#nonbanks – Page 3 – Federal Financial Analytics

26 04, 2023

FedFin on: Systemic-Risk Determinations

Arezou Rafikian2023-04-26T16:59:28-04:00April 26th, 2023|The Vault|

Rejecting the Trump Administration’s hands-off approach to designating systemically-important nonbank financial institutions or activities and practices, the Biden Administration’s FSOC has bifurcated this construct with one proposal on designating entities and another that lays out an analytical approach to identifying systemic risk that would then guide firm and activity designation as well as Council staff coordination with primary federal regulators leading to new rules, product or service prohibitions/restrictions, or firm-specific supervisory action. If the final framework is as comprehensive as this proposal and FSOC is as actively engaged as its plan requires, then U.S. systemic standards could extend far more widely than is now the case even if firm-specific nonbank designations are few and far between…

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

6 04, 2023

FedFin: Extra Equitable?

Arezou Rafikian2023-04-06T16:36:29-04:00April 6th, 2023|The Vault|

FHFA, Fannie, and Freddie yesterday updated the sometimes-controversial equitable-finance plans FHFA approved last year. Notably, Fannie’s new plan no longer focuses exclusively on Black households, a feature that garnered vitriolic Wall Street Journal criticism and negative Republican reactions. Freddie’s plan delays and may even back away from efforts to set MI and title insurance pricing.

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

27 02, 2023

Karen Petrou: How the SEC Turned Custody Reform from a Righteous Cause to Jihad and Why it Matters

Arezou Rafikian2023-02-27T09:57:44-05:00February 27th, 2023|The Vault|

As we finalized our new in-depth analysis of the SEC’s rewrite of the nation’s custody rules, I asked some of the best-informed people I know if they had ever heard of a financial custodian. All they could come up with is the name of their elementary-school custodian and, in some ways, this is apt. Custody is among the services often called market “plumbing” because one only notices its importance when something goes wrong or realizes how risky poor maintenance is when everything gets wet. The SEC is right to retool custody services – their abuse was all too evident in the Madoff affair and even more costly to hapless investors in the course of crypto chaos. However, as seems often the case with the Commission, it has taken a righteous cause and turned it into a jihad.

When my question about custody services doesn’t outright kill conversation, I often explain the importance of this obscure financial service as follows: when you give an investment adviser your money to buy stock or other assets, he or she does so on your behalf. The adviser takes a bit – okay, maybe a big bit – for his or her trouble, but the assets purchased are yours, not the adviser’s. If the investment is poor because the asset loses value, that’s your bad. But, if the asset loses value or, worse, disappears due to malfeasance or insolvency on the part of the adviser, you’ve quite literally been robbed. To prevent this, custodial …

24 02, 2023

FedFin on: Custody Reform

Arezou Rafikian2023-02-24T16:53:29-05:00February 24th, 2023|The Vault|

Making full use of powers granted in the 2010 Dodd-Frank Act, the SEC is proposing a wholesale rewrite of the rules dictating how investment advisers must place assets in custody and which institutions are considered qualified for this purpose. Although the proposal was sparked first by controversies surrounding custody for cryptoassets and then by significant investment losses, the NPR reaches most assets held in the direct or indirect possession of investment advisers or to which the adviser may gain possession, also redefining qualified custodians to exclude not only most crypto platforms, but also foreign firms and other entities the Commission believes do not ensure sufficient safeguards protecting investor assets in the event of the adviser’s malfeasance, insolvency, or operational failure….

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

23 01, 2023

Karen Petrou: How the CFPB Plans to Rule by Registry

Eliza Allen2023-01-23T11:09:36-05:00January 23rd, 2023|The Vault|

Last week, we provided clients with an in-depth analysis of the CFPB’s latest nonbank registry as well as a hard look at its impact on mortgage securitization. Any nonbank subject to the CFPB will find its legal arsenal much depleted by the registry’s requirements, a point already well understood by opponents. Far less noticed but of still greater consequence to all consumer-finance companies is another implication of the Bureaus actions here and in another recent registry proposal: even where the CFPB has little to no regulatory authority, it will deploy its formidable ability to gain public attention to make unbearable the reputational risk of any practice it abhors.

