#systemic – Federal Financial Analytics

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….

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

24 03, 2023

RESCUE79

Eliza Allen2023-03-24T16:30:20-04:00March 24th, 2023|5- Client Report|

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

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 the Dodd-Frank orderly-liquidation authority (OLA, see FSM Report SYSTEMIC30) would permit orderly resolution of even the largest banks and nonbanks without long-term federal support; a subsequent FedFin report will bring the assessment of OLA powers into the current crises’ context given that Congress will surely seek to determine why the FDIC and its sister authorities chose to provide taxpayer support rather than deploy OLA.

RESCUE79.pdf…

23 03, 2023

DAILY032323

Eliza Allen2023-03-23T17:09:59-04:00March 23rd, 2023|2- Daily Briefing|

OFR Study Predicts Household Gains, Banking Instability From Digital Currencies

A new OFR working paper concludes that full integration of digital currencies into the economy would reduce financial-system volatility and improve household welfare, but also increase the probability of a banking crisis.

HFSC Poses Still Tougher SVB/SBNY Resolution Questions

Following tough GOP letters to the Fed and FDIC earlier this week, HFSC Chairman McHenry (R-NC) and Subcommittee Chair Hill (R-AR) last night sent even sterner missives to Chairman Gruenberg and Secretary Yellen.

Bipartisan Push Begins For CEO Clawbacks

Ahead of its first of many hearings on the collapse of SVB and SBNY, Senate Banking Chairman Brown (D-OH) and Ranking Member Scott (R-SC) today sent letters to the former CEOs of the banks demanding that they answer for the bank failures, noting also that they will be expected to testify before the Committee if they are unable to do so next week.

OFR Blog: CRE, Residential Markets Pose Little Systemic Risk

Despite growing concerns about CRE and even potential systemic risk, an OFR blog post today concludes that neither the residential nor commercial real estate market poses a significant threat to the financial system.

Basel Stands By Its Rules, Contemplates New Supervisory Standards

The Basel Committee’s release following its March 14 meeting unsurprisingly notes the bank failures preceding it just days before, but attributes them principally to poor risk management in the face of rising rates.

GSEs Seek Public Comment on Credit Score Model Transition

The FHFA today announced…

22 03, 2023

DAILY032223

Eliza Allen2023-03-22T17:37:57-04:00March 22nd, 2023|2- Daily Briefing|

FTC Builds On Treasury Cloud Concerns, Seeks Competition, AI Views

Signaling apprehension about a number of risks outlined in a recent Treasury report, the FTC today requested comment on the business practices of cloud computing providers.

Scott, Warren Reach Over Partisan, Ideological Divide to Blast the Fed

Demonstrating the confluence of populist and progressive thinking about the Fed we anticipated at the start of this year, Sens. Rick Scott (R-FL) and Warren (D-MA) have introduced legislation mandating that the Fed’s inspector general be fully independent of the chair and board of governors.

Fed Under Still More Pressure to Boost Regional-Bank Supervision

Sen. Warren (D-MA) continued her prolific letter-writing campaign, today also joining with Sens. Duckworth (D-IL), Blumenthal (D-CT), Sanders (I-VT), Reed (D-RI), Hirono (D-HI), Markey (D-MA), King (I-ME), Whitehouse (D-RI), Smith (D-MN), Van Hollen (D-MD), and Schatz (D-HI) to call upon Vice Chairman Barr quickly to heighten regulatory standards for banking organizations between $100 and $250 billion.

Powell Protests Suggestions Of Fed Supervisory Error

At his press conference today, Chairman Powell sought to defend the Fed so vigorously that some of his comments may ignite still more criticism.

Yellen Denies FDIC-Coverage Rewrite, Suggests Need for Liquidity-Rule Revisions

In her appearance today before the Senate Appropriations Subcommittee on Financial Services and General Government, Treasury Secretary Yellen refuted press reports that Treasury is considering significant deposit-insurance coverage expansion, saying only that the banking system is safe and it is too soon to consider structural reforms.

Daily032223.pdf…

21 03, 2023

DAILY032123

Eliza Allen2023-03-21T17:00:01-04:00March 21st, 2023|2- Daily Briefing|

US Races to Calm Depositors, Bankers

In a concerted effort to quell depositor fear, the White House has told Bloomberg that it will not allow community banks to experience a panic and Secretary Yellen is said shortly to assure bankers that smaller banks will not be allowed to experience a concerted run.

Treasury Stands Behind Small Banks In Systemic Situations

In her formal remarks today, Treasury Secretary Yellen confirmed press reports that the U.S. would contemplate interventions similar to those for SVB and SBNY should a smaller bank suffer a deposit run posing contagion risk.

CFPB Adds to Credit-Card Competition Interventions

Continuing its campaign against large credit-card companies (see FSM Report CREDITCARD36), the CFPB today launched an expanded credit card issuer survey to post new information on smaller companies the agency thinks beneficial to increase competition in this sector.

Adeyemo Reiterates US Backstop

In addition to Secretary Yellen’s comments today, Deputy Secretary Wally Adeyemo not only praised his agency’s response, but also reaffirmed that the government is prepared to back smaller banks.

Daily032123.pdf…

16 03, 2023

DAILY031623

Eliza Allen2023-03-16T17:11:59-04:00March 16th, 2023|2- Daily Briefing|

FedFin Assessment: One CS Consequence – LISCC Reinstatement For All Large Foreign GSIBs

In the wake of CS’s distress, we draw client attention to a 2021 exchange sure to factor heavily in the political response.

Brown Presses For In-Depth SVB, Signature Review

As anticipated (see Client Report RESOLVE49), Senate Banking Chairman Brown (D-OH) today called on all the banking agencies and Treasury quickly to undertake a review of SVB and Signatures failures.

