#payment-system – Page 3 – Federal Financial Analytics

10 01, 2022

Karen Petrou: Senate Banking’s CBDC Questionnaire

Arezou Rafikian2023-04-25T14:04:57-04:00January 10th, 2022|The Vault|

It’s certain that Jay Powell’s confirmation hearing will put him through the wringer on inflation, equality, “insider” trading, and the rules he’ll foster under the new vice chair for supervision. This is enough to try even the most patient of souls, but there’s another issue senators should be sure to raise: what’s taking the Fed so, so long to start its CBDC deliberations, let alone conclude them?

After initially dismissing the need for a U.S. central bank digital currency, Chairman Powell announced last May that the Board would seek public comment sometime that summer. At about the same time, Gov. Brainard spoke about a possible CBDC construct and the Boston Fed announced a technical build-out project along with the Massachusetts Institute of Technology. The Federal Reserve Bank of New York’s Innovation Hub also has CBDC ambitions. Although Fed officials were quick to point out that none of these nor any of the subsequent high-profile papers commits the Fed to anything, work seemed well under way to join the dozens of other central banks convinced that CBDC is essential in the quick-digitization payment future clearly emerging outside the reach of central bankers.

What’s happened since the summer CBDC storm? Not much.

Mr. Powell and other Fed officials at one point promised that the CBDC paper would come in September, but autumn came and went. The Fed’s certainly been busy tidying up after its “transitory” inflation goof and ongoing macroeconomic challenges, but it neglects CBDC at its and our peril.

First, whether …

15 11, 2021

Karen Petrou: The Real Problem in the Omarova Hearing

Arezou Rafikian2023-06-01T13:46:35-04:00November 15th, 2021|The Vault|

Later this week, the Senate Banking Committee will hold Saule Omarova’s confirmation hearing for Comptroller of the Currency. Many expect this to be a knock-down, drag-out between the progressive bank-reform agenda and the banking industry’s antipathy thereto. This it surely will be, but to watch only these fireworks is to miss the longer-burning fire below: renewed questions about whether banks are public utilities or private companies with unique privileges fully reimbursed by virtue of unduly-burdensome regulation. It is by this choice — not Ms. Omarova’s most-uncertain confirmation — that the future of U.S. finance will be decided.

Although Ms. Omarova has surely moved on from the Marxist views of which she is accused based on an early academic paper, she clearly sides with those who think that banking is for public purpose, not private profit. Indeed, according to at least some of her work, banking can’t be trusted to banks and thus should be seconded to the federal government or outside experts presumed to be not just objective, but also disinterested in all but the public good.

This is not a new view. After the S&L crisis of the 1980s and the subsequent banking debacle in the early part of the next decade, much was made of the subsidy banks were said to enjoy from unique access to FDIC insurance and the Fed’s discount window. Bankers strongly disputed any subsidy, but I said then and believe now that banks then indeed enjoyed special-purpose charters that warranted not just tough safety-and-soundness …

2 11, 2021

FedFin Assessment: The Near-Term Stablecoin Regulatory Agenda

Arezou Rafikian2023-06-02T13:04:23-04:00November 2nd, 2021|The Vault|

As noted yesterday, the President’s Working Group on Financial Markets (PWG) was joined by the OCC and FDIC yesterday issuing a report calling for prompt Congressional action to regulate stablecoins and, even in its absence, also for fast action by federal regulators and the FSOC. In part because it poses the largest regulatory void, the most worrisome of the risks the report details arises from the role stablecoins may play in the payment system and resulting threats to systemic stability and competition. Issues germane to digital-asset trading (defined to include lending and related activities) are described but largely left to regulators; SEC Chairman Gensler has made it clear (see Client Report INVESTOR19) that he intends to act and the CFTC-chair nominee has done the same.

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

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14 10, 2021

FedFin on: Global Systemic-Risk Standards for Stablecoin Arrangements

Arezou Rafikian2023-06-15T14:58:37-04:00October 14th, 2021|The Vault|

Responding to requests from the G7, G20, and FSB, this report addresses market-infrastructure considerations related to systemically-important stablecoins that do not involve multi-currency baskets (e.g., Facebook’s Diem). The report builds on the FSB’s current principles and those on cross-border payments, but generally does not propose specific standards. Instead, it lays out how current global principles in this area should guide both stablecoin developers and regulators.

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

13 09, 2021

Karen Petrou: Are Federal Reserve Banks Forever?

Arezou Rafikian2023-08-03T16:18:47-04:00September 13th, 2021|The Vault|

After my latest opinion piece appeared in Barron’s on Thursday, I was stunned by the virulence with which Barron’s readers — not exactly a bunch of Democratic Socialists — agreed with me not because of my reasoning, but because they believe the Fed in general and Jay Powell in particular are engaged in a sweeping conspiracy on behalf of the wealthiest global capitalists. The new controversy over Reserve Bank president stock holdings only adds fuel to this fire. Are Federal Reserve Banks forever? Their history suggests maybe not.

Reserve Banks are creatures of 1913, created in concert with the Federal Reserve Board in Washington as part of the awkward compromise that persuaded those who feared a dominant federal banking powerhouse that the central bank would have roots outside the largest cities and thus be beyond the reach of New York’s powerful bankers.

This balancing act is in fact one reason the Board is headquartered in Washington, not New York, and also why the New York Fed is the most powerful among nominal equals when it comes to its fellow Reserve Banks. The fundamental anachronism of the System is evident in its geographic footprint — a heavy concentration of Reserve banks up to Kansas City and St. Louis and then not a single Reserve Bank for all of the mountain and western states but the lone edifice still standing apart in San Francisco.

The ethics rules now at issue due to recent revelations are also artifacts of not just the Reserve …