#SVB

11 12, 2023

Karen Petrou: Unicorns, Zombies, and Capital Regulation

2023-12-11T10:23:04-05:00December 11th, 2023|The Vault|

As was again clear at last week’s Senate Banking hearing, credit availability is much on the mind when it comes to LMI communities and small business.  This makes a good deal of sense given the capital proposal’s unintended consequences, but it’s only part of the story.  When start-up ventures are unable to get bank loans, they turn to the capital market.  This is often necessary due to the start-up’s risk, but in recent years it’s also been driven by hundreds of billions of investor dollars desperately chasing higher yields as the Fed year-in, year-out kept real rates below zero.  Now that rates are finally, really positive, yield-chasing funds have evaporated.  As the New York Times made clear, unicorns have turned into zombies.  Some of the walking dead deserved to die long ago, but the flood of capital-markets funds exiting this sector also strands ventures that could and should have been vital innovators.  Had these entities been buoyed by bank loans as soon as they were viable, many would still be walking.

Not every zombie is an innovator we’ll sorely miss.  Many bet big on not-so-critical products such as still more scooters.  However, one sector left high and dry – early-stage biomedical research – is literally a matter of life and death.

In February of 2021 when the economy was growing but real yields were negative, the total enterprise value of approximately 700 publicly-traded biotechs was $598 billion.  As of the latest data, this is down to $213 billion …

28 11, 2023

DAILY112823

2023-11-28T16:35:09-05:00November 28th, 2023|2- Daily Briefing|

FRB-Dallas: Reciprocal Deposits Require Policy Attention

The Federal Reserve Bank of Dallas today released a staff study revaluating reciprocal deposits in the wake of SVB’s failure, concluding that policy-makers should reconsider concentration limits imposed in 2018 in conjunction with brokered-deposit constraints (see FSM Report DEPOSITINSURANCE108).

FRB-NY: OEFs Create Run-Run Risk

The Federal Reserve Bank of New York today released a staff study concluding that open-end funds (OEFs) experienced acute outflows after SVB failed, bank deposits received de facto unlimited insurance, and the FRB established the TBFP.

Chopra Testimony Ducks Tough Questions Ahead of Hearings

CFPB Director Chopra’s testimony for forthcoming hearings with HFSC and Senate Banking this week largely recaps Bureau action since his last appearance before Congress in June, with Mr. Chopra focusing on consumer debt issues highlighted in the CFPB’s recent consumer credit card market report.

FSB Wants Action on Crypto Vertical Integration

The FSB today released a report concluding that, while multifunction crypto-asset intermediaries (MCIs) currently pose limited financial-stability threat, cryptoasset stress events such as those that occurred over the past year present spillover risks to banks with concentrated deposit exposures to firms reliant on cryptoassets.

Basel Presses Supervisors to Enforce GSIB Data-Aggregation Standards

The Basel Committee today released a report finding that only two of the 31 GSIBs are fully compliant with its Principles for effective risk data aggregation and risk reporting (see FSM Report RISKMANAGEMENT7).

Daily112823.pdf

20 11, 2023

DEPOSITINSURANCE122

2023-11-21T10:40:15-05:00November 20th, 2023|1- Financial Services Management|

DIF Special Assessment

As the law requires and the FDIC Chairman promised after SVB and Signature Bank were declared systemic, the FDIC has finalized its proposed approach to imposing a systemic assessment to reimburse the Deposit Insurance Fund (DIF) for the resolution costs related to uninsured deposits following a systemic designation. The FDIC will do so via an assessment covering IDIs with uninsured-deposit holdings above $5 billion that have assets over $5 billion. This exempts most smaller banks, with the FDIC adopting this approach on grounds that it justly penalizes large IDIs it believes benefited the most from these systemic rescues.

DEPOSITINSURENCE122.pdf

17 11, 2023

DAILY111723

2023-11-17T16:32:11-05:00November 17th, 2023|2- Daily Briefing|

FDIC Special Assessment to Cost Still More

After abruptly cancelling its open meeting, the FDIC late yesterday released its final special-assessment rule.

GOP Tries to Force Gruenberg Out

Following HFSC Chairman McHenry’s (R-NC) decision yesterday to begin a formal investigation of FDIC Chair Gruenberg are not only a raft of Senate Republicans putting pressure on the increasingly-beleaguered long-time FDIC official, but also top Democrats.