Warren Heaps Still More Blame On Powell

In another letter today, Sen. Warren (D-MA) once again lambasted Chair Powell for what she claimed was his direct contribution to the collapse of Signature Bank and SVB as well as a “a culture of corruption” at the Fed.

Senate GOP Blames Fed, California re SVB

Senate Banking Republicans today tweeted a series of comments citing articles going back to last year identifying SVB risk and suggesting strongly that the Fed and California state supervisors are at fault for missing clear warning signs.

Bipartisan Senators Push Better Beneficial-Ownership Data Access

Senate Budget Committee Chairman Whitehouse (D-RI) was joined by Sens. Wyden (D-OR), Warren (D-MA), Grassley (R-IA), and Rubio (R-FL) late yesterday in submitting a comment letter to FinCEN taking serious issue with its proposed implementation of the Corporate Transparency Act (CTA) (see FSM Report AML135).

Senate Finance Hearing Deepens SVB Divide

At a heated Senate Finance hearing with Treasury Secretary Yellen, Members were quick to deviate from the hearing’s budget-focused agenda to address who should bear the …

13 03, 2023

RESOLVE49

Eliza Allen2023-03-13T16:56:53-04:00March 13th, 2023|5- Client Report|

FedFin First Take: Failure Fall-out

As we noted last night, the President concurred with Treasury, the Fed, and FDIC in deciding that SVB’s Friday failure and imminent runs on Signature Bank and, most likely, others posed a systemic risk. This determination permits the FDIC to override all the efforts to end the moral hazard feared when uninsured depositors are fully protected in bank resolutions and came with a new Fed facility making it still easier for banks to obtain liquidity from the Federal Reserve. As we also observed, much effort is being made to assert that none of these backstops is a bailout, a conclusion sure to draw considerable discussion and dissent even from those who concur that the scale of potential run risk Monday morning could not otherwise have been averted. With this risk hopefully now resolved, much policy and political debate will begin about the Administration’s decision; why Silicon Valley Bank was so vulnerable; whether rules or enforcement are to blame for its failure, that of Signature Bank, and systemic fragility; and – even if rules are generally robust – which revisions to them are needed. The overall construct of reactions to this emergency and then the likelihood of substantive response beyond the Congressional statements and President’s commitment to new rules this morning will emerge in more specific form over the next few days if market strains continue to ease. FedFin will of course continue to apprise clients of key considerations.

RESOLVE49.pdf…

13 03, 2023

FedFin First Take: Failure Fall-out

Arezou Rafikian2023-03-15T16:50:33-04:00March 13th, 2023|The Vault|

As we noted last night, the President concurred with Treasury, the Fed, and FDIC in deciding that SVB’s Friday failure and imminent runs on Signature Bank and, most likely, others posed a systemic risk. This determination permits the FDIC to override all the efforts to end the moral hazard feared when uninsured depositors are fully protected in bank resolutions and came with a new Fed facility making it still easier for banks to obtain liquidity from the Federal Reserve. As we also observed, much effort is being made to assert that none of these backstops is a bailout, a conclusion sure to draw considerable discussion and dissent even from those who concur that the scale of potential run risk Monday morning could not otherwise have been averted. With this risk hopefully now resolved, much policy and political debate will begin about the Administration’s decision; why Silicon Valley Bank was so vulnerable;…

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

12 03, 2023

DAILY031223

Eliza Allen2023-03-12T21:06:36-04:00March 12th, 2023|2- Daily Briefing|

Systemic Ruling Stems Run Risk, Opens Sweeping Policy Debate

After a frantic weekend, the Treasury, Fed, and FDIC decided on an SVB package protecting not only insured, but also uninsured, depositors at both SVB and Signature Bank, which was closed earlier this evening. Insured depositories will pay for the cost of these FDIC resolutions through special assessments. At the same time, the Federal Reserve announced a new window to provide emergency liquidity to banks that values collateral at par rather than forcing borrowers to liquidate securities now subject to specific mark-to-market loss. The new facility, which appears unlimited, is backed by a $25 billion commitment from Treasury’s exchange Stabilization Fund, the same go-to window the Board used in 2020 to satisfy requirements for innovative emergency-liquidity facilities.

Daily031223.pdf…

22 02, 2023

DAILY022223

Eliza Allen2023-02-22T16:44:44-05:00February 22nd, 2023|2- Daily Briefing|

BIS Backs Away From Old CBDC, Presses New “Unified Ledger”

BIS General Manager Agustín Carstens today distanced the global central bank somewhat from its prior calls for two-tier CBDC as quickly as possible (see Client Report CBDC6).

Administration Drops FHA Premiums in Broad Housing Push

In a victory for mortgage lenders and defeat for private mortgage insurance and the GSEs, Vice President Harris announced that FHA will shortly reduce mortgage premiums by .30 percent, saving the average homeowner $800 in total premiums or $67 a month.

GOP Opens Anti-CBDC Campaign

Starting the GOP’s 2023 campaign against CBDC with a specific initiative, Rep. Tom Emmer SP (R-MN) and nine Republicans have introduced H.R. 1122.

FDIC Found Remiss re Systemic Resolution

In its assessment of challenges facing FDIC leadership, the Office of Inspector General (OIG) finds that the agency may not be ready to handle an OLA or systemic resolution, nor is it yet able to assess climate financial risk and sanctions compliance.

FHFA Looks Into FHLB-Member Community Activities

Perhaps advancing FHFA Director Thompson’s commitment to review aspects of the FHLB System, her agency today released a request for views on the extent to which a Home Loan Bank member supported its community to retain eligibility for long-term System advances.

Daily022223.pdf…