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31 01, 2023

DAILY013123

2023-01-31T16:58:29-05:00January 31st, 2023|2- Daily Briefing|

BIS Finds Digital Payments Have Yet to Conquer Cash

In a brief today, the BIS Committee on Payments and Market Infrastructures (CPMI) found that digital payments, while rapidly growing, have not supplanted cash.  CPMI does report a record high value and volume of cashless payments, crediting this to changing consumer preferences, increasing prevalence of fast payments systems, and COVID, noting that cashless options may also bolster financial inclusion.  However, the brief also finds a deceleration in the decline of cash withdrawals, concluding there is still a significant ongoing, if diminishing, demand for cash.

Warren, GOP Allies Grill Silvergate on FHLB Loan, Fed Supervision

Signaling bipartisan plans to take on crypto banking and now also the FHLBs as quickly as possible in the new Congress, senator Warren (D-MA) was joined yesterday by Sens. Kennedy (R-LA) and Marshall (R-KS) in sending another letter to the CEO of Silvergate Bank.  Following an earlier inquiry which they said led to an insufficient response, the letter now focuses on the bank’s use of a $4.3 billion FHLB loan as a liquidity backstop.  As in Karen Petrou’s recent memos and today’s podcast, the letter focuses on the System’s prior lien ahead of all other creditors (including the FDIC) and the extent to which this puts taxpayers at risk.

Daily013123.pdf

18 01, 2023

DAILY011823

2023-01-18T16:37:19-05:00January 18th, 2023|2- Daily Briefing|

FSB Pledges Further Work on Bank NBFI Capital Exposures, MMFs, OEFs

The FSB today published an update on its non-bank financial intermediation (NBFI) reforms, finding that further progress is needed in implementing capital requirements for bank exposures to investment funds and large exposures.

CFPB Tells Examiners To Look At Servicer Fees, Foreclosure Process

The CFPB today released updated Mortgage Servicing Examination Procedures reflecting newly identified consumer risks since its 2016 update as well as pandemic-era servicing changes.

FRB-NY: Small Banks Behind Recent Discount Window Lending Spike

A new post from FRB-NY staff looks at why discount-window lending has recently increased, providing data that make it still more interesting that Silvergate chose emergency support from Home Loan Banks, not the Fed.

Daily011823.pdf

13 01, 2023

AL011623

2023-01-13T16:42:19-05:00January 13th, 2023|3- This Week|

Tumult in the House

As is patently clear from all the discourse following Kevin McCarthy’s fifteenth ballot win for the House gavel, the “lower body” has taken a few shots across its institutional knee-cap.  However, we think experienced House Members with ambitions for higher office along with affinity for strongly-conservative policies will find a way to move legislation on the GOP side of the aisle.  Less clear is what Democrats will do given the Speaker’s pledge to bring every bill to the floor on an open rule – a procedure allowing them considerable scope both for substantive legislative change and political theater.  If the Minority Leader, Hakeem Jeffries (D-NY) thinks his party’s bread is buttered on the side of showing it can govern, some bills will move forward without toxic Democratic change; if not, not.  All is, thus, a muddle in which there may well be a middle.

Al011623.pdf

12 01, 2023

FedFin on: Financial-Policy Consequences of Silvergate’s Travails

2023-01-12T11:04:34-05:00January 12th, 2023|The Vault|

Karen Petrou’s memo earlier this week and her comments to the American Banker about Silvergate have sparked many client questions.  In this report, we provide additional context for aspects of this bank’s condition with policy consequences.   High-profile cases such as this have a long history of suddenly shifting long-pending policies; depending on outcomes, this bank’s challenges and those of any other crypto-heavy banks will almost surely do so.  In general, the case already confirms U.S. regulators of the wisdom of additional capital for crypto-exposed banks along the lines recently finalized by global regulators (see FSM Report CRYPTO37).  However, it also raises significant questions about the role of the Federal Home Loan Banks, brokered deposits, resolution policy, and AOCI recognition – and these are just for starters as the bank struggles to stay afloat.

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

11 01, 2023

CRYPTO38

2023-01-12T11:03:19-05:00January 11th, 2023|5- Client Report|

Financial-Policy Consequences of Silvergate’s Travails

Karen Petrou’s memo earlier this week and her comments to the American Banker about Silvergate have sparked many client questions.  In this report, we provide additional context for aspects of this bank’s condition with policy consequences.   High-profile cases such as this have a long history of suddenly shifting long-pending policies; depending on outcomes, this bank’s challenges and those of any other crypto-heavy banks will almost surely do so.  In general, the case already confirms U.S. regulators of the wisdom of additional capital for crypto-exposed banks along the lines recently finalized by global regulators (see FSM Report CRYPTO37).  However, it also raises significant questions about the role of the Federal Home Loan Banks, brokered deposits, resolution policy, and AOCI recognition – and these are just for starters as the bank struggles to stay afloat.

