BPInsights: Top 10 Most Read Research and Blog Posts of 2019

BPInsights: Top 10 Most Read Research and Blog Posts of 2019

1. Bank Regulations and Turmoil in Repo Markets

September 26, 2019

BPI’s research team spent much of the Fall examining the turmoil in the repo market in mid-September to try and better understand the causes of the volatility. In a blog post on September 26, BPI Head of Research Francisco Covas and Chief Economist Bill Nelson wrote that September’s “turmoil in repo markets provided… demonstration of how banking regulations have reduced financial market resilience… A question many are asking is:  Why didn’t banks step in and supply the missing repo financing? The answer is that doing so would have required them to obtain the funds from their own deposits at the Fed or by borrowing.  Regulations or supervisory expectations stood in the way of either course of action.” BPI previously predicted the September turmoil in the repo markets here and later wrote about why the Federal Reserve’s balance sheet plans are at a crossroads here, which Nelson explained further in remarks at the Cato Institute, available here, and the Brookings Institution, available here


2. BPI Launched “Every Day” Economic Impact Map and Video

Launched in February 2019

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.”


3. Financial Services Sector Cybersecurity Profile

BPI’s BITS launched the Financial Services Sector Cybersecurity Profile as a standardized framework that integrates widely used industry and regulatory standards to help financial institutions develop and maintain cybersecurity risk management programs. The BPI-led effort, managed under the Financial Services Sector Coordinating Council (FSSCC), was co-developed with the American Bankers Association and over 300 industry experts from 150 financial institutions worldwide, ranging from community banks to large multi-national firms. The Cybersecurity Profile provides a mechanism to align current regulatory expectations, requirements and authorities, reducing over 2300 regulatory provisions to only 286 assessment questions. More importantly, it provides a clear path forward to streamline existing and any future cybersecurity regulatory expectations around a common structure and vocabulary. In August, the Federal Financial Institutions Examination Council (FFIEC) issued a statement encouraging a standardized approach for assessment and naming the Financial Services Sector Cybersecurity Profile one of those assessment tools.


4. Why Is LIBOR Being Replaced Rather Than Reformed? 

April 2, 2019

The London Interbank Offered Rate (LIBOR) is a reference rate based on the interest rates at which large banks indicate they can borrow unsecured funds from other banks at their London offices. Concerns about LIBOR’s susceptibility to manipulation in the crisis lead to calls for reform. The reform efforts intended initially to establish multiple alternative reference rates, or at least two: a risk-free rate and a rate that reflected bank credit risk. Public and private organizations attempted to revise LIBOR so that it could continue to serve as the risk-sensitive benchmark, but the efforts were stymied by the thinness of the underlying market for term unsecured bank borrowing. On April 2, BPI published a blog post exploring the efforts to reform LIBOR, focusing also on the continued demand for a credit-sensitive benchmark.


5. Deposit Growth and Occam’s Razor

March 20, 2019

The topic of deposit growth has recently come front and center – interestingly, as both a business matter and a political matter.  From a business perspective, the focus has been on the demonstrated ability of the nation’s largest banks to generate significant deposit growth, leading to questions about whether greater scale is necessary for other banks to compete – for example, whether deposit gathering challenges will prompt M&A activity.  From a political perspective, the focus has been on whether community banks, which remain quite popular politically, can remain competitive.

To understand this better, BPI used U.S. Census Bureau data and FDIC branch data to compare deposit growth across urban and rural areas. This blog demonstrates that large bank deposit growth is not due to unfair competition, too-big-to-fail advantages or favorable regulatory treatment.  The blog shows that technology and demographics are leading to advantages for universal and regional banks that serve large and mid-sized population centers by allowing them to gather a significant percentage of deposits. Community banks continue to thrive in the rural areas that they have always considered their sweet spot and have even increased their share there.  However, those areas are losing population, and therefore deposits, so community banks are shrinking relative to large banks.


6. Machine Learning and Consumer Banking: An Appropriate Role for Regulation

March 14, 2019

Machine learning has the potential to democratize access to credit. It can expand the pool of people qualified to obtain credit—most notably low- to-moderate income (LMI) borrowers—and decrease the cost of that credit. It also can increase access to credit and reduce systemic risk by allowing different banks to analyze different factors, and thereby generate different results in a way that the existing FICO-based system discourages.

Banking regulators need to use the notice and comment process required of them by Congress, to seek information and advice from experts in machine learning as to how it can benefit access to credit and what the role of regulation should be for this technology. As described in this BPI blog, the current approach is outdated and is the greatest obstacle to a smart and sound way to offer credit to more Americans.


7. American Bar Association Opposes Anti-Money Laundering Efforts. Objection!

May 14, 2019

On May 6, the American Bar Association released a letter opposing H.R. 2513, the Corporate Transparency Act sponsored by Rep. Carolyn Maloney (D-NY), a bipartisan proposal that would end the creation of anonymous shell companies, which are routinely used to facilitate money laundering, terrorist financing and other criminal activities. H.R. 2513 is strongly supported by a wide and diverse variety of groups, from the Fraternal Order of Police to the FACT Coalition. These supporters recognize that the bill would impose minimal requirements on businesses yet provide law enforcement and national security officials an important and much-needed tool to track criminals and their activities. BPI responded to some of the factual inaccuracies and misleading statements.


8. Some Facts About Bank Branches and LMI Customers

April 4, 2019

A popular narrative has grabbed headlines over the last few years regarding the growth of the so-called “banking deserts” – that is, areas where American consumers do not have access to branches, and therefore presumably to banking services. Critics allege that this problem predominately affects low- to-moderate income geographic areas and that big banks and regional bank M&As are to blame; however, these stories are not based on actual data or analysis.

The actual share of the U.S. population living in banking deserts is about unchanged in the post-crisis period and the share of “unbanked” households is at an all-time low. A BPI report released on April 4 demonstrates that assertions about banking deserts and inclusiveness in the U.S. banking system have been contrary to observable evidence.


9. The Impact of Recent Changes in Capital Requirements on Mortgage Servicing Assets

June 25, 2019

BPI published a blog post on the effects of a capital requirements proposal for mortgage servicing assets. BPI found that excessive capital requirements for mortgage servicing assets have significantly increased market share by nonbanks. These thinly capitalized nonbanks are more likely to foreclose on borrowers, exacerbating the economic downturn during the next recession.


10. Good Times Do Not Call For A Countercyclical Capital Buffer

April 17, 2019

Over the past year, we have frequently heard the argument that the countercyclical capital buffer (CCyB), an additional capital requirement that the Federal Reserve can impose on the largest banks, should be increased because we are currently in “good times.” Large banks already hold extra capital to prepare for a crisis in the form of the conservation capital buffer. Raising the CCyB during the good times to act as a “rainy day fund” is a fundamental misunderstanding of the CCyB and a violation of the Fed’s own policy.


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