#swing pricing – Federal Financial Analytics

12 09, 2023

DAILY091223

Eliza Allen2023-09-12T17:19:22-04:00September 12th, 2023|2- Daily Briefing|

GHOS Presses Basel Action on Lessons Learned

Basel’s group of Governors and Heads of Supervision (GHOS) met yesterday, listing strong bank risk management and governance arrangements, effective supervision, and the need for a robust regulatory framework as the primary lessons it learned from this year’s banking turmoil. GHOS also pressed its members to finalize their Basel III reforms, noting that most plan to implement them by the end of 2024.

Gensler Takes Swing-Pricing, AI Fire

At today’s Senate Banking hearing with SEC Chairman Gensler, Democrats largely defended the pace and scope of recent SEC work while Republicans criticized the agency for rulemakings they said were ideologically driven and inadequately analyzed. Chairman Brown (D-OH) applauded the SEC’s crypto enforcement actions and encouraged it to examine broker and investment adviser use of AI. Ranking Member Scott (R-SC) and several other Republicans sharply criticized Mr. Gensler for what they said was his lack of transparency and responsiveness to congressional inquiries.

Daily091223.pdf…

18 07, 2023

FedFin on: MMF Redemption Fees, Liquidity-Risk Mitigation

Arezou Rafikian2023-07-19T16:52:22-04:00July 18th, 2023|The Vault|

The SEC has significantly revised its proposed MMF-reform standards, eliminating a controversial swing-pricing approach to reduce first-mover advantage in favor of new redemption fees at institutional prime and tax-exempt funds. These and most other funds now also come under stiff new liquidity requirements, which may combine to impose new and costly disciplines that may enhance the relevant appeal of bank deposits without early-redemption risk. Changes in MMF liquidity requirements may also alter demand for commercial paper, municipal obligations, bank debt, and ….

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

18 07, 2023

MMF20

Eliza Allen2023-07-18T11:50:28-04:00July 18th, 2023|1- Financial Services Management|

MMF Redemption Fees, Liquidity-Risk Mitigation

The SEC has significantly revised its proposed MMF-reform standards, eliminating a controversial swing-pricing approach to reduce first-mover advantage in favor of new redemption fees at institutional prime and tax-exempt funds. These and most other funds now also come under stiff new liquidity requirements, which may combine to impose new and costly disciplines that may enhance the relevant appeal of bank deposits without early-redemption risk. Changes in MMF liquidity requirements may also alter demand for commercial paper, municipal obligations, bank debt, and other assets widely held by these funds, perhaps increasing funding cost in certain short-term funding markets as demand from MMF drops. MMF use of the Fed’s overnight reverse-repo facility could also grow to facilitate liquidity compliance, creating new risks for the Federal Reserve and its longstanding goal of reducing its role as a dominant market maker.

MMF20.pdf…

12 07, 2023

DAILY071223

Eliza Allen2023-07-12T17:05:21-04:00July 12th, 2023|2- Daily Briefing|

SEC Concedes, Drops MMF Swing Pricing

In a startling bow to industry comments, the SEC today finalized MMF rules for institutional prime and tax-exempt funds that dispense with the proposal’s swing pricing (see FSM Report MMF19).

HFSC Bickers Over ESG, SEC Authority, Investor Rights

Today’s ESG hearing was the partisan show-down we anticipated – indeed, Rep. Sherman (D-CA) denounced the GOP for “waging war” against capitalism like Leon Trotsky.

Fed Nominations Advance

As anticipated, Senate Banking today approved the nominations of all three Federal Reserve Board nominees for the full Senate.

Warren Heightens Anti-Merger Campaign

Republicans were absent today from Senate Banking’s Economic Policy bank-merger hearing. Chair Warren (D-MA) reiterated her strong opposition to virtually all mergers, indicating her plans to reintroduce anti-merger legislation from prior Congresses (see FSM Report MERGER8).

