BPInsights: February 4, 2023

Balancing Basel: 6 Things Policymakers Can Do

How can policymakers mitigate unnecessary capital increases and support economic growth while maintaining the U.S. capital framework’s risk sensitivity? They have two broad options: adjustments to risk-weighted assets and adjustments to capital buffers. The final post in our Basel Finalization series lays out the specific steps regulators could consider, such as removing the securities listing requirement for corporate exposures and addressing double-counting of market and operational risk in the Basel Finalization package and the supervisory stress tests.

Big picture: The analysis puts Basel Finalization in the big-picture context of the current financial system. Capital requirements have risen significantly in recent years, partly due to factors outside of bank risk levels. Several requirements of the U.S. capital framework double-count or intensify Basel standards. The banking system experienced an influx in deposits during COVID stimulus, which affects leverage capital requirements and capital buffers attached to risk-based requirements. All of those factors are at play as pandemic-tested banks are preparing to support the economy in a potential downturn.

The second post in the series, also published this week, breaks down the likely options for scope and structure of Basel Finalization in the U.S. Key questions surround how the capital “stacks” will take shape and to which banks the revised framework will apply. Read this post here.

Five Key Things

1. CFPB’s Artificial Cap on Credit Card Late Fees Would Do More Harm Than Good

The CFPB’s proposed $8 cap on credit card late fees would harm the customers the CFPB seeks to protect by increasing the overall cost of credit while reducing its availability, BPI’s Paige Pidano Paridon said in a response this week to the agency’s new proposal.

  • Concerns: The bipartisan CARD Act concluded that late and penalty fees promote responsible repayment and enable firms to provide benefits to consumers that pay on time, including lower interest rates and no annual fees. The CFPB’s proposal disregards that conclusion and fails to justify reducing the late fee “safe harbor” contained in that law. It also contradicts the CFPB’s goal of making consumer regulation “simpler and clearer” by challenging the Fed’s safe harbor. And it fails to acknowledge intense competition in credit card markets among banks, nonbank tech and fintech firms.
  • Bottom line: The U.S. credit card market is highly competitive, with ample choice for consumers. Credit cards enable people across the credit spectrum to make payments anywhere at any time, free of charge if paid on time, with robust fraud safeguards and other protections. The CFPB’s government intervention may be well-intentioned, but it would disrupt a thriving marketplace.

2. Silvergate Faces DOJ Probe

Department of Justice fraud unit prosecutors are investigating Silvergate’s business with FTX and Alameda Research, according to Bloomberg. DOJ is scrutinizing Silvergate’s hosting of accounts tied to those firms. The bank has not been accused of wrongdoing, Bloomberg noted. Separately, a bipartisan group of senators pressed Silvergate Bank in a letter on whether the bank knew about FTX’s alleged misuse of customer funds. Silvergate had declined to answer certain questions from the lawmakers in December, saying they could not disclose confidential supervisory information. “Both Congress and the public need and deserve the information necessary to understand Silvergate’s role in FTX’s fraudulent collapse, particularly given the fact that Silvergate turned to the Federal Home Loan Bank as its lender of last resort in 2022,” the senators wrote, according to Bloomberg.

3. The Crypto Ledger

A judge banned Sam Bankman-Fried from attempting to contact any former or current employees at FTX or Alameda. Here’s what else is new in crypto.

  • Should crypto be banned?: Berkshire Hathaway’s Charlie Munger called on the U.S. government to ban crypto, which he called “a gambling contract with a nearly 100% edge for the house.”
  • Celsius: A court-appointed examiner said bankrupt crypto lender Celsius “conducted its business in a starkly different manner than how it marketed itself to its customers in every key respect.” Celsius, which offered customers a yield in return for lending out their coins, could not accurately track its assets and liabilities, tried to backtrack from misrepresentations made by former CEO Alex Mashinsky, and used customer assets as collateral for loans.
  • UK and EU: The UK this week proposed new rules aimed at bringing crypto into the regulatory perimeter. The UK has pitched its approach to crypto as more nimble than the EU’s Markets in Crypto-Assets (MiCA) legislation, according to the Financial Times.

4. BPI Welcomes Tabitha Edgens

BPI this week announced the hiring of Tabitha Edgens as a Senior Vice President and Senior Associate General Counsel on BPI’s Regulatory Affairs team. Tabitha joins BPI from the Chief Counsel’s Office at the Office of the Comptroller of the Currency, where she most recently served as Counselor to the Deputy Chief Counsels. Tabitha will start on March 1, 2023.

“Tabitha is an accomplished and highly respected regulatory lawyer with an extensive understanding of the regulatory regime under which banks operate,” said BPI General Counsel John Court.

In her most recent role, Tabitha advised OCC senior leadership on critical issues including national bank digital asset activities, licensing decisions and supervisory matters. She played a leading role in drafting OCC interpretations on the permissibility of national bank digital asset activities as well as the 2019 and 2020 interagency revisions to the Volcker rule. From 2020-2021, Tabitha was detailed to the U.S. Department of the Treasury’s Office of the General Counsel, Banking and Finance, where she advised policymakers on small business pandemic relief programs.

5. Q&A with Rep. Bill Huizenga (R-MI), House Financial Services’ New Oversight Chair

The SEC climate disclosure rule, the FTX collapse and ESG are top-of-mind issues for Rep. Bill Huizenga (R-MI), the new chair of the House Financial Services Committee’s Subcommittee on Oversight and Investigations. Huizenga also said he wants to probe the New York Stock Exchange’s recent technical glitch. Read more about Huizenga’s priorities in this POLITICO Pro Q&A.

In Case You Missed It

Perli to Take Fed Balance Sheet Helm

The Federal Reserve Bank of New York this week announced that Roberto Perli has been named Manager of the System Open Market Account – in other words, he will oversee the central bank’s balance sheet, which Financial Times Alphaville called “the world’s biggest bond fund.” Perli replaces Patricia Zobel, who held the position on an interim basis, and Lorie Logan, now the president of the Dallas Fed. Perli’s hire comes as the Fed is working to shrink its massive portfolio. He currently serves as head of global policy at Piper Sandler. Perli was the co-founder of Cornerstone Macro and served on the Federal Reserve Board staff.

JPMorgan Ranks in Top 5 ‘Most Admired Companies’

JPMorgan Chase was named #5 in Fortune’s “World’s Most Admired Companies” list for 2023. Check out the rankings here.

Next Post: BPInsights: March 18, 2023 View Next Post


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.