BPInsights: April 23, 2022

Stories Driving the Week

Who Gets a Fed Account?

A coalition of banking associations responded this week to the Board of Governors of the Federal Reserve as it seeks to establish guidelines for how institutions applying for a Fed master account will be evaluated. The response raises significant concerns with the proposal, arguing that the Federal Reserve has thus far failed to resolve fundamental issues on how these revised guidelines will address the unique risks to the U.S. payments and financial systems posed by institutions with novel charters.

“The Federal Reserve’s proposed guidelines for considering master account applications fail to answer who is legally eligible to apply, how applications will be reviewed, how compliance will be monitored and what measures are in place to ensure guidelines are enforced consistently among Reserve Banks,” stated the organizations. “Answers to these questions remain paramount to achieve consistent outcomes at the Reserve Banks and equitable access for the institutions they serve.”

To learn more about the proposed guidelines and the groups’ concerns, click here.

How the U.S. Could Avoid Double-Counting Market Risk

Two frameworks, the Basel Committee framework and the global market shock in the stress tests, set bank capital requirements for market risk in the U.S. The confluence of these regimes may cause overcapitalization for large banks in the U.S., which could impede lending to businesses and households. A new BPI blog post offers adjustments to the FRTB and GMS frameworks that would align their combined capital charges more precisely to a firm’s true market risk.

Here’s How Treasury Can Modernize Payments

As policymakers call for faster payments for American workers, one particularly attractive use case is right in front of them, and simple to adopt, a new BPI blog post explains. Treasury Secretary Janet Yellen recently noted the “common frustrating experience shared by tens of millions of Americans every week: their employer sends their paycheck, but it takes up to two days for the check to hit their bank account.” To solve that problem, Treasury should join the real-time payment system already in existence, the Clearing House’s RTP network, to make its own payments. While the Federal Reserve hopes to launch its own real-time system next year, the banking industry has already delivered it. Americans receiving government payments — military service members, retirees on Social Security and low-income people receiving pandemic assistance — should be afforded the benefits of real-time payments now.

Why Recent Federal Court Decisions in California Help to Preserve Access to Credit for Consumers and Small Business

The secondary loan market enables banks to make more new loans to consumers and businesses, including small businesses and low-income families. Recent U.S. court decisions will preserve that market and leave consumers and businesses better off. Learn more in this BPI blog post.

What’s New in Sanctions

The U.S. this week unveiled new sanctions on Russia amid the war in Ukraine. The measures targeted crypto mining firm Bitriver and several subsidiaries, as well as oligarch Konstantin Malofeyev’s “malign influence network” and Russian bank Transkapitalbank.

  • SWIFT alternative: The Russian central bank said it would no longer disclose the users of its alternative to the SWIFT financial messaging system.
  • Central banker sanctioned: Russian central bank chief Elvira Nabiullina was hit with sanctions by Canada, a rare instance of a central banker being targeted in such efforts. Australia also previously sanctioned Nabiullina.
  • Lawsuit coming: Russia will be “preparing lawsuits” to unfreeze $300 billion of its foreign currency reserves, Nabiullina said recently.

In Case You Missed It

Unstable Stablecoins, IMF Warning: The Latest in Crypto

  • Dangerous new stablecoin: A risky new class of stablecoin is raising concerns – including in the stablecoin community — that they could plunge in value or evade regulatory oversight. Algorithmic stablecoins, which rely on financial engineering rather than asset backing to preserve their link to the dollar, are vulnerable to “death spirals” exacerbated by fleeing investors, according to a Wall Street Journal article. One example of such a coin, TerraUSD, has struck a sponsorship deal with the Washington Nationals baseball team – but the CEO of rival stablecoin issuer Paxos called it an “an unstable coin.”
  • Thieves getting bolder: Crypto hacks are getting bigger, according to data cited in a Wall Street Journal article this week. Last week a hacker drained a new algorithmic stablecoin project of $182 million worth of digital assets, the article said.
  • Crypto mining caution: Countries like Russia and Iran could channel their energy resources into crypto mining to evade sanctions, the International Monetary Fund warned in a recent report. U.S. officials including Treasury Secretary Janet Yellen are scrutinizing crypto’s potential use as a sanctions workaround.
  • In the U.K.: Britain’s Prudential Regulation Authority plans to use some of the funds it raises from its regulated institutions to enhance its crypto oversight, according to Bloomberg. The regulator is seeking to hire more staff and will ask firms to report crypto asset exposures, treatments and future investment plans, the article said, citing the PRA’s business plan.
  • Anchorage consent order: The OCC this week issued a consent order against crypto-focused Anchorage Digital Bank over alleged flaws in its anti-money laundering compliance program. The order lays out steps the crypto bank should take to improve AML controls. Anchorage, which received conditional OCC approval to convert its state trust charter to a federal one last year, did not admit or deny the OCC’s findings.

Hsu Previews CRA Update for New Era of Digital Banking

Acting Comptroller Michael Hsu said this week he expects an interagency proposal on the Community Reinvestment Act “soon.” The proposal “would allow regulators to evaluate more comprehensively the CRA performance of banks that offer mortgage loans outside traditional, branch-based assessment areas,” Hsu said in a speech at the Black Homeownership Collaborative’s Fair Housing Month Virtual Forum. “This change acknowledges just how dramatically the banking industry has changed. Banks and other lenders now deliver their services on our phones and laptops, rather than only by tellers and loan officers in brick-and-mortar branches.”

BofA Moving Toward Recycled Plastic for All Plastic Cards

Bank of America is transitioning to recycled plastic for all plastic credit and debit cards starting next year, the bank announced this week. All plastic credit and debit card products will be made from at least 80 percent recycled plastic at that time, in an effort by the bank to trim single-use plastics from its supply chain.

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Disclaimer:

The views expressed do not necessarily reflect those of the Bank Policy Institute’s member banks, and are not intended to be, and should not be construed as, legal advice of any kind.