#SOFR

3 07, 2023

DAILY070323

2023-07-03T16:12:30-04:00July 3rd, 2023|2- Daily Briefing|

UK Targets PE/Private-Credit Interconnections

Although U.S. regulators have begun to talk about inter-connections (see FSM Report SYSTEMIC95), the Bank of England’s top official for international finance today laid out new U.K. policy to address them.  Specifically, Nathanaël Benjamin addressed counterparty risk with particular attention to bank private-equity and private-credit exposures.  Mr. Benjamin’s concern is principally that, should the U.S. not pull off a soft landing, this sector could experience severe stress that could quickly migrate to asset management.

IOSCO Sticks With SOFR

Acting on concerns often expressed by SEC Chairman Gensler, IOSCO today published its final assessment of USD LIBOR, judging two credit-sensitive alternatives problematic and blessing limited use of certain term SOFRs.  The most immediate consequences of this will be to make the Fed still less likely to permit banks to use the limited credit-sensitive exemptions provided in its final alternative-benchmark rule (see FSM Report LIBOR9), with IOSCO emphasizing its point with specific reference to this option by urging only cautious use of these rates and suggesting that regulators (presumably outside the U.S.) review their permissibility.

Daily070323.pdf

9 05, 2023

SYSTEMIC96

2023-05-09T11:25:24-04:00May 9th, 2023|5- Client Report|

Fed Frets About Banks, Nonbanks, Hedge Funds

Perhaps because its last financial-stability report (see Client Report SYSTEMIC94) was contradicted  just five months later by a systemic-risk designation, the Federal Reserve’s latest report eschews a conclusion about prospective risk in favor of a review of current concerns.  As noted upon the report’s release, these include a somewhat less effusive view of bank resilience than has characterized prior reports but the Board nonetheless views the banking system as sound and recent failures as essentially idiosyncratic.  The report is, however, concerned with midsized-bank CRE concentrations and the near-term impact of macroeconomic factors and deposit outflows on credit availability, noting as Chairman Powell did last week that this could adversely affect economic growth.

SYSTEMIC96.pdf

6 02, 2023

DAILY020623

2023-02-06T16:57:16-05:00February 6th, 2023|2- Daily Briefing|

FRB-NY Confirms Regional-Bank Struggle Following LIBOR Transition

A new Federal Reserve Bank of New York staff study and blog post reaffirms many regional-bank fears about the LIBOR transition not fully allayed by compromise provisions in the Fed’s recent benchmark-setting regulation (see FSM Report LIBOR9).  Focusing on the credit-line sector (which is largely unfunded), the paper finds that the likely cost of bank wholesale funding under stress will sharply exceed that earned on corporate-line drawdowns priced to SOFR, with these spreads likely especially wide for regional banks.  The paper’s models and data thus lead to the conclusion that the shift to SOFR will decrease line availability.

Barr Prioritizes Privacy, Small-Bank Capital, FSOC Restraints

A new staff memo provides not only the agenda for Wednesday’s House Financial Institutions & Monetary Policy Subcommittee, but also the priorities Chairman Barr (R-KY) will pursue with regard to financial regulation.  Key concerns are encouraging fintech, data privacy (a priority issue also for Chairman McHenry), facilitating de novo charters, and holding the banking agencies accountable.  Bills on which a record will be established is one yet to be introduced to revise the Gramm-Leach-Bliley Act’s privacy standards to stipulate federal preemption, expand coverage and give consumers rights akin to those now also under consideration by the CFPB for a limited number of banking activities (see FSM Report DATA3).

Daily020623.pdf

3 01, 2023

DAILY010323

2023-01-03T16:56:20-05:00January 3rd, 2023|2- Daily Briefing|

Update re U.S. LIBOR Standards

In case you missed it, we want to alert you to one of FedFin’s time-critical reports that was sent over  the holidays:  LIBOR9, which details the Fed’s new alternate benchmarks as even harder bargaining over legacy contracts begins early this year.  As we note, the final rule is a faithful reiteration of much of what was in the law mandating it (see FSM Report LIBOR7), narrowing the range of disputes over who wins or loses via which benchmark replacement may or may not be contractually authorized.

