Press Clips

For copies of press clips listed below, please contact Federal Financial Analytics at info@fedfin.com. Please include the date and title of the requested item(s).

American Banker, Tuesday, March 18, 2008
I-Banks at the Window, Congress at the Door
By Barbara A. Rehm and Rob Blackwell

The privilege of borrowing cash from the discount window is likely to carry the burden of stricter supervision for investment banks. At a minimum, the Securities and Exchange Commission's relatively cursory oversight is likely to be replaced with the Federal Reserve Board's fine-tooth-comb approach. "Now that large investment banks are allowed to step up to the window, some greater degree of regulation should be examined," Sen. Charles Schumer, the chairman of the Joint Economic Committee and a member of the Senate Banking Committee, said on a conference call with reporters Monday. The New York Democrat raised doubts about the entire structure of the financial services system. Karen Shaw Petrou, the managing director of Federal Financial Analytics Inc., agreed that "the regulators themselves are going to be significantly hammered" over how this happened. "There will be a rewrite of the regulator and the regulated."

American Banker, Wednesday, April 16, 2008
Bair Sounds Open to Basel II Rewrite on Capital
By Steven Sloan

In the wake of the credit crisis, Federal Deposit Insurance Corp. Chairman Sheila Bair signaled Tuesday that she might push for the Basel II capital rule to be rewritten to let the largest banks use the standardized approach. Regulators and the industry haggled for years over whether large banks should have the option to choose between Basel II's less cumbersome standardized approach and the more complicated advanced approach. The issue was seemingly settled last July when regulators agreed to issue a final rule that required the 12 largest domestic banks to use only the advanced approach, which relies on institutions to judge their risks internally and determine capital requirements accordingly. Credit rating agencies have come under heavy fire in recent months as highly rated assets have produced losses. Karen Shaw Petrou, the managing director of Federal Financial Analytics Inc., said she expects tougher requirements on assets that get easier capital treatment because of a credit rating. The stricter standards may ultimately narrow the differences between the standardized and advanced approaches, she said. Once rules are adopted, "depending on how those are done, the incentive for using the standardized approach over the advanced approach will diminish," she said. "It's going to depend on how the standardized approach moves away from the credit rating agencies."

American Banker, Thursday, March 27, 2008
Support broadens for idea of linking Fed oversight to access
By Cheyenne Hopkins

A consensus is building around the need for more regulation of investment banks in the wake of the Federal Reserve Board's move to grant them access to the discount window. Treasury Secretary Henry Paulson, himself a former investment bank executive, on Wednesday became the latest to call for more oversight. "Access to the Federal Reserve's liquidity facilities traditionally has been accompanied by strong prudential oversight of depository institutions, which also has included consolidated supervision where appropriate," Mr. Paulson said. "Certainly any regular access to the discount window should involve the same type of regulation and supervision." The Treasury Department is working on a regulatory blueprint for the financial sector, and some saw the secretary's remarks on investment banks as clues to the direction of the blueprint, which is expected out soon. "The whole model of investment bank regulation is based on an old broker-dealer rule," said Karen Shaw Petrou, managing director of Federal Financial Analytics. "It's based on the fact that, once, broker-dealers acted only as agents. Now they act as principals, and that is not reflected on any of the SEC's rules."

Financial Times, Saturday, March 15, 2008
System braced for ripple effect
By Michael Mackenzie and Aline van Duyn in New York
and Peter Thal Larsen in London

Bear Stearns is hardly Wall Street's biggest investment bank, but its travails have far-reaching consequences for the global financial system because of its crucial behind-the-scenes role in some of the world's most troubled markets. Bear is a significant underwriter of mortgage securities, an active trader of derivatives and leading financier of hedge funds, meaning it has manifold relationships with other leading banks and investors. Analysts said it was almost impossible to know what impact Bear's problems would have on its clients, its counterparties and on other investors holding securities or derivatives that Bear is trying to liquidate. "Bear Stearns is counterparty to a huge number of OTC derivatives, and it is not just the unwinding of contracts with Bear that are a concern, but the ability of this market with relatively weak and untested infrastructure to handle such a shock," said Karen Petrou, managing partner at Federal Financial Analytics.

American Banker, Wednesday, March 12, 2008
In Fed's Market Plan, a Backstop for GSEs?
Some see $200B securities injection as "stealth bailout"
By Steven Sloan

A move by the Federal Reserve Board to pump $200 billion into the markets by lending Treasury securities in return for collateral including agency mortgage-backed securities is seen as strengthening the implicit government guarantee of Fannie Mae and Freddie Mac. Though senior Fed staffers insisted the plan was aimed at stabilizing the market — not specific firms — it gives the government-sponsored enterprises critical support at a time when market turmoil has left debt and equity investors questioning the companies' underlying health, observers said Tuesday. Karen Shaw Petrou, the managing director of Federal Financial Analytics Inc., said the companies run the risk of uncertainty spiraling in panic. But she said the Fed's action Tuesday could protect Fannie and Freddie. "If this finally works, then it may help to ease the margin calls, ease some of the pressures on the hedge funds, which will ease the strains on Fannie Mae and Freddie Mac," she said.

All Things Considered (NPR), February 22, 2008
Credit Woes Squeeze Bond Insurance Business
by Jim Zarroli

Wall Street has a problem and over the past few weeks, some of the street's most important bankers and regulators have been trying to come up with a solution. They're looking for a way to rescue a little-known sector of the financial world called the bond insurance business. It's a business that plays a vital role in the finances of cities and towns across the country, which use bonds to raise money for schools and bridges and sidewalks. And it's being squeezed by the ongoing turmoil in the credit markets. Bond insurance firms do business by guaranteeing payment on a bond. If you buy an insured bond, and the issuer defaults, you're guaranteed to get all the money that's coming to you.

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American Banker, Monday, February 4, 2008
Will Capital Rules Open to Empty House?
How the market's turmoil may alter Basel II rollout
By Steven Sloan

After years of pushing regulators to complete the Basel II capital accord, the banking industry may need some extra time to comply with it. Though the complicated accord will take effect April 1, the 12 largest banks can take six months to win approval of an implementation plan and up to three years to begin the first phase of that implementation. Some observers said bankers may need that window as they redeploy resources to deal with the daily challenges of the current market turmoil. Banks with significant holdings in lower-rated mortgages or securities could find themselves especially vulnerable to sudden capital hikes once they adopt Basel II. Though bankers may not like that, there seems to be little alternative. The industry almost unanimously agrees that the current Basel framework is too outdated to handle contemporary risks. But some said that even if banks took some extra time, they would be unable to stall the transition to Basel II for very long. "You've got the international pressure. You've got rating agency pressure. You have investor pressure," said Karen Shaw Petrou, the managing director of Federal Financial Analytics Inc. "That doesn't afford more than a quarter or two of discretion."

American Banker, Friday, December 28, 2007
GSE Reform Odds Look Better, But Not Many Would Bet on It

Ask anyone in this town about the future of a bill to reform the regulation of the government-sponsored enterprises, and the response is usually laughter. It is not hard to see why. The question now is whether next year will be any different. In interviews with those who have been fighting for reform from the beginning, including regulators, lawmakers, industry analysts, and congressional aides, most everyone agrees that groundwork is there for enactment of a reform bill and a deal could come together relatively quickly. "Every time you think you will get a bill," something hamstrings it, said Karen Shaw Petrou, managing partner of Federal Financial Analytics. "In 2004, it was receivership. In 2006, it was the portfolio limits. In 2008, I don't know what it could be, but I'm almost certain it will be something."

American Banker, Thursday, December 27, 2007
How Crises Will Likely Inform Basel 'Experiment'
By Steven Sloan

For a rule with such a tortured past, it only seems fitting that the complex Basel II capital plan will begin implementation on April Fool's Day. The process of finalizing the rule may have seemed like a cruel prank to many bankers, as negotiations between the industry and regulators have dragged on for almost a decade. The discussions nearly derailed this year before regulators issued the outline of a final rule in July. Most observers acknowledge that dependence on rating agencies is problematic, but how it should be handled seems less clear. "That's a really good question," Ms. Bair said. "In the near term, we have to deal with it through the supervisory process." Others say they are equally concerned about how rating agencies will be used but are unsure alternatives exist. "The problem … is what else do you do? 100% risk weighting for everything?" asked Karen Shaw Petrou, the managing partner for Federal Financial Analytics Inc. Despite the growing list of concerns, most parties seem focused on finally implementing Basel II. "The worst possible outcome would have been retaining Basel I, so in the as-compared-to-what department, everything is better," Ms. Petrou said.

American Banker, Tuesday, December 11, 2007
Treasury Just Can't Seem to Buy a Break
By Cheyenne Hopkins

Recent attempts, and apparent misses, by the Treasury Department to resolve pressing financial problems could be chalked up to the fact that there are no easy answers. But that is little consolation to a department whose reputation has suffered under the Bush administration. With few exceptions, the Treasury's much-previewed loan modification plan was met with widespread disdain last week. Critics on the left said it was too little, too late, while those on the right said it was an unnecessary, potentially dangerous intrusion into the housing market. No one said the plan was just right. Senate Democrats and consumer groups said the plan had become too targeted, but some analysts said the Bush administration was limited in what it could do. "Absent all the policy issues related to bailout and moral hazard, there were the simple constitutional and statutory realities involved in structuring any agreement of this sort," said Karen Shaw Petrou, managing director for Federal Financial Analytics Inc.

American Banker, Thursday, December 6, 2007
Study Finds Capital Levels Could Rise Under Basel II
By Steven Sloan

After years of concerns that the Basel II accord would lead to drastic capital drops, a study has found that the largest domestic banks may find themselves hoarding more capital instead, as a result of the liquidity crunch. The study, released last week and conducted by Federal Financial Analytics Inc., indicated that in a matter of months problems in the credit markets have silenced nearly a decade of worries that Basel II would let banks hold significantly less capital against risks. The end result, according to one of the study's authors, could be a further tightening of credit. Bank assets have "become a good deal riskier than the initial quantitative impact surveys, or, for that matter, internal models, had anticipated, so the risk-based capital requirements will spike sharply upward, and that will have an overall impact on credit availability, although lower-risk credit would be favored and might not be as adversely affected as higher-risk obligations," said Karen Shaw Petrou, the managing director of Federal Financial Analytics.

American Banker, Wednesday, November 28, 2007
Cuomo GSE Play Could Find a Gap in Preemption
By Cheyenne Hopkins

WASHINGTON — New York Attorney General Andrew Cuomo's decision to take an indirect path in his investigation into Washington Mutual Inc., most notably by targeting its relationships with Fannie Mae and Freddie Mac, may reflect a calculated attempt to exploit a possible gap in regulatory preemption, analysts and industry lawyers said. At issue is how much power Mr. Cuomo can wield against Fannie and Freddie. In the case of financial institutions, federal courts have backed up the preemption authority of the OTS and the Office of the Comptroller of the Currency when state regulators — including former New York Attorney General Eliot Spitzer — attempted to investigate national banks and thrifts. "There's no comparable framework for Fannie and Freddie, because this hasn't arisen in the past. … There's no slam dunk here," said Karen Shaw Petrou, managing director for Federal Financial Analytics Inc.
 

