BPInsights: February 22, 2019

BPInsights: February 22, 2019

TOP OF THE AGENDA

BPI Launches “Every Day” Economic Impact Map and Video

In an effort to better demonstrate the value banks bring to communities, the Bank Policy Institute launched its “Every Day” website which includes an interactive map showing the economic impact BPI member banks play in creating jobs, growing small businesses and driving economic growth. In addition, the website includes a video to illustrate how more than 2 million bank employees work to achieve those goals. As the video shows, bank employees help to provide $600 billion in small business loans, $4.1 trillion in loans for mortgages, cars, credit cards and other consumer loans, and $478 billion in financing to states and local communities. The website is available at everyday.bpi.com.

“Every day the nation’s leading banks are providing innovative products and creating economic opportunities,” said Greg Baer, President and CEO of the Bank Policy Institute. “Banks succeed when the consumers and businesses they serve succeed.”

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INDUSTRY NEWS

Agencies Extend Comment Period for Standardized Approach to Counterparty Credit Risk Proposal

On February 18, the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency announced an extension to March 18 on the comment period for the agencies’ proposed standardized approach for counterparty credit risk (SA-CCR), for calculating the exposure amount of derivative contracts for regulatory capital purposes.

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BITS Submits Comment Letter on Encryption and Operational Risk

On February 21, BITS, the technology policy division of the Bank Policy Institute, submitted a comment letter to the National Institute of Standards and Technology’s (NIST) National Cybersecurity Center of Excellence (NCCoE) in response to its notice for comments on the technology protecting consumer data in-transit across the Internet and within private networks. The comment letter argues that improper management of Transport Layer Security (TLS) Server Certificate Management puts business operations and, in some cases the nation and public, at-large at risk. BITS encourages NIST to develop automated, product-agnostic and interoperable key management solutions fully considering enterprise use cases, to include passive inspection, so that businesses may continue to perform critical risk management functions for troubleshooting and security and fraud monitoring at scale within large, complex networks.

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EVENTS

February 23: Brainard Remarks on Diversity in Economics

Federall Reserve Governor Lael Brainard delivers opening remarks about diversity in economics at 9 am on February 23.

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February 25: Federal Reserve’s Clarida Discussion

On February 25 at 11 am, Federal Reserve Vice Chair Richard Clarida participates in a moderated discussion with Dallas Fed President Robert Kaplan at the “Fed Listens: A Conversation with Community Leaders in Southern Dallas.”

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February 26: Senate Federal Reserve Hearing

The Senate Banking, Housing and Urban Affairs Committee will hold the Semiannual Monetary Policy Report hearing with Federal Reserve Board Chairman Jerome Powell on February 26 at 10 am.

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February 26: Senate Committee Nominations Vote

The Senate Banking, Housing Housing and Urban Affairs Committee will hold a markup vote on February 26 at 9:30 am on nominations. The committee will consider the following nominees: Mark Calabria to be Director of the Federal Housing Finance Agency; Bimal Patel to be Assistant Secretary of the Treasury; Todd Harper to be a Member of the National Credit Union Administration Board; Rodney Hood to be a Member of the National Credit Union Administration Board; Dino Falaschetti to be Director of the Office of Financial Research; Spencer Bachus to be a Member of the Board of Directors of the Export-Import Bank; Judith Pryor to be a Member of the Board of Directors of the Export-Import Bank; Kimberly Reed to be President of the Export-Import Bank; Seth Appleton to be an Assistant Secretary of the Department of Housing and Urban Development; and Robert Hunter Kurtz to be an Assistant Secretary of Department of Housing and Urban Development.

February 26: Credit Bureaus Hearing

The House Financial Services Committee will hold a hearing on February 26 at 10 am on credit bureaus.

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February 26: Data Privacy Hearing

The Subcommittee on Consumer Protection and Commerce of the Energy and Commerce Committee will hold a hearing on February 26 at 10 a.m. on consumer data privacy.

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February 26: Community Development Financial Institutions Hearing

The House Appropriations Committee will hold a hearing on February 26 at 10 am entitled, “Leveraging Private Capital for Underserved Communities and Individuals: A Look Into Community Development Financial Institutions (CDFIs).” Bob Jones, president and CEO of United Bank, is among the witnesses.

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February 27: House Federal Reserve Hearing

The House Financial Services Committee will convene the Semiannual Monetary Policy Report hearing with Federal Reserve Chairman Jerome Powell at 10 am on February 27.

