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1 12, 2022

CRYPTO35

2022-12-02T10:01:16-05:00December 1st, 2022|5- Client Report|

Senate Ag Crypto Bill Faces Uphill Climb Despite CFTC Efforts

In the first Congressional review of crypto since the collapse of FTX, Senate Agriculture leadership largely defended the bill they produced, S.4760.  However, members outside of leadership were more skeptical of CFTC regulation and more broadly of the need for crypto in any part of the financial market.  Senate Banking Chairman Brown (D-OH) reiterated that he is working with Secretary Yellen to create a crypto framework that protects the traditional financial system and consumers.  Sen. Gillibrand (D-NY) seems to have moved away from her unequivocal support of cryptoassets, asking numerous questions on regulatory arbitrage and foreign domiciles, while Sen. Marshall (R-KS) joined Sen. Brown in suggesting that cryptoassets pose national-security risks.  Ag Committee Chair Stabenow (D-MI) countered that the bill would have prevented FTX’s failure, a view Ranking Member Boozman (R-AR) largely supported even as he said additional work may be needed on matters such as inter-affiliate transaction restraints.

CRYPTO35.pdf

21 11, 2022

M112122

2022-11-21T16:48:57-05:00November 21st, 2022|6- Client Memo|

What Will Be Done, Not Just Said, To Fix FTX

The only question left unanswered about FTX is whether it was a purposeful scam as more than a few clients conclude or a case of implacable forces ending the era of easy money that just got the better of another wunderkind whose awesome skills turned out to be largely confined to costumery conveying inspired innovation to all too many vulnerable investors and gullible politicians.  No matter which it is or even – as I think – if it’s a bit of both, FTX is a debacle that will change U.S. financial policy for the better unless FTX drives still more crypto chaos that then spills over to core financial infrastructure and intermediation.

m112122.pdf

21 11, 2022

Karen Petrou: What Will Be Done, Not Just Said, To Fix FTX

2022-11-22T13:18:11-05:00November 21st, 2022|The Vault|

The only question left unanswered about FTX is whether it was a purposeful scam as more than a few clients conclude or a case of implacable forces ending the era of easy money that just got the better of another wunderkind whose awesome skills turned out to be largely confined to costumery conveying inspired innovation to all too many vulnerable investors and gullible politicians. No matter which it is or even – as I think – if it’s a bit of both, FTX is a debacle that will change U.S. financial policy for the better unless FTX drives still more crypto chaos that then spills over to core financial infrastructure and intermediation. I’ve gotten a lot of questions about crypto policy after my brief discussion in last week’s talk on the midterm’s policy impact. Here, more on both the legislative outlook and what regulators may finally bring themselves to do even if Congress can’t get itself together any better next year than in so many before it.

First more on why stablecoins are the cryptoasset most likely to come under a new federal gun. This isn’t because they deserve it more than any other cryptoasset – although they might – but because policy thinking about what to do with stablecoins is most advanced and, thus, bipartisan negotiations in the House are closest to the finish line.

That said, even stablecoin standards aren’t going to be easy. The clearest articulation of how new law might work is S. 4356, the Lummis-Gillibrand …

18 11, 2022

DAILY111822

2022-11-18T16:59:14-05:00November 18th, 2022|2- Daily Briefing|

GAO Study Hikes Pressure on SEC Process

Adding to the Chairman Gensler’s woes, the GAO today released a report finding that the SEC Division of Enforcement did not document its work reviewing staff procedure assessments, hindering future internal reviews.  Republicans have been harshly critical of SEC procedures and processes, as well as of the Commission’s enforcement-focused approach to cryptoassets.  The GAO’s finding adds fuel to a campaign sure to gain force next year, recommending as it does that the Division Director ensure that information is collected and reported in its memorandum as required by Dodd-Frank.

Fed Study Endorses Bank Supervision

A new Fed staff study uses their unique access to bank examination reports from banks with less than $10 billion in assets to evaluate the extent to which supervisory reports and associated CAMELS ratings predict bank outcomes.  Looking at reports from 2004 through 2016 and thus capturing the great financial crisis, the study concludes that ratings for capital, assets, management, and earnings are effective even after controlling for factors including the ratings themselves.  Ratings are also associated with bank improvement in areas censured in earlier supervisory reports.  The analytical method is textual – i.e., based on a reading of supervisory reports then run through various models to determine impact.