US Agencies Raise Red Flag Before Crypto Exposures

Starting the New Year off with a crypto bang, the federal banking agencies today issued a very cautionary statement reiterating and broadening the risks attendant to crypto activities and the care banks need to take conducting them.  The statement also promises additional action, which we think very likely to include U.S. versions of the stringent new Basel standards.  We will shortly send clients our in-depth analyses of this global policy which now erects a strong firewall between banking organizations and all but the most carefully-structured, regulated cryptoasset exposures or activities.

Daily010323.pdf

28 12, 2022

LIBOR9

2023-01-03T14:18:55-05:00December 28th, 2022|1- Financial Services Management|

Legacy-Contract LIBOR Replacement Benchmarks

Shortly before its statutory year-end deadline, the Federal Reserve finalized its proposal defining legacy-contract benchmarks when there is no clear, practicable contractual fallback rate.

LIBOR9.pdf

19 10, 2022

DAILY101922

2022-10-20T17:16:10-04:00October 19th, 2022|2- Daily Briefing|

CFPB Brings Older Adults Into Fair-Fee Focus

Following yesterday’s enforcement action and furthering its “fair-fee” policy agenda (see FSM Report CONSUMER38), the CFPB today published an Issue Brief on overdraft fees and economically-insecure older adults.

HUD Advances LIBOR Replacement As Deadline

Following its ANPR on replacing LIBOR last year, HUD today published a proposed rule to remove LIBOR as an approved index for forward ARMs and reverse mortgages, replacing it with SOFR.  For existing ARMs, HUD proposes to establish a spread-adjusted SOFR index to transition from LIBOR, with a lifetime five percent interest-rate cap for monthly adjustable rate reverse mortgages.

House Republicans Question PayPal’s Content Fine Mistake

Following revelations that PayPal had temporarily imposed a penalty fee on certain content, HFSC Ranking Member McHenry (R-NC), Energy and Commerce Ranking Member Rodgers (R-WA), and Reps. Emmer (R-MN) and Griffith (R-VA) sent a letter to PayPal CEO Dan Schulman requesting more information about PayPal mistakenly updating its Acceptable Use Policy to include a fine for sharing “objectionable” messages on the platform.

Fed Study Finds Little Evidence of Discrimination in Mortgage Lending

A new Fed study on racial bias in mortgage lending finds little evidence of discrimination, concluding instead that disparities in observable applicant risk explain most racial denial disparities.  The study uses confidential HMDA supervisory data from 2018-2019 that controls for credit scores, DTI, and LTV on top of automated underwriting systems (AUS) recommendations.

Daily101922.pdf

25 07, 2022

LIBOR8

2023-01-04T15:53:08-05:00July 25th, 2022|1- Financial Services Management|

Legacy-Contract LIBOR-Replacement Benchmarks

Moving belatedly but now expeditiously to implement legislation governing legacy-contract benchmarks when there is no contractual fallback rate, the Fed has proposed a new framework for derivatives, consumer loans, certain GSE contracts, and any other legacy contracts without clear LIBOR-replacement provisions and a “determining person” to effectuate them.  As required by the LIBOR Act, the new approach is SOFR-based and incorporates statutory “tenor spreads” designed to reflect the differences between a rate calculated with some amount of credit risk (LIBOR) to one premised on risk-free sovereign obligations (SOFR).  The manner in which this was done was one of the most challenging aspects of finalizing the new law and reflects an uneasy compromise between the Fed and many in the industry, especially regional banks with large consumer-loan books.  Perhaps due to the late date at which the proposal was issued, many other issues are not addressed, creating areas of potential uncertainty related to affected contracts and the broader body not only of Fed rules, but also the broader regulatory framework governing nonbanks.

