Our mission in all of our proprietary consulting: to ensure that clients become astute policy risk managers, able to spot emerging risks and capitalize on opportunities, just as effective credit- or market-risk managers do. Federal Financial Analytics serves as our client’s proprietary think-tank – providing advice as an honest broker based on an objective read of the complex financial-industry legislative, regulatory and policy environment to highlight risk, identify opportunity and ensure realistic, forward-looking strategic planning.
Policy risk is the risk that a change in law, rule or, sometimes, even the regulatory mood can affect the prospects for a line of business, a product or service, or even the relative competitiveness of different types of financial-industry charters. Like the other risks financial firms manage, policy risk can be anticipated, analyzed and averted. There’s also a positive side to government risk — often, one firm’s threat is another’s opportunity. Federal Financial Analytics does not itself conduct any lobbying activity. However, it provides analysis and advice for advocacy programs and works closely with the client to achieve the client’s goals.
Federal Financial Analytics’ proprietary advisory services include the following:
- M&A Advice: Federal Financial Analytics has advised major private-equity firms evaluating financial-industry and bank transactions to ensure the deals anticipate not only traditional financial risk, but also those posed by changing regulatory, legislative and policy developments. In the wake of the financial crisis, our practice has focused on strategic regulatory initiatives such as new orderly-resolution protocols and bankruptcy resolution, Basel III rules, Dodd-Frank changes (e.g., the Volcker Rule), the future of housing finance in the U.S., the prospects for insurance-industry systemic designation, the impact of money-market fund regulation and the intersection of global and U.S. standards. We have also counseled major bank holding companies in complex transactions, including innovative new-product lines and hostile takeovers.
- Strategic Risk Management: As the Federal Reserve has noted, risk management cannot be focused solely on models and individual business units. It requires an enterprise-wide approach that focuses on strategic issues, including those raised by the far-reaching reform of the financial-services industry now under way. Federal Financial Analytics has advised several large bank holding companies about alternative charters, helping them to decide if the national bank, thrift or alternative models work best following reorganizations and acquisitions. We have also analyzed complex capital rules, including the Basel III models, identifying proposals that create significant strategic opportunities. For example, we counseled major providers of credit-risk-transfer products and advised them of ways the Basel rules might ensure appropriate capital recognition for their products. On the other side, we identified the serious risk posed by a new operational-risk capital charge to specialized banks, working with them to ensure that a far less onerous approach was finally implemented. We have also focused on the new liquidity rules, identifying ways to make them better meet both client and policy objectives.
- Strategic Advice: In advance of the rewrite of financial-industry rules, Federal Financial Analytics identified emerging trends and advised clients of developments – e.g., changes to the credit ratings agencies – that created strategic opportunities. As major companies face unprecedented challenges, we assessed the changes resulting from the full range of provisions the simultaneous rewrite of the global regulatory road-map. Key matters include new U.S. and global capital standards, liquidity-risk requirements, mortgage-market reforms, the new framework for asset securitization and the revised standards for deposit insurance, “living wills” and big-firm resolution.
- Funding Strategies: Federal Financial Analytics has anticipated developments like changing asset securitization requirements such as mandatory credit risk retention. We have also anticipated global liquidity-risk standards and recommended best-outcome strategies.
- Housing Finance: Federal Financial Analytics has counselled clients throughout the regulatory and Congressional battles surrounding Fannie Mae, Freddie Mac and the Federal Home Loan Banks. We correctly anticipated emerging risks – including providing testimony to Congress as early as 2003 on this point – and warned clients about them. We also monitored GSE activities to anticipate new business ventures that posed competitiveness or systemic-risk concerns, supporting client analysis and advocacy on these critical issues. Going forward, we are anticipating the significant new regulatory structure governing housing finance in general and the GSEs in particular, assisting clients to position themselves advantageously in the midst of these strategic challenges.
- Board and Senior Management Reports: Incorporating all the skills noted above, Federal Financial Analytics provides boards of directors and senior management with regular legal and reputational-risk assessments. Typically, this is done through a quarterly report that reviews the policy environment, assesses firm-specific strategic risks and opportunities and determines the degree to which board risk tolerances may be affected by the changed environment.