#OEF – Page 4 – Federal Financial Analytics

17 02, 2022

DAILY021722

Eliza Allen2023-04-04T15:48:56-04:00February 17th, 2022|2- Daily Briefing|

FSB Details Work on NBFIs, Climate, Crypto

In his first letter to G20 finance ministers and central bankers, Chairman Klaas Knot of The Netherlands reiterated work on longstanding FSB priorities (i.e., ensuring resilience and a smooth post-pandemic transition). Pending actions include a mid-year report on ways to ensure inclusive financial recovery and continuing work on MMFs, open-end funds, margining, bond-market liquidity, and EME dollar-funding vulnerabilities. Near-term work will also revisit 2017 standards on asset-management liquidity (see FSM Report ASSETMANAGEMENT6) and create a set of systemic-risk tools focused on NBFIs.

FSI Counters FSB plans for Climate Macroprudential Standards

Although the FSB chairman earlier today argued in favor of climate-risk macroprudential standards, a report from the BIS’s Financial Supervision Institute today concludes that doing so would be ineffective and even counter-productive. This is due to uncertainty about the extent to which climate-risk systemic implications may already be well addressed in current macroprudential standards or to those now under development with specific regard to individual institutions. The FSI, for example, notes the data challenges that also trouble the OCC (see FSM Report GREEN12) and other U.S. regulators, arguing against any near-term binding capital or prudential standards in this arena.

Daily021722.pdf…

4 02, 2022

Daily020422

Arezou Rafikian2023-04-05T13:58:56-04:00February 4th, 2022|2- Daily Briefing|

FSOC Reviews Ongoing NBFI Workstreams
In what appeared to be a meeting largely intended to comply with statutory demands for quarterly sessions, the FSOC met today to consider U.S. work on the 2021 global NBFI agenda (see Client Report NBFI). A key concern then was MMF illiquidity, an issue now addressed in a pending SEC proposal (see FSM Report MMF19); Chairman Powell and Acting Comptroller Hsu thanked the Commission for this work.

Bipartisan Bill Opens Custody Services to Small Banks
Sens. Tim Scott (R-SC) and Maggie Hassan (D-NH) have introduced S. 3562 to allow well-capitalized community banks, minority depositories, and CDFIs to accept custodial deposits without these being considered brokered under applicable FDIC rules (see FSM Report DEPOSITINSURANCE111).

Toomey Targets Chinese CBDC to Speed U.S. Crypto
Suggesting that the autocratic nature of the digital yuan should spur private-sector U.S. crypto development, Senate Banking Ranking Member Toomey (R-PA) today requested that both the Treasury and State Departments closely monitor and report on developments as China seeks an international rollout in tandem with the Olympics.

Daily022422.pdf…

18 01, 2022

Karen Petrou: Inflation’s High Cost to Competition and Comity

Arezou Rafikian2023-04-24T15:18:29-04:00January 18th, 2022|The Vault|

It’s not news that the latest inflation data are disastrous. Even if they won’t last, as Mr. Powell again assured Congress, it sure is hard to see how the combination of pressures detailed in the inflation data lead to ta rate even close to the FOMC’s median projection for 2022 of 2.6 percent. This means that real rates will remain negative throughout 2022 and well into 2023. Indeed, given that the FOMC’s median projection for the near-term fed funds rate never gets above 2.1 percent, even the Fed has tacitly conceded that negative real rates may well be prolonged absent either divine intervention or another devilishly-deep recession. In June of last year, I predicted that U.S. inflation would not prove transitory and forecast the political impact finally understood at the highest levels of the Biden White House. Much is also now being written about the inequality impact I described last year, but little is said about the sum total impact of these sorry facts of life on the financial system. These may also prove anything but transitory.

The first financial-system impact of high inflation and slow growth for anything but the S&P is both political and structural. With his back increasingly pushed to the wall by inflation’s toxic equality impact, Mr. Biden defended himself against the latest CPI numbers by arguing that many of them are due to monopolistic price controls best cured by rapid antitrust initiatives such as the one already launched against the meat industry.

