#Tarullo

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1 09, 2022

FedFin on: Centenarians Get a Face Lift

2022-12-20T16:22:39-05:00September 1st, 2022|The Vault|

As seems always the case, FHFA Director Thompson is as good as her word to Congress earlier this summer, announcing yesterday a review of the extent to which the Home Loan Banks and their System meet the mission assigned to them and, regardless, if that mission still makes sense. Building on our initial assessment of FHFA’s plans, we here turn to what the System, its allies, and reformers are likely to say and what FHFA and/or Congress will then do about it.

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1 09, 2022

GSE-090122

2022-12-20T16:21:38-05:00September 1st, 2022|4- GSE Activity Report|

Centenarians Get a Face Lift

As seems always the case, FHFA Director Thompson is as good as her word to Congress earlier this summer, announcing yesterday a review of the extent to which the Home Loan Banks and their System meet the mission assigned to them and, regardless, if that mission still makes sense.  Building on our initial assessment of FHFA’s plans, we here turn to what the System, its allies, and reformers are likely to say and what FHFA and/or Congress will then do about it.

GSE-090122.pdf

18 07, 2022

m071822

2023-01-06T14:55:15-05:00July 18th, 2022|6- Client Memo|

A Pragmatic Vision of a Purposeful Home Loan Bank System

Although a new paper by former FRB Gov. Tarullo and Fed staffers on the FHLB stirred considerable consternation across the Federal Home Loan Bank System, it’s a crushing and persuasive critique of a giant GSE that has long preferred to go unnoticed.  That’s not unreasonable since the System has evolved from an essential small-bank funding source for mortgages into a taxpayer-subsidized capital-markets investment option.  When public wealth is not allocated for public welfare, resources are misallocated and market integrity is compromised.  But, unless the Home Loan Banks blow themselves up, they are here to stay.  Thus, the policy challenge is not how to abolish them, but how best to redirect an established funding channel back to servicing the public good.  Traditional single-family mortgages don’t need the Banks anymore, but much else does.

m071822.pdf

18 07, 2022

Karen Petrou: A Pragmatic Vision of a Purposeful Home Loan Bank System

2023-01-06T14:56:42-05:00July 18th, 2022|The Vault|

Although a new paper by former FRB Gov. Tarullo and Fed staffers on the FHLB stirred considerable consternation across the Federal Home Loan Bank System, it’s a crushing and persuasive critique of a giant GSE that has long preferred to go unnoticed.  That’s not unreasonable since the System has evolved from an essential small-bank funding source for mortgages into a taxpayer-subsidized capital-markets investment option.  When public wealth is not allocated for public welfare, resources are misallocated and market integrity is compromised.  But, unless the Home Loan Banks blow themselves up, they are here to stay.  Thus, the policy challenge is not how to abolish them, but how best to redirect an established funding channel back to servicing the public good.  Traditional single-family mortgages don’t need the Banks anymore, but much else does.

The paper’s criteria for considering taxpayer subsidies are a very helpful guide for moving forward and thus worth quoting at length:

“There is, of course, nothing inherently wrong with government subsidies. But subsidies should meet two conditions if they are to be sound public policy. First, they must be shown to be correctives for identified market failures or instruments of targeted redistribution policies.  Second, there must be governance mechanisms to ensure that the subsidies are used to achieve the ends specified by the legislature or regulator, and not for other purposes.”

I suspect the authors would agree with a third point:  if a credible, forward-looking case for the subsidy cannot be made by virtue of demonstrable public benefits …

5 07, 2022

DAILY070522

2023-01-24T15:42:23-05:00July 5th, 2022|2- Daily Briefing|

Fed Develops a Measure of Operational-Risk Exposures

In a research note late last week, Federal Reserve staff proposed a new approach to quantifying a bank’s operational-risk exposure, a timely contribution to the debate sure to rage when the U.S. advances Basel’s proposed rewrite of operational-risk-based capital requirements (see FSM Report OPSRISK18).

FHLB Banks Said to Pose Grave Risks, Require Reform

A new paper from Fed staff and former Gov. Dan Tarullo argues that the Federal Home Loan Banks pose structural problems to federal bank regulation and systemic stability by virtue of their hybrid status and the absence of clear purpose under contemporary market circumstances.

FRB-New York: Digital Currencies Could Strengthen the USD

Contrary to Congressional fears (see Client Report CBDC13), a new blog post from the Federal Reserve Bank of New York projects that digital currencies might bode well for the continued international dominance of the dollar.

Liang Calls for New-Age CCyBs, Open-End Fund Reform, Digital-Asset Macropru

In remarks today, Treasury Under-Secretary Liang concludes that post-2008 macroprudential standards strengthened the financial system as evidenced by its ability to support the real economy in 2020.

Global Regulators Find Risky Connectivity Between Banks, BigTech

The BIS Financial Stability Institute today released a report investigating what it calls the regulatory blind spot of bigtech inter-dependency, recommending that regulators develop an entity-based regulatory framework for bigtech operations in the financial sector and, while they work on this longstanding goal, use an new, indirect approach.

Daily070522.pdf

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