American Banker, Monday, November 12, 2007
Industry Left Guessing About FDIC's Thinking on Premiums
By Joe Adler

WASHINGTON — The Federal Deposit Insurance Corp.’s decision to delay setting 2008 assessment rates left observers wondering whether it meant the agency was more likely to lower rates next year or was biding its time before taking premiums up a notch. Some industry representatives viewed the agency’s move to wait until it gets a better read on deposit growth as a sure sign a rate cut was on its way. “It is impossible to predict that the assessments would be lower because of the additional factors that are in play,” said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc.

Washington Post, Thursday, November 8, 2007
Cuomo's Loan Probe Turns to Fannie, Freddie
By Carrie Johnson

The New York attorney general subpoenaed mortgage finance giants Fannie Mae and Freddie Mac yesterday as he sought to expand his housing industry investigation by focusing on companies that package house loans and sell them to investors. It was the second public step in Andrew M. Cuomo's probe of fraudulent house appraisals, which he says rippled across the market as overvalued mortgage loans were bundled together and sold as debt. Analysts said Cuomo's ultimate goal is to boost standards for the housing industry. Already the investigation is intensifying pressure on companies to find paperwork that would justify years-old appraisals, analyst Karen Shaw Petrou of Federal Financial Analytics said in a note yesterday.

Washington Post, October 27, 2007
Fannie, Freddie Portfolios Shrink
Firms Have Argued for Higher Investment Caps
By David S. Hilzenrath

Though Fannie Mae and Freddie Mac have been arguing that they should be granted authority to buy more mortgages to help ease a credit crunch, data released by the companies this week show that they haven't been using the authority they already possess. Both companies reduced their mortgage-related investments in September, widening the gap between their holdings and the limits on those holdings. In response to accounting scandals at the two companies, the government capped the amount of mortgages and mortgage-backed securities they can hold in their portfolios. "A lot of it is reflective of the value of the assets in the portfolio," said Michael Cosgrove, a Freddie Mac spokesman. Noting that other investment firms have been reporting big losses on mortgage-backed securities, Karen Shaw Petrou, an analyst with Federal Financial Analytics, said it appeared that Freddie Mac was selling assets to prepare for write-downs in the value of mortgage investments. Petrou, whose clients include adversaries of Fannie Mae and Freddie Mac, said Freddie Mac was more vulnerable to problems with subprime loans than Fannie Mae.

American Banker, September 10, 2007
Credit Woes Tilt Perspective on a Basel Pillar
By Steven Sloan

In an American Banker article on the problems in the subprime mortgage market and the already complicated process of implementing the proposed Basel II capital Karen Shaw Petrou, managing partner of Federal Financial Analytics is quoted as saying "With each individual bank, especially those with subprime mortgages, you'll see a more conservative approach," Before the crisis, examinations of Basel banks "would have been more of a process of negotiation," Ms. Petrou said. "I think the discussions will now be one-way."

Financial Times, August 31, 2007
Pressure builds in US for rules to curb predatory lending
By Jeremy Grant

In a Financial Times article on the organisers of the upcoming Five Star Default Servicing conference in Texas that trumpeted their event with a promise to ‘quiet the swarm of negative headlines’ about their industry, Karen Shaw Petrou, managing partner at consultancy Federal Financial Analytics, says: "The big problem is determining which borrowers facing foreclosure were the victims, and who were the speculators with speculative [mortgage] structures who were just caught in a downturn. "If every borrower facing foreclosure is rescued, then no borrowers in future will take care to get a prudent mortgage," she argues.

Financial Times, August 15, 2007
Fannie Mae fights for lending rights
By Jeremy Grant

In an article on Fannie Mae’s chief executive Daniel Mudd’s appearance on television in the US, he cast the huge mortgage lender in the role of “a saviour” in the troubled US housing and mortgage markets. Fannie is one of two huge “government-sponsored enterprises” – the other is Freddie Mac – set up in the Roosevelt administration to help finance affordable housing for millions of less well-off Americans. Karen Shaw Petrou, Federal Financial Analytics’ managing partner is quoted as saying that “While neither is statutorily allowed to participate much in the subprime end of the mortgage market, their financial positions – including high leverage and low reserves – mean “neither can absorb much pain.” She also noted that investors are still “totally in the dark” on the extent of both GSEs’ exposure to riskier products such as interest-only loans. Fannie’s last known reserves position dates from the end of 2005. “To me it’s not a political argument,” says Ms Petrou. “These are highly leveraged, minimally reserved institutions with all of their eggs in one basket, which is now widely acknowledged to be a risky one. “Things are moving so fast that one can only make a political judgment about this once the politicians are back in town. And right now in the current market that seems years away.”

Bureau of National Affairs, August 13, 2007
OFHEO, Bush Reject Proposed Easing Of Portfolio Caps for Fannie, Freddie
By Richard Cowden

In an article from BNA, on the rejection of proposed easing of portfolio caps for Fannie and Freddie by the OFHEO and the President, Federal Financial Analytics’ managing partner, Karen Shaw Petrou noted that "Mr. Dodd chose his words very carefully." She also noted that by advocating greater flexibility for the GSEs within the bounds of safety and soundness, Dodd was also being consistent with their regulator's position. James Lockhart, director of OFHEO, has been adamant that neither of the GSEs will be allowed to increase their mortgage acquisitions until they have cleared up persistent weaknesses in their accounting and internal controls systems. Neither is current in their quarterly financial reporting.

Bloomberg, Monday, July 30, 2007
Fannie Mae and Freddie Mac hold billions in subprime-backed securities
By Judy Shenn

In a Bloomberg article, Karen Shaw Petrou, managing partner of Federal Financial Analytics is quoted as saying that the disclosures do not “make us overall feel any better because beyond subprime" there are other risks. She also cited rising delinquency rates on all U.S. mortgages and her firm's estimate that the companies hold a sizable amount of home-equity bonds.

American Banker, Friday, July 13, 2007
Regulatory Divisions May Postpone Basel II Launch
By Steven Sloan

In an American Banker article on the six month remaining before the proposed Basel II capital rule is slated for implementation in the United States, Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc., agreed that banks would simply not have enough time to comply with a final rule. "I think it would be very difficult to implement if anything is published with a Jan. 1 effective date," she said. "That would be such a short time frame for such a profound rule."

The Economist, Thursday, July 5, 2007
Fannie and Freddie Ride Again

In an article in The Economist, Federal Financial Analytics is quoted as saying “In a recent report, Federal Financial Analytics, a consultancy, noted that a 15-30% writedown of this non-AAA slice—hardly inconceivable given the continuing rise in subprime delinquencies—would result in losses of up to $3 billion for Freddie and $3.6 billion for Fannie. That would knock back their return to financial normalcy.”

American Banker, Thursday, July 5, 2007
FDIC Board Reaffirms Direct Role in Major Policy Decisions
By Joe Adler

In a story about FDIC’s memo to its staff members to rein in their authority to make decisions without consulting the agency's board first, Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc., said concerns about subprime mortgages and other faltering business models have led to a sudden rise in enforcement orders. "The FDIC, like all of the banking agencies, is looking at a very different climate coming up."

Bloomberg, Monday, July 2, 2007
Fannie, Freddie May Lose $6.6 Billion in Subprime
By James Tyson

In a Bloomberg article, Managing Partner, Karen Petrou is quoted as saying “Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, may lose as much as $6.6 billion should defaults in subprime mortgages force write downs on securities rated below AAA.” Investments in such mortgage bonds totaled $12 billion at Washington-based Fannie Mae and $10 billion at McLean, Virginia- based Freddie Mac in May, according to Petrou. Subprime mortgage defaults may require a write down of these assets of 15 percent to 30 percent, she said. Mortgage investors have been reeling this year as the worst housing decline since the 1930s threatens the $6 trillion U.S. mortgage bond market. Petrou's estimate challenges the view of investors who predict Fannie Mae and Freddie Mac will weather a rise in mortgage delinquencies because the firms primarily limit themselves to investments in only the highest rated securities. The government-chartered companies ``have significant risk and the AAA alone don't protect them from it,'' said Petrou, whose clients include FM Policy Focus, a lobbying group seeking tougher federal oversight for the firms. Subprime-related losses of $3.6 billion at Fannie Mae and $3 billion at Freddie Mac would erode most of their reserves mandated by the Office of Federal Housing Enterprise Oversight, she said.

Reuters, Friday, June 29, 2007
Fannie, Freddie Could Have Big Subprime Exposure-Analyst

Mortgage finance companies Fannie Mae and Freddie Mac could face a multibillion dollar loss if subprime assets continue to mount, according to an analyst report issued on Friday. The continued writedown of subprime assets could hurt the two government-sponsored enterprises even though they hold highly rated mortgages, according to a report from Federal Financial Analytics in Washington. "Looking only at their non-AAA positions, a writedown of 15 percent to 30 percent would mean a $1.8 billion to $3.6 billion hit for Fannie and a $1.5 billion to $3 billion hit for Freddie," the report said.
Neither government-sponsored enterprise has much of a cash reserve against losses of that size, and covering those costs could push the companies' capital below the levels agreed to with their regulator.

American Banker, Thursday, June 7, 2007
Basel Issues Spur S&P to Form Its Own Standards,
By Steven Sloan

As international regulators struggle to implement the Basel II capital rule, Standard & Poor's is developing its own framework that will serve as a separate tool to measure bank performance starting next January. The framework will not include the leverage ratio - which has sparked opposition in the United States - and will apply to all banks, regardless of whether they adopt Basel II. The goal, according to the S&P analyst who helped develop the "Risk-Adjusted Capital Framework," is to design a comparable measure. U.S. banks are expected to use a different version of Basel II than banks abroad, and smaller domestic banks may use the less complex Basel I or Basel IA. Concerns over the competitive inequities that Basel II could create have plagued the rulemaking process. Industry observers argued that S&P would not have been compelled to create a separate framework if implementation in the United States had gone more smoothly. "Had Basel II done what it was supposed to do, then S&P would not need to do what it did," said Karen Shaw Petrou, the managing partner of Federal Financial Analytics.

BNA Daily Report for Executives, Monday, May 21, 2007
Bear Stearns Bid for Doral Financial May Show Path to Gaining Regulators’ OK
By Christian Bruce

A bid by private investors for Puerto Rico's troubled Doral Financial Corporation shows that an ongoing wave of acquisitions by private equity firms has now reached into the world of federally insured financial institutions, a financial services expert told BNA May 18. In most cases, private equity bids for regulated institutions face significant obstacles, according to Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., a Washington, D.C., financial services consulting firm. But buying an ailing institution--especially a smaller one--may make the deal more palatable to regulators, and allow investors to avoid problems that might arise in other situations, she said. "This is a troubled company, and an example of one way to do these transactions," she said, referring to the bid for Doral Financial. And, if the Federal Reserve Board approves the acquisition, more such transactions could be on the way, Petrou said in a May 18 update. "[W]ith one deal pending, the odds for more are growing," she said. According to Petrou, whose firm recently released an extensive memo on such transactions, the bid for Doral is significant because it shows how investors can structure a transaction that is less likely to spook U.S. bank regulators. "The smaller the deal, the more willingly it will be approved, but significant activity and capital constraints will be imposed unless the takeover is part of a bank rescue--increasingly likely as some of the subprime mortgage and commercial real estate chickens come home to roost on bank balance sheets," Petrou said in the May 15 memo. And in a May 18 update, Petrou noted that an acquisition could eliminate the potential for a bank failure that would bring the Federal Deposit Insurance Corporation into the picture. "If the acquisition is not quickly consummated, the parent bank holding company will declare bankruptcy, doing little that's good for the insured-depository subsidiary. The prospect of a claim on the FDIC concentrates the Fed's mind wonderfully, perhaps accounting for the acquirers' optimism about regulatory approval," she said. However, acquisitions of federally insured banks and thrifts, or portions of their businesses, can be accomplished in other ways, according to Petrou. For example, a savings association can be a better bet for investors, even though the charter is more limited, because holding company regulations are less stringent, she said. Or, she said, investors can simply buy a particular business division of the bank, though that carries some downside as well. "The business line can then be transformed into a publicly traded company, although these firms typically have to be more highly capitalized than they were when housed within a bank holding company, thus reducing their appeal from a [private equity] point of view," Petrou said.
 