Justice Brandeis is often quoted as saying that sunshine is the most powerful disinfectant and Director Chopra clearly plans to cast companies under a scorching sun. That is works was demonstrated by his decision to detail the ways in which he believes overdraft fees support predatory earnings at considerable cost to vulnerable consumers. That most banks charged overdraft fees in strict compliance with current rules made enforcement action at best a challenging route to reform. Rewriting the rules would have gotten the Bureau where it wanted to go, but only over at least a year of wrangling. Set out in the merciless sun by Mr. Chopra and Congressional Democrats, many banks decided that the political and reputational risk of continuing overdraft fees was just too high.

Overdraft reform thus proved easy to say and then to do. So it is …

19 01, 2023

FedFin on: Form-Contract Registry

Arezou Rafikian2023-01-19T16:53:19-05:00January 19th, 2023|The Vault|

Building on its proposed nonbank registry related to enforcement orders, the CFPB is now also proposing a public registry requiring posting of provisions in consumer-finance contracts the agency believes threaten consumer legal or free-speech rights when issued by supervised nonbanks. The agency’s concern is based on its view that consumers generally have no ability to understand and alter the agreements presented to them as take-it-or-leave-it propositions with no choice other than a signature or an “agree” box to click. Further, many contractual terms are decided between originators and third parties – e.g., credit reporting agencies, loan servicers, and debt collectors – over which the consumer has no power of choice or ability. The registry is thus also intended to capture these sub-contracts determining back-end consumer risk, a move with considerable implications for proprietary relationships with these third-party providers. Much in the new standards strikes at….

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

21 12, 2022

FedFin on: Nonbank Enforcement-Order Registry

Arezou Rafikian2022-12-21T16:54:37-05:00December 21st, 2022|The Vault|

The CFPB is proposing to create a public registry of certain enforcement actions that would initially cover nonbanks (including BHCs) with a goal of drawing public and enforcement-agency attention to what the Bureau’s director calls “serial offenders.” …

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

19 12, 2022

FedFin on: FSOC Targets Usual Suspects but Also Points to Big-BHC, Nonbank Mortgage Systemic Risk

Arezou Rafikian2023-01-03T15:56:33-05:00December 19th, 2022|The Vault|

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….

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

21 11, 2022

FedFin on: Treasury Plumbs the Depth of Nonbank Finance, Seeks New Merger Policy, Rules

Arezou Rafikian2022-11-22T13:19:47-05:00November 21st, 2022|The Vault|

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…

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

26 09, 2022

Karen Petrou: Nonbanks Win Big

Arezou Rafikian2022-09-27T10:49:12-04:00September 26th, 2022|The Vault|

As our in-depth reports detailed, Treasury took the President’s policy edicts to heart when crafting a new digital-finance policy for the U.S. Treasury could have ducked some hard decisions via laudatory rhetoric, but it chose instead to recommend specific policies that cut a new path to a U.S. CBDC and crypto regulation. Our reports detail key policy decisions and what’s soon to be done with them, but one warrants even more immediate attention: Treasury’s decision to adhere not just to the President’s executive order on crypto-finance, but also to another on increasing financial sector competition. This puts banks on notice that not all have yet taken.

Overlooked in much analysis of Treasury’s sweeping reports is its call to break up what Treasury clearly sees as the monopoly banks have long enjoyed over payment-system access. Treasury for example argues that many banks have exited retail remittances even though these are critical to financial inclusion and leaves the market ill-served. Indeed, it wants nonbanks to obtain overall instant-payment access, saying:

Network effects support the adoption of instant payment systems: Widespread use makes it more likely that a payor can use an instant payment system to make a payment to a payee, increasing the system’s value. … Broadening the range of financial institutions that are eligible to participate in instant payment systems, as certain foreign jurisdictions have done, could help to enhance speed and efficiency, competition, and inclusion in payments, including for cross-border payments.

The problem with Treasury’s call for payment-system …