June 9, 2023

Larger Banks Could Face 20% Boost to Capital Requirements

For some time industry insiders have been anticipating what the Federal Reserve might require when it issues new capital rules, and The Wall Street Journal shared an explosive scoop on what is coming down the pike. According to The WSJ, a pending Fed proposal could raise capital requirements by roughly 20% at larger banks on average. The precise amount will depend on a firm's business activities, with the biggest increase reserved for megabanks with big trading businesses.

The proposal could be out as early as this month, and is only directed at banks with more than $100 billion of assets.

SEC Accuses Coinbase Accused of Breaking Market Rules

Another rough week for cryptocurrency companies. On Tuesday, the SEC filed a lawsuit against Binance for issues related to fraud and evasion. It even highlighted a quote in its Tweet announcing the lawsuit from one former Binance employee to another in December 2018: "We are operating as a fking unlicensed securities exchange in the USA bro."

The SEC followed that up with a lawsuit against Coinbase, accusing the crypto exchange of trading unregistered securities and evading disclosure requirements. The moves reflect the agency's long-held stance that crypto products are no different from securities such as stocks and bonds, and they make it clear innovation will not trump regulation, as many thought it might during the crypto craze.

"You simply can't ignore the rules because you don't like them or because you'd prefer different ones: The consequences for the investing public are far too great," said Gurbir S. Grewal, director of the SEC's enforcement division. 

Is the FHLB System Providing Millions to Its Executives?

Recently, Bloomberg published an in-depth look at how the Federal Home Loan Bank system has served as a lifeline to troubled regional banks that have little to do with mortgage lending. The article includes anonymous quotes from former FHLB officials, borrowers, and regulators, many of whom describe loans made with scant due diligence that have generated billions for FHLBs and banks-not to mention millions in bonuses for FHLB execs.

Specifically, the article calls out Teresa Bazemore, CEO of the FHLB of San Francisco, who was awarded $2.4 million in 2022, a year in which the Home Loan Bank lent billions to SVB, First Republic, and Silvergate, all of which have since failed. 

Senate Banking to Mark Up Bank Executive Legislation Soon

A bank bill by Sens. Elizabeth Warren, D-Mass., and J.D. Vance, R-Ohio, is expected to be voted on by the Senate Banking Committee next week. Senate Banking Committee Chair Sherrod Brown (D-Ohio) told Politico's Victoria Guida that he was looking for a strong bipartisan vote on the bill which would claw back compensation from executives of failed banks. Brown also said he expects a vote soon on a bill to allow banks to do business with cannabis firms. 

Bank CEO Salaries Rose Slowly in 2022’ Likely Again in 2023

Bank profitability jumped during the early stages of Covid-19, leading to a corresponding jump in pay for bank chiefs. However, compensation increases were more modest in 2022, a trend that's likely to continue in 2023. Banks are also cutting back on special awards aimed at retaining executives.

Regulators Update Guidance on Third-Party Risk

The long-awaited guidelines and best practices for managing relationships with fintechs and other providers give banks flexibility in assessing third-party risks without imposing any new requirements on them.

The new guidance, issued by the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., outlines best practices to “identify, assess, monitor, and control” relationships with third-party providers, and replaces each agency’s existing guidance on the topic.

CFPB Enforcement Actions Drop Under Chopra

The CFPB chief issued just 20 enforcement actions in 2022 and has issued only five so far in 2023. By contrast, former CFPB Director Kathy Kraninger filed 48 in 2020. However, insiders point out that the low numbers are due to the fact that Chopra is focused on holding banks to account in other ways, such as enhanced supervision.

Coalition Reaches $1 Billion Goal for Minority, Community Lending

A group of foundations and businesses achieved its goal of raising $1 billion to finance the lending activities of community development financial institutions and minority depository institutions, according to Senators Mark Warner, D-VA, and Mike Crapo, R-ID.

"This is the beginning of an effort that I hope we can help encourage corporate America, at very little cost of themselves, to put their money where their mouth is in terms of helping underserved communities," Warner said.

Treasury's $1 Trillion Debt Looms Over Market Calm

Markets are nervously anticipating a surge in Treasury issuances following the resolution of the debt-ceiling standoff. The Treasury Department's moves to refill its coffers-at rates nearing 6%-could counter the efforts of large banks required to bid for short-term government bonds at a time when many of those banks are seeking to bolster cash buffers amid quantitative tightening.  

M&A Slowed, But Regulatory Resistance May Ease

Bank merger-and-acquisition activity slowed dramatically in 2023, due in part to rising interest rates, weak stock valuations and increased regulations. But the latter impediment may soften in the aftermath of recent regional bank failures, bankers and deal advisors said.

This year, only 28 deals were as of April. That was half the volume during the same period a year earlier. In the same span, data showed the aggregate disclosed deal value plunged to $535.5 million this year from $2 billion in 2022.