#White House

5 06, 2024

FedFin on: Closing In on Closing Costs

2024-06-05T11:21:39-04:00June 5th, 2024|The Vault|

As anticipated, the CFPB has advanced its campaign to quell mortgage closing costs.  But, unlike our forecast, the usually-aggressive agency is sliding into this debate with only a request for information (RFI) asking lots of questions we though the CFPB had already answered to its own satisfaction given a prior study and much ancillary “junk fee” commentary from Director Chopra and even the White House NEC Director.

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

13 11, 2023

Karen Petrou: How Inequitable Rules Stoke Financial Crises and What the Banking Agencies Should do to Cut This Link

2023-11-13T15:41:25-05:00November 13th, 2023|The Vault|

Last week, OMB issued another edict redesigning the way most of the federal government writes rules, going beyond its earlier directive to consider competitive impact now also to demand detailed consideration of the broader public good, especially when it comes to economic equality.  I focused on public-good regulation in last week’s memo because it is sadly alien to federal financial regulation even though, as OMB says, “the benefits and costs of a regulation are ultimately experienced by people.”  I grant that economists are people, but some are also people who don’t like people, at least when qualitative assessment of what people need challenges the quantitative conclusions they cherish.  Pending banking rules thus ignore the public good in favor of complex market constructs, rationalizing them on assertions that, whatever else befalls finance, crises are less likely.  This is a methodology fraught with perverse consequences, the most important of which is that the agencies’ standards will hike the risk of financial crises precisely because they omit distributional analysis.

A demand for distributional consideration is not – repeat not – a plea for the banking agencies to go easy on banks.  It’s a plea for them to be as sure as they can that none but banks that need to be reined in are throttled.  As OMB now also says, “some alternatives may change distributional effects even without significantly changing stringency.”  The extent to which this is the case with bank standards is unknown because not one regulator has ever asked a distributional …

31 10, 2023

FedFin Assessment: New White House AI Policy Promises New KYC Requirements, Banking-Agency Guidance

2023-10-31T13:33:25-04:00October 31st, 2023|The Vault|

In this report, we assess the detailed executive order (EO) issued late Monday afternoon after days of private showings of selected versions. Much in the EO’s binding provisions address near-term AI-related threats to national-security, pandemic-risk, and infrastructure vulnerabilities and much related to AI-related opportunities derive from internal procedures Mr. Biden urges the federal government to develop along with workforce protections and biomedical research. The EO also reiterates the Administration’s values and presses agencies to work still harder on voluntary industry standards that many have been drafting or disagreeing on since the White House and Congress first called attention to AI risk. What comes of these provisions in the EO remains to be seen, but the Administration has also used tools such as the Defense Production Act’s authorization for direct economic intervention to mandate an array of new AI commercial and technology safeguards.

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

26 04, 2023

FedFin on: Systemic-Risk Determinations

2023-04-26T16:59:28-04:00April 26th, 2023|The Vault|

Rejecting the Trump Administration’s hands-off approach to designating systemically-important nonbank financial institutions or activities and practices, the Biden Administration’s FSOC has bifurcated this construct with one proposal on designating entities and another that lays out an analytical approach to identifying systemic risk that would then guide firm and activity designation as well as Council staff coordination with primary federal regulators leading to new rules, product or service prohibitions/restrictions, or firm-specific supervisory action. If the final framework is as comprehensive as this proposal and FSOC is as actively engaged as its plan requires, then U.S. systemic standards could extend far more widely than is now the case even if firm-specific nonbank designations are few and far between…

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

11 04, 2023

FedFin Assessment: Top Brainard, Gruenberg Regulatory Rewrites

2023-04-11T16:52:14-04:00April 11th, 2023|The Vault|

In this report, we drill down on prior forecasts (see Client Report REFORM219) of near-term regulatory action to identify the revisions sure to be prioritized as NEC Director Brainard and FDIC Chairman Gruenberg seek to reverse rules finalized over their objections when they were in the minority.  Ms. Brainard does not have a direct role dictating what the Fed will do given central-bank independence, but she has a good deal of influence as evidenced most recently by the White House action list.  Acting Comptroller Hsu was not casting formal votes over these years, but he was an influential staff leader in this area and clearly has his own list – see for example his efforts on bank merger and resolution policy (see FSM Report RESOLVE48).  We expect he will concur with Vice Chairman Barr and Mr. Gruenberg if they all advance the rewrites to the tailoring rules to which Ms. Brainard and Mr. Gruenberg so strongly objected….

