Home in the OK Corral
On Wednesday, FHFA Director Thompson will come before HFSC for what will be an important discussion of housing policy under the newly-confirmed director if Members of Congress allow policy substance to supersede political battles over who is responsible for inflation for which dastardly reason. In hopes of substance, we’ll monitor the hearing and provide you quickly with an in-depth analysis.
Treasury Opens Digital-Asset Framework to Public Comment
Following yesterday’s international crypto framework, Treasury today advanced its work pursuant to the President’s executive order with a request for comment on how best to ensure digital-asset responsible development. We will shortly provide clients with an in-depth analysis of the consultation, which seems more designed to check the public-comment box than to seek views on specific policy options.
Fed’s Brainard Affirms CBDC Views, Details Crypto Regulatory Priorities
In remarks today, Fed Vice Chair Brainard reiterated her tentative support for CBDC outlined at a recent Congressional hearing (see Client Report CBDC13). She did so on grounds that even well-regulated private stablecoins might either fragment the payment system or unduly concentrate power. She also detailed concerns about bank interconnections with crypto assets, stating that regulatory standards for the crypto financial system are needed before digital assets pose systemic risk.
GOP demands FHFA Action to Stem New GSE Ventures
Housing Subcommittee Ranking Member French Hill (R-AR) and nine other HFSC Republicans today sent a letter to FHFA Director Thompson demanding tougher treatment and transparency for new GSE ventures. As we noted, Fannie and Freddie’s equitable-housing plans include an array of pilots for new mortgage products and ancillary services.
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.
FRB-Cleveland Study: Small-Business Finance Availability Shows Continuing Disparate Impact
The Federal Reserve Bank of Cleveland today published the results of the Small Business Credit Survey, finding that small businesses owned by people of color were far less likely to have recovered to pre-pandemic levels than their white counterparts, due in part to continuing gaps in financial access.
GOP Renews Demand for Reserve Bank Reform
Picking up on the GOP’s serious concern about Federal Reserve Bank governance expressed when Chairman Powell came before them last week (see Client Report FEDERALRESERVE70), Senate Banking Republicans today sharply criticized the head of the Kansas City Fed for what they call her unresponsiveness and even untruthfulness related to how Reserve Trust achieved payment-system access.
CFPB Report: Credit Line Reductions Harm Vulnerable Borrowers
Continuing the CFPB’s assessment of credit-card finance, Bureau staff today issued a report about the adverse impact that credit line reductions or withdrawals have on consumers, especially those under stress.
HFSC Homeownership Session Fans Partisan Flames
Today’s HFSC hearing on homeownership and inequality was a largely partisan session where each side repeated policy and macroeconomic arguments along party lines about the best ways to govern the nation’s housing market.
IMF Calls for Improvements to Capital Market Regulation
The IMF issued a report today on capital-markets regulation calling for new market liquidity backstops, strengthened CCP risk management, and greater attention to emerging risks to strengthen the regulatory perimeter focus.
Waters Renews Demands to Break Up Big Bad Banks
Following the hearing …
ILC, Overdraft Bills Face Tough Path to Passage
The vote is now out on H.R. 5912, Rep. Garcia’s (D-IL) bill to circumscribe ILC charters (see FSM Report ILC13). As we noted during the mark-up, the final bill includes modified grandfather language designed to protect existing parent companies without giving them future protection from BHC-like standards. The bill passed narrowly – 28-25 – and is likely to face a still more challenging time on the House floor.
HFSC Wants Tough New Broker-Dealer Standards
HFSC’s investigative report today on the meme-stock crisis takes a strikingly different approach than the SEC’s pending rule. While the Commission is focused on circumscribing payment for order flow and other market practices, HFSC principally targets broker-dealer resilience and the role of the DTCC and other critical market infrastructure. It thus calls on Congress, the SEC, the DTCC, and the NSCC to create a new emergency-liquidity facility for clearing brokers and lays out an array of safety-and-soundness standards it wants the SEC and FINRA to mandate.