Daily Report for Executives, Wednesday May 2, 2007
FDIC Official Lends Support to Worries About More Capital Declines Under Basel II
By Christian Bruce

A senior Federal Deposit Insurance Corporation official May 1 lent support to concerns that capital reductions under the Basel II capital accord may be more significant than previously thought. Progress toward U.S. implementation of the global capital accord was delayed for a year in part because of concerns about capital reductions in an important impact study that the FDIC released in 2003. That study, Quantitative Impact Study No. 4 (QIS-4), showed that under Basel II, banks' risk-based capital levels would suffer significant declines. In September 2005, federal bank regulators delayed the U.S. implementation of Basel II, citing the need for safeguards in response to concerns raised by QIS-4. Basel II is now back on track, and scheduled for preliminary U.S. implementation beginning in 2008. But the accord still has its critics, including those who say the QIS-4 results might have been too optimistic. Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., a Washington, D.C., financial services consulting firm acknowledged the weaknesses of Basel II, but said the accord still should go forward because of even bigger problems with Basel I, the 1988 accord that still governs U.S. banks. "I know Basel II is very problematic but Basel I is worse," she said. Petrou said she favors an approach that resembles the so-called Basel IA approach--which regulators have proposed as a more risk-sensitive version of the 1988 standards--or the standardized approach. But Petrou favors dropping the leverage ratio, which uses a ratio of capital to assets to set a minimum level beyond which the bank cannot go. Currently, the leverage ratio is part of the U.S. version of Basel II, but Petrou said she favors instead a set of prompt corrective action standards that would be built into the risk-based capital rules.

American Banker, Monday, April 2, 2007
In Focus: The 'F' Word (Forbearance) Is Back, if Not Quite the Same
By Joe Adler

WASHINGTON — Forbearance, a dirty word from the savings and loan crisis, is once again being bandied about as millions of subprime borrowers face possible foreclosure. The two leading Democratic contenders for president — Sens. Hillary Rodham Clinton of New York and Barack Obama of Illinois — have hinted at it, and a third, Senate Banking Committee Chairman Chris Dodd, turned heads March 13 when he told reporters he wanted to see "some sort of forbearance" for strapped borrowers. The Connecticut Democrat rushed the next day to make clear he was not envisioning an S&L-type cleanup, telling a television interviewer, "No one's talking about a bailout at this point at all." But the mere mentions of forbearance and bailout brought to mind the $350 billion Uncle Sam spent on the S&L crisis of the late 1980s. That was forbearance then, but what does the word mean today? So far, policymakers have been vague at best. "It's unclear exactly what they're speaking of," said James Ballentine, the director of housing and economic development for the American Bankers Association. "I've seen so many scenarios thrown out over the past three or four weeks in an attempt to address this issue that I'm almost losing track." Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc., agreed, and noted that the next step is figuring out how best to protect consumers. "Who and how is really tricky, and that's what people are really wrestling with right now."
 

Day to Day (NPR), March 28, 2007
By Wade Goodwyn

Citigroup may cut 15,000 jobs as part of a restructuring plan involving the out-sourcing to India of mid- and upper-level jobs in research, investment banking and credit analysis.
Listen to this story...
 

BNA, March 13, 2007
Subprime Mortgage Worries Dominate Talks on GSE Regulatory Reform Legislation
By Richard Cowden

Lawmakers discussing proposed legislation on government-sponsored housing finance enterprises March 12 interspersed their comments with concerns over the potential impacts the reforms might have on the subprime mortgage market.
 

American Banker, Friday, March 9, 2007
Viewpoint: Multiple Regulators Fuel Competitiveness
By Karen Shaw Petrou

In their January report on New York's competitiveness as a financial center, Mayor Bloomberg and Sen. Schumer drew attention to a wide array of market-reform proposals. Some have come up a lot in similar efforts — Section 404 of the Sarbanes-Oxley Act at the top of that list. Others were more novel. Among them was a suggestion that the number of federal financial regulators be reduced to one from the seven or so that now hold sway. This sounds efficient — one-stop shopping, as it were. It would, though, have serious and unintended consequences for U.S. financial market innovativeness, an area where we still unquestionably lead the world. Ms. Petrou is the managing partner of Federal Financial Analytics Inc. in Washington.

American Banker, Wednesday, February 14, 2007
Pressing Bernanke on Regs: Will monetary expert air views on bank policy?
By Steven Sloan
In his first year as Federal Reserve Board chairman, Ben Bernanke has established himself as steward of the nation's economy but done little to define his standing as a banking regulator. In testimony today and Thursday, Mr. Bernanke's positions on a number of banking policy questions may be teased out by members of the House and Senate banking committees. With control of Congress flipping to the Democrats, the Fed chief can expect questions on regulations designed to protect consumers from predatory lenders, identity theft, and abusive credit card practices. He also may be asked about the messy Basel II capital rules, the systemic risks posed by Fannie Mae and Freddie Mac, and whether commercial firms should be allowed to own banks. Others expect Mr. Bernanke to become more publicly engaged in the Basel II debate after comment letters on the proposal come in. "Then it will be at the point at which the final decision will be made and the chairman in particular becomes quite active," said Karen Shaw Petrou, the managing partner at Federal Financial Analytics Inc.

American Banker, Wednesday, February 7, 2007
FDIC Seen Having Little Leeway in ILC Controversy
By Joe Adler
WASHINGTON - Despite questions about whether the Federal Deposit Insurance Corp. compromised its independence last week by deferring to Congress on who should own industrial loan companies, former regulators and other observers agree the agency had little choice. Though the FDIC had the authority to approve applications by Wal-Mart Stores Inc. and Home Depot Inc. to own ILCs in Utah, congressional interest in enacting legislation to ban commercial ownership of such companies made moving forward dangerous, observers said. Lawmakers have warned they would undo any such decision by the FDIC, and most observers said the agency's board recognized that resolving the policy debate was best left to Capitol Hill. Analysts also drew contrasts between independence on policy matters and regulation. "Where independence becomes critical is not on these policy issues, but rather on supervisory determinations," said Karen Shaw Petrou, managing partner with Federal Financial Analytics Inc.

American Banker, Friday, December 22, 2006
Basel II Robs Attention From Crucial Risk Plan
By Steven Sloan
While the cursed Basel II capital proposal has stolen the spotlight, a separate plan to better assess a bank's market risks is cruising toward completion. The plan would force a large bank to move more of its trading positions to its banking book, which in turn would drive up capital requirements. The trading book, which holds financial instruments banks expect to trade quickly, requires much less capital than the banking book, which will be governed by Basel II's rules on credit risk capital. Most observers expect the market risk proposal to lead to higher regulatory capital levels. "I would expect for most banks, these rules would be a net capital cost," said Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc. "It ends arbitrage, and to the degree that things are moved to the banking book, there's no offsetting benefit."

American Banker, Wednesday, December 6, 2006
Small Banks Gain a Bit in Basel IA Plan
By Steven Sloan
WASHINGTON - Proposed risk-based capital standards released Tuesday provide some concessions to small-bank critics but fall short of providing them parity with large banks. On the one hand, regulators agreed to make the new standards voluntary, and they dropped plans to impose a capital surcharge on all alternative mortgages and commercial real estate portfolios. Industry representatives said that they were still looking at the long-delayed plan, but that they were at least pleased to have a proposal they could begin studying. Karen Shaw Petrou, the managing partner of Federal Financial Analytics, said she expects only banks with low risk profiles to shift to Basel IA. Riskier, subprime lenders likely would stay with Basel I, which would offer better treatment, she said. As a result, regulators may find themselves supervising banks under three different systems: Basel I, Basel IA, and Basel II. "It's going to put regulators in a tricky position," Ms. Petrou said.

American Banker, Wednesday, November 22, 2006
European Panel Backs Leverage Ratio
By Steven Sloan
WASHINGTON - Though U.S. banks continue to complain about regulators' insistence on keeping the leverage ratio intact once Basel II capital standards are adopted, the basic capital-to-assets standard appears to be gaining some traction in Europe. The European Shadow Financial Regulatory Committee released a statement this week recommending that the European Union require member countries to adopt a minimum leverage ratio for financial institutions. If the EU adopts the committee's recommendation, it could derail a key argument advanced by U.S. banks that Basel II would put them at a competitive disadvantage to their foreign counterparts. "That would go a long way toward narrowing the gap between regulations," said Andrew Kuritzkes, the managing director of Mercer Oliver Wyman. "That would make a material difference." But other observers doubt that competitive concerns will vanish soon. Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc., said that despite the committee's recommendation, European regulators are highly unlikely to adopt the standard. "The banks and regulators have zero intent of ever taking up a leverage ratio," she said. Moreover, the committee's recommendation is not binding, and Ms. Petrou said the group does not have the same influence as regulators.

American Banker, Tuesday, October 10, 2006
Why Big Banks' Basel Tactics May Not Work
By Steven Sloan
Large banking companies are ripping a page from their smaller rivals' playbook as they anxiously attempt to shape the Basel II capital rules. Four large domestic players are arguing that the coming international standard will give foreign banks and domestic investment banks a competitive advantage. If that sounds like a familiar argument, it is. When testing showed Basel II would gut the regulatory capital requirements for some of the nation's largest banks, small banks howled that the rule would put them at a competitive disadvantage. They took their case to the regulatory agencies and to Congress - and scored two huge victories. The line between commercial and investment banking has been blurring for nearly 20 years, and the largest financial services companies, regardless of their charter, compete head to head on many fronts. "There is no difference in any substantive way," said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc. "Most [investment banks] have major retail financial services operations. Conversely, look at all the big commercial banking companies. All of them have huge securities operations."

National Mortgage News, Tuesday, October 2, 2006
Regulators Ready Guidance on "Exotic" Loans
By Brian Collins
Federal banking regulators were set to release their long-awaited guidance on nontraditional mortgages with analysts debating what impact - if any - it would have on the "exotic" market. Federal Financial Analytics managing partners Karen Shaw Petrou and Basil Petrou believe the guidance will force some banks and thrifts to reduce their originations of interest-only and payment-option ARMs. Ms. Petrou predicted the guidance could lead to more business for Fannie Mae and Freddie Mac because lenders might be forced back into the conventional market. At a conference sponsored by Bank of America she said that the new guidance also frowns on risk layering and piggyback mortgages, "especially when the second [lien] is layered into a high risk mortgage produce."

