#stress test – Federal Financial Analytics

17 03, 2023

FedFin Assessment: Future of U.S. Bank Capital, Liquidity, Structural Regulation

Eliza Allen2023-03-17T16:50:38-04:00March 17th, 2023|The Vault|

In this report, we continue our policy postmortem of SVB/SBNY and, now, so much more. Prior reports have assessed the overall political context (see Client Report RESOLVE49) and likely changes to FDIC insurance (see Client Report DEPOSITINSURANCE118), with a forthcoming Petrou op-ed in Barron’s focusing on specific ways to reform federal deposit insurance to protect only the innocent. In this report, we look at some key regulatory changes likely as the banking agencies reevaluate the regional-bank capital, liquidity, and the IDI/BHC construct. As noted in our initial assessment and thereafter, we do not expect meaningful legislative action on the Warren, et. al. bill to repeal “tailoring” requirements, but we do expect bipartisan political pressure not just for supervisory accountability (see another forthcoming report), but also regulatory revisions.

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

17 03, 2023

REFORM216

Eliza Allen2023-03-17T14:27:00-04:00March 17th, 2023|5- Client Report|

FedFin Assessment: Future of U.S. Bank Capital, Liquidity, Structural Regulation

In this report, we continue our policy postmortem of SVB/SBNY and, now, so much more. Prior reports have assessed the overall political context (see Client Report RESOLVE49) and likely changes to FDIC insurance (see Client Report DEPOSITINSURANCE118), with a forthcoming Petrou op-ed in Barron’s focusing on specific ways to reform federal deposit insurance to protect only the innocent. In this report, we look at some key regulatory changes likely as the banking agencies reevaluate the regional-bank capital, liquidity, and the IDI/BHC construct. As noted in our initial assessment and thereafter, we do not expect meaningful legislative action on the Warren, et. al. bill to repeal “tailoring” requirements, but we do expect bipartisan political pressure not just for supervisory accountability (see another forthcoming report), but also regulatory revisions. While Republicans strongly opposed tougher capital rules when Chairman Powell appeared before them just last week (see Client Report FEDERALRESERVE73), we expect them now only to make token statements of concern about any changes that do not adversely affect smaller banking organizations. In addition to looking at specific regulatory rewrites, this report assesses timing, noting in particular how the pending end-game rules could serve as the vehicle for changes the agencies hope to muster quickly in order to minimize demands for structural change to their own powers.

REFORM216.pdf…

14 12, 2022

DAILY121422

Eliza Allen2022-12-14T17:49:04-05:00December 14th, 2022|2- Daily Briefing|

Basel Blesses Basel III

In its own version of a holistic review, the Basel Committee today pronounced itself satisfied with the post-GFC regime. Although the new construct increased complexity, Basel finds no redundancy nor any adverse effects. Banks that were forced to raise the most capital and liquidity as a result of these reforms saw the greatest reduction in their cost of capital and, while these banks may have reduced lending, credit availability across the banking system generally increased.

FSB Advances Preliminary OEF Reforms

In its latest policy conclusions on open-end funds (OEFs), the Financial Stability Board praises its 2017 policies as a success but then goes on to describe the sector’s liquidity risk as still so high as to warrant new global standards. The FSB and IOSCO now recommend that national regulators quickly review disclosure and stress-testing practices and improve them as briefly described in this release. The agencies will also advance proposals for public comment that would, among other things, require OEFs either to ensure they can meet daily redemption demands or set a longer redemption period.

Daily121422.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 …

2 12, 2022

DAILY120222

Eliza Allen2022-12-02T16:51:39-05:00December 2nd, 2022|2- Daily Briefing|

Menendez Blasts FRB-Chicago Choice

Continuing his campaign for increased diversity and transparency at the Federal Reserve, Sen. Bob Menendez (D-NJ) issued a fiery statement criticizing the Federal Reserve Bank of Chicago’s decision to name a non-Latino president.

Fed Revises PSR to Prepare for FedNow

The FRB today finalized changes to its Policy on Payment System Risk (PSR) to expand access to collateralized intraday credit. These reduce the administrative steps associated with requesting collateralized capacity, action the Fed says would improve intraday liquidity management and payment flows while also assisting the Reserve Banks managing intraday credit risk.

