#PCA – Federal Financial Analytics

29 11, 2023

DAILY112923

Eliza Allen2023-11-29T16:51:26-05:00November 29th, 2023|2- Daily Briefing|

FDIC’s OIG Presses for Non-Capital PCA Triggers, Additional Supervisory Reform

The FDIC’s OIG report on First Republic’s failure is at least as scathing as its SBNY post-mortem.

Treasury Launches Anti-Crypto Enforcement Campaign

In remarks today from Deputy Secretary Wally Adeyemo, Treasury officially launched its anti-crypto sanctions and AML campaign.

Basel Proposes Sweeping Climate-Risk Disclosure Standards

Following the FSB’s finding that most banks were failing to provide meaningful climate disclosures, the Basel Committee today issued proposed climate-risk disclosure standards.

3Q Report Highlights AOCI Risk

The FDIC’s 3Q banking-condition report includes a stunning 22.5 percent rise in the total of HTM and AFS unrealized losses, which now stand at $683.9 billion.

Senate Banking Opens Private-Credit Inquiry

Senate Banking Chair Brown (D-OH) and Sen. Reed (D-RI) today asked FRB Vice Chair Barr, Acting Comptroller Hsu, and FDIC Chair Gruenberg to look into the risks private credit poses to the banking system.

Daily112923.pdf…

11 09, 2023

M091123

Eliza Allen2023-09-11T09:40:12-04:00September 11th, 2023|6- Client Memo|

The PCA Cure for Much That Ails New Banking Rules

It’s a cliché, but it’s also true that one can’t beat something with nothing, especially in Washington. This is an axiom well worth remembering when it comes to all of the new capital and resolution rules befalling the nation’s biggest banks. I don’t think they need to be beaten back in their entirety – much in the proposals fixes vital flaws. But the agencies have done a remarkably poor job conjuring the impact of each of these sweeping proposals, let alone their cumulative impact in the context of all the other rules and the grievous supervisory lapses that contributed to recent failures no matter all the rules that could well have sufficed if enforced. Thus, the most obvious problems with this new construct are opacity, complexity, and most importantly reasonable doubts that, even with all these sharpened arrows, supervisors will still fail to draw their bows and then fire early and often. All too much in the new rules is false science, as even a cursory read of the impact analyses makes painfully clear. Instead of setting standards on lofty, unproven models, safeguards should rely on an engineering axiom: use warning lights that force prompt and corrective action. Think of the ground warning in an airplane followed by urgent “pull-up” commands and then go to work on the banking dashboard with clear, enforceable rules and new PCA thresholds forcing supervisory action and accountability.

M091123.pdf…

11 09, 2023

Karen Petrou: The PCA Cure for Much That Ails New Banking Rules

Eliza Allen2023-09-11T09:40:05-04:00September 11th, 2023|The Vault|

It’s a cliché, but it’s also true that one can’t beat something with nothing, especially in Washington. This is an axiom well worth remembering when it comes to all of the new capital and resolution rules befalling the nation’s biggest banks. I don’t think they need to be beaten back in their entirety – much in the proposals fixes vital flaws. But the agencies have done a remarkably poor job conjuring the impact of each of these sweeping proposals, let alone their cumulative impact in the context of all the other rules and the grievous supervisory lapses that contributed to recent failures no matter all the rules that could well have sufficed if enforced. Thus, the most obvious problems with this new construct are opacity, complexity, and most importantly reasonable doubts that, even with all these sharpened arrows, supervisors will still fail to draw their bows and then fire early and often. All too much in the new rules is false science, as even a cursory read of the impact analyses makes painfully clear. Instead of setting standards on lofty, unproven models, safeguards should rely on an engineering axiom: use warning lights that force prompt and corrective action. Think of the ground warning in an airplane followed by urgent “pull-up” commands and then go to work on the banking dashboard with clear, enforceable rules and new PCA thresholds forcing supervisory action and accountability.

The need for new PCA triggers is even more urgent than I thought when I first outlined…

8 08, 2023

Daily080823

Arezou Rafikian2023-08-08T16:56:31-04:00August 8th, 2023|2- Daily Briefing|

IMF Staff Presents New CCyB Trigger

A new IMF paper weighs into an important question inherent in the new construct of U.S. regulatory capital: how to set the counter-cyclical capital buffer (CCyB) to anticipate financial stress. As noted in a recent Karen Petrou memo, the Basel CCyB (see FSM Report CAPITAL173) is linked to a ratio of credit growth to GDP; the Fed’s CCyB (see FSM Report CAPITAL213) gives the Fed unlimited discretion to sound the capital alarm or release the buffer.

GAO Asks Banking Agencies To Focus On Blockchain, Alternative Data, PCA

The GAO today issued its annual policy recommendations to the federal banking agencies and the SEC. All of the agencies are asked to coordinate policy on blockchain to better address risks; the agencies neither agreed nor disagreed, each flagging routine interagency engagement. GAO maintains that coordination efforts have failed to address cryptoasset risks in a timely manner.

Warren Presses Goldman Hard on SVB Conflicts

Not letting one letter to Goldman Sachs suffice when it comes to SVB, Sen. Warren (D-MA) yesterday sent another letter to the bank taking serious issue with its response, particularly regarding the steps it took to avoid conflicts of interest.

OCC Targets Fintech Partnerships

Continuing its fintech-partnership crackdown, the OCC today clarified that its legal lending-limit standards apply to purchased loans and particularly to those purchased from nonbanks.