Daily Report for Executives, Friday, July 21, 2006
Banks, State Regulators Seek Changes To Implementing Rules for Basel II Accord
By R. Christian Bruce
Four large financial institutions have asked federal regulators for a major change in the U.S. architecture of the Basel II capital standards, saying they--like their overseas competitors--should have the choice of adopting a simpler and less costly version of the international capital accord. Industry analysts said the letter's recommendations--which were endorsed and seconded by a key trade group as well as New York's top bank regulator--signals even more disruption, and perhaps more delay, in the already turbulent process of implementing the Basel II accord. "This could throw a major monkey wrench into the Basel II process," Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., a Washington, D.C., financial services consulting firm, told BNA July 20.

Daily Report for Executives, Friday, July 21, 2006
Administration Officials Indicate Flexibility In Reaching Agreement on GSE Legislation
By Richard Cowden
Comments by Bush administration officials in recent days suggesting a tilt toward flexible legislative language in a proposal to reform operations at the government-sponsored housing finance enterprises (GSEs) may suggest the outline of a compromise that could take shape before year's end. Karen Shaw Petrou, managing partner at Federal Financial Analytics, Inc., said July 20 that Greenspan and a series of Bush administration officials have sought repeatedly to distance themselves from the allegation that the GSE reform legislation would be used as a means of imposing a specific cap on Freddie's and Fannie's holdings. "They have already disavowed the hard cap over and over," Shaw said. The administration and supporters of S. 190 have tried to take a hard line on their demand for strong portfolio limits, Petrou said, "But now they have to offset the impression that they have a secret agenda."

American Banker, Tuesday, June 27, 2006
Brickbats Fly But FHFB May Stick to Guns
By Patrick Rucker
The Federal Home Loan banks, industry representatives, and member institutions are hoping a rare united front against a Federal Housing Finance Board plan to raise retained earnings will persuade the agency to reconsider its proposal. With a little over two weeks left for comment, the March 15 proposal has garnered 436 letters, the vast majority of which say the Finance Board should scrap the plan and rework it. Still, the agency has been resolute in the past, observers said. Karen Shaw Petrou, the managing partner with Federal Financial Analytics, said there was a similar battle two years ago when many Home Loan banks and financial institutions fought a proposal to force the banks to register with the Securities and Exchange Commission. "The FHFB then held firm, in part due to deep concerns at the White House and Fed over the Home Loan banks," Ms. Petrou said. "I would guess the FHFB will again stand by its proposal, but changes to the details are likely."

American Banker Friday, June 23, 2006
Can't Recall Last Bank Failure? Here's Why
By Joe Adler
Despite a housing slowdown, the flat yield curve, and the lingering effects of last year's hurricanes, Sunday will be the second anniversary of the last bank failure. The 730-day run is unprecedented in the Federal Deposit Insurance Corp.'s history. The closest competitor is a 609-day streak that ended with the closure of August County Bank in September 1946. Why this current streak has lasted so long, how long it will continue, and what factors could hasten its end remain on the minds of bankers and industry observers. "It's a milestone, but in some respects it's eerie," said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc. "To go two years without a single failure makes one worry that more could be coming up. The law of averages will pertain here. That there weren't any doesn't mean that there won't be any." Banks learned to prepare for crisis after the Sept. 11 attacks, in which "institutions both big and small had a forcible reminder of how badly things can go," Ms. Petrou said.

American Banker Thursday, May 18, 2006
FHLBs Split On Individual Debt Issuance
By Patrick Rucker
A regulatory ruling allowing the Federal Home Loan Bank of Chicago to issue its own nonconsolidated debt has touched off a debate in the system about whether its other banks should be allowed to follow suit. The Federal Housing Finance Board argues that the Chicago move was unique, and that it cannot legally allow the other 11 banks to offer something similar. But many observers say the agency could change its mind, and a few Home Loan banks are quietly mulling if such an offering would give them a better way to reduce their excess stock and fund their mortgage purchase programs. Some observers are not convinced the Finance Board is correct to say subordinated debt should not count as capital under the new system. They said the board could reinterpret the law later. "The regulator is 'right' until someone takes it to court or it changes its mind," said Karen Shaw Petrou, a managing partner with Federal Financial Analytics.

American Banker, Thursday, May 11, 2005
How Sale of Golden West May Impact the FHLBs
Dallas already facing BankUnited loss; the case for consolidation
By Patrick Rucker
In an article about Wachovia Corp.'s planned purchase of Golden West Financial Corp. and how it might hurt the business of two Federal Home Loan banks and help push the system toward consolidation, Karen Shaw Petrou, managing partner of Federal Financial Analytics, wrote in a recent client letter that the Federal Home Loan Bank System is "already struggling to find a profitable mission in the face of member consolidation, shrinking mortgage markets and regulatory pressure." The loss of a big member like World Savings would add pressure on the banks to "find new members, new businesses, or both," she said.

The Wall Street Journal, Monday, January 9, 2006
Banks Might Widen Real-Estate Role; In Development-Rule Shift, PNC, Bank of America Get Clearance for Big Projects
By Michael Schroeder
Two major banks received the green light from regulators to develop and own large hotel and office properties, potentially opening the door wider for banks to the commercial real-estate business beyond their traditional role as lenders. Some banking consultants and lawyers say the rulings could have significant import. "Big national banks are potentially major players in the commercial real-estate market based on the powers the OCC has just granted," said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc., a Washington consulting firm. She add that the Federal Reserve has taken a much tougher stand against allowing the state-chartered banks it regulates to move more broadly into commercial real-estate development.

Click here to view the FedFin FSM Report.

BNA Banking Report, Wednesday, November 30, 2005
OFHEO Announces 16 Percent Increase in Fannie, Freddie Conforming Loan Limits
By Richard Cowden
In an article about OFHEO announcing that it would raise the single-family conforming loan limit for Fannie and Freddie by 16 percent next year, Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., said the size of the loan limit adjustment “will arm those who are opposed to the loan price increase. The higher the limit, the harder it is to argue that ordinary borrowers are excluded from the conventional mortgage market” by the existing conforming loan rules. Petrou went on to say that the big adjustment for 2006 could prompt potential Senate negotiators to dig in their heels on the question of allowing larger loan limit adjustments for pricier markets. “This could become a hot-button issue.” Petrou also said the GSEs appear to be sensitive about the size of the upcoming adjustment.

American Banker, Tuesday, November 8, 2005
After Years As Nonissue, A Premium Vote Toss-Up
By Luke Mullins
A Federal Deposit Insurance Corp. vote today to determine whether to charge banks premiums for the first half of next year is shaping up to be a cliffhanger. Observers said it was uncertain how the agency would rule because it depends on several factors, including the strength of insured deposit growth, the impact of the Gulf Coast hurricanes, and whether a premium increase could have political ramifications. "The Bank Insurance Fund is stressed from two sides," said Karen Shaw Petrou, a managing partner at Federal Financial Analytics. "On one side there is deposit growth and the other is the potential difficulty of banks in the Gulf region."Though no bank has failed yet due to the hurricanes, such a possibility represents an "important psychological factor," Ms. Petrou said. "The fund would be considerably stressed by even a couple of small bank failures in the region," Ms. Petrou said.

CFO Magazine, October 2005
Basel Faulty?
By Randy Myers
In an article on how the new international banking rules could improve loan pricing, but have raised concerns at the Fed, Karen Shaw Petrou, managing partner of Washington, D.C.-based Federal Financial Analytics Inc., says lenders also may find it more advantageous under a Basel II regime to use other credit-risk mitigation techniques, such as guarantees, portfolio insurance, and credit derivatives. Finally, she says, banks operating under Basel II may become less interested in offering one-year revolving lines of credit, against which they didn't have to hold regulatory capital under the original Basel accord but now will. When lines of credit are available, they may be more expensive.

BNA Banking Report, Monday, October 3, 2005
Regulators Delay Basel II Implementation, Promising New Roadmap, Extra Safeguards
By R. Christian Bruce
In an article about the U.S. delay in implementing the Basel II capital accord by at least one year, Federal bank and thrift regulators hope to charting a new roadmap for the effort and promising extra safeguards to address problems highlighted in a controversial impact study released last spring. Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., a Washington, D.C., financial services consulting firm, Sept. 30 predicted that large U.S. banks covered by Basel II will not welcome the delay. Although the extra time will allow regulators to address concerns about Basel II's impact on smaller U.S. banks, she said, it also will give banks in Europe, Canada, and elsewhere a clear advantage against their large U.S. bank competitors at least through 2011, which is the soonest that a U.S. Basel II bank can take full advantage of the new accord. "This addresses the most immediate political challenge they faced, but they are about to walk into a buzzsaw, because the big U.S. banks will read this and be most upset," Petrou told BNA. "There's a U.S. investment bank problem and a foreign bank problem," Petrou said, referring to competitiveness concerns on the part of U.S. banks adopting Basel II. She added that the extra flexibility regulators have allowed themselves under the new timetable could make planning more complicated. "Every bet is hedged," she said.

Petrou's Testimony Strikes Nerve

Bachus, Frank, and several other members of the subcommittee centered many of their concerns about Basel II by referencing testimony Petrou. She warned that delayed implementation could damage U.S. banks that need the accord to keep pace with foreign financial institutions. If the United States delays implementation, she warned, banks in Canada and the European Union and elsewhere will have lower capital costs, making them hungry to acquire U.S. banks. "With barriers to entry remaining high within the EU and in most other nations, EU and Canadian banks--possibly soon joined by newly strengthened Japanese ones--will look to the U.S. for new targets," Petrou said.

Compromise Approach Suggested

Petrou argued for an approach that would move ahead with Basel II for large banks, while giving smaller U.S. banks some of the same kinds of options. Instead of merely making adjustments to the Basel I accord as regulators have promised, she said U.S. regulators should allow Basel II's "standardized option" to be used in the United States.

That approach, though not as aggressive as the internal ratings-based model in terms of risk assessment, nevertheless moves away from the Basel I standards and offers more flexibility. Among other points, she said, the standardized option would assign a 35 percent risk weight to low-risk mortgage loans, and a 75 percent risk-weight to consumer and small business loans. "Small banks and savings associations with simple portfolios can quickly look through the standardized requirements and implement them without complications the requirements dictate for more complex banks," she said. She said that middle ground would allow the United States to move ahead with the benefits of Basel II for very large banks, while making substantive changes that smaller institutions need. "The U.S. can and should move quickly to the advanced Basel II options, but quickly means only at the pace at which all institutions that wish to pursue Basel II--not just the biggest banks and savings associations--demonstrate readiness for rules regulators should continue to test and adapt," Petrou said.

American Banker, Thursday, September 29, 2005
Lawmakers: No Basel II Until IA Done
By Damian Paletta
In an article on House lawmakers telling federal banking regulators to hold off on the Basel II capital accord until parallel work on standards for small banks is finished, much of the tirade against the Fed at the hearing began after Karen Shaw Petrou, a managing partner at Federal Financial Analytics, said U.S. regulators were in a "damned if you do, damned if you don't dilemma." If Basel II is not adopted domestically, large U.S. banks would be at a competitive disadvantage with foreign ones that could hold less capital and lower their prices on loans and other products, she said, but if U.S. regulators implement the accord, small banks could find themselves at a pricing disadvantage.

