed rulemaking that would clarify how beneficial ownership information (BOI) must be acquired, used, and stored. The proposal limits BOI access to only federal national security agencies, law enforcement authorities with a court order, financial institutions with customer due diligence requirements, and certain foreign and Treasury officials, all of which are subject to stringent security protocols aligned with the scope of the information request.
Chopra Defends Nonbank Repeat-Offender Registry, Confirms Zelle Watch-and-Wait
Today’s Senate Banking hearing repeated much of what HFSC and Director Chopra said yesterday (see Client Report CONSUMER45), with Democrats lauding the Bureau and Republicans condemning it for politicization, poor administrative process, and an unconstitutional construct. Ranking Member Toomey (R-PA) grilled Director Chopra on the Bureau’s new proposal requiring certain nonbank financial firms to report enforcement actions, asking him what he would do if a nonbank said it was compliant with a consent order and the CFPB disagreed.
Comment Deadline Extended For Controversial DSIB-Resolution Standards
Reflecting continuing controversy, the Federal Reserve Board and FDIC today announced that they will extend by one month the comment deadline for their ANPR on large bank resolvability standards. The former deadline was December 23; the new deadline is January 23.
FTX Hearings Promise to be Explosive but Preliminary
Our review of HFSC’s final staff memo for tomorrow’s FTX hearing confirms our forecast that it will be a lengthy, contentious affair at which Sam Bankman Fried will be raked over the coals after current management that has already excoriated him completes its testimony. We will monitor this hearing as well as Wednesdays before Senate Banking, but we expect that policy and political implications will come clear only after Members of Congress have finished attempting to score points specific to FTX.
HFSC Previews Chopra Hearings
In addition to high-profile crypto hearings, both HFSC and Senate Banking will also have lively sessions with CFPB Director Chopra later this week as he presents his agency’s semi-annual report.
CFPB Again Targets Repeat Offenders in Nonbank Registry Proposal
Taking another shot at repeat offenders, the CFPB today proposed requiring certain nonbank financial firms to report any agency or court orders, which would then be incorporated in a public data registry to create a comprehensive and easily accessible information equivalent to that readily to be found on banking organizations. Larger, supervised nonbanks will also be required to designate a senior executive to provide a written attestation of the firm’s compliance with covered orders.
Nonbank Consumer-Finance Supervision
Reviving what it calls “dormant” authority, the CFPB has finalized a proposed “procedural rule” expressly reiterating its right to govern an array of nonbanks and establishing procedures for making supervisory orders public. As a result, a wide array of nonbank providers of consumer-financial products and services face increased legal and reputational risk as well as changes to the current business model and/or product/service design if orders made public by the Bureau lead to public or political backlash akin to that leading to the decisions at many banks to eliminate or alter overdraft fees after the Bureau voiced strong objections to them.
As promised, this report provides an in-depth analysis of Treasury’s report and resulting recommendations to the President’s Competition Council on the impact of new nonbank consumer-finance entrants from a competition, consumer-protection, and financial-stability perspective. Although the report calls for reconsideration of bank-merger policy with an eye to the growing role of fintechs and bigtechs, its overall view of market power fails in our view to capture the actual landscape in which…
Treasury Plumbs the Depth of Nonbank Finance, Seeks New Merger Policy, Rules
As promised, this report provides an in-depth analysis of Treasury’s report and resulting recommendations to the President’s Competition Council on the impact of new nonbank consumer-finance entrants from a competition, consumer-protection, and financial-stability perspective. Although the report calls for reconsideration of bank-merger policy with an eye to the growing role of fintechs and bigtechs, its overall view of market power fails in our view to capture the actual landscape in which these important new entrants compete with banks. For example, its focus on deposit-market concentration compares banks principally to neobanks, failing to consider deposit-like products such as prime MMFs and in many cases also credit-union deposits. As a result, erroneous conclusions are drawn about market power that exists when all competitors – not just bigtechs or fintechs – are considered.
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
Gruenberg Backs Bank On
In remarks late yesterday, FDIC Acting Chairman Gruenberg pointed to the importance of Bank On accounts to retain previously un- or under-banked households brought into the system following large government payments early in the pandemic.
ECB Presses Climate-Risk Capital Regs
Moving far ahead of the Fed, the ECB has announced strict plans to ensure that EU banks not only improve governance and express climate-risk stress testing, but also hold sufficient internal-capital allocations for physical and transition risk.
Data Standard-Setters to Come Under CFPB Regs
In remarks late yesterday updating the CFPB’s open-banking rulemaking efforts, Director Chopra indicated that the new consumer-data rules (see forthcoming in-depth FedFin report) will also address how best to set public and private-sector standards to ensure industry-wide fairness and access to critical infrastructure.
IMF Climate-Risk Priorities Include GSIB Buffers
The IMF’s Deputy Managing Director Bo Li today set priorities for central banks and bank regulators addressing financial-system climate resilience.