FedFin: We’re Starting to See SIFIs
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…
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FedFin on: Treasury Plumbs the Depth of Nonbank Finance, Seeks New Merger Policy, Rules
As promised, this report provides an in-depth analysis of Treasury’s report and resulting recommendations to the President’s Competition Council on the impact of new nonbank consumer-finance entrants from a competition, consumer-protection, and financial-stability perspective. Although the report calls for reconsideration of bank-merger policy with an eye to the growing role of fintechs and bigtechs, its overall view of market power fails in our view to capture the actual landscape in which…
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Karen Petrou: What Will Be Done, Not Just Said, To Fix FTX
The only question left unanswered about FTX is whether it was a purposeful scam as more than a few clients conclude or a case of implacable forces ending the era of easy money that just got the better of another wunderkind whose awesome skills turned out to be largely confined to costumery conveying inspired innovation to all too many vulnerable investors and gullible politicians. No matter which it is or even – as I think – if it’s a bit of both, FTX is a debacle that will change U.S. financial policy for the better unless FTX drives still more crypto chaos that then spills over to core financial infrastructure and intermediation. I’ve gotten a lot of questions about crypto policy after my brief discussion in last week’s talk on the midterm’s policy impact. Here, more on both the legislative outlook and what regulators may finally bring themselves to do even if Congress can’t get itself together any better next year than in so many before it.
First more on why stablecoins are the cryptoasset most likely to come under a new federal gun. This isn’t because they deserve it more than any other cryptoasset – although they might – but because policy thinking about what to do with stablecoins is most advanced and, thus, bipartisan negotiations in the House are closest to the finish line.
That said, even stablecoin standards aren’t going to be easy. The clearest articulation of how new law might work is S. 4356, the Lummis-Gillibrand bill. But, as our in-depth analysis made clear, this bill is a hodge-podge of the hopes of Bankman-Fried acolytes and an amazing array of internal contradictions about just what would be done to stablecoins, issuers and banks along with what would befall consumers, investors, and the financial system.
But regardless of […]
FedFin on: Treasury Inches Closer to All-to-All Trading
Building on our initial assessment, this report goes in-depth into the Treasury assessment of the market for its obligations and reforms necessary to avert another dash for cash. Although the Federal Reserve, which participated in this study along with other agencies, indicated in 2020 it will review the supplemental leverage ratio (SLR) to…
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FedFin on: Global Regulators Prioritize CCP, End-User Resilience
As promised, this FedFin report provides an in-depth analysis of the FSB’s latest policy on nonbank financial intermediation. As is often the case, much in the report discusses data gaps, presses for international cooperation, and details FSB and national work to date on the issues identified in its initial analysis after the 2020 crisis (see FSM Report NBFI). Most of FSB’s work since has focused on MMFs (see FSM Report MMF18), with this latest report going on to lay out ….
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Karen Petrou: The Data-Rights Dilemma: The Balance Between CFPB Despotism and Democracy
Last week, I despaired of CFPB edicts because I disapprove on principle of despotism no matter how well intentioned. But, as shown in our in-depth analysis of the CFPB’s request for views on consumer data rights, democratic process can also be disastrous. In what purports to be an “outline” of 71 pages and 149 questions often including numerous substantive sub-questions, the Bureau has gone back to its old habit of 1,000-plus page rules sure to do far, far more for lawyers than consumers seeking to better control their own financial destinies.
The outline and Director Chopra’s statements thereon lay out a powerful, persuasive argument about the benefits of data portability to an innovative, competitive, and inclusive retail financial system. I get it, but after that, I’m at a loss.
Here are just a few questions we couldn’t answer about whether the CFPB’s new standards will do what the Bureau wants or heighten consumer exposure to still more cyber, privacy, and financial risk:
Will the third parties gaining control of our account data be covered by new security standards and, if so, will these be enforceable? Will the data third parties gain via whatever authorization process the Bureau demands be deployed not just to answer our questions, but also to empower the already awesome network effects at the biggest quasi-financial companies wholly outside the reach of cross-selling and conflict-of-interest restrictions? Will the products that third parties and their partners select based on our data do us good or ill? For example, will “high-yield” accounts be FDIC-insured or otherwise cash-equivalent if funds being “managed” go from bank accounts to God knows where?
The Bureau’s outline is just as perplexing on the critical questions of what it means to financial institutions. Will payment-system providers be required to give consumers data on interchange […]