Other …

17 12, 2021

Al122021

Arezou Rafikian2023-05-22T15:45:51-04:00December 17th, 2021|3- This Week|

TRYING TO COME DOWN

As we noted on Friday, FSOC’s last meeting of the year ended on a very cautionary note. Differing from the comforting tone in the Fed’s last financial-stability assessment (see Client Report SYSTEMIC92), FSOC found systemic risk to be elevated even if banks and CCPs give them few qualms. As we noted, the open part of the meeting focused largely on high-priority issues, with the gist of FSOC’s action plans detailed in its annual report. We’ll shortly provide clients with an in-depth analysis of this tome, which also provides extensive detail on the state of key financial sectors and risks that, while not yet systemic, are already worrisome.

Al122021.pdf…

13 12, 2021

Daily121321

Arezou Rafikian2023-05-23T12:37:24-04:00December 13th, 2021|2- Daily Briefing|

FSB Assesses Bail-in Bonds
The FSB today issued an assessment of cross-border TLAC at GSIBs, setting no new global policy. Instead, the paper analyzes TLAC in individual jurisdictions and studies the extent to which bail-in bonds – a controversial capital buffer – may prove effective under stress.

BIS: PE, VC May Pose Systemic Risk
With nonbank lending now growing faster than that at banks, we turn to another BIS policy-making paper. Joining those on DeFi and open-end funds, this one concludes that the shift of financial intermediation to “private capital” may pose systemic risk due to portfolio correlations at yield-chasing institutional investors such as pension funds and life insurers.

Daily121321.pdf…

9 12, 2021

Daily120921

Arezou Rafikian2023-05-23T12:50:03-04:00December 9th, 2021|2- Daily Briefing|

IMF Presses for Fast, Hard Global Crypto Standards
The IMF today reiterated its commitment to work with global regulators to craft crypto regulation due to inherent risks in the sector exacerbated by disorderly capital flows resulting from regulatory arbitrage.

FRB-NY Tackles Maternal-Health Inequity
Although Reserve Banks are facing harsh criticism from Senate Banking Ranking Member Toomey (R-PA) about “woke” actions he believes beyond the Fed’s mission, the New York Federal Reserve today released a study of maternal health that – despite public concern in this area – may spark renewed criticism with problematic implications for Vice-Chair nominee Brainard.

LIBOR Fix Powers Through House
By an overwhelming 415-9 vote, the House late yesterday passed H.R. 4616, the Sherman (D-CA) bill providing legal certainty for legacy LIBOR contracts (see FSM Report LIBOR6). The bill finally reached the House floor following a revision to the reported bill ensuring that rate resets are not taxable events.

BIS: Bond Funds Need Radical Regulatory Rewrite
Today, we follow our analysis yesterday of the BIS paper on DeFi regulatory policy with an assessment of another high-impact analysis of open-end funds.

FDIC Does, Doesn’t, May Advance New Bank M&A Policy
In a most unusual move, the FDIC today announced it did not release an RFI on bank merger policy hours after two directors – Messrs. Gruenberg and Chopra – said it had.

HFSC Ducks Tough Asset-Management Diversity Demands
Although the majority staff report released ahead of today’s HFSC Diversity and Inclusion Subcommittee hearing highlighted several legislative proposals, Members …

6 12, 2021

Daily120621

Arezou Rafikian2023-05-23T13:35:28-04:00December 6th, 2021|2- Daily Briefing|

BIS Tackles NBFI-Reform Specifics
Building on the FSB’s NBFI priority focus, BIS Managing Director Agustín Carstens today reiterated his call for both entity-and activity-based standards for systemic-scale nonbanks.

White House Emphasizes Anti-Corruption Commitments
In connection with the President’s democracy summit, the White House today issued a fact sheet laying out a reinvigorated version of the President’s prior anti-corruption commitment.