Daily111822.pdf

16 11, 2022

REFORM215

2022-11-22T15:02:46-05:00November 16th, 2022|5- Client Report|

HFSC Session Brings Crypto Action to Fore, “Holistic” Capital Under Scrutiny

HFSC today largely focused bank regulators on the same range of questions posed at yesterday’s Senate Banking session (see Client Report REFORM214).  However, Chairwoman Waters (D-CA) emphasized the importance of federal legislation in sharp contrast to Chairman Brown (D-OH), also announcing a hearing in December on FTX.  Ranking Member McHenry (R-NC), who will become HFSC chairman in the next Congress, concurred with the chairwoman’s views on the need for digital-finance statutory reform.  However, he took strong issue with inter-agency policy with regard to new capital rules, merger restrictions, and third-party relationship constraints.  Republican members also targeted Vice Chairman Barr’s holistic capital review, arguing that banks are currently well capitalized and that additional standards would hamper lending.  Mr. Barr indicated that an SLR rewrite is part of the holistic review but not immediately necessary to quell Treasury-market volatility or illiquidity.  As discussed in more detail below, regulators promised banking-sector crypto rules at least as stringent as Basel’s proposal.

REFORM215.pdf

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2 11, 2022

DAILY110222

2022-11-02T16:14:20-04:00November 2nd, 2022|2- Daily Briefing|

SEC Turns to Swing Pricing, Structural OEF Redesign

As anticipated, the SEC today voted 3-2 to advance swing pricing and other structural changes to open-end funds (OEFs).  Key to this proposal is to the Commission’s controversial MMF draft (see FSM Report MMF19) is swing pricing, with Chairman Gensler laying out how he believes swing pricing would end first-mover advantage and thus improve fund stability.  The proposal also imposes stiff new liquidity standards, with Commissioner Uyeda dissenting from this and the rest of the proposal on grounds that only bank-loan funds have proven to be demonstrably illiquid under stress.

BIS Announces DeFi Foreign Exchange Pilot for CBDCs

Continuing its CBDC pilots, the BIS today announced the launch of Project Mariana, a system seeking to use DeFi protocols to automate CBDC foreign-exchange settlements.  Project Mariana will operate in Switzerland, France, and Singapore, exchanging wholesale CBDCs.  The BIS is interested in exploring the application and design of automated market markers in wholesale CBDC exchanges, the effectiveness of a supra-regional network for cross-border settlement, and potential governance models of wholesale CBDCs.

Daily110222.pdf

25 10, 2022

DAILY102522

2022-10-25T17:08:46-04:00October 25th, 2022|2- Daily Briefing|

Setting Stage for US Action, UK Regulators Target Bigtech Consumer-Finance Market Power

Focusing principally on competition, the UK’s Financial Conduct Authority (FCA) today released a discussion paper investigating bigtech’s entry into payments, deposit, consumer-credit, and insurance.

With Yellen Backing, SEC Central-Clearing NPR Advances

The Federal Register today includes the SEC’s proposal requiring that market clearinghouses submit certain secondary-market transactions for clearing along with the small percentage now already centrally-cleared.

FDIC Reports Significant Financial Inclusion Progress

Showing significant improvements in financial inclusion, the FDIC today released its biennial under- and unbanked household survey.

CFPB to Require Almost-Open Banking

At long last and as recently promised, the CFPB later this week will start a rulemaking process that would ultimately require financial institutions to share personal data with a consumer upon his or her request.

Democrats Get Ready To Blame The Fed

Continuing progressive critiques of the FOMC’s anti-inflation fight, Senate Banking Chairman Brown (D-OH) has written to FRB Chairman Powell sharply protesting current Fed policy.

