#systemic

28 02, 2024

DAILY022824

2024-02-29T11:26:05-05:00February 28th, 2024|2- Daily Briefing|

HFSC Dems Press for New Bank-Merger Policy

Although she issued a statement strongly opposed to the CapOne/Discover merger after it was announced, HFSC Ranking Member Waters (D-CA) today led a letter instead focusing on the need for the banking agencies and DOJ to quickly issue updated merger policies.

US Standards Complicate Transborder Personal-Financial Data Flows

The President plans later today to issue an executive order banning the transfer of sensitive data to “countries of concern” and certain persons subject to their jurisdiction.

Fed Worries About Regional-Bank Risk

Anna Kovner, Director of Financial Stability Policy Research at the New York Fed, today outlined four sources of systemic risk that worry the central bank even though the Fed still sees risks as manageable according to the analyses released last October (see Client Report SYSTEMIC97).

Daily022824.pdf

22 01, 2024

GSE-012224

2024-01-22T16:02:39-05:00January 22nd, 2024|4- GSE Activity Report|

Securitization and Systemic Risk

A new Fed staff study uses models to conclude that government-backed mortgage securitization  exacerbates financial crises, contradicting conventional wisdom that – GSE blow-ups notwithstanding – properly-regulated GSEs create a liquid, diversified asset pool for an otherwise illiquid, risky asset class.  However, our read of the study leads us to side with conventional wisdom.

GSE-012224.pdf

10 01, 2024

DAILY011024

2024-01-10T17:00:41-05:00January 10th, 2024|2- Daily Briefing|

HFSC’s HUD Hearing to Trod Partisan Ground

HFSC’s majority staff memo on Thursday’s hearing with HUD Secretary Fudge makes it still clearer that the session will focus on affordable housing, homelessness, and public-housing agencies in cities such as New York and Washington, D.C.

HFSC GOP Slams DOL Fiduciary Rule

At today’s HFSC Capital Markets Subcommittee hearing on the DOL’s Fiduciary Rule, Subcommittee Chairwoman Wagner (R-MO) argued that the proposal should be withdrawn, calling it a partisan effort to eliminate “junk fees.”

HFSC Takes Partisan Approach to FSOC

At today’s HFSC Digital Assets Subcommittee hearing on FSOC’s systemic-designation framework (see FSM Report SYSTEMIC98), Subcommittee Chairman Hill (R-AR) questioned FSOC’s approach to addressing systemic risk, claiming that the Council’s revised guidance is vulnerable to abuse and unintended consequences.

CFPB Small-Business Reg Survives

Senate Republicans tried today to override the President’s veto of the Congressional Review Act resolution approved by both Houses of Congress to repeal the CFPB’s small-business reporting rule.

Daily011024.pdf

3 01, 2024

DAILY010324

2024-01-03T16:38:18-05:00January 3rd, 2024|2- Daily Briefing|

EBA Plans Full-Bore NBFI Crackdown

We will shortly provide clients with an in-depth analysis of notable changes to call reporting released for comment late last year.  Today’s Financial Times interviews José Manuel Campa, the chair of the European Banking Authority (EBA), whose comments on NBFIs make it clear that, as we expected, the U.S. action is part of a broader global push to map bank/NBFI interconnections and then curtail them.  The EBA is also planning to stress-test these interconnections, a move we expect also from the Fed when it moves forward on Vice Chair Barr’s multi-scenario test plans.

Women Do Too Know

The Federal Reserve Board this week has issued a staff note finding that the so-called financial literacy gender gap is largely driven by study design, not gender differences in financial literacy.  This has considerable implications for many financial-literacy programs now specifically targeted to women.  The note finds that women are much more likely than men to utilize the “don’t know” choice even though men and women actually respond incorrectly at similar rates.

Daily010324.pdf

8 12, 2023

Al121123

2023-12-08T16:55:05-05:00December 8th, 2023|3- This Week|

Another Book Report?

At a recent hearing (see Client Report CONSUMER54), CFPB Director Chopra wasn’t shy in his critique of the Financial Stability Oversight Council.  He called it a “book report club,” a moniker Karen Petrou last week suggested was not wholly untrue when it comes to emerging risks such as private credit.  FSOC’s meeting this Thursday is likely to show the Council at its bookwormy best given that the agenda consists largely of ritual release of yet another FSOC report.  We’ve dutifully catalogued these year-in, year-out as hundreds of FSOC blessed pages spew forth about what the Council did, how many facts its staff gathered about whom in the past year, and what it thinks might go wrong where in concert with little indication of what the Council might then do to prevent the worst from happening.

Al121123.pdf

7 12, 2023

DAILY120723

2023-12-07T16:42:01-05:00December 7th, 2023|2- Daily Briefing|

BIS: CCP Collateral Holdings Pose Systemic Risk

A new BIS study looks at the risk that the transformation of OTC markets to centrally-cleared ones has in turn transformed markets based in part on know-your-counterparty into those dependent principally on collateral backing margin positions – an inherently more fragile market structure.

White House Presses FHLB Affordable-Housing Action

In remarks today, National Economic Advisor Lael Brainard not only highlighted the Biden Administration’s actions to address housing affordability, but also mentioned plans for new financing programs.

Ambitious CFPB Regulatory Plans Come Into View

The CFPB’s fall 2023 regulatory agenda provides status updates for several significant rulemaking items.

Basel to Set IRR, Window-Dressing, Crypto Standards

The Basel Committee’s year-end meeting advanced plans to address interest-rate risk (IRR) with a concrete agreement to issue a new consultation later this month updating current global IRR standards (see FSM Report IRR7).

BIS Points to MMF Risk When Rates Rise

Another new BIS paper concludes that the record size of MMFs poses significant threat to dollar-funding market stability.