OCC Outlines Climate-Risk Agenda
The OCC’s semi-annual risk report today includes a new section on the agency’s climate-risk plans. As anticipated, the OCC in the near-term will build out large-bank risk-management standards based on Basel’s new principles (See FSM Report CLIMATE12), but these will be only the agency’s “first step.”

Daily120621.pdf…

2 12, 2021

Daily120221

Arezou Rafikian2023-05-23T13:56:33-04:00December 2nd, 2021|2- Daily Briefing|

Fed Staff Assess Big-Bank Correlated Risk, Systemic Hazard
A new research note from the Federal Reserve looks at a critical question: how correlated have bank exposures become in the wake of stress testing and other rules many analysts, ourselves included, anticipated. To the extent exposures are correlated, systemic risk is likely to increase, especially if correlations are tightest at the biggest banks and/or correlated exposures are risky.

Quarles Defines Boundaries of Fed Emergency, Regulatory, Supervisory Policy and Politics
In parting remarks today, FRB Gov. Quarles not only defended his record, but also took a very different stand on future emergency facilities than another departing Fed official, Vice Chair Clarida. Unlike Mr. Clarida’s stout defense of 2008 and 2020 actions, Mr. Quarles argues that the credit facilities established in concert with those for emergency liquidity are problematic both in terms of central-bank mission and facility execution.

Daily12021.pdf…

9 11, 2021

SYSTEMIC92

Arezou Rafikian2023-06-01T14:47:47-04:00November 9th, 2021|5- Client Report|

Fed Ramps Up Worries, Outlines Preferred MMF Option

Late yesterday, the Federal Reserve released its most recent financial-stability report. As in its predecessor earlier this year (see Client Report SYSTEMIC91), this report takes a cautious view, counting on continuing bank resilience to counteract old worries, such as asset-price bubbles, along with containing at least some new fears. These now include meme-driven equity market volatility, Chinese leveraged debt, and emerging-market fragility. In this report, we assess the policy implications of the Fed’s findings without going into detail on data or methodology. Surprisingly, in light of the recent FSOC report (see Client Report GREEN11), climate risk is now less of a high-profile Fed systemic concern, with the Board saying its planned actions are “broadly aligned” with FSOC recommendations. Perhaps the most concrete remedy outlined in the report pertains to MMF resilience, with the Fed reiterating its preference for some form of swing pricing, minimum balances at risk, and/or capital buffers.

SYSTEMIC92.pdf…

1 11, 2021

Daily110121

Arezou Rafikian2023-06-05T10:37:24-04:00November 1st, 2021|2- Daily Briefing|

FSB Presses NBFI Analysis, Bank Inter-Connectedness
The FSB today updated its late-2020 paper on nonbank financial intermediaries (see Client Report NBFI), largely reiterating the reasons it then said that global regulators need to act without indicating any actual action beyond its recent MMF Principals (see FSM Report MMF18) and work focused on margin calls.

HFSC Dems: BNPL, Other Fintech Products Present Consumer-Protection Risks
Ahead of its Fintech Task Force hearing tomorrow examining buy-now, pay-later and other fintech cash-flow products, HFSC’s majority staff memo indicates Democrats have significant consumer-protection concerns although no immediate solutions to address them.

PWG Slams Stablecoins, Agencies Outline Action Plan
The President’s Working Group today spearheaded an inter-agency report on stablecoins that, as anticipated, takes a very dim view of this form of cryptography outside the regulatory perimeter. As we will detail shortly in an in-depth analysis, the report lays out a litany of systemic, compliance, trading, and consumer concerns, noting in particular key gaps when it comes to the payment system.

Fed Study Shows Macro Impact of Fed Muni Backstop
A new FRB-NY Staff paper looks at the Fed’s municipal-debt backstop, concluding that it served not only as a generic muni-market stabilizer, but also as a credit risk-share facility for low-rated issuers that supported municipal employment at the worst of the crisis.

Daily110121.pdf…