Nonbank SIFIs, CBDC Skepticism, and Loopholes
4/27/2023
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Regulators want a more transparent and intentional procedure to impose bank-like regulations on nonbanks that present comparable risks to the financial system.
This week in regulatory news.
• Swifter SIFI Designation? The Financial Stability Oversight Council has approved two proposals designed to make it easier to designate nonbanks as systemically important financial institutions (SIFIs). Regulators want a more transparent and intentional procedure to impose bank-like regulations on nonbanks that present comparable risks to the financial system. According to Treasury Secretary Janet Yellen, under current guidance it can take as long as six years to designate a nonbank as a SIFI, which is an “unrealistic timeline.” Nonbanks, sometimes referred to as “shadow banks,” house nearly half of financial assets globally and are expanding by an average of 7% a year. “The designation tool serves as an important part of our post-Global Financial Crisis defense,” Yellen said of the proposed move, which would reverse a Trump era decision. “It is an important preventative tool to address systemic risks that may arise from a nonbank financial firm whose activities or distress could threaten the financial system.”
• Digital Dollar Doubts: A Federal Reserve report shows that banks are skeptical of a potential central-bank digital currency, or CBDC. The Fed report—a summary of 2,000 responses from financial institutions and a variety of other groups and individuals—highlights concerns that an intermediated digital dollar could adversely impact the ability of banks to attract deposits and deliver loans. Additionally, some fear a U.S. CBDC could burden banks with higher costs for maintaining customer data privacy, preventing money laundering, and cybersecurity.
Read the full report here.
Read The RMA Journal’s take on CBDCs here.
• Capital Policing: The Fed is discussing closing a loophole that helped lead to the failure of Silicon Valley Bank. If the change is made, many banks would be required to reflect unrealized gains and losses from securities labeled “available for sale” in regulatory capital measures—forcing them to find other sources to fortify their capital. According to the Wall Street Journal, critics of the plan say it “could lead to higher government borrowing costs and mortgage rates.”