LIBOR8.pdf

19 07, 2022

DAILY071922

2023-01-06T14:46:12-05:00July 19th, 2022|2- Daily Briefing|

Fed Seeks to Bring Order Out of Looming LIBOR Chaos

Fighting the end-September deadline demanded in the new law (see FSM Report LIBOR7), the Federal Reserve Board today unanimously proposed the formulas by which benchmark-rate compliance will be judged in LIBOR-based legacy contracts without rate-fallback contractual clarity.

House Advances Sanctions, Cash-Access, Credit-Union, Mortgage Legislation to Uncertain Senate Fate

Chairwoman Waters (D-CA) today released an accounting of all the HFSC measures included in the massive National Defense Authorization Act (NDAA) approved by the House late last week.

House Judiciary Damns Bigtech, Skirts Financial Services

House Judiciary Committee Democrats today tried to reinvigorate antitrust legislation focused on bigtech companies with a report concluding that stronger antitrust and merger enforcement is needed for Google, Amazon, Facebook, and Apple.

CFPB Presses SPCs

The CFPB today issued a staff statement reiterating key points in February’s inter-agency statement encouraging special-purpose credit (SPC) programs.  The new CFPB release reiterates the criteria for SPCs that comply with the Equal Credit Opportunity Act, noting also the benefits such programs may afford to racial equity.

OFR Details Commercial Real Estate Recovery, Emerging Risks

OFR today released a study detailing how the commercial real estate (CRE) market weathered the 2020 recession, also describing CRE’s future risks.

Daily071922.pdf

19 07, 2022

GSE-071922

2023-01-06T14:48:05-05:00July 19th, 2022|4- GSE Activity Report|

Bedtime for a Benchmark

As noted earlier today, the Fed has finally brought forth its LIBOR-transition proposal specifying permissible benchmarks for legacy contracts without contractual fallback rates. We will shortly provide clients with an in-depth assessment of the Fed’s proposal, but in very short, it tracks the law’s tenor spreads related to SOFR based on contract maturity and then crafts additional requirements for non-derivative obligations.

GSE-071922.pdf

7 12, 2021

Daily120721

2023-05-23T13:20:29-04:00December 7th, 2021|2- Daily Briefing|

FBO Sanctions Update
Sens. Cotton (R-AR), Rubio (R-Fl) and eleven GOP colleagues have introduced S. 3318, legislation pressing the U.S. to deny foreign financial institutions access to the U.S. financial system if they provide “Palestinian martyr” payments.

Chopra Slams “Banking Cartel” as CFPB Sets LIBOR Standards
The CFPB today issued its final LIBOR-transition rule, with Director Chopra’s accompanying statement emphasizing that this rule will now prevent the “banking cartel” from again illegally setting disadvantageous consumer interest rates.

CFPB Accepting Additional Bigtech Inquiry Comments
The CFPB today reopened the comment period on its bigtech inquiry, now accepting comment until December 21. As we noted when the comment period opened, the Bureau then provided a very short comment window because Director Chopra said that the Bureau must move quickly due to the initiative’s importance.

Warren Readies Anti-Powell Attack
Sen. Warren (D-MA) today released a letter making it clear that she will strongly oppose Chairman Powell when his confirmation comes before the Senate Banking Committee.

FSB: Persistent Gaps Challenge Resolution Regimes
The FSB today updated progress on implementing its key attributes of effective resolution regimes, reporting significant advances at GSIBs despite gaps at smaller banks, insurance companies, and CCPs.

HFSC Dems: Investment Firms Must Increase Diversity
Ahead of a hearing Thursday sure to be critical of large financial companies, a new HFSC majority staff report on diversity and inclusion looks at large investment firms (including those owned by banks) and finds little progress.

Daily120721.pdf

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