The Vault2020-07-14T15:00:29+00:00

Karen Petrou: Why Facebook Faces a Comeuppance

There are occasional, if stunning, lightning bolts from corner offices demonstrating a profound disconnect between a CEO’s understanding of his firm’s role in the world and what pretty much everyone else thinks.  In 2009, it was CEO Lloyd Blankfein saying Goldman Sachs did “God’s work.”  Now, it’s David Marcus, the CEO of Facebook’s digital-currency project, telling the New York Times that Facebook faces “unfair resistance” as it enters the global payment system because it’s nothing more threatening than a “challenger.”  Few outside the Valley still think of tech-platform companies as scrappy, inspired outsiders.  But, even if they do, key public officials don’t.  That’s why the raft of new rules I outlined last week is for sure.

How can I be so certain that crypto and fintech firms – especially big ones – will meet the regulatory reaper?  For one thing, every U.S. public official who can make this happen says it’s going to happen.  For another, a disconnect between external reality and internal illusion increases the odds of a rude awakening.

Goldman Sachs had its in the reforms following the great financial crisis; tech companies are facing theirs in President Biden’s new competition policy and a set of tough-minded antitrust regulators sure to act no matter how bogged down Congressional reform may be.  And, once the Financial Stability Oversight Council, the Fed, the OCC, the SEC, CFTC, FinCEN, and the CFPB get going, they’ll ride roughshod.

The indisputable fact is that Facebook is no challenger to anything other than our sense of social order and personal privacy.  It’s a company with almost 3 billion active users, annual earnings of $86 billion, and an amazing ability to use personal data for corporate dominance.  If you still doubt this, check out a Washington Post story late last week showing […]

August 23rd, 2021|

Karen Petrou: The New Rules for the Crypto Game

It should have been self-evident that it made sense to bar crypto companies from evading AML and tax law or from helping their customers do so.  Still, the infrastructure bill almost toppled as claims flew that the proposal would doom the U.S. to an increasingly dysfunctional analog future.  We shall see what comes of this provision now that the infrastructure bill heads to the House, but it epitomizes the challenges that lie ahead for legislation from Sen. Warren and other Democrats seeking to govern crypto-finance.  Ambitious crypto legislation will stall in this contentious Congress absent a crisis that focuses its fleeting attention.  Thus, the keys to crypto’s kingdom lie in the regulators’ hands.  These will be busy.

First to what bank regulators will do.  As I told the American Banker, the OCC may well resume crypto charters but new crypto charters will be very, very different than those approved by Acting Comptroller Brooks.

For one thing, any stablecoin in any national-bank charter or, for that matter, even any stablecoin facilitated by  a national bank will now need to be fully reserved and that means fully, not sort-of as is clearly the case with Tether, Coinbase, and many others that simply backed their promises of stability with whatever best suits their short-term profitability.

The OCC will do so now secure in the knowledge that the FSOC stablecoin review recently ordered by Secretary Yellen will demand 100%, sterile reserving across the spectrum of stablecoin products and the SEC and CFTC will surely enact similar standards once they get through the complex task of defining when a crypto asset or provider comes under securities or commodities law.

This is a bit easier for bank regulators.  Anything that is housed in or even affiliated with a bank is their unchallenged domain.  But, that doesn’t […]

August 16th, 2021|

FedFin: En Garde!

As we briefly noted yesterday, the CFPB released a report assessing how the largest servicers handled borrowers over recent, chaotic months. Identifying wide dispersion in industry practice, the Bureau warns of enforcement actions to come even as it continues to assess the “outliers.”

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

August 11th, 2021|

FedFin on: LIBOR Transition

The House Financial Services Committee has reported H.R. 4616, a bill designed to prevent the chaos feared when the use of the LIBOR benchmark ceases for legacy contracts that lack language authorizing reliance on an alternative, “fallback” rate.  The measure in no way obviates the obligation U.S. financial institutions have to various regulators to abandon LIBOR where fallback language exists or in new contracts.

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

August 10th, 2021|

Karen Petrou: Jimmy Carter’s Grim Lesson for Joe Biden

Joe Biden is even older than I am, so he surely remembers inflation’s searing political costs in the late 1970s: President Jimmy Carter’s loss to a candidate, Ronald Reagan, who promised to align an anti-inflation fiscal policy with the bazookas already firing full force at Paul Volcker’s Fed. What does this mean for Joe Biden? A fundamental axiom of political decision-making is that politicians maximize their own advantage at all times sure as they do so that what’s good for them is also good for everyone about whom they care. Combine the history of the late 1970s with this seemingly-eternal axiom and one knows what Joe Biden will do: he will make his Fed pick based on where he sees his political advantage. If inflation is not proving itself truly transitory by the time this call lands in his hands, even the formidable powers pushing Mr. Powell may not prevail.

The old political lesson of inflation’s costs to those who hold office are already evident. Republicans are finding that blaming Democrats for inflation is their most effective advertising against moderate Democrats in swing seats. A poll released late last week also shows inflation now ranks as the top economic concern for Republicans, with Democrats listing it second behind only income inequality. And, if one wants an even more direct bellwether of inflation’s political impact, see Sen. Joe Manchin’s letter to Jerome Powell, directly challenging the Fed chairman because of rising inflation the senator doubts will prove transitory in the sectors key to his West Virginia constituents.

I have written before about inflation’s cost to voters such as Mr. Manchin’s. The Fed may not get them, but President Biden surely will. Some of these politically-potent inflation costs may indeed moderate if semiconductor flows resume, lumber prices stay down, […]

August 9th, 2021|

FedFin: Senate Banking Probes Overdrafts, Mergers, Climate Risk, New Charters, Much More

Today’s Senate Banking hearing on bank supervision did not include FRB Vice Chairman Quarles, who came before the panel for withering criticism earlier this year (see Client Report REFORM206). Acting Comptroller Hsu, FDIC Chair McWilliams, and NCUA Chairman Harper received a considerably warmer welcome from Democrats, although Ranking Member Toomey (R-PA) blasted the OCC for what he called politicization of bank supervision and urged all the agencies to leave the CRA rulebook as is.  Chairman Brown (D-OH) attacked bank regulation prior to the arrival of the Biden team, by inference continuing his criticism of Chairman Powell’s regulatory approach (see Client Report FEDERALRESERVE63).  Under questioning, Mr. Hsu announced that his agency is reviewing overdraft fees; while he did not say in which context, it would appear to be with an eye on the extent to which earnings reliance on them may be unsound, but reputational-risk considerations may also be renewed.

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

August 3rd, 2021|
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