#scenario analysis – Federal Financial Analytics

3 03, 2023

Al030623

Eliza Allen2023-03-03T17:17:37-05:00March 3rd, 2023|3- This Week|

Gloves Off

When Chairman Powell comes before HFSC and Senate Banking this week, we’ll see if FedFin’s forecast for newly-rough going plays out, but all signs say it will. In the lead-up to the midterm, Democrats other than Sen. Warren (D-MA) who weren’t all that sympathetic to many Fed actions held their tongues in order to protect a central bank that, for all its putative independence, seemed aligned with Biden Administration statements promoting American prosperity and the near-term chances of reduced inflation. With the 2024 election looking even uglier than the midterm and Republicans in control of the House, Mr. Powell may find himself squeezed hard from both sides of the aisle, taking lots of heat on issues ranging from monetary policy and the debt ceiling to a panoply of Fed regulatory and payment-system decisions along with the pending nomination of a new vice chair.

Al030623.pdf…

17 01, 2023

DAILY011723

Eliza Allen2023-01-17T17:03:48-05:00January 17th, 2023|2- Daily Briefing|

FinCEN Opens Beneficial-Ownership Reports to Public Comment

Likely furthering its effort to garner greater public buy-in for its beneficial ownership information (BOI) standards, FinCEN is now requesting public comment on these reports.

CFPB Presses Consumers, Employees to Action

In a post today, the CFPB double-downed on its recent precedent-setting enforcement action against Wells Fargo (see Client Report CONSUMER46).

Breaking Up Won’t Be Hard to Do

In a high-impact speech today, Acting Comptroller Hsu expressly threatens that the OCC will not stop at the kind of growth restrictions imposed on Wells Fargo (see Client Report CORPGOV26) or the CFPB’s fines (see Client Report CONSUMER46) if a large bank is a repeat offender in safety-and-soundness arenas.

Fed Begins Big-Bank Physical/Transition Financial Climate Risk Analysis

The Fed today announced a two module structure for its upcoming GSIB pilot climate scenario analysis, kicking off a process to identify the data, governance, and processes banks need to manage the financial risks related to physical and transition climate events.

Daily011723.pdf…

16 12, 2022

DAILY121622

Eliza Allen2022-12-16T17:19:37-05:00December 16th, 2022|2- Daily Briefing|

GHOS Presses Speedy Bank-Crypto Capital Standards

Basel’s governing body, the Governors and Heads of Supervision, today endorsed the Committee’s planned work schedule.

Fed Finally Finalizes LIBOR Transition Regs

Narrowly ahead of its year-end statutory deadline, the Federal Reserve today issued a final version of its detailed proposal (see FSM Report LIBOR8) to implement the LIBOR Act’s provisions on replacement rates for existing contracts without fallback language (see FSM Report LIBOR7).

Regulators Highlight P2P, Crypto, NBFI Risks at FSOC Meeting

Although most of the FSOC’s discussion today of the LIBOR transition and climate risks was perfunctory, comments on the now-released 2022 Treasury annual report were not.

McHenry, Davidson Point to Forex-Clearing Systemic Risk

Picking up a recent BIS report finding at least $65 trillion at risk in off-balance sheet foreign-exchange clearing, incoming HFSC Chairman McHenry (R-NC) and the top Republican on the panel’s fintech task force, Rep. Warren Davidson (R-OH), called on Fed Chairman Powell and Secretary Yellen to investigate what they consider a looming risk to U.S. financial stability.

Chopra Presses Cloud-Service Provider, Stablecoin Systemic Designation

CFPB Chairman Chopra’s written statement for the FSOC meeting is considerably different than the oral one described in our earlier client alert.

Daily121622.pdf…

8 12, 2022

DAILY120822

Eliza Allen2022-12-08T17:14:56-05:00December 8th, 2022|2- Daily Briefing|

Comment Deadline Set For Fed’s Climate-Risk Management Principles

The Federal Register today includes the Fed’s comment request on proposed climate risk-management standards that would guide banking organizations with assets over $100 billion (see FSM Report CLIMATE15).

