#SVB – Federal Financial Analytics

29 03, 2023

REFORM218

Max Camateros-Mann2023-03-29T17:27:51-04:00March 29th, 2023|5- Client Report|

HFSC Focuses on Supervision, Clawbacks, Process, New Resolution and Run-Risk Options

Today’s HFSC hearing on recent bank failures was more partisan than yesterday’s Senate Banking session (see Client Report REFORM217). Still, there were significant areas of agreement evidenced not only through the marathon hearing, but also at its end, when Chairman McHenry (R-NC) and Ranking Member Waters (D-CA) agreed that they are frustrated with the regulators’ testimony, want more supervisory accountability, and will demand reforms once promised internal investigations are concluded. Several new issues were brought out today, including why the FedWire closing times precluded liquidity support that might have sustained SVB liquidity, whether TLAC should be required at banks of all sizes, tactics to quell viral runs, and whether tough new rules will cover mid-sized banks and/or community institutions.

REFORM218.pdf…

29 03, 2023

DAILY032923

Eliza Allen2023-03-29T17:30:21-04:00March 29th, 2023|2- Daily Briefing|

Barr Keeps CRA Hope Alive

Ahead of what is certainly going to be a trying HFSC hearing later today, FRB Vice Chairman Barr told an audience that pending CRA rules (see FSM Report CRA32) are still in the works, declining to provide any completion timeline.

Chopra Expands Post-SVB Policy Action Items

In remarks posted after a panel discussion yesterday, CFPB director and FDIC board member Rohit Chopra reaffirmed Chairman Gruenberg’s comments that changes are likely to capital and liquidity rules, but added action related to interest-rate risk management, resolution planning and stress-testing to the to-do list.

Senate Finance Dems Demand Tougher Penalties, Enforcement to Prevent Swiss Tax-Evasion Activities

Senate Finance Democrats today released a damning investigative report accusing Credit Suisse of persistently and often criminally enabling U.S. tax evasion despite a 2014 plea agreement with the U.S. Chairman Wyden (D-OR) presses for additional civil and criminal actions, noting that the UBS acquisition does not “wipe the slate clean.”

Bipartisan Senate Clawback Bill Reaches to BHC Investors, Creditors

Preempting Chairman Brown’s plans to introduce clawback legislation (see Client Report REFORM217), Sens. Warren (D-MA), Cortez Masto (D-NV), Hawley (R-MO), and Braun (R-IN) today introduced their own bill to do so.

CFPB Sets Comment Deadline For Controversial Credit Card Proposal

The Federal Register today includes the CFPB’s proposed rule on Credit Card Penalty Fees.

Daily032923.pdf…

28 03, 2023

REFORM217

William Cross2023-03-28T16:28:44-04:00March 28th, 2023|5- Client Report|

Senate Banking Demands Supervisory Accountability, Transparency, Reform

Today’s Senate Banking hearing was extremely well-attended by Senators on both sides of the aisle clearly looking first to understand what precipitated recent bank failures, who is to blame, and what should be done next. Republicans argued that current law gives the Fed considerable discretion without the need for statutory change. Although FRB Vice Chairman Barr initially sought to emphasize the need for new rules without blaming old ones, he ultimately admitted that the Fed indeed could and can govern risky banking organizations regardless of size.

REFORM217.pdf…

28 03, 2023

RESOLVE50

Eliza Allen2023-03-28T11:42:40-04:00March 28th, 2023|5- Client Report|

FedFin Assessment: Policy Implications of FDIC-Resolution Innovations

As noted yesterday, the FDIC’s recent rescues have had several unusual features with implications not only for future policy, but also for pending special assessments to replenish the DIF for the $22.5 billion estimated costs to the Deposit Insurance Fund. Analyzed here, new tools – e.g., voluntary liquidation, equity-appreciation rights, lines of credit – have determine the extent to which this estimate holds, how FHLB advances are treated in future resolutions, and the role the FDIC may play in companies that acquire failed IDIs. A forthcoming FedFin report will assess another issue sure to come up at Congressional hearings: why the FDIC and other agencies used these options in concert with a systemic designation protecting uninsured depositors rather than their OLA powers designed to prevent both uninsured-depositor protection and the most recent of the Fed’s facilities backing the banking system.

RESOLVE50.pdf…

27 03, 2023

DAILY032723

Eliza Allen2023-03-27T17:00:51-04:00March 27th, 2023|2- Daily Briefing|

FDIC Adopts New IDI-Resolution Policy

The FDIC’s announcement late yesterday that it had sold portions of SVB to First-Citizens indicate that a provision also in its Signature bridge-bank sale reflect a new FDIC resolution policy: a willingness to take warrants.

Global Authorities Press FX Payment Redesign

The BIS Committee on Payments and Market Infrastructures (CPMI) today issued a final report offering a number of recommendations to central banks to facilitate the adoption of PvP systems. To mitigate regulatory barriers, the report recommends that central banks strengthen regulatory incentives for FX market participants to use PvP arrangements, improve settlement risk exposure reporting, and enact robust settlement finality protection.

Barr Defends Fed, Promises Review

Ahead of what is sure to be two raucous days of Congressional hearings, FRB Vice Chairman Barr’s testimony emphasizes that the Federal Reserve will use “all its tools” to protect banks of all sizes and that all deposits at all banks are safe.

Gruenberg Mounts Vigorous FDIC Defense, Presses For Significant Rule, Premium-Assessment Rewrite

FDIC Chairman Gruenberg’s testimony ahead of Congressional hearings describes the Signature and SVB actions, rebutting bailout assertions on grounds that the banks in fact failed and banks – not taxpayers – will make up any FDIC losses. He also indicates that the FDIC can and will investigate insiders to determine responsibility and pursue penalties if appropriate.

