Despite rhetoric, Dems and GOP want same things from reg reform
As the Republicans’ signature Dodd-Frank reform bill approached a final vote in the House Thursday afternoon, the two parties were both assailing each other as proxies for Wall Street and painting themselves as defenders of community banking and the consumer. The truth is a little more nuanced: In some ways both parties are right, and both are wrong. ...Karen Shaw Petrou, managing partner at Federal Financial Analytics, said that the smaller the bank, the more likely it is to be able to easily comply with the 10% leverage ratio at the heart of the bill. That gives Republicans a legitimate claim to offering something to small banks that they want and that would have a positive effect on their bottom line. “Worshiping at the altar of community banks is a very popular and populist call to arms,” Petrou said. “Claiming that what you want is good for community banks has taken on the aura of saying what you want makes America great again. Who could argue with your objective?”
FHFA sounds alarm on Home Loan Bank funding, advances
By Brian Collins
Concerns about credit concentrations at the Federal Home Loan banks are opening the door to a wider conversation about — and likely rulemakings on — stricter regulation of these government-sponsored enterprises. ...Watt's new regulatory focus encompasses new standards for interest rate risk, capital, and liquidity, according to a Federal Financial Analytics report. That could have a big impact on the system overall. It could lead to a "hike in risk-based [capital] ratios and accompanying earnings stress," the analysts warn in a May 23 report. "If FHFA now really wants to clip the wings of the FHLBs in this business, profit will suffer.”
The perils of repealing FDIC resolution powers
By John Heltman
The Trump administration’s examination of Dodd-Frank Act powers to allow regulators to seize and unwind a failing megabank is drawing criticism from supervisors at home and abroad. ...Karen Shaw Petrou, managing partner of Federal Financial Analytics, said the banks have tried to be somewhat muted in their opposition to an OLA repeal because a more forceful opposition would likely spur a backlash. ..."The fear is that if they're seen as obviously defending it, that will only reinforce the wrong impression that OLA is a big-bank bailout, so they're saying quietly ... the prospect of the kind of disorderly failure in the absence of Title II and the much more immediate threat from foreign governments is a serious challenge," Petrou said. “If the European regulators don't trust the way in which the U.S. would resolve a giant bank — and without OLA they won't — they will ring-fence the U.S. banks into home-country subsidiary operations.”
Big Banks Can Relax, Trump's Modern Glass-Steagall Isn't Aimed at Breaking Them Up
By Ryan Tracy
The Trump administration’s often-stated goal to review the line between commercial and investment banking activities may be very different—and less onerous for big banks—than the industry fears. Analysts say there is another path: The Trump administration could use existing regulatory authority to restrict interactions between subsidiaries of large financial firms, while at the same time cutting back regulations that apply to each type of business.“Mr. Trump can have his Glass-Steagall cake and still eat regulatory relief because the rules for banks could get a lot less binding even as [bank holding companies] are severed into component parts,” Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., said in an April note to clients.A key question, Ms. Petrou says: How will the separate businesses be regulated?
Can the OCC reinterpret the Volcker Rule on its own?
By John Heltman and Lalita Clozel
Acting Comptroller of the Currency Keith Noreika is floating the possibility of unilaterally reinterpreting an interagency ban on proprietary trading, but there are doubts about how far the agency can move on its own and whether that would be a good idea. ...“Volcker is a little bit more complicated because there is a statutory requirement for an interagency rule,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics. “This is where the details start to matter.” ...“The original interagency Volcker Rule wasn’t crafted with the focus of, how do we make this work?" Petrou said. “It was crafted … to think of every possible scenario for every possible institution in each one of the five agencies, and embody it in a rule — which, unsurprisingly, ends up in a giant, unimplementable blob.”