#systemic

11 01, 2022

FedFin Assessment: Powell Sidesteps Many Challenges, Promises Much

Arezou Rafikian2023-04-24T15:54:45-04:00January 11th, 2022|The Vault|

As promised yesterday (see Client Report FEDERALRESERVE66), we listened closely today to gauge the extent to which Chairman Powell faces a serious challenge to reconfirmation. At least as far as Senate Banking Members are concerned, he doesn’t. Although Sen. Warren (D-MA) and other Democrats lambasted Mr. Powell over insider-trading allegations and what they called the Fed’s unresponsiveness, all still were cordial and seemed generally to blame the problem on institutional failures, not the chairman. Sen. Menendez (D-NJ) called the Fed’s diversity policy “outrageous,” but also does not seem inclined….

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

20 12, 2021

Karen Petrou: For the Next Vice Chair: Stringent Enforcement and Meaningful Supervision

Arezou Rafikian2023-05-22T15:43:38-04:00December 20th, 2021|The Vault|

As we noted last week, the Fed decided to issue some post-Archegos guidance telling big banks to watch their counterparty credit-risk exposures. As a banker with all too much experience dodging risk bullets told me, this guidance followed lots of prior guidance saying the same thing after each big boo-boo – think Long-Term Capital Management more than two decades ago and follow the trail of Fed statements thereafter. Each time, the Fed looks stern and banks say they’re sorry but soon go back to following the money, not the risk. And, over and over, examiners fail to notice anything amiss until the amount of realized risk is impossible to ignore. Interestingly, the Bank of England acted with the Fed but with far more force. Unlike the Fed’s renewed “you better watch out” guidance, the BoE demanded an immediate review of prime-brokering, reports back to regulators, and senior-management pay cuts if flaws go unrepaired. Thus, unlike the Fed, the Bank of England’s response to costly and thoroughly avoidable lapses has teeth. Whether the British then bite anyone is another question – the record is not replete with supervisory success – but the difference should nonetheless be instructive to the Fed’s next supervisory vice chair.

This difference is just like that between telling a child that she’ll be sorry next time and ensuring that the kid immediately knows that bad actions have tangible, actual consequences. One doesn’t have to beat the kid silly – indeed, of course one more than shouldn’t. But, …

16 12, 2021

FedFin: Bank Merger Policy

Arezou Rafikian2023-05-22T16:11:59-04:00December 16th, 2021|The Vault|

Released in a highly-controversial fashion (see below) by two Democrats on the FDIC’s board, this RFI posits the need for a significant review of mergers involving insured depository institutions (IDIs) due to many changes in the financial industry and, so it says, the lack of substantive competitive analysis over past decades even of the largest transactions.

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

2 11, 2021

FedFin Assessment: The Near-Term Stablecoin Regulatory Agenda

Arezou Rafikian2023-06-02T13:04:23-04:00November 2nd, 2021|The Vault|

As noted yesterday, the President’s Working Group on Financial Markets (PWG) was joined by the OCC and FDIC yesterday issuing a report calling for prompt Congressional action to regulate stablecoins and, even in its absence, also for fast action by federal regulators and the FSOC. In part because it poses the largest regulatory void, the most worrisome of the risks the report details arises from the role stablecoins may play in the payment system and resulting threats to systemic stability and competition. Issues germane to digital-asset trading (defined to include lending and related activities) are described but largely left to regulators; SEC Chairman Gensler has made it clear (see Client Report INVESTOR19) that he intends to act and the CFTC-chair nominee has done the same.

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

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18 10, 2021

Karen Petrou: How to Make Stablecoins More than Monopoly Money

Arezou Rafikian2023-06-07T15:59:53-04:00October 18th, 2021|The Vault|

In all of the reports on all of stablecoin’s risks that so frighten central bankers and global finance ministers, none is as terrifying as whether the assets backing hundreds of billions of dollar-equivalent transactions are to be had when needed. And needed they will be – see not just all the ministerials on high, but also Gillian Tett’s latest, compelling FT column. Without a meaningful reserve-currency reference, stablecoins are the equivalent of monopoly money without even the teeny little plastic hotels providing an illusion of wealth. Making stablecoins matter as real money requires meaningful reserves but meaningful reserves mean that stablecoin’s gung-ho promoters won’t get anywhere near as rich. The business model changes for the way-better, but the construct of stablecoins may be so altered as to make this looming systemic phenomenon only a passing fancy.

The set of difficult choices needed to realize stablecoin’s promise to anyone but profiteers is detailed in our latest report on critical policy issues. In it, we analyze a set of systemic-risk principles recently proposed by the BIS’s Committee on Payment and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO). As is usually the case with global-regulatory pronouncements, this proposal defines wide parameters for jurisdiction action, stating most clearly what’s wanted, not what will happen if one were actually to get it.

The CPMI/IOSCO paper is even more hesitant than usual because reserve assets aren’t stablecoin’s only tricky bit. For example, the paper describes a governance conundrum of formidable proportions …

14 10, 2021

FedFin on: Global Systemic-Risk Standards for Stablecoin Arrangements

Arezou Rafikian2023-06-15T14:58:37-04:00October 14th, 2021|The Vault|

Responding to requests from the G7, G20, and FSB, this report addresses market-infrastructure considerations related to systemically-important stablecoins that do not involve multi-currency baskets (e.g., Facebook’s Diem). The report builds on the FSB’s current principles and those on cross-border payments, but generally does not propose specific standards. Instead, it lays out how current global principles in this area should guide both stablecoin developers and regulators.

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