Daily032723.pdf…

27 03, 2023

M032723

Eliza Allen2023-03-27T10:27:26-04:00March 27th, 2023|6- Client Memo|

Another SVB Casualty: U.S. Biomedical Research

As seems always the case when fear has the banking system in its maw, myths have proliferated that are now also magnified and amplified by viral social media. One such myth about Silicon Valley Bank has it that most of its depositors were high-wealth, high-tech folk whom the government should never bail out. In fact, many depositors had no choice but to park all their funds at SVB, a more-then-dubious practice at the bank that almost brought biomedical research to its knees. Had these depositors been forced to bear losses, treatments and cures for life-threatening and-changing diseases would have stalled, likely for years. We need not only to prevent future researchers from being put at such risk by a single bank, but also to change the biomedical-funding model from one at the mercy of high-cost equity investors to a stable sector for which lower-cost debt is readily at hand for any researcher with demonstrable ability to repay. Think what debt funding did for sustainable energy via green bonds and you’ll see what a like-kind model for “biobonds” could do to speed urgently-needed treatments and cures.

M032723.pdf…

27 03, 2023

Karen Petrou: Another SVB Casualty: U.S. Biomedical Research

Eliza Allen2023-03-27T10:27:35-04:00March 27th, 2023|The Vault|

As seems always the case when fear has the banking system in its maw, myths have proliferated that are now also magnified and amplified by viral social media. One such myth about Silicon Valley Bank has it that most of its depositors were high-wealth, high-tech folk whom the government should never bail out. In fact, many depositors had no choice but to park all their funds at SVB, a more-then-dubious practice at the bank that almost brought biomedical research to its knees. Had these depositors been forced to bear losses, treatments and cures for life-threatening and-changing diseases would have stalled, likely for years. We need not only to prevent future researchers from being put at such risk by a single bank, but also to change the biomedical-funding model from one at the mercy of high-cost equity investors to a stable sector for which lower-cost debt is readily at hand for any researcher with demonstrable ability to repay. Think what debt funding did for sustainable energy via green bonds and you’ll see what a like-kind model for “biobonds” could do to speed urgently-needed treatments and cures.

The link between SVB and biomedical research is not the stuff of moral-hazard myth, but rather a complex tale of a specialized institution serving a sector that came to hold unique sway over a vital public good: lengthening life and easing suffering. Providing banking services to venture capital (VC) is a high-risk business unless a financial institution devotes expensive intellectual capital to the sector and …

24 03, 2023

Al032723

Max Camateros-Mann2023-03-24T17:08:59-04:00March 24th, 2023|3- This Week|

Bodies on the Beach

As is all too evident, U.S. and global banking-system stress continued throughout last week, ebbing and flowing with the force and speed of hurricane-strength storms. The deluge of events combined over the course of the week with a torrent of political and policy-maker comments, demands, and explanations that sometimes had a similar tidal effect – see, for example, Treasury Secretary Yellen’s efforts to comfort depositors without altering U.S. deposit-insurance policy.

Al032723.pdf…

24 03, 2023

DAILY032423

Eliza Allen2023-03-24T17:13:54-04:00March 24th, 2023|2- Daily Briefing|

GOP Expands Attack On Fed Supervisory Actions

In yet another letter ahead of next week’s hearings, Senate Banking Ranking Member Scott (R-SC) and all Republican Members of the committee asked Fed Chairman Powell and FRB-SF President Daly a series of questions asserting that SVB’s failure reflects significant supervisory lapses.

FSOC Breaks The Glass

Although there is no formal announcement, FSOC will hold what is clearly an emergency, closed meeting later today per a new media advisory.

Top HFSC Republicans Join SVB-Supervisory Inquest

Following a similar letter from Senate Banking Republicans earlier today, HFSC Subcommittee Chairmans Barr (R-KY) and Huizenga (R-MI) along with Rep. Kim (R-CA) sent yet another letter to Vice Chair Barr and FRB-SF President Daly also demanding detailed supervisory-related information on SVB.

Reserve Banks Promise to Bear Some Sometime Soon

Under ever-growing pressure, all of the Federal Reserve Banks today under the New York Fed’s aegis announced a common transparency policy.

HFSC GOP Targets State Bank Supervisors

Top House Republicans today brought state banking commissions into the SVB and SBNY fray, asking each for extensive details on recent actions and setting the April 6 deadline now evident in all recent GOP requests in this arena.

GOP Leaders Also Demand FSOC Answers

HFSC Subcommittee Chairman Barr (R-KY) and Huizenga (R-MI) today also sent letters to FSOC Chair Yellen and Council of Inspectors General on Financial Oversight Chair Delmar requesting detailed information on meetings surrounding the banking agencies’ March 12 decision to invoke a systemic risk exception for SVB …

24 03, 2023

FedFin Analysis: Whom and What the FDIC and Fed Can Save How

Arezou Rafikian2023-03-24T17:05:38-04:00March 24th, 2023|The Vault|

Recent editorials and other media have often said that the FRB and/or FDIC have powers or taken actions that is not the factual case as we understand it. Members of Congress also appear sometimes willing to make assertions about what agencies can do now even if it is unclear if there is statutory authority to do so. We have provided individual clients with key clarifications, but do so now more generally to support strategic and advocacy decision-making. Of particular importance is the authority the FDIC is said to have or lack related to uninsured deposits; as detailed below, the agency actually has significant authority to do so as well as even to back BHC debt, as long as certain stringent conditions are met. As detailed in FSM Report RESCUE65, Congress limited both the FDIC and Fed in hopes that….

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