#payment-system

Home/Tag:#payment-system
5 12, 2022

Karen Petrou: Bank Canaries in the Crypto Mineshaft

2022-12-05T16:34:33-05:00December 5th, 2022|The Vault|

Just because crypto hasn’t triggered a systemic collapse doesn’t mean that it won’t be the perpetrator of quiet banking crashes.  We would do well to remember that the 2008 calamity came shortly after the collapse of small subprime-mortgage finance companies.  These would have been proverbial dead canaries had anyone looked down the mineshaft.  And, even as the U.S. subprime crashes formed into a single, torrential crisis, bank regulators confidently foretold no systemic impact because they comfortably believed that no bank had undue exposure to high-risk mortgages.  So bank regulators still say now when it comes to crypto and let’s hope the outcome is different this time.  However, bits and pieces of bank wreckage are already to be found in FTX’s rubble and may well surface as the crypto tide continues to ebb.  No bank shipwrecks have emerged, but some of the wreckage has the look of a sizeable hull.

The most tantalizing bit of banking wreckage is a super-tiny Washington State bank which FTX appears to have surreptitiously acquired.  As the New York Times reported, one of FTX’s affiliates last March invested more than double all the capital previously held in Farmington State Bank, doing so in a carefully-structured way to avoid triggering legal control thresholds.  The bank is the nation’s 26th smallest and, after this generous investment, it deposits went up about 600 percent from its initial $10 million level via four new accounts.  Sill more intriguingly, Farmington’s crypto ties via shadow owners appear to go back to …

5 12, 2022

M120522

2022-12-05T10:51:04-05:00December 5th, 2022|6- Client Memo|

Bank Canaries in the Crypto Mineshaft

Just because crypto hasn’t triggered a systemic collapse doesn’t mean that it won’t be the perpetrator of quiet banking crashes.  We would do well to remember that the 2008 calamity came shortly after the collapse of small subprime-mortgage finance companies.  These would have been proverbial dead canaries had anyone looked down the mineshaft.  And, even as the U.S. subprime crashes formed into a single, torrential crisis, bank regulators confidently foretold no systemic impact because they comfortably believed that no bank had undue exposure to high-risk mortgages.  So bank regulators still say now when it comes to crypto and let’s hope the outcome is different this time.  However, bits and pieces of bank wreckage are already to be found in FTX’s rubble and may well surface as the crypto tide continues to ebb.  No bank shipwrecks have emerged, but some of the wreckage has the look of a sizeable hull.

m120522.pdf

2 12, 2022

DAILY120222

2022-12-02T16:51:39-05:00December 2nd, 2022|2- Daily Briefing|

Menendez Blasts FRB-Chicago Choice

Continuing his campaign for increased diversity and transparency at the Federal Reserve, Sen. Bob Menendez (D-NJ) issued a fiery statement criticizing the Federal Reserve Bank of Chicago’s decision to name a non-Latino president.

Fed Revises PSR to Prepare for FedNow

The FRB today finalized changes to its Policy on Payment System Risk (PSR) to expand access to collateralized intraday credit.  These reduce the administrative steps associated with requesting collateralized capacity, action the Fed says would improve intraday liquidity management and payment flows while also assisting the Reserve Banks managing intraday credit risk.

GOP Expands CBDC Attack to Project Hamilton

Readying an inquiry intended to block CBDC when the GOP takes over the house next year, Ranking Member McHenry (R-NC) and six other HFSC Republicans sent a letter to FRB Boston President Susan Collins demanding answers to allegations that private companies are abusing their work on Project Hamilton to position themselves for product sales to financial companies once a CBDC begins.

Fed Finally Outs Climate-Risk Principles

As long anticipated and likely late on Friday in hopes of avoiding critical GOP scrutiny, the Federal Reserve Board today released proposed climate-risk principles.  These are “high-level” as is also the case for global edicts in this contentious arena (see FSM Report CLIMATE14), also tracking the OCC’s longstanding like-kind proposal (see FSM Report GREEN12).

Daily120222.pdf

9 11, 2022

PAYMENT26

2022-11-09T12:46:45-05:00November 9th, 2022|1- Financial Services Management|

Master-Account Transparency

Although the Fed characterized its final payment-system access guidelines as “transparent,” FedFin’s analysis and other assessments concluded that the Federal Reserve Banks retained considerable discretion to pick and choose those granted master accounts and there would be no ready way to identify which institutions had or lost this essential status for any provider of retail or wholesale deposit-taking services or their equivalent.  The Board is now seeking to counter criticism with a revision to the guideline obliging Reserve Banks to create a quarterly list of institutions holding or ceasing to hold master-account privileges.

PAYMENT26.pdf

4 11, 2022

DAILY110422

2022-11-04T17:11:14-04:00November 4th, 2022|2- Daily Briefing|

Big Banks Pressed on Sluggish, Inequitable Deposit-Rate Hikes

Advancing an initiative with political “legs,” Sen. Jack Reed (D-RI) has demanded answers from the nation’s largest banks on why small-deposit rates have barely budged even as the Fed sharply hiked interest rates now reflected in higher loan costs.