Daily071223.pdf…

2 02, 2023

DAILY020223

Eliza Allen2023-02-02T17:01:46-05:00February 2nd, 2023|2- Daily Briefing|

Scott Seeks Innovation, Competitiveness, Responsibility, Administrative Neutrality

Announcing his priorities for this Congress, Senate Banking Ranking Member Tim Scott (R-SC) struck the guarded stance in favor of bipartisan cooperation expressed yesterday by HFSC Chairman McHenry (R-NC). His top priority is increasing credit availability, with a mention of global competitiveness suggesting perhaps some interest in the Basel proposals as well as the need to advance fintech expressly mentioned in his release. Like Rep. McHenry, Sen. Scott also highlights regulatory accountability; unlike the HFSC chairman, he cannot call hearings to achieve this although he can of course ask committee witnesses pointed questions.

GAO Presses Need For MMF Reform

As required by the CARES Act, the GAO today issued a study on the March 2020 MMF runs that led the SEC to propose reforms last February (see FSM Report MMF19). It finds that the SEC’s current MMF liquid assets rules (see FSM Report MMF13) not only failed to prevent MMF runs during the pandemic, but also may have contributed to them by encouraging preemptive MMF share redemption. It also finds that, even though no MMF imposed a fee or gate in March 2020, their possibility likely contributed to redemption incentives.

Daily020223.pdf…

2 11, 2022

DAILY110222

Eliza Allen2022-11-02T16:14:20-04:00November 2nd, 2022|2- Daily Briefing|

SEC Turns to Swing Pricing, Structural OEF Redesign

As anticipated, the SEC today voted 3-2 to advance swing pricing and other structural changes to open-end funds (OEFs). Key to this proposal is to the Commission’s controversial MMF draft (see FSM Report MMF19) is swing pricing, with Chairman Gensler laying out how he believes swing pricing would end first-mover advantage and thus improve fund stability. The proposal also imposes stiff new liquidity standards, with Commissioner Uyeda dissenting from this and the rest of the proposal on grounds that only bank-loan funds have proven to be demonstrably illiquid under stress.

BIS Announces DeFi Foreign Exchange Pilot for CBDCs

Continuing its CBDC pilots, the BIS today announced the launch of Project Mariana, a system seeking to use DeFi protocols to automate CBDC foreign-exchange settlements. Project Mariana will operate in Switzerland, France, and Singapore, exchanging wholesale CBDCs. The BIS is interested in exploring the application and design of automated market markers in wholesale CBDC exchanges, the effectiveness of a supra-regional network for cross-border settlement, and potential governance models of wholesale CBDCs.

Daily110222.pdf…

4 10, 2022

DAILY100422

Eliza Allen2022-10-05T10:36:14-04:00October 4th, 2022|2- Daily Briefing|

IMF Calls for Open-End Fund Swing Pricing

The IMF today released a study of open-end funds sure to guide the action promised by SEC Chairman Gensler (see Client Report INVESTOR20).

Fed Study: Climate-Risk Insurance Cross-Subsidies Pose Moral Hazard, Financial Risk

Using homeowners’ insurance as a proxy for climate-risk insurance, a Fed staff study finds that the decoupling of rates and risk raises moral hazard and causes policy-holders in lower-risk and less restrictively regulated states to subsidize those in riskier states, where rates have been outpaced by losses.

Yellen Highlights Need for Crypto Reg at Racial Equity Roundtable

At a Treasury roundtable on racial equity and economic inequality, Treasury Secretary Yellen today reiterated the importance of the cryptoasset standards recommended yesterday by the Financial Stability Oversight Council.

Fed Sets Supervisory Standards for a Non-Traditional IDI Parent

The Federal Register today includes the Federal Reserve’s final supervisory framework for DIHCs controlled by insurance companies.

Final FHLB Listening Session Brings System Praise, Resistance to Change

We will shortly provide clients with an in-depth report on the last session FHFA held today listening to dozens of views on the future of the Federal Home Loan Bank System.

