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13 11, 2023

M111323

2023-11-13T12:07:05-05:00November 13th, 2023|6- Client Memo|

How Inequitable Rules Stoke Financial Crises and What the Banking Agencies Should do to Cut This Link

Last week, OMB issued another edict redesigning the way most of the federal government writes rules, going beyond its earlier directive to consider competitive impact now also to demand detailed consideration of the broader public good, especially when it comes to economic equality.  I focused on public-good regulation in last week’s memo because it is sadly alien to federal financial regulation even though, as OMB says, “the benefits and costs of a regulation are ultimately experienced by people.”  I grant that economists are people, but some are also people who don’t like people, at least when qualitative assessment of what people need challenges the quantitative conclusions they cherish.  Pending banking rules thus ignore the public good in favor of complex market constructs, rationalizing them on assertions that, whatever else befalls finance, crises are less likely.  This is a methodology fraught with perverse consequences, the most important of which is that the agencies’ standards will hike the risk of financial crises precisely because they omit distributional analysis.

M111323.pdf

13 11, 2023

Karen Petrou: How Inequitable Rules Stoke Financial Crises and What the Banking Agencies Should do to Cut This Link

2023-11-13T15:41:25-05:00November 13th, 2023|The Vault|

Last week, OMB issued another edict redesigning the way most of the federal government writes rules, going beyond its earlier directive to consider competitive impact now also to demand detailed consideration of the broader public good, especially when it comes to economic equality.  I focused on public-good regulation in last week’s memo because it is sadly alien to federal financial regulation even though, as OMB says, “the benefits and costs of a regulation are ultimately experienced by people.”  I grant that economists are people, but some are also people who don’t like people, at least when qualitative assessment of what people need challenges the quantitative conclusions they cherish.  Pending banking rules thus ignore the public good in favor of complex market constructs, rationalizing them on assertions that, whatever else befalls finance, crises are less likely.  This is a methodology fraught with perverse consequences, the most important of which is that the agencies’ standards will hike the risk of financial crises precisely because they omit distributional analysis.

A demand for distributional consideration is not – repeat not – a plea for the banking agencies to go easy on banks.  It’s a plea for them to be as sure as they can that none but banks that need to be reined in are throttled.  As OMB now also says, “some alternatives may change distributional effects even without significantly changing stringency.”  The extent to which this is the case with bank standards is unknown because not one regulator has ever asked a distributional …

9 11, 2023

DAILY110923

2023-11-09T17:11:08-05:00November 9th, 2023|2- Daily Briefing|

Bowman Outlines Capital-Comment Priorities

In remarks today, FRB Gov. Bowman reiterated many of her longstanding concerns regarding pending bank rules, going on now to lay out key points on which she believes comment are warranted on the capital standards.

OMB Now Demands Distributional Analytics

Following its order to federal agencies now to consider competitive-impact in regulatory assessments, OMB’s Office of Information and Regulatory Affairs (OIRA) today issued new standards also demanding distributional-impact analyses.  As Karen Petrou’s memo this week made clear, it is our view that these are singularly and unfortunately absent from those accompanying the recent spate of banking proposals.

HFSC Plans Sanctions Markup

As anticipated, HFSC is proceeding next Tuesday to mark up a raft of bills addressing Iran and broader sanctions questions.  Among the bills is one from Reps. Vargas (D-CA) and Hill (R-AR), H.R. 6245, to require Treasury to report on financial institution’s involvement with Iranian officials.

Daily110923.pdf

12 10, 2023

DAILY101223

2023-10-12T17:09:17-04:00October 12th, 2023|2- Daily Briefing|

FSB Calls for More Private Climate Disclosures

Expressing considerable satisfaction with climate-risk disclosure progress, the FSB today released a report finding that all member jurisdictions either have or plan climate disclosure regimes, but there still needs to be greater private-sector self-reporting.

Pressure Builds for Heightened Iran, China Sanctions

Ahead of the hearing we anticipated earlier this week, HFSC Republicans have introduced several bills designed to increase financial pressures on Iran to punish it for the Hamas attack.

EU Regulators Add ESG Considerations to Regulatory, Supervisory Standards

In a bit of gold plating for what it believes to be the public good, the European Banking Authority today issued a report pressing for Pillar 1 capital charges for activities posing ESG risks with particular attention to climate.

OMB Redesigns Federal Rulemaking to Consider, Increase Competition

Acting under the President’s competition executive order (see Client Report MERGER6), OMB’s Office of Information and Regulatory Affairs yesterday issued new guidance governing federal rulemaking stipulating express assessment of the impact of new or prospective rules to enhance market competition.

CFPB, DoJ Issue Immigration Discrimination Warning

Taking action that may in some cases put lenders in conflict with state law, the CFPB and DoJ stated today that “unnecessary or overbroad reliance” on immigration status in a credit decision may violate the ECOA.

Daily101223.pdf

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