#repo – Federal Financial Analytics

25 04, 2023

DAILY042523

Eliza Allen2023-04-25T17:12:43-04:00April 25th, 2023|2- Daily Briefing|

Stablecoin 2.0 Is Controversial 3.0

Ahead of Thursday’s stablecoin hearing, HFSC Republicans late yesterday released a second discussion draft of legislation that received a most equivocal response at last week’s subcommittee hearing (see Client Report CRYPTO42).

Treasury Finds Profitability to Blame for De-Risking

Treasury today released its 2023 De-Risking Report, finding that profitability principally explains why financial institutions choose to de-risk.

OFR: No Single Factor To Blame For 2019 Repo Spike

A new OFR paper on the September 2019 repo rate spike concludes that while a confluence of factors – large Treasury issuances, corporate tax deadlines, and lower levels of reserves – caused the crisis, none of them individually would have been disruptive enough to trigger the spike, although limited transparency and market segmentation exacerbated it.

Federal Agencies Launch New Anti-AI Enforcement Effort

The FTC, the Civil Rights Division of the DoJ, CFPB, and EEOC today released a joint statement pledging to enforce all relevant consumer protection, anti-discrimination, and fair competition laws not only on AI, but indeed also on all “automated systems” that the agencies believe to be within their jurisdictions.

HFSC Digital Assets Hearing Set For Jurisdictional Debate

Ahead of Thursday’s hearing on the latest stablecoin discussing draft, HFSC’s staff memo today reiterates GOP opposition to the SEC’s jurisdictional arguments.

ONRRP Revised

The Federal Reserve Bank of New York today revised the terms of access to the overnight reverse-repo program, adding financial stability and bank safety-and-soundness to monetary-policy implementation as ONRRP criteria for eligible counterparties …

18 04, 2023

DAILY041823

Eliza Allen2023-04-18T17:03:30-04:00April 18th, 2023|2- Daily Briefing|

FRB-NY Finds NBFIs a Source of Systemic Risk Over the Centuries

Reflecting renewed interest in “narrow banks,” the Federal Reserve Bank of New York blog posted evidence of systemic risk from nonbanks in the absence of any banks at all.

Stablecoin Compromise Faces Steep Challenges

As noted yesterday, HFSC’s Digital Asset Subcommittee is set for a Wednesday hearing clearly intended to lay the groundwork for near-term action on Chairman McHenry’s (R-NC) longstanding goal of enacting stablecoin legislation.

Despite Failures, DIF Restoration Ahead Of Schedule

At the FDIC Board’s meeting today, FDIC staff said that – while the timing for restoring the DIF to its 1.35% statutory minimum remains uncertain – the DIF could reach its statutory minimum ahead of time and by 2024.

Bowman Remains Staunch CBDC Skeptic

Reiterating that any U.S. CBDC requires Congressional approval, Gov. Bowman today also reiterated her longstanding skepticism to any such instrument.

CFPB Plans Timing Study to Buttress Junk-Fee Regs

The Federal Register today includes a CFPB comment request on its “Junk Fees Timing Study,” which would be part of a series of online lab experiments testing differences in consumer choices across different information presentations.

Warren, Reed Demand OFR Use Subpoenas To Obtain Systemic Data

Sens. Warren (D-MA) and Reed (D-RI) today urged OFR Acting Director Martin to fill data gaps around financial stability risks posed by climate change, cryptocurrencies, and repo markets.

Daily041823.pdf…

17 01, 2023

m011723

Max Camateros-Mann2023-01-17T16:53:14-05:00January 17th, 2023|6- Client Memo|

How FHLBs Miss the Mission, Heighten Financial Risk

Recent revelations about the Federal Home Loan Bank System have made it still more imperative to address whether at least $1 trillion of implicitly-guaranteed federal debt should be authorized to feather the FHLBs’ pockets instead of furthering public welfare.

m011723.pdf…

17 01, 2023

Karen Petrou: How FHLBs Miss the Mission, Heighten Financial Risk

Arezou Rafikian2023-01-17T17:01:18-05:00January 17th, 2023|The Vault|

Recent revelations about the Federal Home Loan Bank System have made it still more imperative to address whether at least $1 trillion of implicitly-guaranteed federal debt should be authorized to feather the FHLBs’ pockets instead of furthering public welfare. As we detailed in a recent client report, flat-out mission contradictions are clear in the case of a crypto-heavy bank’s use of FHLB funding as a lifeline which it surely obtained because the System can lend with impunity because it has a prior lien ahead of even the FDIC. However, this case isn’t the only current mission conundrum. The other is little-noticed but at least as problematic: the extent to which Home Loan Banks lend not to support homes, but instead to give foreign banks in the U.S. a tidy revenue source via a nifty interest-rate arbitrage play that disadvantages U.S. banks and may even threaten financial stability and monetary-policy transmission.