Senate Dems, HFSC Intensify FDIC Scrutiny

Building on earlier comments, bipartisan scrutiny of the FDIC and Chairman Gruenberg grew this afternoon with two new letters from Democratic and Republican leaders in both chambers of Congress.

Chopra Wants DIF Redesign

Although the most contentious issue on the agenda for yesterday’s cancelled FDIC meeting was the special assessment, the board was also to consider the Deposit Insurance Fund’s status and progress on its designated reserve ratio (DRR).

Daily111723.pdf

10 10, 2023

DAILY101023

2023-10-10T16:46:21-04:00October 10th, 2023|2- Daily Briefing|

Barr Stands Firm on Capital Rewrite

In remarks yesterday, Vice Chair Barr made it clear that, no matter all the industry and Republican pressure, the Fed believes the pending capital rewrite has no material problematic consequences and is necessitated by recent events.

FSB Calls for Continued Improvements in Cross-Border Payments

Following its cross-border payments roadmap, the FSB today released two progress reports finding that further work is needed in ensuring payment system interoperability, establishing common data standards for payments messages, developing tools needed for APIs, and providing a vehicle for the investigation of legal, regulatory and supervisory frameworks.

FSB Presses for Better Smaller-Bank, GSIB Resolvability

Following Basel’s review late last week on the 2023 crash (see Client Report REFORM228), the FSB today released its assessment of implications for GSIB resolution.  Basel’s report acknowledged challenges in this area, but largely focused on what we call Basel V.

Fed Finalizes DIHC Insurance-Capital Construct

As promised in the bank-capital proposals (see FSM Report CAPITAL230), the FRB Friday voted 6-0 to finalize long-pending standards for insurance-focused depository institution holding companies.

GOP Hikes Pressure on Iran Payment, Sanctions

Presaging likely HFSC hearings and delays in regular committee action, Ranking Member Scott (R-SC) today called for Secretary Yellen to testify in front of Senate Banking to explain why $6 billion is being released to Iran and to identify any sanctions gaps.

Bowman Pursues Barr, Array of Recent Fed Actions

Continuing her opposition to much of what Vice Chair Barr is doing, …

6 10, 2023

FedFin Assessment: Basel Lays Big Plans for Basel V

2023-10-06T14:47:18-04:00October 6th, 2023|The Vault|

As we noted yesterday, the Basel Committee’s October meeting concluded not only with plans for new disclosure consultations, but also a report on lessons learned from the 2023 crisis.  We have long considered the “end-game” standards so substantive as to constitute Basel IV; now, as this report details, Basel is laying plans for Basel V via new liquidity, interest-rate, capital, and structural changes to the current construct.  We thus focus on the supervisory and regulatory action steps Basel posits as necessary responses to the financial-market volatility sparked earlier this year by SVB, SBNY, FRC, and CS’s failures.  While Basel states that none of its recommendations necessarily presages near-term global standards, …

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

6 10, 2023

REFORM228

2023-10-06T11:45:12-04:00October 6th, 2023|5- Client Report|

FedFin Assessment: Basel Lays Big Plans for Basel V

As we noted yesterday, the Basel Committee’s October meeting concluded not only with plans for new disclosure consultations, but also a report on lessons learned from the 2023 crisis.  We have long considered the “end-game” standards so substantive as to constitute Basel IV; now, as this report details, Basel is laying plans for Basel V via new liquidity, interest-rate, capital, and structural changes to the current construct.  We thus focus on the supervisory and regulatory action steps Basel posits as necessary responses to the financial-market volatility sparked earlier this year by SVB, SBNY, FRC, and CS’s failures.  While Basel states that none of its recommendations necessarily presages near-term global standards, they warrant review not only as likely precursors to at least some new proposals, but also as guides to what is top of mind for national regulators beyond finalizing end-game capital rules and dealing with home-country matters such as resolvability.  If Basel proposes only some of the regulatory revisions it has in mind or, as the Fed clearly intends, the U.S. does so ahead of time, larger banks will face significant revisions to the LCR and NSFR, capital add-ons for interest-rate outliers, and express ring-fencing to prevent a CS repeat – i.e., a case in which the parent company met applicable standards but key subsidiaries fell far short.