Basel: Climate Risk Not Ready for Capital Requirements

The Basel Committee today published a clarification by way of FAQs to its recently-finalized climate-risk management principles (see FSM Report CLIMATE14).

Warren, Smith Turn FTX Spotlight on Banking Agencies

As predicted in Karen Petrou’s memo on Monday, Congressional interest has now turned to the role of banks and their regulators in the FTX debacle.

FSB Heightens Focus on CCP, Insurer Resolvability

After over at least a decade of talking about nonbank resolvability, the FSB today announced that addressing it has become an “urgent” priority.

OCC’s Risk Inventory Continues To Target Deposit, Operational, Climate, Crypto Risk

As with its June 23 report on bank risks, the OCC’s December inventory reiterates concerns such as deposit outflow due to rate hikes, operational risks due to cyber-threats and third-party relationships, and compliance and credit risks.

Warren, Smith Back DOL Disqualification Proposal

Tackling yet another “big-bank” concern, Sens. Warren (D-MA) and Smith (D-MN) sent a letter today applauding the Department of Labor’s Employee Benefits Security Administration (EBSA) proposal to disqualify banks found guilty of criminal misconduct from being qualified professional asset managers.

Daily120822.pdf …

7 12, 2022

CLIMATE15

Eliza Allen2022-12-07T14:11:16-05:00December 7th, 2022|1- Financial Services Management|

Climate-Risk Management

Following the pattern set in 2021 by the OCC, the FRB has now proposed climate risk-management standards as high-level principles to guide banking organizations with assets over $100 billion. As with the OCC’s proposal and the very similar one that followed it from the FDIC, the FRB would give large banking organizations considerable discretion to manage climate financial risk as long as the organization expressly and transparently does so. The Board is more explicit about the flexibility banks would have to decide if climate risk warrants a separate set of policies and procedures or if it can be incorporated into the broader risk-management construct. However, regardless of an institution’s choice, the board of directors and senior management would need to ensure that climate risk is identified, measured, managed, and mitigated to the greatest extent possible consistent with the company’s business model and available climate-risk data. Scenario analyses would also be required, although banks would have considerable flexibility conducting them.

CLIMATE15.pdf…

15 11, 2022

DAILY111522

Eliza Allen2022-11-15T17:28:46-05:00November 15th, 2022|2- Daily Briefing|

Recognizing Early Stage, FSB Still Slams Climate Stress Scenario Analytics

In collaboration with the Network for Greening the Financial System (NGFS), the FSB today concluded that risk exposures and vulnerabilities may be underestimated under current climate-stress scenarios because metrics fail to capture second-round effects, potential climate non-linearities, risk-management costs and externalities, and asset-price corrections triggered by transition shocks. Further, while orderly scenarios do not yield severe impacts, disorderly scenarios and scenarios involving no financial system transition accompanied by high medium- to long-term physical risks correlate with significant GDP and financial losses. As a result, the FSB determines that, although the impact of climate risk is concentrated in certain sectors and currently contained from a domestic financial perspective, tail risks may pose notable resilience threats.

FRBNY Launches CBDC Feasibility Project

Advancing more of the U.S. CBDC infrastructure, the Federal Reserve Bank of New York today announced that its Innovation Center (NYIC) will engage in a proof-of concept project testing the technical, legal, and business feasibility of distributed ledger technology to settle financial institution liabilities through transfer of central bank liabilities. Work includes collaboration between NYIC and private sector organizations and will harness simulated data to explore the feasibility of central bank wholesale and commercial digital money interoperating on a shared multi-entity distributed ledger, but will not advance policy outcomes or signal imminent Federal Reserve CBDC adoption or design specifications.

Daily111522.pdf…

3 11, 2022

DAILY110322

Eliza Allen2022-11-03T17:15:32-04:00November 3rd, 2022|2- Daily Briefing|

Gruenberg Backs Bank On

In remarks late yesterday, FDIC Acting Chairman Gruenberg pointed to the importance of Bank On accounts to retain previously un- or under-banked households brought into the system following large government payments early in the pandemic.

ECB Presses Climate-Risk Capital Regs

Moving far ahead of the Fed, the ECB has announced strict plans to ensure that EU banks not only improve governance and express climate-risk stress testing, but also hold sufficient internal-capital allocations for physical and transition risk.

