#PCA – Federal Financial Analytics

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

William Cross2023-05-30T16:54:05-04:00May 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

William Cross2023-05-08T10:10:21-04:00May 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…

20 03, 2023

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

Eliza Allen2023-03-20T11:35:24-04:00March 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

Eliza Allen2023-03-20T11:35:13-04:00March 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…