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The familiar fingerprints on the Fed's stress test changes
By John Heltman
While the winds may be changing at most banking agencies since President Trump’s election, the Federal Reserve Board's plans to update and revise its stress testing program is one area where there is a lot of continuity between the prior administration and the current one. But in contrast to other initiatives at other agencies, where Trump appointees are poised to go in a significantly different direction than their Obama-appointed predecessors, the Fed's stress test work appears aligned with the vision set out by previous leadership. ... Karen Shaw Petrou, managing partner at Federal Financial Analytics, said that the focus on transparency is in large part a political choice, or at least one informed by political pressures. She said these changes are meant to give the agency more breathing room to make whatever future changes it sees as appropriate without unwanted Congressional mandates. “The big push is clearly on the transparency issue, it’s part of the reason of the political fire,“ Petrou said. “The Fed is in defense mode to try to prevent the Hill from changing the stress test in ways they don’t want.” 

Banks Emerge Winners From Final Post-Crisis Capital Rules
By Boris Groendahl, Nicholas Comfort, Silla Brush, and Edward Robinson
Banks emerged relatively unscathed from global regulators’ final batch of post-crisis capital rules, with few lenders needing to raise major new funds. The Basel Committee on Banking Supervision on Dec. 7 issued new rules on how banks estimate the risk of mortgages, loans and other assets. The compromise, reached after fierce lobbying by the industry, will cause “no significant increase” of overall capital requirements, the regulator said. For some big banks, capital demands will actually decline. ...“The only reason this deal was reached is that every national agency I know believes it is more critical to preserve the global framework in spirit if not now also in letter,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics in Washington. “They all fear a pell-mell race to the bottom; with the agreement, the facade is intact even if the reality remains fragile.” 

Leaving Dodd-Frank’s ‘Hotel California’ not as hard as you think
By John Heltman
The Dodd-Frank Act included a provision to lock some of the biggest firms into the law's enhanced supervisory regime even if they tried to leave. But that grasp may not be as strong as it used to be. Zions Bancorp.'s recent decision to focus just on its bank subsidiary already cast doubt on the need to own a bank holding company. ...Karen Shaw Petrou, managing partner at Federal Financial Analytics, said that if there were no Hotel California provision, it is possible that investment banks would have availed themselves of this option — becoming a bank holding company short-term and then switching back once they no longer needed the benefits — years ago. But nearly 10 years on and after untold millions spent to accommodate the post-crisis regulatory regime, the costs of shedding their bank holding companies is probably more trouble than it is worth, Petrou said. “In 2011, yes, I think we would have seen BHCs … forced into conversions immediately try to check out of Hotel California,” Petrou said. “In 2017, with seven years of significant change to their business model and investment in insured deposit gathering, lending and other more traditional functions that need to be in a bank, the decision is a lot less clear. In Goldman and Morgan Stanley’s case in particular, to debank is a significant structural transformation.” 

Bank stocks take flight as Washington signals regulatory rollbacks
by Andrea Riquier
Bank stocks powered higher Wednesday as investors digested more business-friendly rhetoric from Washington. On Tuesday, Jerome Powell, the nominee to replace Janet Yellen as chair of the Federal Reserve, had what Ian Katz of Capital Alpha Partners called a “positive-for-banks” Capitol Hill hearing. ...As bank analyst Karen Petrou wrote in a recent client note, “a hard look at reconfiguring bank holding companies and allowing banks to be banks has significant strategic upside not just for traditional institutions such as Zions, but also more broadly across the full swath of even the largest U.S. banks.” A reconsideration of this type of business organization, as Noreika advocated in his speech, would enable a “powerful business model with considerable public policy benefit,” Petrou wrote. 

Judge in CFPB Leadership Lawsuit Says He Will Act Quickly
By Lalita Clozel
The federal judge reviewing dueling claims over the interim leadership of the Consumer Financial Protection Bureau said Monday he would act quickly after the Trump administration responds to claims by an Obama-era official that she should be the one running the bureau. “I’ll read the government’s filing when it comes in,” said Judge Timothy J. Kelly, who was nominated by President Donald Trump last summer. “We’ll go from there.” ...“People will be sitting in their offices reading things and working on things but [not] doing anything about them,” said Karen Shaw Petrou, managing partner of policy-analysis firm Federal Financial Analytics Inc. “Other than moving the flower pots or changing the coffee in the machine this is a standstill.” 

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