The Vault

The Vault2023-11-21T07:33:18-05:00

FedFin on: Consumer Data Rights/Open Banking

The CFPB has finalized in largely unchanged form its very controversial proposal requiring banks, fintechs, and certain other parties holding retail-customer personal data to share that data with third parties such as data aggregators following a consumer’s request.  The new rule will make it easier for consumers to obtain personal financial data from incumbent providers to assess alternative products and new providers or value-added services such as financial planning or other, higher-risk offerings (e.g., debt “reduction”).  The rule may well also standardize APIs accessing bank data and essentially outlaw screen-scraping, simplifying data access and heightening both privacy and security if the Bureau’s intended constraints function as anticipated in these still largely-unregulated markets. The rule seeks to accomplish its objectives not only by these requirements, but also by….

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

 

October 30th, 2024|

Karen Petrou: Why Open Banking Could Close a Door to Economic Opportunity

In the new and often just fervor to increase competition, trust-busters such as CFPB Director Chopra sometimes forget that too much competition can lead to the Hunger Games, not to the “fair” and “inclusive” sectors they seek.  Defending the new open-banking rule, Mr. Chopra said that he was willing to accept even a good deal more fraud risk for consumers because his rule humbles incumbent financial-services companies.  This is like saying that one is fine with a few more dangerous drugs since that’s what it takes to loosen Big Pharma’s strangle-hold.  Yes, the U.S. drug market is rife with abuses in how pharmaceuticals are priced and distributed and the FDA is problematic, but it seems irrefutable that drugs must be demonstrably safe and effective before we take them.  Do you want to fly on any airline a group of speculators concocts even if it opens up pricing at your congested hub?  Of course not, but that’s what antitrust zealots propose to do to banking even though we’ve learned the hard, hard way that footloose companies taking other people’s money often don’t give it back.

One of the humorless ironies of this election is the alignment between radical populists and progressives that squeezes out moderate, temperate, and – yes – imperfect policies that do the best they can for the most they can with the fewest possible side-effects.  Populists want “free” markets and progressives such as Mr. Chopra want tightly-regulated ones, but the goal in each case is to cut powerful companies down to bite-size pieces that somehow return economic power to the people.

As is often the case, these radical views are in many ways the inevitable reaction to decades of policies that concentrated economic power in far too few hands at the cost of far too much economic inequality and […]

October 28th, 2024|

Karen Petrou: Competitiveness in a Cold, Cruel World

When I gave a talk last week about bank-merger policy, I was asked an important question:  if I’m right about the franchise-value challenges facing most U.S. banks, then why is banking here doing so much better than in other advanced, market-oriented nations?  The answer in part is that, in a pond full of ugly ducklings, a scrawny mallard with just a few more feathers looks a lot better.  But, it’s more complicated than that.  The reasons why make it clear that, if bank-merger policy remains implacably set against economies of scale and scope, then only a very few, very big birds and more than a few nonbirds will own the waters.

As in any comparative analysis, the first step to judging U.S. banks versus those in other nations is to define which banks are being compared.  Most other nations have very few, very big banks often considered national-champion charters dedicated as much to supporting their sovereign governments as to placating shareholders. As our recent merger-policy paper details, national champions are insulated from market discipline because they are almost always expressly too big to fail.  Credit Suisse was an exception to this rule, but only because it failed so fast and Switzerland was so unready for resolution that it could do nothing more than fold one national champion into another, UBS.

For all the talk of TBTF banks in the U.S. and the benefits the very biggest enjoy during flight-to-safety situations, none are yet a national champion, and a good thing too.  The market discipline applied to the very largest U.S. banks may be imperfect, but it’s a lot more stringent than that applicable in many other advanced nations.  It thus forces better return on investment than requisite as banks are de facto utilities.

