FedFin Analysis: Treasury Presses CBDC, Nonbank Payment Powers
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19
09, 2022
1
09, 2022
FedFin on: Centenarians Get a Face Lift
As seems always the case, FHFA Director Thompson is as good as her word to Congress earlier this summer, announcing yesterday a review of the extent to which the Home Loan Banks and their System meet the mission assigned to them and, regardless, if that mission still makes sense. Building on our initial assessment of FHFA’s plans, we here turn to what the System, its allies, and reformers are likely to say and what FHFA and/or Congress will then do about it.
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17
08, 2022
FedFin on: Data-Safeguard Legal/Reputational Risk
Using another of its tools to set policy without prior public comment, the CFPB has released a circular stating that inadequate consumer-data safeguards may constitute a breach of the unfair, deceptive, or abusive acts or practices (UDAAP) protection standards subject to Bureau enforcement action. This is the case even if no consumers have been harmed, if only one consumer is adversely affected, …
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14
06, 2022
FedFin On: U.S. Digital-Asset Framework
After protracted negotiations and much public attention, bipartisan senators have introduced a far-reaching bill designed to encourage digital-asset use without undue risk to consumers, investors, or the financial system. The bill decides most, if not all, of the outstanding regulatory barriers to digital-asset use in favor of digital assets and their providers. Provisions in many cases go farther than public discussion has so far noted – for example, the measure not only expands the ability of digital-asset providers to reach retail and wholesale customers, but also gives them access to FDIC resolution without the cost of paying insurance premiums or coming under many of the rules that govern insured depositories…
The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…
1
06, 2022
FedFin: AI Adverse-Action Requirements
Continuing its use of novel rulings that preclude public notice and comment, the CFPB has issued a landmark ruling on artificial intelligence (AI) and other forms of algorithmic underwriting stipulating lender responsibility for sending out the adverse action notices required under the Equal Credit Opportunity Act (ECOA). The CFPB recently added a broader range of credit decisions on outstanding loans (e.g., granting or reducing lines), to these notice requirements, making the reach of this new policy still broader. Lenders are responsible for adherence to these requirements even if their underwriting models are provided by third parties or credit decisions are made by third parties such as fintechs or auto dealers. However, when these nonbanks are the lender, they are then subject to CFPB enforcement even if the Bureau does not have formal supervisory power over them under another recent CFPB ruling…
The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…
1
06, 2022
FedFin: How Adverse Is This?
As detailed in our new in-depth report, the CFPB has issued another sweeping rule by way of a seemingly innocuous circular not subject to public notice and comment. Under it, lenders that use third-party underwriting are responsible for ensuring that borrowers receive thorough adverse action notices even if the lender has no authority over the AI or other complex models determining credit outcome.
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17
05, 2022
FedFin on: CRA Regulatory Rewrite
Following much talk about the need to update Community Reinvestment Act (CRA) rules since this was last done in 1995, federal banking agencies have finally agreed on a proposed redesign of standards essential to banks that wish to expand or acquire as well as those seeking strong community ties and the policy and political benefit these afford. Much of the complexity in the NPR results from the agencies’ decision to allow only partial credit for activities (e.g., mortgages) largely assumed in the past…
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27
04, 2022
FedFin on: Nonbank Consumer-Finance Supervision
Using what it describes as “dormant” authority, the CFPB is seeking comment on a rule setting the procedures under which it expands its authority to nonbank financial companies it believes pose consumer-protection risk. The procedural rule is just what this term implies – one that establishes procedural standards that may change upon finalization – rather than a request for views on the extent to which the CFPB has the authority it claims. Indeed, the Bureau clearly intends to use the authority stipulated in this rule for supervisory interventions even as comment on the procedures has yet to be completed…
The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…
25
04, 2022
Karen Petrou: Why Prime Brokers are Prime Suspects
Although Ukraine and emerging-market distress were the most frequently discussed topics around last week’s Bank/Fund meetings, two other high-impact issues were also top of mind. One is the end of the international financial order as we’ve known it for decades; I’ll return to this shortly as well as in my forthcoming book. The other to which I now turn is more immediate: commodity-market stress and what regulators will do to avert it if they can. I have heard a lot about a number of options, but I fear that regulators will do what they always do when trouble lurks: double-down on banks under their thumb instead of flexing their muscles to govern nonbanks at the heart of the global financial infrastructure.
In the commodity markets, as in all but the most direct financial-intermediation functions, banks are increasingly risk enablers, not takers. This isn’t because banks are just too darn good; it’s because they are regulated and, after 2010, regulated to the point at which the capital costs of engaging directly in key businesses outweighed the profit potential in financial markets where nonbanks do not face the same costly constraints.
Going back to 2011, we’ve pointed out that asymmetric market regulation leads to rapid risk migration. In market after market, nonbanks have driven prices down to the point where they can still earn comfortable margins, pushing banks saddled by capital, conduct, and risk-management standards to bow out of a market except where legacy assets such as low-cost funding and …
15
04, 2022
FedFin: BIS Finds Ways to Give Nonbanks Payment-System Access, Increase CBDC’s Inclusion Impact
As promised, we turn here to an in-depth analysis of a paper from global regulators on whether CBDC contributes to financial inclusion – one of the most vital arguments from those advocating CBDC in the U.S. and in many other nations. The paper is not analytical, as it is based on interviews with nine central banks exploring retail CBDC, but all of those interviewed view CBDC as an effective tool to promote inclusion if designed to do so and the paper also surveys research to back up its findings. It details numerous ways CBDC could prove inclusive, including a first-time assessment of how making certain CBDC aspects programmable and how regtech could permit nonbanks to enter the CBDC payment system without undue risk…
The full report is available to subscription clients. To find out how you can sign up for the service, click here.…