OCC Warns Banks of AI Risk, Possible Supervisory Action

Reflecting growing Congressional, regulatory, and industry concerns over AI, today’s OCC semiannual risk assessment for federal banks states that national banks should be mindful of AI risks as these fall under current supervisory procedures.

Senate GOP Goes for Gruenberg’s Jugular

Despite efforts by the FDIC to reassure critics about its independent investigation, Senate Banking Republicans today fired off a ferocious letter demanding that FDIC Chair Gruenberg immediately resign …

6 12, 2023

DAILY120623

2023-12-06T16:42:25-05:00December 6th, 2023|2- Daily Briefing|

OFR Sees Heightened Systemic Risk

Striking a considerably more somber note than the FRB (see Client Report SYSTEMIC97), OFR today concluded that systemic risk is elevated due to an upcoming economic slowdown, heightened inflation,  and geopolitical risk and global conflict.

OCC Cracks Down on BNPL Finance

Reflecting continuing CFPB concerns about buy-now/pay-later finance, the OCC today sets new risk-management standards for federally-chartered entities in this arena.

HFSC Housing Subcommittee Revisits Housing Debate

Today’s HFSC Housing Subcommittee hearing largely followed the staff memo’s outlined political playbook, with Chairman Davidson (R-OH) calling for market-based solutions and Ranking Member Presley (D-MA) arguing that expanded subsidies are necessary alongside zoning reform to make housing affordable.

Fed Proposes Market-Risk Valuation Reporting

Readying disclosures for the market-risk capital rewrite (see FSM Report CAPITAL233), the Federal Reserve has proposed new reporting standards that would require covered banks to disclose valuations of their covered positions taking into account unearned credit spreads, close-out costs, early termination costs, investing and funding costs, liquidity, and model risk.

Fed Proposes New Liquidity Risk Reporting Standards

Reflecting growing fears that banks could not actually monetize HQLAs under stress as proved the case for Credit Suisse, the FRB is also proposing new reporting standards requiring covered companies to report on qualifying master netting agreement compliance with current liquidity-risk measurement standards.

Daily120623.pdf

4 12, 2023

M120423

2023-12-04T11:03:03-05:00December 4th, 2023|6- Client Memo|

Why Curbing Banks Won’t Curtail Private Credit

Last Wednesday, Sens. Brown and Reed wrote to the banking agencies pressing them to cut the cords they believe unduly bind big banks to private-credit companies.  The IMF and Bank of England have also pointed to systemic-risk worries in this sector, as have I.  Still, FSOC is certainly silent and perhaps even sanguine.  This is likely because FSOC is all too often nothing more than the “book-report club” Rohit Chopra described, but it’s also because it plans to use its new systemic-risk standards to govern nonbanks outside the regulatory perimeter by way of cutting the banking-system connections pressed by the senators.  Nice thought, but the combination of pending capital rules and the limits of FSOC’s reach means it’s likely to be just thought, not the action needed ahead of the private-credit sector’s fast-rising systemic risk.

m120423.pdf

 …

4 12, 2023

Karen Petrou: Why Curbing Banks Won’t Curtail Private Credit

2023-12-04T11:03:15-05:00December 4th, 2023|The Vault|

Last Wednesday, Sens. Brown and Reed wrote to the banking agencies pressing them to cut the cords they believe unduly bind big banks to private-credit companies.  The IMF and Bank of England have also pointed to systemic-risk worries in this sector, as have I.  Still, FSOC is certainly silent and perhaps even sanguine.  This is likely because FSOC is all too often nothing more than the “book-report club” Rohit Chopra described, but it’s also because it plans to use its new systemic-risk standards to govern nonbanks outside the regulatory perimeter by way of cutting the banking-system connections pressed by the senators.  Nice thought, but the combination of pending capital rules and the limits of FSOC’s reach means it’s likely to be just thought, not the action needed ahead of the private-credit sector’s fast-rising systemic risk.

One might think that banks would do all they can to curtail private-credit competitors rather than enable them as the senators allege and much recent data substantiate.  But big banks back private capital because big banks will do the business they can even when regulators block them from doing the business they want.  Jamie Dimon for one isn’t worried that JPMorgan will find itself out in the cold.

Of course, sometimes banks should be forced out of high-risk businesses.  There is some business banks shouldn’t do because it’s far too risky for entities with direct and implicit taxpayer backstops.  This is surely the case with some of the wildly-leveraged loans private-credit companies …

1 12, 2023

DAILY120123

2023-12-01T16:39:15-05:00December 1st, 2023|2- Daily Briefing|

Barr Outlines Rationale for LCR, NSFR Rewrite

FRB Vice Chair Barr today reiterated his views that banks must be much better prepared to use the Fed discount-window, this time emphasizing that operational readiness entails regular testing of actual transactions at regular intervals as well as robust collateral pre-positioning.

Reed Presses Synthetic-Securitization Controls

Following his comments at recent hearings (see Client Report REFORM229), Sen. Reed (D-RI) late yesterday sent a letter to FRB Vice Chair Barr, FDIC Chair Gruenberg, and Acting Comptroller Hsu urging them to evaluate CRT transaction risk on financial stability grounds and, should they find an uptick in synthetic securitizations, request public comment on possible remedies to the risks Sen. Reed identifies.

Pending Veto, House Votes Against CFPB

As anticipated (see Client Report CONSUMER53), the House today voted 221 to 202 to authorize Congressional Review Act withdrawal of the CFPB’s small business reporting rule.

OCC Readies Research for Liquidity-Reg Rewrite

Likely readying itself for the raft of new liquidity proposals presaged in Michael Barr’s talk earlier today, the OCC today issued a call for papers on depositor behavior, bank liquidity, and run risk.

Daily120123.pdf

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