GOP Expands CBDC Attack to Project Hamilton

Readying an inquiry intended to block CBDC when the GOP takes over the house next year, Ranking Member McHenry (R-NC) and six other HFSC Republicans sent a letter to FRB Boston President Susan Collins demanding answers to allegations that private companies are abusing their work on Project Hamilton to position themselves for product sales to financial companies once a CBDC begins.

Fed Finally Outs Climate-Risk Principles

As long anticipated and likely late on Friday in hopes of avoiding critical GOP scrutiny, the Federal Reserve Board today released proposed climate-risk principles. These are “high-level” as is also the case for global edicts in this contentious arena (see FSM Report CLIMATE14), also tracking the OCC’s longstanding like-kind proposal (see FSM Report GREEN12).

Daily120222.pdf…

1 12, 2022

DAILY120122

Eliza Allen2022-12-01T17:57:37-05:00December 1st, 2022|2- Daily Briefing|

FDIC, FRB-NY Highlight AOCI Losses

In remarks accompanying the banking-sector 3Q report, Acting FDIC Chairman Gruenberg noted that unrealized losses on AFS/HTM securities now total $690 billion, up 47 percent from just the second quarter. This issue is also highlighted in remarks today from the head of supervision at the Federal Reserve Bank of New York, but neither she nor Mr. Gruenberg indicates if the agencies plan any action in this arena.

Brown Talks Civil Rights, GOP Attacks CFPB

Although Chairman Brown (D-OH) used today’s Fair Lending hearing to renew discussion of his 2020 legislation bringing financial institutions under the Civil Rights Act (see FSM Report FAIRLEND9), most of the focus at the session was on the CFPB.

House Panel Blasts Fintech PPP Practices, Seeks Investigation

A new report from the Select Committee on the Coronavirus investigating the role of fintechs in PPP fraud concludes that fintechs failed to implement appropriate oversight and fraud-prevention strategies despite accruing “massive” profits from administration fees.

Barr Talks Even Tougher on Bank Capital Rewrite

Although Vice Chairman Barr today confirmed statements to the Senate Banking Committee (see Client Report REFORM214) that his holistic-capital review is under way without any immediate conclusions, he also emphasized that it will ensure that ample capitalization is sufficient for severe stress and creates incentives for prudent lending. Current capital levels are, he said, at the low end of what research suggests they should be.

Daily120122.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…

17 08, 2022

GSE-081722

Eliza Allen2023-01-04T11:52:12-05:00August 17th, 2022|4- GSE Activity Report|

Booting Up for 2.0

FHFA and Ginnie Mae today let loose their long, long delayed standards for eligible seller-servicers. These will require more from almost all large nonbanks but not demand nearly as much as feared from them and from all small servicers. Pain is also postponed, facilitating compliance at a time when it might be particularly challenging for firms to tap markets to meet new capital, liquidity, and stress-test standards.

GSE-081722.pdf…

12 08, 2022

FedFin: Testing for What, Why?

Arezou Rafikian2023-01-04T12:28:53-05:00August 12th, 2022|The Vault|

FHFA, Fannie, and Freddie yesterday released the results of FHFA’s latest stress test, focusing on the severely-adverse scenario in order – or so FHFA says – to push the GSEs to the limit. This the test does insofar as the GSEs’ combined CET1 capital shortfall is as much as $159 billion. However, aspects of FHFA’s test – e.g., falling inflation over 2022 and 2023 and rising house prices – are likely to be more than a bit off….

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

12 08, 2022

GSE-081222

Eliza Allen2023-01-04T12:28:23-05:00August 12th, 2022|4- GSE Activity Report|

Testing for What, Why?

FHFA, Fannie, and Freddie yesterday released the results of FHFA’s latest stress test, focusing on the severely-adverse scenario in order – or so FHFA says – to push the GSEs to the limit. This the test does insofar as the GSEs’ combined CET1 capital shortfall is as much as $159 billion. However, aspects of FHFA’s test – e.g., falling inflation over 2022 and 2023 and rising house prices – are likely to be more than a bit off. The conservatorship of course insulates the GSEs from any of the consequences that would befall a big bank with even a fraction of these capital shortfalls, but it does cast doubt on when these conservatorships could end without a large line of Treasury credit still in place to back them up.

GSE-081222.pdf…