Data Standard-Setters to Come Under CFPB Regs

In remarks late yesterday updating the CFPB’s open-banking rulemaking efforts, Director Chopra indicated that the new consumer-data rules (see forthcoming in-depth FedFin report) will also address how best to set public and private-sector standards to ensure industry-wide fairness and access to critical infrastructure.

IMF Climate-Risk Priorities Include GSIB Buffers

The IMF’s Deputy Managing Director Bo Li today set priorities for central banks and bank regulators addressing financial-system climate resilience.

Daily110322.pdf…

30 09, 2022

DAILY093022

Eliza Allen2022-10-03T13:40:26-04:00September 30th, 2022|2- Daily Briefing|

Brainard Acknowledges Risk But Sticks to Policy Guns

Responding to acute concerns that Fed policy will shatter global financial stability, Fed Vice Chair Brainard today emphasized her longstanding and once-isolated view that monetary policy must consider financial stability.

Global Standard-Setters Turn to Clearing Margin, Liquidity

The Basel Committee, IOSCO, and CPMI issued the first substantive response to the FSB’s decision to target margining practices following its review of the 2020 financial crisis and the need to address nonbank financial intermediation (see Client Report NBFI).

HFSC Republicans Denounce Beneficial Ownership Rule

HFSC Ranking Member McHenry (R-NC) and Rep. Luetkemeyer (R-MO) released a statement today sharply criticizing FinCEN’s beneficial ownership final rule as overly broad and complex.

Basel Concludes High Capital Compatible with Sustained Profitability

The Basel Committee today released its latest report on bank capitalization, finding that profitability remains robust despite capital ratios increasing to the highest level since the beginning of the exercise in 2012.

Bowman Comes Out Swinging on New, Costly Big-Bank Rules

Following a speech earlier this week largely siding with banks on merger policy, FRB Gov. Bowman today agreed with assertions from bank CEOs (see Client Report REFORM213) and others that the largest U.S. banks are now well capitalized as judged by ratios and effective stress testing.

FRB/FDIC Turn to Regional Resolvability

The Fed and FDIC today announced that they will shortly propose resolution guidance for most regional banks.

Daily093022.pdf…

29 09, 2022

DAILY092922

Eliza Allen2022-09-29T16:56:43-04:00September 29th, 2022|2- Daily Briefing|

Beneficial Ownership Standards Released at Long Last

After a long delay and Congressional demands, FinCEN finalized its beneficial ownership rule today, mandating both domestic and foreign firms doing business in the US to report any individuals with substantial control or ownership interests.

Climate Scenario Analyses Begin

As initially promised by Chairman Powell (see Client Report FEDERALRESERVE67 and Michael Barr, the FRB today announced that it will pilot climate scenario analysis exercises involving Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. The pilot, which will begin early next year and conclude in late 2023, will require the banks to analyze the impact of certain climate-related stress scenarios on their portfolios.

FSB Continues to Review Climate Financial Stability Risks

In a speech today, FSB Chair Klaas Knot reiterated key needs in addressing climate-related financial stability risks. These needs include filling gaps in climate data, integrating climate risk into broader financial stability surveillance, and assessing whether a dedicated macroprudential policy approach is appropriate.

Daily092922.pdf…

22 09, 2022

REFORM213

William Cross2022-10-12T17:04:04-04:00September 22nd, 2022|5- Client Report|

Senate Republicans Tackle Woke Banking; Democrats Turn Again to Zelle, Fees

Senate Banking’s hearing with big-bank CEOs proved much more combative than HFSC’s session yesterday (see Client Report REFORM212). From the outset, Republican Senators condemned what they characterized as serious threats of banking politicization around social and cultural issues, with Ranking Member Toomey (R-PA) predicting a Republican counter-offensive should his party regain control. He also said that the Fed’s decision to join other central banks and supervisors in implementing climate scenario analysis is a precursor to regulatory edicts pressuring banks to divest from energy companies. Republicans also emphasized that high regulatory-capital requirements have undue macroeconomic effects. As predicted, Democratic focused extensively on Zelle and bank fees.

REFORM213.pdf…