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February 27: Diversity in Financial Services Hearing

The House Financial Services Diversity and Inclusion Subcommittee will hold a hearing on diversity trends in the financial services industry on February 27 at 2 pm.

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February 27: Data Privacy Framework Hearing

The Senate Commerce, Science, and Transportation Committee will hold a hearing on February 27 at 10 am on proposals for federal data privacy framework.

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February 28: Capital Formation and Corporate Governance Hearing

The Senate Banking, Housing and Urban Affairs Committee will hold a hearing on February 28 at 10 am titled “Legislative Proposals on Capital Formation and Corporate Governance.” Witness include Catherine Mott, CEO of BlueTree Capital and BlueTree Allied Angels; Thomas Quaadman, Executive Vice President of the U.S. Chamber Center for Capital Markets Competitiveness; and Heather Slavkin Corzo, Head of Capital Markets Policy at the AFL-CIO.

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February 28: Federal Reserve Vice Chair Clarida Speech

Federal Reserve Vice Chair Richard Clarida delivers remarks on February 28 at 8 am on the economic outlook and monetary policy at the 5th Annual National Association for Business Economics Economic Policy Conference.

February 28: Powell Remarks on Economic Developments

Federal Reserve Board Chairman Jerome Powell delivers remarks on “Recent Economic Developments and Longer-Term Challenges” on February 28 at 8:15 pm at the Citizens Budget Commission 87th Annual Awards Dinner.

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March 1: Columbia/BPI 2019 Research Conference – Bank Regulation, Lending and Growth

The Bank Policy Institute and Columbia University’s School of International and Public Affairs invite submission of papers for a conference on Bank Regulation, Lending and Growth on March 1. The conference brings together academics, market participants, and policymakers to discuss the latest research on how regulation affects credit formation and economic activity. Columbia University, NYC

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June 4: SIFMA and BPI Prudential Regulation Conference

The Securities Industry and Financial Markets Association (SIFMA) and BPI host the 6th Annual Prudential Regulation Conference on June 4 in Washington DC. This year’s conference will assess how the post-crisis prudential regulatory framework is affecting the capital markets, including market liquidity, capital formation and innovation.

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November 19-21: The Clearing House + BPI 2019 Annual Conference

The Annual Conference provides a forum for the industry’s leaders to examine the changing dynamics of the bank regulatory and payments landscapes with two and half days of high-level keynote speakers, in-depth expert panels, and networking. Register today.
The Pierre, New York

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RESEARCH RUNDOWN

Stressed Outflows and the Supply of Central Bank Reserves

This post argues that having a high supply of reserves reduces the banking system’s need to monetize securities in a stress event. The authors use the liquidity coverage ratio’s public disclosures for the U.S. global systemically important banks to compute net outflows over a one-day horizon. They find that total one-day outflows would amount to hundreds of billions of dollars across scenarios of varying severity, enough that it would be very difficult for banks to cover those outflows by liquidating securities. They conclude that the Federal Reserve could reduce the system’s need to liquidate securities in a stress event and improve financial stability by maintaining an elevated supply of reserves.

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Over-the-Counter Market Liquidity and Securities Lending

This paper estimates the impact of securities lending on the liquidity of over-the-counter markets. They find that securities lending markets have an important economic impact on corporate bond market liquidity and therefore it is an important determinant of corporate bond market liquidity. Specifically, the paper finds that the shutdown of AIG’s securities lending program during the past crisis reduced the market liquidity of corporate bonds held by AIG.

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To ask or not to ask: bank capital requirements and loan collateralization

This paper studies the effect of increased capital requirements on loan collateralization. The authors use Portuguese loan data from the time of the 2011 European Banking Authority’s capital exercise in which some banks faced increased capital requirements while others did not. They find that banks that experienced an unexpected shock to capital requirements tried to offset that increase by requiring loans to be secured to reduce the capital requirements on such loans.

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“Debtless” Housing Boom Leads Household Wealth Recovery

This post examines the divergence of housing wealth and housing debt that has occurred since the Great Recession. Between 1953 and 2006 housing wealth and housing debt were positively correlated, leading economists to propose competing causal explanations. By one hypothesis, increased mortgage credit availability allows buyers to bid up house prices. By the other, higher house prices allow households to borrow more. However, housing wealth and debt have been almost entirely uncorrelated since 2006. The authors note that this supports neither hypothesis and that we do not have a clear understanding of this relationship in the post-crisis period.

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