We strongly oppose the proposal to remove requirements to post initial margin when engaging in inter-affiliate derivatives transactions with covered swaps entities. The Agencies instituted this requirement just four years ago, concluding that these margin postings were necessary to “protect the safety and soundness of the covered swap entity in the event of an affiliated counterparty default”. Since this issue affects the key depository affiliates of the largest U.S. banks – entities at the heart of the taxpayer-supported safety net for systemically critical banks – the 2015 Final Rule also concluded that failing to require initial margin for inter-affiliate swaps would pose a threat to broader systemic stability.
Letter to Regulators: AFR Ed Fund and Demand Progress Ed Fund urge the Federal Reserve Board to enact strong consumer protections into their FedNow system
The development of a real-time, ubiquitous payment system is an especially complex, expensive undertaking. Because of the scale of the endeavor, and its potential to impact the American public as a whole, we firmly believe the Board is the appropriate entity to establish a universal 21st century payments system.
Joint Letter: Letter to Federal Reserve Emphasizing Need for Strong Consumer Protections in Real Time Payment Systems
Coalition letter urging the Federal Reserve to build in strong consumer protections into the design of its new real-time payment system
AFR wrote a letter to the Federal Reserve Board on a proposal that would liberalize the criteria the Board uses to determine control of a bank. The definition of “control” is critical as it determines whether entities with ownership and influence over banks will be designated as bank holding companies and subject to the appropriate regulation.
“[A] good bit of that progress … could be endangered by a kind of low-intensity deregulation, consisting of an accumulation of non-headline-grabbing changes and an opaque relaxation of supervisory rigor. There are things to be concerned about in many of the individual proposals on such matters as the leverage ratio, resolution planning, and foreign banking organizations. It’s the cumulative effect, though, that is truly worrisome.”
Today’s financial stability report from the Federal Reserve clearly documents that we are at or near the peak of an economic cycle, with inflated asset prices and strong lending growth leading to signs of excessive leverage in the corporate sector. The peak of the cycle is the time to strengthen financial safeguards, not weaken them.
Today’s proposals to restructure capital and liquidity requirements for large banks represent the latest chapter in the gradual chipping away of post-crisis financial reforms. The proposals go well beyond anything required by Congress, and significantly weaken requirements for large banks to hold cash and easily salable liquid assets to satisfy payment requirements in times of economic stress.
Stress tests are forecasts based on models. They stand or fall on the approach of regulators, whose assumptions can seriously underestimate bank losses. Before the 2008 financial crisis regulatory models also showed Wall Street was safe, but that turned out to be fantasy.
AFR in the News: Congress to roll back post-crisis rules as banks post record profits (Washington Post)
“‘When lawmakers vote for banking deregulation even though banks are raking in record profits, it exposes what is really at work,’ said Lisa Donner, executive director of Americans for Financial Reform. ‘The bank lobby has flooded the political system with money, and is getting a return on its
investment. The result is legislation that makes the financial system less safe and less fair, and puts consumers at greater risk of abuse.’”
“‘The proposal ‘is an attempt to unravel fundamental elements of the response to the 2008 financial crisis, when banks financed their gambling with taxpayer-insured deposits,’ Marcus Stanley, policy director at Americans for Financial Reform, said in a statement. ‘If implemented, these proposals could turn the Volcker Rule into a dead letter.'”