FRB-NY Official Details Wholesale CBDC Prototype

Remarks today from a senior FRB-NY official, Michelle Neal, continued the Fed’s ambivalent stand on a CBDC (see FSM Report CBDC10).

Fed Fixes Advanced-Approach Glitches

The FRB is proposing to implement three changes to Regulation Q data collection/disclosure rules governing advanced-approach capital adequacy at BHCs, SLHCs, and state member banks.

Fed to Name Master-Account Names

Reflecting ongoing concerns on Capitol Hill, the Fed is proposing to make what our analysis suggests were opaque payment-system access guidelines (see FSM Report PAYMENT24) “a bit more transparent.”

Toomey Presses for SLR Rewrite

Ranking Senate Banking Member Toomey (R-PA) today released his letter to Chairman Powell cautioning the central bank not to handle any Treasury-market liquidity events with new backstop facilities.

Waters Adds To Fed’s Political Woes

In a letter today, HFSC Chairwoman Waters (D-CA) joined Sens. Warren (D-MA), Brown (D-OH), and Hickenlooper (D-CO) in sharply criticizing the recent Fed “super-sized” rate hike.

Fed Worry Level Goes Up

The Federal Reserve likely hoped for the torpor of a Friday afternoon to quell frightened replies to the latest financial-stability report released today.

Daily110422.pdf

31 10, 2022

FedFin on: “Surprise” Fee Restrictions

2022-11-01T16:55:42-04:00October 31st, 2022|The Vault|

In conjunction with a Presidential speech and new White House initiative against “junk fees,” the CFPB has accelerated its own efforts in this arena with two new policy directives.  As with many other recent Bureau actions, the new circular and bulletin do not take the form of notice-and-comment rulemakings, but rather are directives with express enforcement implications unless or until the courts overturn them, the General Accounting Office intervenes to bar guidance outside the rulemaking process as it did years ago related to inter-agency leveraged-loan standards, or new law reconfigures the agency.  The most immediate implication of these edicts is a ban on blanket rejected deposit fees and further constraints on overdraft fees.

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

31 10, 2022

DAILY103122

2022-10-31T16:47:14-04:00October 31st, 2022|2- Daily Briefing|

CFPB Tackles Payment-System User Fines

Following Director Chopra’s recent focus on Paypal’s withdrawn content penalty, the CFPB today announced it will reopen the public comment period on its bigtech payments order, widening its focus beyond Paypal to all bigtech payment-service providers.  Notably, Zelle is not included in this round.  The order had required Facebook, Google, Apple, Amazon, Square, and Paypal to turn over information on their payments products, business plans, and practices.  The Bureau now seeks further information on their acceptable use policies and how and under what circumstances they levy fines.

Daily103122.pdf

18 10, 2022

DAILY101822

2022-10-18T17:16:23-04:00October 18th, 2022|2- Daily Briefing|

CFPB Uses Enforcement Action to Press Payment-System Digital, Fee, Safety, Fairness Standards

Using an enforcement action today against ACTIVE Network, CFPB Director Chopra emphasized that this case epitomized broader Bureau concerns.  These are monitoring use of “digital dark patterns” – i.e., design features that manipulate users into harmful behavior that are profitable for companies.

Treasury’s FIO Seeks Input On Climate-Related Data Collection

Taking further action in response to the President’s Executive Order on Climate-Related Financial Risk (see FSM Report GREEN8), Treasury’s Federal Insurance Office today requested comment on a proposed data collection regarding current and historical underwriting data on homeowners’ insurance from property and casualty insurers to assess climate-related financial risk.

HFSC Republicans Push Yellen to Support IFI Nuclear Energy Funding

In light of recent energy shortages in Europe, Ranking Member McHenry (R-NC) and Rep. Hill (R-AR) sent a letter today to Treasury Secretary Yellen urging her to support the European Bank for Reconstruction and Development and other IFIs financing nuclear energy projects.  They claim that an absence of Western funding has allowed China and Russia to fill the void, especially in developing countries.

Daily101822.pdf

6 10, 2022

DAILY100622

2022-10-06T17:22:24-04:00October 6th, 2022|2- Daily Briefing|

OSTP Establishes AI User Rights, Privacy Protections

The White House Office of Science and Technology Policy (OSTP) has released a little-noticed AI “Bill of Rights” that establishes AI user rights and data privacy principles.  Although nonbinding, this framework now sets policy that individual agencies are likely to follow even if they are nominally independent, as is the case with the FRB, OCC, and FDIC.  The CFPB is no longer independent and is in any case already committed to like-kind principles; the banking agencies so far have only issued an RFI (see FSM Report AI).

OCC Tightens Fintech, Payment, Crypto Supervisory Screws

The OCC today released its Bank Supervision Operating Plan for FY2023, highlighting the Office’s supervisory issues based in part on policy considerations.  The agency is prioritizing cybersecurity; third-party service providers with a particular focus on fintechs; consumer-protection and AML compliance; new product risk, such as payment systems technology and digital assets; and climate risks.

Daily100622.pdf

26 09, 2022

Karen Petrou: Nonbanks Win Big

2022-09-27T10:49:12-04:00September 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 …

Go to Top