But first to the question of whether the FHLB System is required to do better. It would seem totally obvious that Home Loan Banks issue debt through the System’s Office of Finance thanks to taxpayer benefits. However, in connection with a discussion of the prior lien, an FHLB spokeswoman said the System operates without any resort to taxpayers. Leaving aside the fact that the Banks don’t pay taxes and couldn’t raise hundreds of billions at near-Treasury spreads if they weren’t cushioned in the taxpayers’ bosom, the law says these entities are agencies of the U.S. Government and regulates …

5 01, 2023

DAILY010523

Eliza Allen2023-01-05T17:01:33-05:00January 5th, 2023|2- Daily Briefing|

OFR Tackles Repo-Market Data Transparency

As pressed by the FSOC (see Client Report FSOC28), OFR today released a sweeping proposal to gather daily data on the uncleared bilateral repo market. The proposal follows a data-collection pilot that leads OFR now to detail 33 daily reporting items that would be collected from the forty largest bank and nonbank primary dealers in this systemic-critical sector.

OCC Reiterates Long Term Principles

The OCC today published its 2022 Annual Report, revealing little of its priorities for 2023. It does, however, reiterate long-term goals laid out by Acting Comptroller Hsu, including guarding against complacency, addressing inequality, adapting to digitalization, and managing climate risk.

Daily010523.pdf…

18 07, 2022

m071822

Arezou Rafikian2023-01-06T14:55:15-05:00July 18th, 2022|6- Client Memo|

A Pragmatic Vision of a Purposeful Home Loan Bank System

Although a new paper by former FRB Gov. Tarullo and Fed staffers on the FHLB stirred considerable consternation across the Federal Home Loan Bank System, it’s a crushing and persuasive critique of a giant GSE that has long preferred to go unnoticed. That’s not unreasonable since the System has evolved from an essential small-bank funding source for mortgages into a taxpayer-subsidized capital-markets investment option. When public wealth is not allocated for public welfare, resources are misallocated and market integrity is compromised. But, unless the Home Loan Banks blow themselves up, they are here to stay. Thus, the policy challenge is not how to abolish them, but how best to redirect an established funding channel back to servicing the public good. Traditional single-family mortgages don’t need the Banks anymore, but much else does.

m071822.pdf…

18 07, 2022

Karen Petrou: A Pragmatic Vision of a Purposeful Home Loan Bank System

Arezou Rafikian2023-01-06T14:56:42-05:00July 18th, 2022|The Vault|

Although a new paper by former FRB Gov. Tarullo and Fed staffers on the FHLB stirred considerable consternation across the Federal Home Loan Bank System, it’s a crushing and persuasive critique of a giant GSE that has long preferred to go unnoticed. That’s not unreasonable since the System has evolved from an essential small-bank funding source for mortgages into a taxpayer-subsidized capital-markets investment option. When public wealth is not allocated for public welfare, resources are misallocated and market integrity is compromised. But, unless the Home Loan Banks blow themselves up, they are here to stay. Thus, the policy challenge is not how to abolish them, but how best to redirect an established funding channel back to servicing the public good. Traditional single-family mortgages don’t need the Banks anymore, but much else does.

The paper’s criteria for considering taxpayer subsidies are a very helpful guide for moving forward and thus worth quoting at length:

“There is, of course, nothing inherently wrong with government subsidies. But subsidies should meet two conditions if they are to be sound public policy. First, they must be shown to be correctives for identified market failures or instruments of targeted redistribution policies. Second, there must be governance mechanisms to ensure that the subsidies are used to achieve the ends specified by the legislature or regulator, and not for other purposes.”

I suspect the authors would agree with a third point: if a credible, forward-looking case for the subsidy cannot be made by virtue of demonstrable public benefits …

17 06, 2022

DAILY061722

Eliza Allen2023-01-26T11:48:59-05:00June 17th, 2022|2- Daily Briefing|

Powell Ponders the Dollar
In remarks today at a conference on the dollar’s reserve-currency status, Chairman Powell highlighted Fed actions to ensure that the dollar is not only an essential global payment instrument, but also a stable one.

Republicans Prepare to Investigate SEC over Climate-Risk Disclosures
In a letter to SEC Chairman Gensler, Senate Banking Republicans upped their campaign against the SEC’s proposed climate disclosure rule, asking the Chairman to provide all written communication related to it.

Chopra Redoubles Plans for Innovative Standard-Setting, Tough New Rules
In a sweeping statement today, CFPB Director Chopra strongly defended his agency’s unusual approach to recent guidance and rulemakings as well as detailed ongoing priorities.

BIS Announces New Crypto, Cybersecurity, and Green Finance Projects
The BIS Innovation Hub today updated its 2022 work program with several new projects on cryptocurrency, cybersecurity, green finance, and CBDC.

Daily061722.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 …