IMF Reiterates Need for U.S. Mid-sized Bank Regs, Better Contingency Funding

Building on its prior assessment of U.S. performance in …

30 05, 2023

FedFin on: Enforcement Policy

Arezou Rafikian2023-05-30T17:09:49-04:00May 30th, 2023|The Vault|

Following a speech earlier this year by the Acting Comptroller arguing that some banks are “too big to manage” and the furor caused by recent failures, the OCC has significantly revised its enforcement policy. The new framework requires examiners promptly to intervene if any of a bank’s CAMELS scores slips to 3 for unsatisfactory or if the bank is what CFPB Director Chopra would call a “repeat offender” of law, rule, or express supervisory actions or found deficient in practices necessary to ensuring safety and soundness.

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

30 05, 2023

SUPERVISION2

Arezou Rafikian2023-05-30T16:54:05-04:00May 30th, 2023|1- Financial Services Management|

Enforcement Policy

Following a speech earlier this year by the Acting Comptroller arguing that some banks are “too big to manage” and the furor caused by recent failures, the OCC has significantly revised its enforcement policy. The new framework requires examiners promptly to intervene if any of a bank’s CAMELS scores slips to 3 for unsatisfactory or if the bank is what CFPB Director Chopra would call a “repeat offender” of law, rule, or express supervisory actions or found deficient in practices necessary to ensuring safety and soundness.

SUPERVISION2.pdf…

8 05, 2023

M050823

Arezou Rafikian2023-05-08T10:10:21-04:00May 8th, 2023|6- Client Memo|

How to End the Sins of Supervisory Omissions and Bail-Out Commissions

The reason the FDIC sold First Republic to JPMorgan is that it didn’t want to do yet another resolution that bailed out uninsured depositors. The reason the FDIC didn’t want to backstop more uninsured depositors is that it would have had to say First Republic was as systemic as SVB and Signature Bank and this was nowhere near as credible. The reason the FDIC had to find these two earlier failures systemic was because it couldn’t think of anything better and the reason it couldn’t think of anything better in any of these resolutions is that it was wholly unprepared for them and, now, for any of the others that may come suddenly upon us. The FDIC must quickly rewrite its resolution playbook, but even a good one won’t work without a new set of triggers for meaningful prompt corrective action that forces change at troubled banks and readies the FDIC for resolution – not bail-out – if change doesn’t come quickly.

M050823.pdf

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20 04, 2023

DAILY042023

Eliza Allen2023-04-20T17:02:29-04:00April 20th, 2023|2- Daily Briefing|

Reed-Grassley Bill Lays Out Another Clawback Construct

Sens. Reed (D-RI) and Grassley (R-IA) introduced yesterday S. 1181, a bill allowing the FDIC to claw back the prior two years of failed bank executive compensation and prohibits them from working at another financial institution for at least two years.

FRB-NY Staff Find Severe Climate Risk At Big Four U.S. Banks But We Wonder

Based on a more in-depth study, a new FRB-NY post measures the market risk to financial institutions related to climate change.

FSB Report Shows Growing Supervisory Interest In Climate-Related Compensation Frameworks

A new FSB report on climate-related financial risk factors in compensation frameworks across the banking, insurance and asset management sectors concludes that financial institutions will need to continuously revise their climate-related criteria to ensure effective alignment of compensation with prudent risk management.

Brown Presses For Stringent FHLB Mission Standards

Following considerable furor over the role of the FHLBs in recent bank failures, Senate Banking Chairman Brown (D-OH) has written to FHFA Director Thompson requesting that the agency’s planned FHLB report also include a detailed assessment of this issue.

Waller Sees Promise In Tokenization, AI

Following prior comments about crypto risk, FRB Gov. Waller today highlighted two innovations he believes may well have natural use cases if their risks can be contained or mitigated.

Fed Study: Bank Enforcement Action Resolution Improves Minority Lending Outcomes

A new Federal Reserve paper concludes that enhancing bank loan and internal governance policies is critical to improving access to credit for minority …

24 03, 2023

FedFin Analysis: Whom and What the FDIC and Fed Can Save How

Arezou Rafikian2023-03-24T17:05:38-04:00March 24th, 2023|The Vault|

Recent editorials and other media have often said that the FRB and/or FDIC have powers or taken actions that is not the factual case as we understand it. Members of Congress also appear sometimes willing to make assertions about what agencies can do now even if it is unclear if there is statutory authority to do so. We have provided individual clients with key clarifications, but do so now more generally to support strategic and advocacy decision-making. Of particular importance is the authority the FDIC is said to have or lack related to uninsured deposits; as detailed below, the agency actually has significant authority to do so as well as even to back BHC debt, as long as certain stringent conditions are met. As detailed in FSM Report RESCUE65, Congress limited both the FDIC and Fed in hopes that….

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

24 03, 2023

RESCUE79

Eliza Allen2023-03-24T16:30:20-04:00March 24th, 2023|5- Client Report|

FedFin Analysis: Whom and What the FDIC and Fed Can Save How

Recent editorials and other media have often said that the FRB and/or FDIC have powers or taken actions that is not the factual case as we understand it. Members of Congress also appear sometimes willing to make assertions about what agencies can do now even if it is unclear if there is statutory authority to do so. We have provided individual clients with key clarifications, but do so now more generally to support strategic and advocacy decision-making. Of particular importance is the authority the FDIC is said to have or lack related to uninsured deposits; as detailed below, the agency actually has significant authority to do so as well as even to back BHC debt, as long as certain stringent conditions are met. As detailed in FSM Report RESCUE65, Congress limited both the FDIC and Fed in hopes that the Dodd-Frank orderly-liquidation authority (OLA, see FSM Report SYSTEMIC30) would permit orderly resolution of even the largest banks and nonbanks without long-term federal support; a subsequent FedFin report will bring the assessment of OLA powers into the current crises’ context given that Congress will surely seek to determine why the FDIC and its sister authorities chose to provide taxpayer support rather than deploy OLA.

RESCUE79.pdf…