American Banker, Tuesday, August 16, 2005
Fed: Banks Bulking Up With Exotic Mortgages
By Damian Paletta
In an article on new evidence recently emerging that lenders are piling into untested mortgage products, and that regulators are increasingly worried about it, Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc. said "These statistics would push a doubting regulator in the direction of a tougher rule." The new study showed that more than half of the respondents to the Federal Reserve Board's quarterly survey of senior loan officers said their share of interest-only and other nontraditional mortgage products is substantially or moderately higher than a year before. Nearly a third said that such products make up 16% to 50% of their dollar volume of residential mortgages - substantially more than previously estimated. The survey report also said mortgage demand was up despite recent interest rate hikes, and it noted looser underwriting standards for commercial and industrial loans.

Fortune, Monday, August 15, 2005
By Bethany McLean
LOOSE CHANGE
Fannie, Freddie, and China. Really. According to a report by Federal Financial Analytics, China's holdings of Fannie and Freddie debt are double what they were three years ago. In fact, China now holds $144.5 billion of such debt, almost equal to the $150 billion in Treasuries that it owns. The worry cuts both ways: What if China's economy stumbles, and it begins dumping Fannie and Freddie bonds? Or what if Fannie and Freddie stumble? What sort of pressure would that put on China's fragile banking system? Gotta love the global economy. In today's trade, Fannie fell 83 cents to $51.17.

BNA’s Daily Report for Executives, Monday, August 15, 2005
Report Says Concerns About GSE Bonds Held by Chinese May Be Driving Reform Bill
By Richard Cowden
In a August 12 report on Chinese investors now holding about a quarter of all U.S. housing government-sponsored enterprise foreign debt, Federal Financial Analytics Inc., a Washington, D.C.-based financial consulting firm noted that a level that high could pose risks for financial systems in both countries. Concerns about the rapidly increasing share of agency bonds issued by Fannie Mae, Freddie Mae, and the 12 Federal Home Loan Banks in the hands of "fragile" Chinese banks may be one of the motivating factors behind the Federal Reserve Board's and the administration's insistence on tough legislation to trim Fannie's and Freddie's mortgage portfolios, the report said.

National Mortgage News Online, August 12, 2005
China Holds Large GSE Debt
Fannie Mae, Freddie Mac and the Federal Home Loan Banks have been marketing their debt to China and other Asian countries for years, but it appears that China is holding nearly as much GSE debt as U.S. Treasury securities. As part of its quarterly funding report, the Treasury Department included a chart that shows China holds $150.2 billion in U.S. Treasury bonds and $144.5 billion in government agency bonds -- which is predominately debt issued by the three housing government sponsored enterprises. The chart highlights the fact that competition between Treasury and agency securities is "very real in foreign eyes," according to Federal Financial Analytics, Inc., a Washington consulting firm that spotted the chart. "This reason alone would justify a tightening of the GSEs' portfolio holdings." The FFA report also points that concerns about U.S banks holding large concentrations of GSE debt holdings has a foreign element too. "China has, of course, a fragile, stressed banking system that could not withstand even a short-term liquidity crunch from any GSE market shock."

Daily Report for Executives, Friday, July 15, 2005
OFHEO-Released Data on Mortgage Trends Show Falling Fannie, Freddie Market Shares
By Richard Cowden
In an article on newly released data on mortgage trends, OFHEO said that the date indicate a sharp drop over the past year in total market share for mortgages represented by government-sponsored enterprises Fannie Mae and Freddie Mac. The announcement came just before Senate Banking Committee Chairman Richard Shelby (R-Ala.) said that he expects his committee to take up legislation that would abolish OFHEO and establish a stronger independent regulator to supervise the two housing finance companies. Federal Financial Analytics, a Washington, D.C., financial consulting group issued a statement July 13 that said: "The release--in sharp contrast to the actual study--focuses on the GSEs' declining market share from 2003 to 2004 and provides OFHEO's explanation for the sometimes startling drops. Is this an effort to show that the GSEs no longer pose so large a threat and, therefore, that legislative reformers can relax and let OFHEO go about its business?"

Washington Post, Saturday, July 2, 2005
Cost Outlined For Oversight of Mortgage Finance Firms
By Annys Shin
In an article about a House bill to strengthen oversight of mortgage companies Fannie Mae and Freddie Mac, Congressional Budget Office said the bill will cost the federal government $300 million over 10 years. The finding may increase opposition to part of the bill that would force the two firms to set aside 5 percent of their profit into a low-income housing fund. Karen Shaw Petrou, managing partner of financial services consultancy Federal Financial Analytics Inc., wrote in a recent research note that the budget office's findings would probably "swing additional members" to side with bill opponents.

American Banker, Thursday, June 16, 2005
OFHEO's New Worry at Fannie: Report cites credit risk, liquidity soft spots
By Jody Shenn
In an article on OFHEO’s latest annual report to Congress, it has begun to criticize Fannie Mae’s management of credit and liquidity risks. The regulator said Fannie's management of credit and liquidity risks was generally "satisfactory." But it pointed out several soft spots, including a few "of greater significance" on the credit risk side. Karen Shaw Petrou, a managing partner of Federal Financial Analytics Inc., said the regulator has not really said much about potential breakdowns in these areas of risk management. "If they are doing it now, that is significant," she said.

Daily Report for Executives, May 2, 2005
Regulators Delay Basel II Rulemaking, Citing Risk Implications From Impact Study
By R. Christian Bruce
In an article about federal bank regulators delaying the Basel II rulemaking, Karen Petrou, managing partner at Federal Financial Analytics, Inc. said "Our guess is that the U.S. regulators' problems with the QIS aren't its data or questions on how well the bank filled out the form.” Petrou went on to say that the results simply highlight what she called the inherent contradiction of the Basel II effort in the United States. From the start, she told BNA in a telephone interview, regulators expected that even if capital varied by risk, in the aggregate it would close in on the 8 percent standard set out in the 1988 Accord. "But that just can't happen, and it hasn't happened," she said. "To discover that risk-based capital means that risk varies is not all that surprising."

Seattle Post-Intelligencer Reporter, Friday, April 12, 2005
Federal Home Loan Bank's Situation Raises Concern
By Bill Virgin
In an article about The Federal Home Loan Bank of Seattle coming in for closer scrutiny from analysts, regulators and bankers as it tries to reverse a slump in earnings, Federal Financial Analytics Inc., a Washington, D.C.-based firm that studies political and regulatory risk for financial services industry executives, issued two reports in the last week that warned that a "major interest rate mismatch" between assets and liabilities "will take a sizable bite out of earnings and equity whether interest rates rise or fall this year."

Dow Jones Newswires, April 12, 2005
Worrisome Financial Disclosure Shows Seattle FHLBank Worsens
By Dawn Kopecki
In an article about cash flow problems at the Seattle Federal Home Loan Bank depleting its 2004 earnings and likely handicapping the bank's operations for years to come, Federal Financial Analytics managing partner, Basil Petrou, wrote "The bank's efforts to stabilize its finances may lead to a further revenue collapse as a few large members with membership in other banks take their advances business elsewhere because of the reduced - or non-existent – future dividends association with bank stock now needed to facilitate the advances program. All in all, a real mess for Seattle and the (Finance Board)."

American Banker, Thursday, March 31, 2005
A Pivotal Week for GSEs; Testimony could dictate fate of reform bill
by Rob Blackwell
In an article about the three upcoming Congressional hearings in the fight over giving the housing government-sponsored enterprises a new regulator, Fed Chairman Greenspan is expected to reemphasize the systemic risk posed by Fannie and Freddie and reiterate that curbing their portfolio growth would be an essential way to strengthen economic stability. "The Fed Chairman is no longer discounting the prospect of GSE systemic risk," Federal Financial Analytics Inc. wrote in a report released Monday. "If he expands on this point - which we expect he will do in his usual, elliptical way - members on both sides of the Hill will be put into the more fearful mode that the Fed hopes will push tough legislation to enactment."

Wall Street Journal, Wednesday, March 9, 2005
Fannie Mae Is Cited for 'Deficiencies'
By JAMES R. HAGERTY
In an article about OFHEO tightening its grip on Fannie Mae in light of its accounting problems, many in the industry have questioned Fannie’s financial oversight. At a minimum, Fannie seems to have allowed "extreme sloppiness" in its internal controls, said Karen Petrou, a managing partner at Federal Financial Analytics Inc., a research firm in Washington.

Daily Report for Executives, Wednesday, March 9, 2005
Fannie Mae Signs Second Agreement To Boost Accounting, Internal Controls
By Richard Cowden
In an article about OFHEO tightening its grip on Fannie Mae in light of its accounting problems, Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., a Washington, D.C., bank consulting firm, said the most surprising aspect of the agreement was the level of detail of procedures that it orders Fannie to take to improve its operations. "Developing policies to protect against falsified signatures and to keep from overwriting databases, that's the basics of internal controls," Petrou said. Having said that, however, Petrou added that it is no longer news that Fannie was experiencing lapses in managing its internal controls. "It seems to us that what was really going on here was that Freddie Mac's, Fannie Mae's, and the Federal Home Loan Banks' portfolios were growing so fast that their internal controls were unable to keep pace," she said.

American Banker, Wednesday, March 09, 2005
Fannie Hit with Second Set of Regulatory Controls,
By Rob Blackwell
In an article on additional steps taken by OFHEO to govern Fannie, OFHEO noted the need for more internal controls and better corporate governance. OFHEO also required that Fannie's general counsel report to Fannie's board or OFHEO "actual or possible misconduct of a not inconsequential nature by employees." Fannie's board has a year to audit and review the company's compliance program and provide the results to OFHEO. "What strikes me about this is all of the functions that report to OFHEO," said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a consulting firm whose clients include competitors to Fannie. "In essence, OFHEO has put in a series of in-house examiners that Fannie is paying for."

Dow Jones Newswire, Tuesday, March 8, 2005
Fannie Agrees To Prevent Execs From Altering Data
By Dawn Kopecki
In an article on escalating accounting and corporate governance problems at the GSE, Fannie Mae's (FNM) board agreed Monday to prevent executives from altering the company's internal financial records and to prohibit employees from falsifying bookkeeping entries in an unusual deal struck with Fannie's regulator to more broadly improve internal controls and accounting practices. "This is basic stuff," said a report in industry newsletter GSE Activity Report. "If Fannie lacked it - as OFHEO clearly found - then it again proves that (Fannie's) portfolio grew far faster than internal controls could support despite all the senior management assertions up to the end that Fannie's
risk-management was a standard to which everyone else should aspire."

American Banker, Thursday, February 24, 2005
New Vows By Fannie: Penance or Just PR?
By Rob Blackwell
In an article about Fannie Mae appearing to be in full-scale retreat after disclosing a slew of new accounting problems and pledging to reduce its mortgage portfolio, cut advertising and lobbying, and play nice with its regulator, many critics remained suspect. The GSEs made many promises in its announcement that OFHEO had new problems with its accounting for securities, loans, consolidations, and commitments as well as "practices to smooth certain income and expense amounts." "It's going to be a different company, with much less emphasis on its portfolio," said Karen Shaw Petrou, the managing partner of Federal Financial Analytics, a consulting firm whose clients include competitors of Fannie's. "It is back to the securitization business."

