#systemic risk – Federal Financial Analytics

22 04, 2024

FedFin on: Fed Systemic-Risk Assessment: Some Worries, No Troubles

Eliza Allen2024-04-23T16:37:21-04:00April 22nd, 2024|The Vault|

The latest Federal Reserve financial-stability assessment continues the Fed’s practice of detailing vulnerabilities without drawing bottom-line conclusions; the Board once did so, but ceased this practice after opining that the financial system’s risk was “moderate” shortly before the 2020 crash. The Board’s report now also says that it assesses vulnerabilities, not the likelihood of near-term shock. Survey respondents do make this assessment, with this report showing a striking increase in concerns about policy uncertainty in light of continuing inflation and the higher-for-longer rate outlook…

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22 04, 2024

SYSTEMIC99

Shane Smith2024-04-22T11:35:44-04:00April 22nd, 2024|5- Client Report|

Fed Systemic-Risk Assessment: Some Worries, No Troubles

The latest Federal Reserve financial-stability assessment continues the Fed’s practice of detailing vulnerabilities without drawing bottom-line conclusions; the Board once did so, but ceased this practice after opining that the financial system’s risk was “moderate” shortly before the 2020 crash. The Board’s report now also says that it assesses vulnerabilities, not the likelihood of near-term shock. Survey respondents do make this assessment, with this report showing a striking increase in concerns about policy uncertainty in light of continuing inflation and the higher-for-longer rate outlook. The Fed continues to fear vulnerabilities due to historic levels of hedge-fund leverage, life-insurance illiquidity, and MMF redemption risk. The Fed seems to be less concerned about these risks than the IMF’s recent financial-stability assessment, although new big-bank stress tests now include an exploratory scenario related to hedge funds (see Client Report STRESS32). The report does not voice the concerns about private credit laid out in recent Fed research or by the IMF.

SYSTEMIC99.pdf…

27 02, 2024

Daily022724

Arezou Rafikian2024-02-27T16:49:32-05:00February 27th, 2024|2- Daily Briefing|

Barr Presses for Counterparty-Risk Management

FRB Vice Chair Barr today called for large banks to ensure that counterparty exposures are well managed according to actions he describes, announcing no new Fed initiatives in this arena. Mr. Barr was particularly focused on the need for banks to ensure sound margining and to dynamically adjust margins and other risk buffers.

FSB Cites SEC MMF Global Leadership

The FSB today released its thematic peer review report on MMF reforms, generally finding that global progress on its 2021 MMF rule (see FSM Report MMF18) has been inconsistent across jurisdictions. However, U.S. progress is detailed, with the FSB noting key points in the agency’s 2023 MMF rule (see FSM Report MMF20) despite ongoing concerns about lingering risks such as vulnerability to large and sudden redemption pressure due to large MMF holdings of risky assets.

Fed Staff: Private Credit Poses Banking, Insurance, Systemic Risk

Reflecting concerns most recently expressed by Acting Comptroller Hsu and FSOC (see Client Report FSOC29), the Fed’s new staff paper on private credit contains not only a taxonomy about this fast-growing sector, but also a warning of emerging systemic risk. Differing from the Fed’s May 2023 financial-stability assessment of low risk (see Client Report SYSTEMIC96), the paper argues for greater systemic-risk focus due to illiquidity, rising corporate leverage and default risk, and the extent to which large amounts of “dry powder” and the need to compete with banks for higher-quality loans lead to still …

8 02, 2024

FSOC31

Shane Smith2024-02-08T14:30:15-05:00February 8th, 2024|5- Client Report|

NonBank Mortgage Companies Are Prime SIFI Target

Treasury Secretary Yellen’s hearing today before Senate Banking followed the path set in Tuesday’s HFSC session (see Client Report FSOC30), with Ms. Yellen refusing to take a stand on matters such as the capital rules and banking-agency supervisory effectiveness. Republicans in sparse attendance used the session to reiterate their critique of FSOC’s systemic-designation standard (see FSM Report SIFI36) and the capital rules; Democrats were most focused on defending Bidenomics. However, questioning touched on NBFI risk with a particular focus on nonbank mortgage companies; the secretary reiterated conclusions about possible systemic risks laid out in FSOC’s most recent report (see Client Report FSOC29), now going further to say that one or another nonbank mortgage company could fail under market stress. As we noted when FSOC standards were released, nonbank mortgage companies are top targets for systemic intervention, with Ms. Yellen’s comment today focused on individual companies suggesting that this might come via designation, not activity-and-practice standards. There was little focus on NYCB today, but much attention to CRE risk; the secretary reiterated that it is worrisome for smaller banks, but not systemic.

FSOC31.pdf…

12 06, 2023

Daily061223

Arezou Rafikian2023-06-13T15:17:55-04:00June 12th, 2023|2- Daily Briefing|

HFSC GOP Focuses on Repealing CFPB Small-Business Reg

The only bill set for HFSC’s Wednesday’s hearing with CFPB Director Chopra is a resolution under the Congressional Review Act to reverse the agency’s controversial small-business reporting rule. This is likely to pass the House by a narrow majority but fail in the Senate.

Chopra: Data-Rights Standards to Ensure Consumer Choice

In a blog post today, CFPB director Chopra previewed an issue sure to be discussed at this week’s hearings: open banking and the pending data-rights rule. This will, he says, be proposed shortly and finalized next year.

GOP Endorses GAO Recommendations; Dems Point To Bank Management

At today’s HFSC Oversight Subcommittee hearing on the GAO’s report (see Client Report REFORM223), Subcommittee Chair Huizenga (R-MI) built the case that the Fed has historically been unable to properly supervise troubled banks and noted that the committee will investigate this along with the Systemic-Risk Exception used in recent failures.

McHenry Tries New Tack to Counter Beneficial-Ownership Reports

HFSC Chairman McHenry (R-NC) today introduced legislation to redesign FinCEN in part to overturn aspects of the beneficial-ownership rule he has long opposed. The bill would make the FinCEN head subject to Presidential appointment and Senate confirmation, with separate legislation delaying implementation of small-business ownership reports until FinCEN has completed several related rulemakings.

Daily061223.pdf…