This dropped late after the close yesterday... in the PR business, if you want something to be overlooked in the news cycle, it is well known you release it late on a Friday after COB...
They don't want to address this question: "Under very similar conditions, why didn't you do this same regulatory modification in September 2008?".... this is what they are trying to avoid hence the Friday evening news dump... because 1. they would have no answer and 2. it would demonstrate that they themselves caused the GFC in 2008 by rapidly increasing Reserve Assets at the Depositories...
Which is what they are trying to avoid doing again hence this regulatory modification...
In any event, putting aside the absent lessons-learned for now, this time it looks like they finally got the FDIC and OCC on board, so if the systemically important banks adopt this regulatory modification, then looks like no GFC2 redux until March 2021 at least...
We will have to see some statements out of the big banks as to whether they are going to employ this regulatory modification to be sure... the new regulation seems to establish a new approval authority for dividend payments which may be considered restrictive... we'll have to see for sure... but I'd have to think it was probably greased with the banks...
From the .pdf explainer you can see that they have
finally figured it out:
The ability of depository institutions to hold certain assets, most notably deposits at a
Federal Reserve Bank and Treasuries, is essential to market functioning, financial
intermediation, and funding
d funding market activity, particularly in periods of financial uncertainty.
In
response to volatility and market strains, the Federal Reserve has taken a number of actions to
support market functioning and the flow of credit to the economy. The response to COVID-19
has notably increased the size of the Federal Reserve’s balance sheet and resulted in a large
increase in the amount of reserves in the banking system.
The agencies anticipate that the
Federal Reserve’s balance sheet may continue to expand in the near term, as customer deposits
continue to expand, and recently announced facilities to support the flow of credit to households
and businesses begin or continue operations. In addition, market participants have liquidated a high volume of assets, and customers have drawn down credit lines and deposited the cash
proceeds with depository institutions in recent weeks, further increasing the size of depository
institutions’ balance sheets.
Absent any adjustments to the supplementary leverage ratio, the
resulting increase in the size of depository institutions’ balance sheets may cause a sudden and
significant increase in the regulatory capital needed to meet a depository institution’s leverage
ratio requirement.4
This is particularly the case for many of the depository institutions subject to
the supplementary leverage ratio, which are significant participants in financial intermediation
services, including as clearing banks for dealers in the open market operations of the Federal
Open Market Committee and as major custodians of securities.
In order to facilitate depository institutions’ significant increase in reserve balances
resulting from the Federal Reserve’s asset purchases and the establishment of various programs
to support the flow of credit to the economy, as well as the need to continue to accept
exceptionally high levels of customer deposits, the agencies are issuing this interim final rule to
provide depository institutions subject to the supplementary leverage ratio (qualifying depository institutions) the ability to exclude temporarily Treasuries and deposits at Federal Reserve Banks
from total leverage exposure through March 31, 2021.
At least I will be sleeping a bit better now knowing that at least they know what NOT to do this time.... this is at last a positive development imo...
Not a recommendation in any way, shape or form.