American Banker, Tuesday, February 15, 2005
Plan Raises Questions About FHLB Loan Buying
Chicago Bank Will Reduce Reliance on "Voluntary" Stock
By Rob Blackwell
In an article about the Federal Home Loan Bank System and its mortgage purchase programs where experts predicted they would eventually break Fannie Mae and Freddie Mac's lock on the secondary mortgage market, issues have arisen. For years, Home Loan bank officials have known that the programs cannot continue to grow unless the banks find a way to securitize them or otherwise move them off the balance sheet. But the one approved program akin to securitization - Chicago's shared funding - has not been successful, and the Seattle Bank's MortgageChoice has not been approved. "It strongly suggests securitization, albeit in the complex fashion required by the current MPF structure," Federal Financial Analytics wrote last week in its GSE Activity Review. "The 'other FHLBs' reference also strongly implies that Chicago can assist other Home Loan banks that want to find a secondary market for their MPF holdings, doubtless helping more than a few of them out of the holes the MPF has dug in recent months," the review said.

THE WALL STREET JOURNAL, February 14, 2005
Citigroup and Capital Research Report Big Fannie Mae Stakes
By JAMES R. HAGERTY and SHIRA OVIDE
In an article about Citigroup Inc. and Capital Research & Management Co. both reporting large stakes in the shares of Fannie Mae, Karen Petrou, managing partner of Federal Financial Analytics Inc., speculated that Citigroup could be positioning itself to gain influence over any eventual change in Fannie's status. Congress is considering legislation that would clamp tougher regulation on Fannie and Freddie, while Citigroup has disclosed that it holds about 61 million shares, or 6.3%, of Fannie's common stock. At the current share price, the stake is valued at about $3.8 billion.

Dow Jones Newswires, January 7, 2005
Sovereign's Write-Down of Agency Preferred Could Be First Of Many
By Allison Bisbey Colter
In an article on Sovereign Bancorp.'s decision to write down the value of certain holdings of Fannie Mae and Freddie Mac preferred stock, some see it as a sign that the thrift's auditor, Ernst & Young is gearing up to implement the controversial new rules. "If that's so, some small and mid-sized banks and thrifts could experience some unhappy news in coming days," said analysts at Federal Financial Analytics, a Washington consulting group that caters to many of Fannie's competitors.

BNA’s Banking Report, Monday, January 3, 2005
Fannie Mae Plans Major Stock Move To Beat Back Questions About Capital
In a story about Fannie Mae’s plan to offer $5 billion in stock to large investors, Karen Shaw Petrou, managing partner at Federal Financial Analytics said, "I think the debate will focus more on executive compensation than it otherwise would have. That's where I see the major impact beyond the immediate players.”

American Banker, December 27, 2004
Full Financial Slate Awaits House, Senate
by Rob Blackwell
In an article about the upcoming 2005 schedule on the Hill and Fannie Mae and Freddie Mac's continuing accounting troubles expected to dominate, Karen Shaw Petrou, managing partner at Federal Financial Analytics said, "Fannie and Freddie are signaling that the fight is going to be over new programs."

American Banker, Tuesday, December 21, 2004
OFHEO Said to Be Ready to Seek Raines’ Exit
By Rob Blackwell
In an article about the ousting of Fannie Mae’s CEO, Franklin Raines, Karen Shaw Petrou, managing partner at Federal Financial Analytics whose customers include competitors to Fannie said, OFHEO’s position is “pretty powerful. After all the validation OFHEO has so far, one would think the board would defer.”

Inside the GSEs, December 1, 2004
OFHEO Sets GSE Loan Limits for 2005
In an article on OFHEO using its regulatory authority to set conforming loan limits used by Fannie Mae, Freddie Mac and the Federal Home Loan Banks, researchers with Federal Financial Analytics recently noted that “A consensus was clear [on Capitol Hill] that GSE regulatory reform is needed, and we think nothing in the [OFHEO] report will change that [and] it could precipitate major management changes at OFHEO … but even that is doubtful because the longer the current team is in place, the more the special [forensic accounting] exam continues and the greater the pressure for the new regulator sought by the Bush administration.”

Daily Report for Executives, November 12, 2004
Prospects Look Strong for Restructuring Of Regulatory System for Fannie, Freddie
By Richard Cowden
In an article about the possible restructuring of Fannie Mae and Freddie Mac, Federal Financial Analytics wrote in a November 3 memo to clients that "One must wonder if Fannie Mae regrets not taking the October deal offered by House FinServ in 2003 or even the April Shelby bill ... " The memo referred to draft legislation advanced in the House Financial Services Committee by Rep. Richard Baker (R-La.) and an administration-backed Senate bill that would have created a tough, new regulator with receivership authority over the government-sponsored housing enterprise.

Dow Jones Newswires, November 3, 2004
DJ Gloves Are Off In GSE Fight As Bush Wins 2nd Term
By Dawn Kopecki
In an article about the Bush administration, emboldened by Tuesday's victory and Republican gains in the House and Senate, Karen Shaw Petrou said in a GSE Activity Report that "With its decks cleared, the administration will use current law to put the heat on the GSEs to make them as amenable as possible to legislative reform. The Bush White House will push Congress on a tough plan, in part to address its fears about GSE risk and, we think, also to deal with Fannie's perceived bet that it was better off waiting the election out."

Business Week, October 11, 2004
Why Low Income Lending Won't Take a Hit If Fannie Pulled Back, Private Lenders Would Step In
by Joseph Webber
In an article on what would happen if Fannie shrank its pool of capital available for mortgage loans, Karen Shaw Petrou of Federal Financial Analytics "will have no impact on minority and low-income homeownership." Most experts say the risk is small and that Fannie may not have to shrink its business at all. And even if it does, others will likely step in to fill the breach.

American Banker - September 29, 2004
Fannie Agreement Leaves Management Issue in Limbo
By Rob Blackwell
In an article on Fannie Mae's agreement with its regulator on accounting violations, Karen Shaw Petrou, managing partner of Federal Financial Analytics, whose clients include Fannie competitors said "Every single one of these estimates cannot be done in a static fashion. Fannie, in complying with all of these requirements, will be doing so in an active market. Where it can buy or sell and where the market can purchase or divest … is based on a variety of factors, and no one can control them."

The Wall Street Journal - September 23, 2004
Regulator Details a Wide Range Of Accounting Problems at Fannie
By James R. Hagerty, John D. McKinnon and Dawn Kopecki
Fannie Mae's regulator accused the mortgage-finance giant of a wide range of improper accounting practices -- including at least one instance in which executives allegedly delayed expenses in an apparent effort to hit their bonus targets. In a 200-page report released late yesterday afternoon, the regulator, the Office of Federal Housing Enterprise Oversight, or Ofheo, said its findings "raise concerns regarding the validity of previously reported financial results, the adequacy of regulatory capital, the quality of management supervision and the overall safety and soundness" of the company.

BNA’s Daily Report For Executives - September 23, 2004
By Richard Cowden
Fannie's Directors Acknowledge OFHEO Flak; Independent Review Committee Appointed
In an article about Fannie Mae’s acknowledgement that an examination report by its regulator has identified a number of findings that call into question its accounting practices and its corporate governance, Federal Financial Analytics said that OFHEO's remarks on concerns about the company's regulatory capital suggest Fannie Mae could slip into an "undercapitalized" status. "This would mean a mandatory hold on any dividends that might drop capital still further, but OFHEO could also mandate provisions on a 'capital restoration plan' that result in serious operational constraints," FFA said. Among the more critical questions raised by the OFHEO examination, which has not yet been released publicly, may be those related to executive bonuses. FFA noted that "OFHEO does have clear supervisory power if it can credibly allege 'unjust enrichment,' and any problems here could thus have far reaching enforcement implications."

Bloomberg News - August 10, 2004
FHA Opposes Bill to Raise Purchase-Price Limits for Insurance
In an article about how Fannie Mae and Freddie Mac face a setback in their core business of selling mortgage-backed bonds under a global accord altering how much capital lenders must put aside to cover their risks, Karen Shaw Petrou, a managing partner at Federal Financial Analytics said "One of the biggest advantages for Fannie Mae and Freddie Mac has been their edge in regulatory capital." Basel II will encourage banks "to hold low risk and sell high," creating "a big strategic difference" for Fannie Mae and Freddie Mac.

The Bond Buyer, June 17, 2004
Housing: FHA Opposes Bill to Raise Purchase-Price Limits for Insurance
By Matthew Vadum
In an article on Bush Administration’s opposition to legislation that would raise purchase-price limits for FHA mortgage insurance because it would put private-sector financial service firms at a disadvantage, Basil N. Petrou, managing partner of Federal Financial Analytics questioned whether the measure would help would-be homebuyers. Higher FHA area loan limits do nothing to help low- and moderate-income families obtain mortgages and "may well act to push up area home prices, making homeownership even further out of reach for moderate-income borrowers," he said. In a period of falling regional house prices, the FHA could incur significant losses, Petrou said. "During a period of economic stress and falling home prices, the lack of liquidity at the higher end of the house price market will be felt to the detriment of the holder of these mortgages," he said. If FHA insured 100% of the loan amount, it "stands to lose a great deal in this situation," Petrou said.

Wall Street Journal, June 9, 2004
Chicago FHLB's Pollock Is Leaving
By James R. Hagerty
In an article on the resignation of Alex Pollock as president and chief executive officer of the Federal Home Loan Bank of Chicago to accept a position as resident fellow with the American Enterprise Institute in Washington, D.C., Karen Petrou, a Washington-based consultant who closely watches the home loan banks, said it was "startling" that Mr. Pollock is leaving before the Chicago bank could name a successor. Mr. Pollack, however, said that his resignation did not reflect discord over strategy and that the bank's financial performance remains "superb."

American Banker, June 7, 2004
Focus: Latest on Riggs Gives Fresh Ammo to OCC Foes
By Barbara A. Rehm and Michele Heller
In an article on the turmoil at Riggs Bank escalating when news broke that the examiner in charge of Riggs National Bank retired in 2002 to take a job with the troubled $6.2 billion-asset bank, many in the industry said that they do not believe the revelations about Riggs will be enough to get the stalled preemption resolution enacted. Karen Shaw Petrou, managing partner with Federal Financial Analytics said "A bill saying that an examiner can’t go work for the examined could be easily be enacted, but it has no broader regulatory implications."

Financial Institutions, Monday May 10, 2004
OFHEO Inquiry on Firm Footing if Focus Remains on Safety, Soundness, Report Says
By Karen L. Werner
In an article on OFHEO's inquiry into Fannie Mae's accounting standards, according to a report issued by Federal Financial Analytics Inc., a financial services consulting firm, even if Fannie Mae presses the Securities and Exchange Commission for an interpretation of accounting favorable to it "if OFHEO sticks to its last--safety and soundness--it can force major revaluations that lead to a restatement even if the SEC thinks GAAP technically supports the initial approach." The inquiry could force "major revaluations" at the enterprise if it remains focused on safety and soundness and not strictly on a technical interpretation of accounting standards, a report from the consulting firm said May 7.

American Banker, Tuesday, April 20, 2004
Surprisingly Hard Fight: Preempt backers found themselves scrambling
By Michele Heller
In an article about the odds of Congress overturning the new preemption rules for national banks, Karen Shaw Petrou, the managing partner with Federal Financial Analytics said "It would be a very serious blow to the Office of the Comptroller of the Currency and undermine the preemptive nature of the National Bank Act, even in the areas where there had not previously been disagreement. Congressional disapproval … would raise questions about previous actions the OCC has taken by prior rule or order, which had never been challenged."