Further, that the very biggest U.S. banks do […]

FedFin Assessment: TD Orders Set New Enforcement Paradigm

In this report, we build on our initial assessment of the ground-breaking AML enforcement action finalized last Thursday with TD Bank by the OCC, FRB, and FinCEN.  While the banking agencies did not use their nuclear option – requiring TD to close its U.S. operations – the scope of the violations persuaded the agencies along with FinCEN and the Department of Justice to impose huge fines and so sharply constrain U.S. activities as likely to cause both the bank and others to question the viability of continuing U.S. operations for at least the near term.  New branches, products, and services appear barred without a non-objection for the foreseeable future and considerable management turn-over, especially in the U.S., is also likely.  The OCC’s decision to impose the asset-growth cap discussed below implements the Acting Comptroller’s plan to ….

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

October 16th, 2024|

Karen Petrou: Why Didn’t Supervisors Stop TD Before Trillions Escaped AML Surveillance?

The enforcement actions last week against TD Bank’s manifold and manifest money-laundering violations bristle with righteous anger.  This is understandable – the bank’s AML lapses are jaw-droppingly dangerous.  But what’s missing from the recounting of TD’s sins is any accountability for why banking-agency supervisors failed to catch violations dating back to 2012 that transgress every compliance, risk-management, and governance norm.  Yes, throw the book at TD, but let’s also call the banking agencies on the carpet for why TD was allowed to grow so big even though it was clearly also so bad.

The enforcement orders from the Fed and OCC are replete with new mandates making it clear that neither agency trusts TD here or back home in Canada to do anything right re AML without two guns at its respective heads.  It falls to FinCEN and the Department of Justice to provide the recounting of what was actually going wrong at TD and how supervisors should have caught enough of them to stop at least some of the trillions of dollars of payments that went without AML scrutiny and enabled billions, if not more, of human and drug trafficking, organized crime, and so much else that victimized all too many people and nations.

Time, not to mention stomach, does not permit listing all of TD’s glaring AML violations starting in 2012 that went uncorrected and indeed materially worsened after a 2013 FinCEN warning.  But even a few examples tell a dismal tale.

For one, TD’s AML compliance team had dotted reporting lines that at best confused responsibilities and boasted of and were compensated for ensuring total AML compliance without a dent in TD’s risk appetite even as the AML operation shrank to infinitesimal in comparison to TD’s rocket growth.  Indeed, TD got AML religion only when the […]

October 15th, 2024|Tags: , |

Karen Petrou: Home Loan Banks Meet a Moral Hazard speed Bump

Although FHFA’s “advisory” to the Home Loan Banks about funding troubled banks drew little notice, our analysis shows clearly just how consequential this de facto rule will prove.  Last year, the Home Loan Banks smugly funded high-risk banks secure in their super-lien, stiffed the FDIC even on pre-payment penalties, and even told the Federal Reserve to stand back when one possibly-salvageable bank sought discount window access.  If FHFA has its way – and that’s never a sure thing – faltering banks now need new funding sources, the FDIC is at considerably less risk of loss, and Home Loan Banks will defer to the Fed when it comes to the discount window, not the other way around.

Home Loan Bank advances now stand at $780.8 billion, down about $100 billion from the huge draws in the midst of the 2023 crisis but more than double what they were just a few years ago.  This is an after-effect of the March crisis, when the very largest banks experienced unprecedented deposit inflows as funds fled high-risk banks.  Most of these deposits have since stayed put.  As a result, banks regional and small, shaky and sound, have turned to the Home Loan Banks, using the securities they cannot liquidate due to unrealized losses as collateral backing the Home Loan Bank advances on which many banks have come to rely as deposits remain scarce and costly.

Whether this does any good for housing is a debate for another time.  What is clear is that Home Loan Banks have been happy to become not just housing lenders, but lenders’ lenders, bolstering profits for the lender-owned system and salaries for those who run the Banks on their behalf.  I also will not revisit the question of whether Home Loan Banks enjoy a taxpayer subsidy – the Banks […]

October 7th, 2024|Tags: , , , , , |
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