FedFin on: Nonbank-Payment Provider Regulation
Continuing its efforts to advance controversial actions before the end of the Biden Administration, the CFPB has finalized proposed supervisory standards for large nonbank providers of general-use digital-payment-platform services. The new standard brings these companies under CFPB supervision as well as regulation and enforcement actions, better aligning their governance with rules applicable to bank payment providers and addressing the Bureau’s deep concerns about digital marketing. However, this new framework depends on voluntary compliance in anticipation of or as the result of rigorous CFPB supervision…
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Karen Petrou: Why the World Needs a Financial Stability Board That Isn’t This Financial Stability Board
Donald Trump often upends conventional neoliberal wisdom, but one of the seemingly most frightening things the President-Elect espouses is contempt for the global order embodied in bastions such as the Bretton Woods international financial institutions, NATO, the UN, and the World Trade and Health Organizations. A less-known archetype of right global-order thinking is the Financial Stability Board. It has so far been spared by Mr. Trump, likely only because it has yet to come to his attention. Moving out ahead, two House Republicans vying for HFSC Chair are already insisting that each will, Samson-like, pull down the FSB’s banking, insurance, and securities pillars. Will the global financial system crumble to the lowest common denominator as FSB advocates proclaim? I doubt it. Indeed, shaking global financial standard-setters out of their well-stocked echo chamber could actually do global finance a world of good.
Like all the other global-order monuments, the FSB was founded with the very best of intentions. The 2008 crisis and warning tremors in the late 1990s proved at grave cost how financial earthquakes know no borders. What better than a new body of global financial standards akin to those that keep cross-border telecommunications humming to protect global banking, insurance, securities, commodities, and payments? And thus, the G20 brought forth the FSB in 2009.
The FSB promptly did the best it could as quickly as it could not only to ramp up subgroups such as a renewed Basel Committee, but also to tackle the absence of resolution protocols for the world’s largest financial institutions and ready-built groups with the knowledge needed to manage a crisis when it came. The FSB thus did its best to issue resolution how-tos and establish cross-border colleges, important achievements all. Still, it has nonetheless been unable also to achieve the G20’s over-arching goal: no more taxpayer bailouts.
Indeed, […]
Karen Petrou: Why Banks Need More Than Just New Capital Rules
Bankers complain with considerable fervor about a “tsunami of new rules.” There has certainly been a flood of standards indirectly implemented by supervisors, simply demanded by the CFPB, proposed, and finalized. It’s thus understandable that bankers think they’re drowning. But, as forest fires rage in Brooklyn and much of the nation is conserving water, it’s important to recall that too little rain is also dangerous. Which brings me to the strategic hazard banks run if deregulation, while alleviating a bit of bank burden, leaves untouched all the regulatory asymmetries that make it easy for shadow banks to dominate still more profitable activities once considered core banking services. If shadow banks offer better products, so be it. However, much of their market power derives only from adroit regulatory arbitrage. That’s not just bad for banks; it’s also dangerous to financial consumers, investors, and stability.
Regulators can go only so far in easing banks’ burden because the law requires many of the rules that bind them. Nonbanks are not governed by much federal law and there are scant state safety-and-soundness standards. Tech-platform companies are outside the law unless federal regulators use their inter-connection and antitrust powers to rein them in. That these nonbanks have their eyes on core intermediation and payment services is now indisputable. That banks will end up as little more than bedraggled “partners” or ancillary-service providers to nonbanks is inevitable unless necessary bank-regulatory reform comes with long-overdue nonbank safety-and-soundness and resolution standards.
Our forecasts of financial policy under President Trump conclude that the “crypto renaissance” that brings joy across this sector poses an array of strategic risks to banks along with financial-stability and investor hazard. New industrial loan company charters allowing commercial, crypto, financial, and tech-platform firms to gain the essential benefits of a bank charter without the burden of holding-company […]
FedFin Assessment: It’s Still Not Game-On for Most Bank Mergers
As promised, this post-election forecast looks at bank-merger policy, providing a cautionary note in response to the go-go, game-on forecasts for new mergers often touted by investment bankers. While community- and midsize-bank mergers will move with more certainty, more alacrity is unlikely unless the OCC and FRB join the FDIC with at least an initial deadline. The same banking-agency staff who will work on bank mergers next year are also the same banking-agency staff working on them now. However, we also expect new OCC and FDIC leadership to retract recent agency merger policies, saying at the same time that new ones are forthcoming. Why is there a need for new ones? As detailed in this report, aspects of the new policies addressed….
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FedFin Assessment: The Complex Outlook for Consumer-Finance Regulation
As with merger policy (see forthcoming FedFin report), consumer-finance regulation will be crafted in the Trump Administration by complex pull-backs of current, progressive standards and pull-forward of populist goals which often parallel progressive ones. This is most clearly the case where powerful business lobbies such as merchants wield the greatest force (e.g., interchange fees), but will also be evident in consumer-privacy, tech-platform, credit-card, and “relationship-banking” efforts. This report assesses these and other issues under the CFPB’s jurisdiction, looking also at the outlook for the agency itself as Republicans gain Congressional control, allowing them to press for structural change to this controversial agency…
FedFin Assessment: The Fate of the Federal Reserve
In a recent client brief, we provided our forecast of what might happen to Federal Reserve independence, process, powers, and personnel under either a Harris or Trump presidency. This is of course no longer an either/or matter, with this report thus reviewing and, where needed, updating our initial assessment of what Mr. Trump could do to the central bank even where Chair Powell says he can’t. Sherrod Brown’s defeat makes the Fed particularly vulnerable in the Senate, where Elizabeth Warren (D-MA) stands a strong chance of becoming the Banking Committee’s ranking Democrat. She and incoming chair Tim Scott (R-SC) will agree on a lot about the Fed, especially if Sen. Rick Scott – a frequent Warren ally on the Fed front – becomes Majority Leader….
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