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

10 04, 2023

Karen Petrou: Why the Fed is a Repeat Offender

2023-04-10T17:29:46-04:00April 10th, 2023|The Vault|

As we noted in a recent report, a divided Congress that may not even be able to keep the U.S. Government in business is one unlikely to enact substantive financial reform.  Thus, we’re in for yet another episode of political damage control, regulatory excuses, and a few heads on enforcement spikes without meaningful, measurable, and accountable supervisory reform.  Been there, done that, had another financial crash, or so my dispiriting read of recent efforts to force post-crash supervisory reform makes all too clear.  It’s probably too much to ask that Congress not flit off to the next election before it ensures meaningful regulatory-agency accountability for manifold supervisory lapses, but if it does what it usually does, then we are doomed to more crashes with worse consequences unless it and the White House force the Fed to do what it’s never done before:  meaningfully and transparently improve supervisory rigor and enforcement might.

In my memo three weeks ago, I showed how regulators by 2001 had failed to act on the lessons of the 1980s and 1990s before the largest bank failure at the time presaged the great financial crisis hot on its heels.  After the GFC, the U.S. convened the Financial Crisis Inquiry Commission (FCIC).  When it issued its report in 2011, it drew scathing conclusions not only about all the “light-touch” regulation before the crash, but also supervisory unwillingness or inability to ensure that what rules there were were rules that were obeyed.

Despite this report and …

13 03, 2023

FedFin First Take: Failure Fall-out

2023-03-15T16:50:33-04:00March 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.…

8 02, 2023

FedFin on: Credit-Card Late Fee Regulation

2023-02-09T09:43:39-05:00February 8th, 2023|The Vault|

Following on a controversial advance notice of proposed rulemaking, the CFPB has now released an NPR setting specific standards for credit-card late fees that also eliminates the inflation adjustments established by the Federal Reserve when implementing the 2009 credit-card law.  The NPR also seeks comment on still more stringent late-fee restraints and limits on some or all of the other penalty fees now charged by some credit-card issuers.  When issuing the ANPR, the Bureau also noted that it plans to advance other initiatives under its “junk-fee” standards, likely starting with those pursuant to ….

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

21 11, 2022

FedFin: We’re Starting to See SIFIs

2022-11-22T13:21:33-05:00November 21st, 2022|The Vault|

As came out into the open last week, FSOC will finally turn to rewriting the Trump era rewrite of the Obama Administration’s FSOC protocols regarding systemic financial institutions and activities.  Could the SIFI reaper be coming for Fannie and Freddie?  We doubt it, but then again…

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

1 08, 2022

Karen Petrou: The Incredible Shrinking Fed

2023-01-04T13:36:59-05:00August 1st, 2022|The Vault|

As seems increasingly the case, I spent more time last week than hoped with airport personnel.  In the course of the economic-inequality discussion that prompted my travels, I mentioned that I had little confidence in the general-public inflation expectation data in which economists put such stock.  So, I asked my aide what she thought and was told that her biggest fear is the “rising price of the dollar” and whether she will thus be able to afford her apartment and get her kids ready for school.  The airport was packed and she is turning down overtime, but she has to take care of her kids and day care costs are higher than even more pay can manage.  Pressing on, I got only a blank stare following mention of the Federal Reserve but then heard a diatribe about useless politicians including those she no longer thinks care for anyone but themselves.  I think this lady’s views are emblematic of lower-wage workers who once were active voters and thus also an important warning signs not only of how unequal economies work at odds with the Fed’s macro models, but also of the outcome of the election this year and, should things only get worse, then in 2024.

I decided not to waste time by asking Kisha (not her real name) to agree that the recession is just an illusion because all the data boxes have yet to be checked as the President, Treasury Secretary, and Fed chairman insist.  It’s hard to think …

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