#prime brokers – Federal Financial Analytics

4 03, 2024

DAILY030424

Eliza Allen2024-03-04T16:58:40-05:00March 4th, 2024|2- Daily Briefing|

BIS Targets Prime-Broker Risk

The BIS quarterly review contains an assessment of the risk prime brokers may pose both to GSIBs and financial stability. This sector has long been a concern of central bankers and risk managers, but the BIS analysis is the first in recent years to quantify it and decompose key risk drivers (e.g., wrong-way risk) to conclude that the inter-connections between hedge funds and prime brokers are a source of systemic instability and potential hazard to banks as evidenced all too clearly last year at Credit Suisse. These risks are of course also a key part of the Fed’s new exploratory stress-test related to hedge funds (see Client Report STRESS32).

Daily030424.pdf…

13 09, 2023

DAILY091323

Eliza Allen2023-09-13T16:46:21-04:00September 13th, 2023|2- Daily Briefing|

GOP Plans Still More Nails in CBDC Congressional Coffin

The memo for tomorrow’s HFSC CBDC hearing leaves no doubt as to continuing staunch GOP opposition, with Majority Whip Emmer (R-MN) reintroducing legislation barring the Fed from issuing a CBDC to individuals or using it to implement monetary policy.

FSI: Contingent Capital Fails as TLAC

Reinforcing the decision by U.S. agencies not to allow CoCo to serve as TLAC (see FSM Report TLAC9), a new BIS staff brief concludes that the current regulatory framework for Additional Tier 1 (AT1) bonds may not be fit for purpose, encouraging regulators to rethink CoCo as well as to consider heightening disclosure standards.

Gensler Emphasizes Prime Broker, Crypto, AI Risks

SEC Chairman Gensler today highlighted his ongoing worries about prime brokers, reiterating leverage and systemic-risk concerns.

Chopra Suggests Bank Merger Rewrite in Works

CFPB Director Chopra today reiterated the Bureau’s priorities, stating that the current bank merger review process lacks analytical rigor which will soon be addressed in ways he did not specify.

Daily091223.pdf…

13 06, 2023

DAILY061323

Eliza Allen2023-06-13T17:11:07-04:00June 13th, 2023|2- Daily Briefing|

Prime Brokers Face New Liquidity-Risk Standards

FINRA today released long-awaited proposals to ensure greater prime-broker liquidity, with prime brokers governed by the largest BHCs presumed to have sufficient liquidity based on Fed supervision of relevant enhanced liquidity standards.

Treasury Presses Private RTP

In remarks today, Treasury Assistant Secretary Graham Steele made it clear that Treasury wants to see private real-time payments continue in concert with FedNow to ensure resilience, noting also that instant payments pose risks that require new tools such as advanced cryptographic methods and controls such as transaction limits.

Chopra Stands Ground; Vance Considers Banking-Agency Overhaul

Today’s Senate Banking Committee hearing with CFPB Director Chopra showcased the usual partisan divide over the Bureau’s mission, with Democrats denouncing the 5^th Circuit’s decision and Republicans taking issue with the Bureau’s franchise and activities as well as its credit-card late fee proposal (see FSM Report CREDITCARD36) and small business reporting rule.

Democrats Remain Cautious on Stablecoin Bill, Opposed to Crypto Jurisdiction Rewrite

As anticipated, the full HFSC hearing today on digital assets focused on draft legislation concerning payment stablecoins and digital asset market structure.

Daily061323.pdf…

25 04, 2022

M042522

Arezou Rafikian2023-03-01T16:00:41-05:00April 25th, 2022|6- Client Memo|

Why Prime Brokers are Prime Suspects

Although Ukraine and emerging-market distress were the most frequently discussed topics around last week’s Bank/Fund meetings, two other high-impact issues were also top of mind. One is the end of the international financial order as we’ve known it for decades; I’ll return to this shortly as well as in my forthcoming book. The other to which I now turn is more immediate: commodity-market stress and what regulators will do to avert it if they can. I have heard a lot about a number of options, but I fear that regulators will do what they always do when trouble lurks: double-down on banks under their thumb instead of flexing their muscles to govern nonbanks at the heart of the global financial infrastructure.

M042522.pdf…

25 04, 2022

Karen Petrou: Why Prime Brokers are Prime Suspects

Arezou Rafikian2023-03-01T16:00:47-05:00April 25th, 2022|The Vault|

Although Ukraine and emerging-market distress were the most frequently discussed topics around last week’s Bank/Fund meetings, two other high-impact issues were also top of mind. One is the end of the international financial order as we’ve known it for decades; I’ll return to this shortly as well as in my forthcoming book. The other to which I now turn is more immediate: commodity-market stress and what regulators will do to avert it if they can. I have heard a lot about a number of options, but I fear that regulators will do what they always do when trouble lurks: double-down on banks under their thumb instead of flexing their muscles to govern nonbanks at the heart of the global financial infrastructure.

In the commodity markets, as in all but the most direct financial-intermediation functions, banks are increasingly risk enablers, not takers. This isn’t because banks are just too darn good; it’s because they are regulated and, after 2010, regulated to the point at which the capital costs of engaging directly in key businesses outweighed the profit potential in financial markets where nonbanks do not face the same costly constraints.

Going back to 2011, we’ve pointed out that asymmetric market regulation leads to rapid risk migration. In market after market, nonbanks have driven prices down to the point where they can still earn comfortable margins, pushing banks saddled by capital, conduct, and risk-management standards to bow out of a market except where legacy assets such as low-cost funding and …