REFORM228.pdf

2 10, 2023

DAILY100223

2023-10-02T16:36:52-04:00October 2nd, 2023|2- Daily Briefing|

FRB FAQs Open a Small, But Significant Capital Window

In what Reuters takes as a sign of hope that the end-game rules may not be as crushing as banks fear, the FRB has issued a new FAQ related to credit-linked notes and SPVs.

Bowman Turns to Specific Supervisory Reforms

In remarks today, FRB Governor Bowman expanded on her prior comments about Fed supervisory lapses, but made it clear that she also opposes a “heavy-handed” supervisory approach that relies primarily on call report data, instead calling for a new approach to CAMELS and regular engagement with financial institutions to express areas of concern or to better understand a bank’s strategic direction.

Fed OIG re Silvergate: Far More Scathing re Supervision, Need for New Guidance

The OIG report today from the Fed regarding supervisory lapses at Silvergate is considerably less expansive than the prior report on SVB because the parent company remains open despite the IDI’s voluntary liquidation and relevant data are thus deemed confidential.

Barr Presses Emergency-Window Readiness

FRB Vice Chair Barr’s comments today on monetary policy and financial stability provide a detailed rationale for addressing the linkages between these two arms of the Fed’s mandate without any specific steps for doing so.

Daily100223.pdf

29 09, 2023

DAILY092923

2023-09-29T16:49:25-04:00September 29th, 2023|2- Daily Briefing|

FSB Head Signals Limits on – Not Just Look at – NBFI Leverage

As the FSOC finalizes a new U.S. systemic framework, FSB chair Klaas Knot today told the FT that the Board along with international standard-setters is conducting a review of nonbank leverage in an effort to improve bank-NBFI interconnections and ultimately limit nonbank borrowing.  The express focus on specific leverage constraints goes beyond the FSB’s more general statements to date.  Mr. Knot also highlighted imposing tougher collateral requirements for investment fund borrowing against higher-risk securities.

OIG: FDIC Inability to Deploy OLA Acute, Could Hike Systemic Risk

The FDIC’s OIG today released a polite, but still withering criticism of the FDIC’s inability to use OLA over a decade after Dodd-Frank gave it sweeping powers to address systemic-risk resolutions without resorting to bailouts.  Specifically, the OIG found that, while the FDIC has made some progress readying OLA-readiness since 2010, it failed to establish key elements needed to use this authority under stress, especially if this stress occurred in an entity other than a U.S. GSIB holding company.  However, the FDIC is not operationally ready to resolve a GSIB HC under OLA, nor does it have policies, procedures, or the operational capacity to do so for other entities or in scenarios where multiple systemic-risk failures are possible.

Daily092923.pdf

28 09, 2023

DAILY092823

2023-09-28T16:44:03-04:00September 28th, 2023|2- Daily Briefing|

White House Resilience Plan Focuses on Physical Infrastructure, Not Finance

The White House today released a National Climate Framework focused principally on promoting climate resilience in non-financial sectors such as building and energy use, improving federal agency climate preparedness, ensuring land and water resilience, and increasing climate-related community benefits and job opportunities.

BIS Conducts Successful Wholesale CBDC FX Pilot

Looking at the wholesale CBDCs of most interest in the U.S., the BIS today announced the conclusion of Project Marina, a wholesale CBDC FX pilot with DeFi elements among the central banks of France, Switzerland, and Singapore.

OCC Moves Interest-Rate Risk to Supervisory Priority List

The OCC today released its 2024 bank supervision operating plan announcing that there will be heightened supervision focus on interest-rate risk, AML/CFT, payments, DLT, and CRA.

All But The Smallest, Simplest Regional Banks Face Tougher Supervision

Signaling tougher supervisory standards for most regional banks, the long-anticipated Federal Reserve OIG report on SVB’s failure largely reiterates findings in Vice Chair Barr’s SVB report (see Client Report REFORM221) on failures by Board and FRB-SF supervisory staff quickly to adapt to SVB’s rapidly-changing risk profile.

Gruenberg Again Calls for Targeted Deposit Insurance Reform

In remarks today, FDIC Chair Gruenberg said that cross-border cooperation enhanced resolution of SVB’s international subsidiaries, using a talk to global deposit insurers also to reiterate prior recommendations on deposit-insurance reform (see Client Report DEPOSITINSURANCE119).

Daily092823.pdf

Go to Top