Daily100422.pdf…

26 07, 2022

DAILY072622

Eliza Allen2023-01-04T15:44:21-05:00July 26th, 2022|2- Daily Briefing|

Fed Encounters Tough New Complaints re Governance, Security

Sen. Rob Portman (R-OH) today released a report from the Republican Members of the Senate Homeland Security Committee not only alleging repeated Chinese attempts to infiltrate the Federal Reserve, but also Fed laxity ahead of and in response to this threat.

SEC Official Seems to Doubt Swing Pricing

In remarks today, the head of the SEC’s investment management division, William Birdthistle, seems to cast doubt on the agency’s MMF swing-pricing proposal (see FSM Report MMF19). As we noted in our assessment of the FSB’s MMF report (see FSM Report MMF18), one alternative to MMFs would be bank deposits, but Mr. Birdthistle indicates that this is both unlikely and undesirable due to the lower rates paid on bank deposits.

Brown, Sanders, Dems Introduce Bill to Extend Full Range of Civil Rights Protections to Financial Services

Today, Sen. Brown (D-OH) and seventeen Senators introduced legislation that explicitly prohibits financial institutions from discriminating against customers based on race, color, religion, national origin, sex, gender identity, or sexual orientation. No text of the bill is available, but the release today suggests it is similar to or identical to legislation Sen. Brown introduced late in the last Congress (see FSM Report FAIRLEND9) revising the Civil Rights Act to expressly cover financial services.

Daily072622.pdf…

19 04, 2022

DAILY041922

Eliza Allen2023-03-02T10:47:37-05:00April 19th, 2022|2- Daily Briefing|

CRA Reform Still in “Soon” Timeframe

In remarks today, Acting Comptroller Hsu provided only a little insight into ongoing negotiations over a new CRA proposal, reiterating that one will “soon” be released.

IMF Warns of Payment-System Fragmentation, Dealer-Bank Commodity

The IMF today released more of its annual global financial report, going beyond the assessment of the renewed sovereign doom loop we addressed in yesterday’s FedFin alert to consider other financial-stability risks and call for quick action on a new fintech/crypto regulatory framework.

Fed Finds Nonpublic Prime Funds More Resilient

As the SEC contemplates MMF reform (see FSM Report MMF19), the Fed has continued to issue reports highlighting vulnerabilities that the central bank likely feels are only partially addressed by the Commission’s preferred liquidity fix: swing pricing.

IMF Calls for Fast, Tough Fintech, DeFi Regulation and Supervision

The IMF’s overarching financial-stability report not only deals with the structural risks addressed earlier today, but also those posed by fintechs and DeFi. As presaged in its blog post last week, the report concludes that fintechs pose risks both on their own and to less technologically advanced banks, each of which requires regulatory action to prevent systemic risk.

Carstens Endorses Fed’s Cautious CBDC Stance

In a discussion about the future of digital money during the IMF annual meetings, BIS General Manager Carstens endorsed Federal Reserve Chairman Powell’s cautious approach to creating a CBDC (see FSM Report CBDC10), citing the critical importance of reliability to CBDC success.

Daily041922.pdf…

3 01, 2022

MMF19

Arezou Rafikian2023-04-25T15:59:54-04:00January 3rd, 2022|1- Financial Services Management|

MMF Reform

In the wake of noncommittal statements from global regulators on ways to address money-market fund systemic risk, the Securities and Exchange Commission has proposed sweeping changes to the 2014 standards adopted after the 2008 crisis. These were viewed as insufficient at the time by the Fed and Treasury. Based on reconsideration of the U.S. framework after the 2020 crisis by the President’s Working Group on Financial Markets, the proposal now would retract the liquidity fee and redemption gates in the current rule. Instead, the Commission would require institutional-prime and institutional tax-exempt funds to adopt swing pricing, sharply hike daily and weekly minimums for liquidity buffers at all MMFs, and institute new reporting and disclosure standards.

MMF19.pdf…