CRYPTO38.pdf

10 01, 2023

American Banker, Tuesday, January 10, 2023

2023-01-11T11:01:42-05:00January 10th, 2023|Press Clips|

Silvergate Bank loaded up on $4.3 billion in FHLB advances

By  Kate Berry

When depositors began pulling money out of Silvergate Capital Corp. following the collapse of cryptocurrency exchange FTX, the California bank shored up its liquidity by tapping a quasi-government agency not typically known as a lender of last resort.  Silvergate received $4.3 billion from the Federal Home Loan Bank of San Francisco late last year, company filings show….”What the $4.3 billion to Silvergate went to in terms of mission is a very intriguing question,” said Karen Petrou, managing partner at Federal Financial Analytics. “The housing mission of the Home Loan banks is apparently long gone, since this has nothing to do with housing. It has to do with supplementing wholesale funding sources for banks that can’t happen any other way or at greater cost.”

https://www.americanbanker.com/news/silvergate-bank-loaded-up-on-4-3-billion-in-fhlb-advances

 …

9 01, 2023

Karen Petrou: Is Silvergate Solvent?

2023-01-09T16:42:49-05:00January 9th, 2023|The Vault|

Is Silvergate solvent?  Media coverage suggests it can stay in business based on the crypto bank’s liquidity.  Liquidity is, though, only a necessary condition for a bank to survive.  For it actually to remain in business, a bank must also be solvent.  For Silvergate and several other crypto-heavy banks this won’t be easy.

The critical criterion determining whether regulators allow a bank to remain in business is the extent to which its capital meets or exceeds the rules and, when it doesn’t, how much below these thresholds it falls and why.  Ever since 1991, regulators are supposed to grant banks little leeway on these capital requirements – “prompt corrective action” provisions demand that regulators sanction banks as capital plummets and close them if they haven’t already done so if ratio’s sink to the “critical-capital” threshold.

Faced with a Lehman-like run, Silvergate has understandably focused on assuring stakeholders that it can continue to sell assets to handle all withdrawals.  And so it may, but that’s not its only problem.  Even if it’s liquid, Silvergate faces a grim future if its regulatory-capital ratios falter – and they might.

To survive, Silvergate must run a gauntlet between the amount of capital it holds on a shrinking pool of assets and the capital costs of losses taken as assets are sold to handle withdrawals.  The bank entered the liquidity wringer with ample capital.  According to its third-quarter call report, its leverage ratio was over ten percent.  And, even when the bank dumped over …

9 01, 2023

m010923

2023-01-09T09:24:52-05:00January 9th, 2023|6- Client Memo|

Is Silvergate solvent?

Is Silvergate solvent?  Media coverage suggests it can stay in business based on the crypto bank’s liquidity.  Liquidity is, though, only a necessary condition for a bank to survive.  For it actually to remain in business, a bank must also be solvent.  For Silvergate and several other crypto-heavy banks this won’t be easy.

m010923.pdf

12 12, 2022

m121222

2022-12-12T15:50:00-05:00December 12th, 2022|6- Client Memo|

Where New Crypto Enforcement, Regulatory Action Will Land

As we’ve learned over the years, a memo written is a memo shared.  So it was with my last note on what were then little-noticed links between the tumultuous cryptosphere and what regulators assured us was a banking sector aloof from these violent downdrafts.  Sens. Warren and Smith then picked up the examples of several bank/crypto hot spots.  The result of new facts combined with heightened political risk will surely lead the bank regulators to follow the tried-and-true strategy of slapping a lot of enforcement actions around before agency heads are hauled up to the Hill.  Other than stablecoin legislation, new crypto law is uncertain, but after all the enforcement actions will also surely come new banking crypto regulation….

m121222.pdf

12 12, 2022

Karen Petrou: Where New Crypto Enforcement, Regulatory Action Will Land

2022-12-12T15:50:07-05:00December 12th, 2022|The Vault|

As we’ve learned over the years, a memo written is a memo shared.  So it was with my last note on what were then little-noticed links between the tumultuous cryptosphere and what regulators assured us was a banking sector aloof from these violent downdrafts.  Sens. Warren and Smith then picked up the examples of several bank/crypto hot spots.  The result of new facts combined with heightened political risk will surely lead the bank regulators to follow the tried-and-true strategy of slapping a lot of enforcement actions around before agency heads are hauled up to the Hill.  Other than stablecoin legislation, new crypto law is uncertain, but after all the enforcement actions will also surely come new banking crypto regulation.

First, though, to incoming enforcement actions as these lay the groundwork for next-gen regulation.  Any bank with big crypto exposures no matter how otherwise pristine is already under its examiner’s gun in terms of immediate demands for an inventory of all crypto actions anytime for anyone.  The senators include this in their asks, looking for names as well as activities and customers.  But the banking agencies were surely already hot on this trail.

Any bank that failed to mind its prior-notice manners will surely get a public drubbing so that regulators can point to a host of cases that uncover all risks anywhere they lurk.  And banks now casting covetous eyes on cheap crypto assets will get a talking to from Washington if their own internal risk managers haven’t already …

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