American Banker, Monday, April 12, 2004
In Focus: One Potential Restatement, Countless Possibilities
By Rob Blackwell
In an article on the possibility of Fannie Mae having to restate its earnings because of accounting errors, Karen Shaw Petrou, managing partner with Federal Financial Analytics is quoted as saying "The numbers don't have to be big if they point to an underlying internal control problem for investors. The numbers don't have to be big if they point to more enforcement actions which concern investors." A government finding that Fannie's management engaged in wrongdoing could immediately revive the prospects for legislation this year or next. Such a finding would also create a serious public relations problem for Fannie, which repeatedly distanced itself from Freddie's accounting scandal last year.

National Mortgage News, March 29, 2004
FHA Eyes Zero Down For Co-ops, Condos
By Paul Muolo
In an article about the FHA's willingness to consider a zero down-payment mortgage for those buying co-ops and condos, Federal Financial Analytics managing partner, Basil Petrou, said that although the new program could generate over a million dollars in revenue in its first year, he doesn't believe "this budgetary calculation robustly reflects the true risks" of the program. "If home prices fall in the neighborhood, then the borrower will be underwater in the mortgage for at least several years."

The Bond Buyer, March 25, 2004
Housing Analyst: Zero Down-Payment Bill Could Spur More Single-Family Bonds
By Matthew Vadum
In an article discussing the Bush Administration's Zero Down-Payment Initiative, Basil Petrou, managing partner with Federal Financial Analytics, Inc. said zero down-payment mortgages can create problems for borrowers, who have typically borrowed 103% or more of the property's initial value, if home prices stop increasing in their neighborhoods. "FHA must make every effort to avoid placing first-time homebuyers - especially low- and moderate-income ones - in a position where their hopes of moving to accept a new job or live close to family are dashed solely because of a zero down-payment mortgage taken out years before," Petrou said.

BNA Banking Report - Monday, January 12, 2004
Senate Banking Committee Targets March Timeline to Move GSE Regulatory Reform Bill - by Karen. L. Werner
In an article regarding the GSE Regulatory Reform Bill, a GSE Activity Report from the firm Federal Financial Analytics Inc., states that 2004 will be a critical year for the GSEs, since if Congress fails to act, they would be "invulnerable to undesired legislative changes for several years" absent more scandals. The Senate Banking Committee has set its timeline to move legislation on housing government-sponsored enterprise reform for March, a Senate Banking Committee spokesman said Jan. 8. A series of hearings begun in 2003 on regulatory reform for GSEs Freddie Mac and Fannie Mae and the Federal Home Loan Banks system will continue in the committee in early February, Senate Banking Committee spokesman Andrew Gray said. Congressional interest in regulatory reform of Freddie and Fannie has been keen since a string of resignations in 2003 at Freddie, following accounting problems.

American Banker, Monday, December 15, 2003
Why Many Say Freddie Still Needs to Get on Message: By Rob Blackwell
In a story discussing the OFHEO report on Freddie Mac last week, Karen Shaw Petrou, managing partner with Federal Financial Analytics is quoted as saying "Our advice to clients in regulatory distress is always to ask, ‘How high?’" . Freddie Mac clearly hoped that paying a $125 million fine and agreeing to take a slew of steps to bolster internal controls would put its massive accounting scandal to rest. But Freddie’s officials ignored one key piece of the public relations puzzle: contrition. The company picked a fight with its regulator, criticized moves to make it raise its capital or limit its growth, and refused to say how much it is paying its new chief executive. Observers said, the company was publicly disputing its regulator’s recommendations. By contrast, they said, most financial institutions remain silent if their federal supervisor makes any public statement concerning them.

American Banker, Thursday, December 11, 2003
Freddie's 185-Page Earful from Regulator
Though many policymakers have called the Office of Federal Housing Enterprise Oversight weak and ineffective, it came out with guns blazing against Freddie Mac on Wednesday. Besides extracting a $125 million fine from the government-sponsored enterprise, it issued a harsh 185-page report on Freddie's accounting scandal. Karen Shaw Petrou, a Managing Partner with Federal Financial Analytics, said the capital and retained portfolio recommendations were two of the report's key conclusions with "major strategic implications." But she said she did not understand why OFHEO merely talked about issuing new requirements instead of actually issuing some. It "is unclear why OFHEO pulled its punches with regard to these," said Ms. Petrou, whose clients include competitors to Fannie and Freddie.

American Banker, December 3, 2003
Fed Says Basel II Standards Will Stay — for Now
Addressing the industry’s biggest beef about impending international capital standards, Federal Reserve Board Vice Chairman Roger W. Ferguson Jr. said Tuesday that banks will be allowed to use internal models to determine regulatory capital minimums — eventually. But first they must use Basel II calculations drawn up by regulators. Karen Shaw Petrou, Managing Partner of Federal Financial Analytics, said publicly acknowledging a leading industry complaint is good news for bankers. "This makes the outline of Basel 3 a lot more viable," she said.

The Bureau of National Affairs, Inc., November 24, 2003
With Earnings Restatement Freddie Mac Opens Itself, OFHEO to Investor Questions
Freddie Mac's long-awaited restatement of past earnings Nov. 21 may have put the best face possible on what executives called numerous "errors," but its critics, with fresh facts in hand, continued to charge that the company's problems reside with its management, its board, and its regulatory regime. Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., a Washington, D.C., consulting firm, said the restatement was "quite stunning and wholly unexpected," particularly Freddie Mac's report that it had overstated its 2001 earnings. Perhaps even more disconcerting, Petrou said, was the company's admission that it had actually experienced a loss of about $111 million during the first quarter of 2001, instead of a profit of about $800, as originally reported. Petrou added that she also was surprised that Freddie Mac did not release any quarterly earnings figures for 2003 at the time of its restatement for the previous years. "We assumed they would" announce 2003 quarterly earnings, Petrou said.

American Banker, November 21, 2003
At Freddie, 2 New Names and an Exit by Rob Blackwell
In a story discussing personnel changes and the results of the restatement at Freddie Mac, Managing Partner Karen Petrou is quoted as saying "We always thought the Doty conclusion that nothing had happened that had safety-and-soundness implications was ludicrous. (Freddie had commissioned a report on its accounting practices from James Doty of Baker Botts LLP.) "Running an institution where your numbers can go so wide of a reported mark is a really significant concern," she said. "The need for prudential regulation is strengthened."

The Bureau of National Affairs, Inc., November 17, 2003
Conferees to Meet Week of Nov. 17 To Resolve Major FCRA Bill Differences by Karen L. Werner
In a story about the upcoming House and Senate Conference to negotiate legislation that would reauthorize FCRA, an analysis by Federal Financial Analytics is quoted as saying "there are several other provisions that differ between the two bills, some of which could prove more costly to businesses, including lenders and credit bureaus. Senate legislation would place the burden of proof on furnishers of credit information, not on consumers by mandating that furnishers remove information that is false or that cannot be verified. By contrast, the analysis added, House legislation only requires the removal of false information."

American Banker, November 12, 2003
Smaller Institutions Seeing Cause for Concern in Basel II by Rob Garver
In a article about the impending Basel II capital accord, and its effect on small banks, Managing Partner Karen Petrou is quoted as saying "The smaller banks are becoming more concerned as they begin to understand what the Basel Accord is going to do. I think the regulators came up with the bifurcated system because they thought the small banks wanted out, and the best way to go was to get them out. Now bifurcation is a no-go. There is a very emphatic difference between the Federal Reserve and everybody else, which is that capital matters. The odd thing about FRB Vice Chairman Ferguson's position is the idea that capital doesn't affect pricing or competitiveness. Everybody else thinks it does. And if it didn't, there wouldn't be capital arbitrage. In the end regulators face only one realistic option. Rather than split the industry between two capital standards, they must build a framework that works for the smaller banks as well."

Wall Street Journal, November 7, 2003
Time for Revenge by Karen Shaw Petrou
In an op ed, Managing Partner Karen Petrou lays out the possible risks that the mutual fund industry faces from the investing class and lawmakers acting on election year politics. She cites the reputation risk faced by the mutual fund indsutry and what the industry can do to address it as investors look for safe places to invest and Congress debates legislation.

American Banker, November 3, 2003
Why Treasury Pushing Hard on GSE Fix by Rob Blackwell
Managing Partner Karen Petrou is quoted as saying "A lot of this depends on headline issues," in reference to speculation on how hard the Administration will push for a tougher regulator in the ongoing debate on GSE regulatory reform.

Dow Jones, October 28, 2003
Critics Make Case To Privatize Fannie, Freddie, FHLBanks by Dawn Kopecki
A report by Federal Financial Analytics is cited in a story about a proposal to privatize the housing GSEs. The report is quoted as saying "many aspects of the proposals (to privatize the GSEs) elicited concern from the audience about political viability".

Business Week, October 27, 2003
Fannie and Freddie Dodge a Bullet -- for Now by Mike McNamee, with Paula Dwyer
In a story about the GSE reform debate that cites the upcoming release of Freddie's accounting errors (likely to top $ 5 billion); a critical report from Congress' watchdog, the General Accounting Office; and a criminal probe of Freddie's accounting, Managing Partner Karen Petrou is quoted as saying ''all this news is going to come down a lot harder if Fannie and Freddie are still fighting against a credible regulator."

American Banker, October 27, 2003
"In Focus: Stronger Words Mean Longer Odds for GSE Reform Effort" by Rob Blackwell
In a story about the ongoing debate on GSE reform, Managing Partner Karen Petrou is quoted as saying "this fight is taking place on a field with all sorts of suddenly opening trenches, quicksand puddles, and land mines, because there is a lot going on in the news. That makes the need for a credible regulator and Treasury's ability to enforce its 'my way or the highway' position far greater."

Wall Street Journal, October 21, 2003
"IRS Probes Freddie Mac 401K Plan, Derivatives Deals" by Dawn Kopecki
The story cites Federal Financial Analyics as the first to report a Labor Department and IRS investigation underway at Freddie Mac that is looking into issues surrounding the retirement plan and certain derivative transactions. The investigation could result in an additional tax bill of up to $750 million plus interest.

Bureau of National Affairs, October 09, 2003
"Oxley Cancels GSE Markup, No New Date; Senate to Move Ahead on Reform Hearings"
In a story about Congressional debate over GSE reform a report from Federal Financial Analytics is cited as saying "Oxley has had to choose between bipartisan votes and the Administration in canceling the markup. An eventual markup in the House, plus any news from pending GSE investigations, could further strengthen the administration's hand and create a tougher tone among House Financial Services Committee members on Fannie and Freddie".

Wall Street Journal, October 10, 2003
"Flubbing It"
Managing Partner Karen Petrou is quoted as saying "This creates real concerns about who's watching for this type of credit risk and what's being done about it," in a story about the risks of the Federal Home Loan Banks and GSE reform that cites the $1.7 billion of mobile-home paper held by the New York bank compared to the $45 million that the rest of the FHLB system holds.