GOP Targets Thompson
Picking up their complaints about HFSC’s housing focus from Wednesday’s mark-up, Committee Republicans today called on Chairwoman Waters (D-CA) to bring FHFA Director Thompson before the panel. They are concerned about the safety and soundness of the housing finance system amid increasing recession forecasts, highlighting the urgent pressures of higher mortgage rates and declining household income.
No Oops re UMBS
Following a sharp critique of GSE capital standards earlier today from the Urban Institute, FHFA Director Thompson today acknowledged Fannie and Freddie’s new 50 bps fees when one of the GSEs guarantees the other’s collateral for UMBS purposes. The Urban Institute paper argued that these fees properly reflect the capital cost of the rules’ weightings related to these cross-guarantees, going on to say that the fees are likely over time to reduce investor appetite for Freddie Mac securities and thus undermine the UMBS construct and its broader benefits.
Thompson FHFA Sticks with Utilities for GSE Future Charters
The FHFA today issued its annual report to Congress. Although the first under now-confirmed Director Thompson, it follows the agency’s practice of reporting to Congress largely on past actions.
CFPB Demands Better BNPL Data, Improved Credit Reporting
Although the CFPB has taken no official action on buy-now/pay-later finance since its January RFI, it today issued a staff report on the sector containing a new statement of CFPB policy.
Basel Battens Down First Climate-Risk Hatch
The Basel Committee today issued a final version of its 2021 proposed set of high-level principles for managing climate risk (see FSM Report CLIMATE12). We will shortly provide clients with an in-depth assessment of this new global framework, which is also the starting gun for final action on OCC and FDIC risk-management guidance (see FSM Report GREEN12).
TD Merger Draws Democratic Fire
Reflecting continuing opposition to large-bank mergers, Sen. Elizabeth Warren (D-MA) along with Reps. Katie Porter (D-CA), Chuy García (D-IL), and Al Green (D-TX) today sent a letter to Acting Comptroller Hsu demanding that TD’s proposed acquisition of First Horizon Bank be denied unless or until the bank is held accountable for what the Members describe as flagrant consumer abuses.
When Sandra Thompson earlier this year enunciated a new equitable-finance mission, we forecast that Fannie and Freddie would undertake an array of new activities that significantly expand their footprint along with their equity and equality impact. As anticipated, the plans announced yesterday by Fannie and Freddie go beyond FHFA’s reiterated mission statement earlier this week, mirroring in some ways the banking agencies’ broad view of CRA as a community-development and racial-equity instrument as well as the boost to LMI housing on which attention long focused. But, for all the public-good creds these plans engender, several will doubtless promote market angst as the GSEs launch pilots that tread heavily on MI, title-insurer, and servicer toes.
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Equitable Endeavors
When Sandra Thompson earlier this year enunciated a new equitable-finance mission, we forecast that Fannie and Freddie would undertake an array of new activities that significantly expand their footprint along with their equity and equality impact. As anticipated, the plans announced yesterday by Fannie and Freddie go beyond FHFA’s reiterated mission statement earlier this week, mirroring in some ways the banking agencies’ broad view of CRA as a community-development and racial-equity instrument as well as the boost to LMI housing on which attention long focused. But, for all the public-good creds these plans engender, several will doubtless promote market angst as the GSEs launch pilots that tread heavily on MI, title-insurer, and servicer toes.
Plan B
Cementing her very different vision of Fannie and Freddie, Acting Director Thompson has now finalized a new strategic plan for the FHFA emphasizing the importance of both equitable and sustainable housing finance. As anticipated, the final plan requires more of Fannie, Freddie, and the FHLBs not only on the new equity mission, but also on climate-risk mitigation. The only major difference from the proposed and the final plan is an expression of somewhat greater confidence from FHFA that it can go after third-party counterparties if it wants to.