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20 03, 2023

Karen Petrou: Three Fast, Urgent Fixes to U.S. Bank Supervision and One Major Change to End Bailouts

2023-03-20T11:35:24-04:00March 20th, 2023|The Vault|

In the wake of recent bank failures, much has rightly been said about how supervisors failed to act even though warning claxons blared.  Nothing that happened to Silvergate, SVB, or Signature is due to forces beyond supervisory control, but there are deep, structural weaknesses in how banks have long been supervised.  How long?  I went back to my 2001 Senate Banking testimony about what was then the largest-ever failure to find that many of the lessons that should have been learned never sunk in.

Given that this hearing was in 2001, a good deal of what I said about bank capital requirements was about Basel I and is thus long out of date.  However, one key point isn’t:  the capital triggers used to spark prompt corrective action (PCA) were and are an unduly-simplistic way to identify the need for rapid supervisory intervention.

Silvergate, SVB, and Signature were all “well” capitalized right up to the brink of collapse because each of the banks in its own way arbitraged the capital rules to enormous – and obvious – advantage.  Nothing in law or rule bars bank supervisors from stepping in well before PCA ratios sink but nothing seems to stir supervisors to do so.  1991’s PCA requirements were an important advance at the time, but it was outdated only a decade later.  Now, it’s a dangerous supervisory distraction.

What else noted in 2001 remains an urgent fix?  Over two decades ago, I urged the FDIC to reinstate the high-growth early-warning system it …

20 03, 2023

M032023

2023-03-20T11:35:13-04:00March 20th, 2023|6- Client Memo|

Three Fast, Urgent Fixes to U.S. Bank Supervision and One Major Change to End Bailouts

In the wake of recent bank failures, much has rightly been said about how supervisors failed to act even though warning claxons blared.  Nothing that happened to Silvergate, SVB, or Signature is due to forces beyond supervisory control, but there are deep, structural weaknesses in how banks have long been supervised.  How long?  I went back to my 2001 Senate Banking testimony about what was then the largest-ever failure to find that many of the lessons that should have been learned never sunk in.

m032023.pdf

22 02, 2023

DAILY022223

2023-02-22T16:44:44-05:00February 22nd, 2023|2- Daily Briefing|

BIS Backs Away From Old CBDC, Presses New “Unified Ledger”

BIS General Manager Agustín Carstens today distanced the global central bank somewhat from its prior calls for two-tier CBDC as quickly as possible (see Client Report CBDC6).

Administration Drops FHA Premiums in Broad Housing Push

In a victory for mortgage lenders and defeat for private mortgage insurance and the GSEs, Vice President Harris announced that FHA will shortly reduce mortgage premiums by .30 percent, saving the average homeowner $800 in total premiums or $67 a month.

GOP Opens Anti-CBDC Campaign

Starting the GOP’s 2023 campaign against CBDC with a specific initiative, Rep. Tom Emmer SP (R-MN) and nine Republicans have introduced H.R. 1122.

FDIC Found Remiss re Systemic Resolution

In its assessment of challenges facing FDIC leadership, the Office of Inspector General (OIG) finds that the agency may not be ready to handle an OLA or systemic resolution, nor is it yet able to assess climate financial risk and sanctions compliance.

FHFA Looks Into FHLB-Member Community Activities

Perhaps advancing FHFA Director Thompson’s commitment to review aspects of the FHLB System, her agency today released a request for views on the extent to which a Home Loan Bank member supported its community to retain eligibility for long-term System advances.

Daily022223.pdf

21 10, 2022

FedFin on: DSIB-Resolution Requirements

2022-10-21T15:51:53-04:00October 21st, 2022|The Vault|

The FRB and FDIC have moved beyond the resolution-planning requirements mandated in the Dodd-Frank Act then implemented over the years to what could be a new resolution regime for banking organizations considered category II or III companies under the inter-agency tailoring rules.  Initially described as guidance when the agencies first announced this initiative, it appears likely that final standards will be more binding, which would almost certainly need to be the case under administrative procedures if the agencies decide not only to revise resolution planning on a sector or bank-by-bank case.  This would be particularly likely if ….

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

21 10, 2022

RESOLVE48

2022-10-21T14:12:50-04:00October 21st, 2022|1- Financial Services Management|

DSIB-Resolution Requirements

The FRB and FDIC have moved beyond the resolution-planning requirements mandated in the Dodd-Frank Act then implemented over the years to what could be a new resolution regime for banking organizations considered category II or III companies under the inter-agency tailoring rules. Initially described as guidance when the agencies first announced this initiative, it appears likely that final standards will be more binding, which would almost certainly need to be the case under administrative procedures if the agencies decide not only to revise resolution planning on a sector or bank-by-bank case. This would be particularly likely if the agencies decide to include them in total loss-absorbency capacity (TLAC) standard for covered banking organizations akin to those now governing GSIBs.

RESOLVE48.pdf

24 05, 2022

DAILY052422

2023-02-21T13:49:08-05:00May 24th, 2022|2- Daily Briefing|

BIS Committee Fears Debt Build-Up Poses Systemic Risk

The BIS Committee on the Global Financial System has concluded that sharp increases in household and corporate debt pose increasing systemic risk.

CFPB Creates New Competition Office, Plan

Reflecting its director’s continuing focus on consumer-finance competition, the CFPB today recast an office that previously encouraged “sandbox” product launches into an office focused principally on enhancing the ability of small firms and start-ups to compete with big banks, fintech, and bigtech.

FRB-Dallas Staff: TALF Worked for CMBS

The Federal Reserve Bank of Dallas has issued a new report documenting the manner in which Fed support at the pandemic’s outset supported U.S. commercial real estate.

IDIs Sound, but Worrisome Signs

The FDIC’s report on banking-sector 1Q data shows that, despite continuing strong earnings and robust credit quality, some IDIs are facing serious challenges.

HFSC Disabilities Hearing Confirms Little Appetite for New Legislation

As anticipated, HFSC’s Subcommittee on Diversity and Inclusion hearing today covered issues faced by persons with disabilities such as under-banking, unemployment and housing inaccessibility.

Brainard to Lay Out Key CBDC Considerations

The HFSC staff memo today on Thursday’s CBDC hearing confirms that it will be a consequential session.

HFSC Backs OLA, Climate Action in FY23 Budget

The House Financial Services Committee today released its views on the FY2023 budget, detailing broad support for the administration’s financial stability, climate, and housing efforts to guide its future authorizing work and that of the appropriations committees to the extent they heed HFSC’s request.…

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