Daily102522.pdf

20 10, 2022

DAILY102022

2022-10-20T17:36:06-04:00October 20th, 2022|2- Daily Briefing|

Fed Staff Study: Climate Risk-Based Capital Impossible for Foreseeable Future

FRB staff released a stylized study of one critical climate-risk policy question:  the extent to which banks should hold capital against it.  Members of Congress have suggested this over recent years (see FSM Report GREEN9) and the BIS at the outset of its thinking recommended both “brown-penalty” and “green-incentive” capital charges (see Client Report GREEN).

FSB Presses for MMF, Open-End Rules; Government-Bond CCPs

Continuing its NBFI focus (see Client Report NBFI), the FSB today issued new recommendations to address government-security market illiquidity.

Gruenberg Gives No Clue as to Timing, Content of Inter-Agency Crypto Guidance

In remarks today, Acting Chairman Gruenberg reiterated the risks laid out in the FSOC digital asset report (see Client Report CRYPTO33), repeated warnings against misrepresenting FDIC deposit insurance, and announced forthcoming interagency crypto guidance without providing any details or timeline.

Bipartisan Senators Press Secondary Sanctions for Enactment

Sens. Toomey (R-PA) and Van Hollen (D-MD) released a readout of a conversation with the Ukrainian Ambassador on the upcoming G7 Russian oil price cap, positioning their oil sanctions amendment for inclusion in the National Defense Authorization Act (NDAA) in light of the Ambassador’s support for it.

Warren Calls for Stronger, More Transparent CFPB Remittance Rule

Joined by four Senate Democrats, Sen. Warren (D-MA) today sent a letter to CFPB Director Chopra asking that the agency strengthen its remittance rule to ensure greater transparency for exchange rates and fees it …

15 09, 2022

INVESTOR20

2022-10-13T11:52:44-04:00September 15th, 2022|5- Client Report|

After Senate Banking Session, SEC Stays on Course

The Senate Banking hearing with Chairman Gensler today went as expected:  Democrats generally praised his work while Republicans strongly opposed it on both substantive and procedural grounds.  As a result, we expect the chairman to continue as he has in the wake of prior, comparable hearings – pretty much as he pleases and as the rest of the commission will support.  This will clearly change if Republicans gain control of both Houses of Congress after the midterm. Unless or until it does, the SEC will continue its enforcement-focused approach to cryptoasset regulation and climate disclosures.  Chairman Brown (D-OH) also confirmed our forecast:  he will defend not only his jurisdiction, but also a much more stringent approach to crypto regulation than contemplated  by the Senate Agriculture Committee’s bipartisan legislation.

INVESTOR20.pdf

14 09, 2022

DAILY091422

2022-10-13T11:57:25-04:00September 14th, 2022|2- Daily Briefing|

Pressure Mounts for Basel Finales

The Basel Committee’s oversight body of central bankers and top supervisors has pressed nations quickly to finalize the Basel III “end-game” rules referenced not only in FRB Vice Chairman Barr’s maiden speech, but also in a statement shortly before this meeting by all of the U.S. banking agencies.

FSB Continues Work on FMI Resolvability

The FSB today announced a survey to gather feedback on its FMI Intermediary information framework to judge how to best ensure resolvability, seeking views from FMI service providers, firms subject to resolution planning, and bank resolution authorities.

CFPB, FTC Press for Furnisher Accountability

The CFPB today joined the FTC in filing an amicus brief taking strong issue with the position that furnishers of credit information have legal discretion over their investigations of indirect credit disputes (i.e., those with debt collectors acting on the furnisher’s behalf).

SEC Proposes Treasury-Market Conversion to Central Clearing

Moving to adopt its preferred solution to Treasury-market fragility, the SEC today voted 5-0 to issue a proposal requiring that market clearinghouses – i.e., FICC, require their members (generally clearing banks) to submit certain secondary-market transactions for clearing along with the small percentage now already centrally-cleared.

Gensler Stands by Tough Crypto, MMF, Climate Policy

Ahead of testimony tomorrow before the Senate Banking Committee, SEC Chairman Gensler’s testimony reaffirmed the chairman’s strong stand on its crypto jurisdiction, reiterating that crypto markets should be subject to like-kind capital rules and that registration is necessary for most crypto tokens …

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