AFR's Banking Crisis of '23 Brief: 6th Edition

A cogent email of curated information on the banking crisis and the response

March 31, 2023

TO: Interested parties
FROM: Americans for Financial Reform
RE: Banking Crisis of '23 Brief: 6th Edition 

We have moved to Substack, where we will continue: keep abreast of the crisis and the ongoing response, in a brief email that could arrive two or three times a week. Hit key developments and link to sources. (Prior editions now here: One, Two, Three, Four, Five.)

Please DO give us feedback, suggest articles we might include in future editions, and refer colleagues to join the list. They can sign up at Substack here. And follow us on Twitter: @realBankReform and @CarterD.

Sincerely,

Carter Dougherty, AFR coms director (carter@ourfinancialsecurity.org) 

Dustin Duong, AFR coms intern (dustin@ourfinancialsecurity.org) 

March 31, 2023

White House Plan on Large Regionals – Yellen and SBC Dems on Nonbank Regulation – SBC Dems Seek SEC Probe of Stock Sales – Credit Conditions Worsen – Video Highlights of Senate and House Hearings – Wall Street Bank Analysts Bad – Social Media Theory Infects Schwarzman – Winemaker Banking

White House Plan on Large Regionals. The White House more or less endorsed the rollback of the rules the Fed wrote to implement S.2155 in favor of a more stringent approach. Fact sheet here.

• AFR reaction: “Financial regulators and Congress should take action beyond un-doing the deregulatory agenda of the Trump administration to further strengthen the financial system and put the interests of regular people ahead of maximum profits and bonuses at big banks.”

• BPI calls this the "ready, fire, aim” approach, which is as rich as a megabanker. BPI pronounced on how liquidity rules would not have helped mere days after the deposit guarantee, then had to eat crow with this “update.”

• WH seems to think that annual stress tests (which come “periodically,” per the law) are possible. 

Yellen and SBC Dems on Nonbank Regulation. ““We must also address vulnerabilities in the nonbank sector,” Yellen said in her speech. Yes, we must.

• AFR comments: "While we have seen many risks rear their heads in the banking system, we are only starting to see cracks emerging in the shadowy non-bank sector, which is subject to even less regulatory oversight and supervision than the banks," said Andrew Park, senior policy analyst at AFR. "And banks are often active lenders to non-banks such as hedge funds, private equity, and venture capital, creating the potential for contagion between the two sectors."

• AFR has called for reinvigorating FSOC and OFR, both badly weakened under Trump. 

• Senate Banking Dems (+Sinema) sent Yellen a letter seeking a report in 60 days on risks and recommendations.  

• CFPB Director Chopra also said that regulators are "looking very deeply" at nonbank risks due to potential impact on consumers.

• Yellen cites exploding private credit industry, often pursued by firms that also do leveraged buyouts. (AFR report on that here.) “Credit provided by nonbanks – measured relative to GDP – has more than doubled from 1985 to today,” she said. “This same measure has remained relatively flat for banks.”

• Money market funds are non-bank vehicles and they’ve seen massive inflows since the run on SVB. “The financial stability risks posed by money market and open-end funds have not been sufficiently addressed,” Yellen said.

• Biden only nominated a new director of OFR, Ron Borzekowski, the former CFPB research honcho, on Jan. 23. Yellen has been a skeptic of FSOC SIFI designation and once got into a pointed discussion with Warren on it.

SBC Dems Seek SEC Probe of Stock Sales. In a letter to SEC Chair Gensler. And they offer to push legislation if needed: “Should regulators require additional tools in order to promote transparency and protect shareholders, we stand ready to work with you on such measures.” There’s an investigation of First Republic stock sales in Massachusetts too.

Credit Conditions Worsen. This problem is, of course, now inseparable from the question of financial stability. S&P reports on global, North America, emerging markets, Europe and Asia.

Video Highlights of Senate and House Hearings. Brown: The last one in this Twitter thread is his reaction to the sudden Republican conversation about the need for tougher enforcers, a sentiment he hopes will extend to CFPB. Video of Warren’s statement is here. A thread of House Dems. 

Wall Street Bank Analysts Bad. At valuing bank stocks, one CNBC commentator points out.

Social Media Theory Infects Schwarzman. Blackstone catches the social bug, despite evidence to the contrary. The Economist has a measured take on the subject.

Winemaker Banking. SVB collapse left the grape-crushers hanging like, well, a bunch of grapes.