American Banker, September 17, 2003
"Omissions From GSE Bill Are No Accident" by Rob Blackwell
In a story about GSE reform debate, Managing Partner Karen Petrou is quoted as saying "It is not on the table, because there seems to be a broad wide-scale effort to come up with a doable bill, Fannie and Freddie want one because they need a credible regulator, the Administration needs to have one because they see the need for one too. The bill would become much less doable if the line of credit and similar items were included."

Barron's, September 14, 2003
"Fannie Reduction?" by Jim McTague
In an article about the Treasury plan to oversee Fannie Mae and Freddie Mac, Managing Partner Karen Petrou is quoted as saying "The change would be good for bondholders of these monster government-sponsored enterprises but not the GSEs' shareholders, Fannie Mae is unique in that the interests of the shareholders and bondholders do not parallel one another." She goes on to say that "If the regulator treats Fannie and Freddie like banks, which many experts urge, their minimum capital might double to 5 percent, which would halve return on equity." The story cites her calculation of the Fannie Mae leverage ratio of 53 to 1.

Reuters, September 14, 2003
"Tougher Rules May Curb Fannie Mae"
In a story about a proposal to strengthen the regulation of Fannie Mae and Freddie Mac, Managing Partner Karen Petrou is quoted as saying "If the new regulator treats Fannie Mae and Freddie Mac like banks, their minimum capital might double to 5 percent, cutting return on equity in half."

Reuters, September 12, 2003
"JP Morgan plans new bank that may avoid local laws" by Chris Sanders
In a story about the plans of J.P. Morgan Chase & Co. to reorganize much of its retail into a federal savings bank, Managing Partner Karen Petrou is quoted as saying "A patchwork of local and state regulation does not best serve the interests of consumers or the industry and can only result in reducing the availability of credit and increasing its cost." She went on to say "Federal regulators are best equipped to address concerns with improper mortgage practices."

Global Risk Regulator, September 2003
"Low-risk U.S. banks may not gain from Basel II"
Managing Partner Karen Petrou is quoted as saying "when you apply the leverage ratio, nobody's capital falls," referring to the fact that the ANPR notes that capital may rise or fall under the proposed Basel regime and also says that the leverage ratio will be left in place. Petrou goes on to argue that "under present proposals, U.S. regulators have no way to enforce Basel II on banks that separately meet the leverage ratio and the PCA."

BNA, September 8, 2003
Government-Sponsored Enterprises Expert Predicts Tougher Oversight, More Capital on Tap for Fannie, Freddie
A speech by Managing Partner Karen Petrou is cited as saying "Recent events have made clear that the GSEs' regulator must have safety-and-soundness and capital powers comparable to those bank regulators deploy, and I think Treasury will propose this [the week of Sept. 8] and Congress will act on this recommendation," referring to scheduled Sept. 10 testimony by Treasury Secretary John Snow before the House Financial Services Committee.

Reuters, August 27, 2003
"Wachovia, most states embroiled in lending lawsuit"
In a story about the question of the applicability of state law to certain units of Wachovia, Managing Partner Karen Shaw Petrou is quoted as saying "Many state standards are tougher on mortgage lending and privacy." She goes on to say that "These battles are being fought in the courts, generally with the federal charter prevailing." She adds that the OCC recently proposed sweeping preemption standards on many consumer and management issues "that states historically thought were in their purview. This proposal is leading the states to round up their troops." When the OCC enacts a final proposal, she said, "that may be where the battle is ultimately fought."

American Banker, August 27, 2003
"OFHEO Hardball Approach May Not Help Its Cause" by Rob Blackwell
A Federal Financial Analytics report is cited as giving a blistering critique of OFHEO's actions. It said the agency had told Congress that Freddie was healthy despite an accounting scandal and a multibillion-dollar earnings restatement, then contradicted itself by openly forcing the board to fire Mr. Parseghian. Managing Partner, Karen Shaw Petrou is quoted as saying "I cannot see their image improving, especially on the Hill"

BNA, August 25, 2003
"Banking Experts Report Basel II Benefits Could Be Meager for Low-Risk Institutions" By Richard Cowden
In a story about the impact of Basel II, a report from Federal Financial Analytics is cited as saying that low risk banks won't benefit and high risk banks may not be penalized. The story goes on to quote the report as saying "Although big U.S. banks overall won't see [risk-based capital] drop, key lines of business in diversified banks could get a major competitive edge. This will result in consolidation in retail banking and mortgage lending, possibly putting small and mid-size banks at serious strategic risk."

Wall Street Journal, August 25, 2003
"OFHEO Forces Out Freddie Execs, Toughest Action Yet" by Dawn Kopecki
In a story about the removal of Freddie Mac CEO Greg Parseghian, a Federal Financial Analytics GSE Activity Report is quoted as saying "OFHEO's actions are coming, of course, at a highly sensitive time in the debate over its own future. Trying to show it is tough now may be part of an effort to retain as much of its current structure and personnel in the future."

American Banker, August 14, 2003
"Home Loan Bank Rx: Many Proposals, Some Drastic" By Rob Garver
In story about the possiblity of increased oversight for the Federal Home Loan Banks, a report from Federal Financial Analytics is quoted as saying "the NY FHLB, of course, has been the most vocal in opposing SEC disclosure. We long wondered why, looking hard at its derivative book in hopes of figuring this out. We didn't, though, look at old-fashioned credit risk. Of course, even if we had looked, we wouldn't have found much - while the Federal Home Loan Bank of New York's annual report tells us a bit about the manufactured housing book and how it will get better, the first-quarter report is silent on the entire issue,"

American Banker, August 13, 2003
"Basel II Called Less Than Ideal, Far From Assured" by Rob Garver
A report prepared by Federal Financial Analytics is cited as showing the drop in regulatory capital under Basel II won't be as much as some expected. The story also quotes Managing Partner Karen Shaw Petrou as saying that "low risk banks won't benefit from Basel II, and high risk ones might not be penalized - the reverse of what regulators wanted at the outset." It goes onto say that she raised the possibility that Basel II may never take effect here in its current form.

American Banker, June 23, 2003
"In Focus: Final? Not Quite, as Hill Finally Gets Started on Basel II Debate" by Rob Garver
Managing Partner Karen Shaw Petrou is quoted as saying "I think it means that the regulators were put on notice … that the Hill recognizes the fundamental importance of the Basel rules, isn't daunted by complexity, and will intervene if they see any adverse policy consequences."

The Wall Street Journal, June 13, 2003
"The Trouble With Freddie" Review and Outlook
According to Federal Financial Analytics, more than 60% of U.S. banks with less than $100 million in assets hold Fan and Fred debt in excess of 50% of capital. For banks, with more than $1 billion in assets, 20% hold Fan and Fred debt in excess of 50%.

American Banker, June 12, 2003
"Meeting Stirs Doubts About FHLB Regulator’s Fate" by Rob Garver
In a report sent to her clients, Karen Shaw Petrou, managing partner of Federal Financial Analytics was quoted as saying, "A single regulator for Fannie, Freddie and the Federal Home Loan banks - a distant prospect at best a week ago - now could come into being this year, with all the charter implications such massive reform entails."

American Banker, June 11, 2003
"These GSE Hearings Will Clearly Have Teeth" by Rob Garver
In response to the shake up at Freddie Mac and the impending investigative hearings, Managing Partner Karen Shaw Petrou said that many of the traditional arguments that the GSEs have used to protect themselves from increased regulatory scrutiny have now collapsed.

American Banker, May 14, 2003
"Shelby: Don't Try Tweaking Reform Plan" by Rob Blackwell
Managing Partner Karen Shaw Petrou is quoted as saying that Sen. Shelby might give some leeway on credits and rebates in the upcoming deposit insurance reform legislation, an issue that he has otherwise said he doesn't want changed much from the Treasury Proposal.

American Banker, April 28, 2003
"In Focus: Will Plug from Greenspan Give Baker More Ammo vs. GSEs?" by Rob Garver
In reference to a letter from FRB Chairman Greenspan to Chairman Baker regarding the importance of GSE oversight, Managing Partner Karen Shaw Petrou is quoted as saying that while Chairman Greenspan's comments add a new element to the debate, it is still unclear what he wants.

American Banker, April 24, 2003
"In Brief: Big-Bank Examiners Urged to Get Tougher" by Rob Garver by Rob Blackwell
The Story cites a speech by Managing Partner Karen Shaw Petrou before the OCC Bank Supervision Managers' Conference in which she asserts the need for parity in the supervision of large and small banks.

American Banker, April 7, 2003
"FDIC Bill Well on Its Way - But Will Need Maneuvering"
Managing Partner Karen Shaw Petrou is quoted regarding an amendment that would bar the FDIC from charging the best rated institutions more than 1 basis point as long as the reserve ratio is above %1.15, saying that's where the fight is going to be.

The Economist, March 28, 2003
"Basel Brush"
Managing Partner Karen Shaw Petrou is quoted in an article about the capital rules outlined in Basel II and says that the whole point of Basel II is to get rid of regulatory arbitrage.

Bureau of National Affairs, Inc, March 17, 2003
Managing Partner Karen Shaw Petrou warns that the prospect of hostilities in Iraq could complicate an already contentious effort to implement the Basel II capital standards, mentioning that the most disputed part of the accord resulted from U.S. concessions to Germany.

The Wall Street Journal, February 28, 2003
"U.S. Banks Say Risk Standards Would Favor European Rivals" by Michael Schroeder and G. Thomas Sims
The testimony of Managing Partner Karen Shaw Petrou before the House Financial Services Committee is cited regarding capital standards proposed in the Basel II Accord.

American Banker, February 26, 2003
"Basel Committee Offers Operational Risk Guide For Banks, Regulators" by Rob Garver
The Basel Committee on Banking Supervision issued guidelines for the management and supervision of operational risk which Managing Partner Karen Shaw Petrou is quoted in an interview as saying are a good start, but the committee's approach is still flawed.

American Banker, February 21, 2003
"In Brief: House Panel to Hold Basel Hearing" by Michele Heller
The story cites Managing Partner Karen Shaw Petrou as one of the witnesses scheduled to appear before the House Financial Services Committee in their hearings to examine the Basel II accord.

American Banker, December 3, 2002, p. 1
"OCC: States' Enforcers Subject to Preemption" by Nicole Duran
Managing Partner Karen Shaw Petrou is quoted on the subject of a letter from the OCC that affirms federal preemption for national banks confronted with local attempts at enforcement of state laws.

American Banker, November 19, 2002, p. 4
"Industry Had a Few Wins but More Losses," by Michele Heller
In an article evaluating the 107th Congress, Managing Partner Karen Shaw Petrou is quoted as warning about political risk to diversified financial companies if they don't make a strong case to legislators.

The Wall Street Journal, October 31, 2002, p. C1
"Bank Moves to Reduce Its Regulatory Woes, Separates Operations," by Paul Beckett
Managing Partner Karen Petrou is quoted on Citigroup's strategy of preempting enforcement actions by taking measures itself to avoid future conflicts of interest.

Washington Post, September 23, 2002
"Loan Refinancings Put the Squeeze on Fannie"
Managing Partner Karen Shaw Petrou is quoted regarding the interest rate risk that the duration gap at Fannie is posing and says that it could become a taxpayer problem.

Dow Jones Newswires, November 7, 2002
"Likely Senate Banking Chair Has Independent Streak"
A story on the change of leadership in the Senate quotes Managing Partner Karen Shaw Petrou on the tough position that Shelby will likely take on tying and accounting reform.