Stories Driving the Week
SEC Should Build off its Traditional Disclosure Principles when it Comes to Climate
BPI this week recommended to the SEC that any new climate disclosure requirements build off its existing regime, which focuses on providing material information to investors. The comment letter also notes the uncertainty inherent in certain climate disclosures given reliance on third parties for information and differences in measuring emissions. The letter also recognizes the crucial role that the SEC will play in international efforts to develop a global climate disclosure standard.
“Banks are already voluntarily disclosing climate-related information, but climate disclosure for banks derives overwhelmingly from the underlying emissions data of their clients. Currently, this data is far from standardized or consistent,” said BPI Senior Vice President and Associate General Counsel Lauren Anderson in a press release this week. “That said, this area is one where the underlying science and risk management are evolving rapidly, so it is important that any SEC regime allow for experimentation and even mistakes without triggering enforcement actions that would push public companies to say less rather than more.”
CBDC: Frequently Asked Questions and Legal Authority
BPI released an FAQ guide to central bank digital currencies coinciding with the Senate Banking Committee’s Subcommittee on Economic Policy’s June 9 hearing on the issue. The guide answers key questions about how CBDC works and how U.S. authorities may handle it. BPI Senior Vice President and Associate General Counsel Paige Paridon also published a blog post this week examining the legal authority to issue CBDC in the U.S. The blog concludes that the Federal Reserve would need both Congressional action and the Treasury Department’s support if it moves forward with issuing a CBDC.
Take-up at the Federal Reserve’s ON RRP Facility: Much Larger and More Persistent than Planned, Getting Larger, and the Reasons Why
The Federal Reserve introduced the overnight reverse repurchase agreement facility (ON RRP) in 2014 to improve its control of the federal funds rate, the interest rate banks and government-sponsored enterprises charge each other for unsecured and mostly overnight loans. The ON RRP facility was intended to be temporary, to limit the Federal Reserve’s footprint in short-term funding markets and avoid altering the behavior of financial intermediaries in unpredictable ways. But the take-up of the ON RRP facility has surged over the past several months, and a few weeks ago, we indicated that take-up of the ON RRP could reach $1 trillion in the summer of 2021. Given the strong take-up seen over the past two months, we may have underestimated its projected growth and how persistent usage of the facility will be. In a BPI post this week, we discuss some of the drivers of ON RRP take-up over the past few months, including the interaction between the Fed’s ongoing purchases of securities and banks’ balance sheet constraints. Coverage of the post can be found in Bloomberg Businessweek.
Stress Test Results to Be Released June 24
The Federal Reserve will release results of the latest round of bank stress tests on June 24 at 4:30 p.m., the central bank announced this week. This round of results is particularly important as banks with passing scores will have their stress capital buffer govern share buybacks and dividend practices after the pandemic-induced restrictions on capital distributions. The Fed also announced that four of the 14 smaller banks that are only required to participate in the stress tests every other year have voluntarily opted-in to participate in this year’s test.
Basel Proposes High Capital Requirement for Bitcoin
The Basel Committee on Banking Supervision this week released a consultative paper on prudential regulation of crypto assets. The proposal splits the crypto assets into two groups: (1) tokenized versions of traditional assets or those that have rigorous stabilization mechanisms; (2) more volatile assets like Bitcoin that are not linked to an underlying stable asset. Banks would have to essentially maintain 100 percent capital against the Bitcoin-like assets under the proposal because of their high risk. “[T]he growth of cryptoassets and related services has the potential to raise financial stability concerns and increase risks faced by banks,” Basel officials said in the paper. “Certain cryptoassets have exhibited a high degree of volatility, and could present risks for banks as exposures increase.” Bank liquidity requirements would also treat volatile crypto assets severely. With respect to other prudential standards, such as leverage ratios, the proposal provides that the existing Basel Framework requirements would apply and additional guidance would be provided as applicable.
Warner: Ransom Payments Should be Disclosed
Sen. Mark Warner (D-VA), Chair of the Senate Intelligence Committee, said in a recent media interview that ransomware attacks and payments should be disclosed, according to Bloomberg. “Not only are the companies often not reporting that they are attacked, but they’re not reporting the ransomware payments,” Warner said, adding that a debate over whether to ban ransom payments is “worth having.” Authorities say companies paying ransoms enables more ransomware attacks. Sen. Angus King (I-ME), who caucuses with Democrats, also backed real-time reporting of ransomware breaches. The lawmakers’ comments came in the wake of another prominent ransomware attack, this time against meat producer JBS.
In Case You Missed It
BoE Releases Climate Scenarios
The Bank of England this week released scenarios for its first climate stress tests for banks and insurers. The central bank emphasized that the measure is “a learning exercise” and will not be used to set capital requirements. The stress test will entail three scenarios of early, late and no action on climate change over a time horizon of 30 years. It will require banks to weigh risks based on their current balance sheets, answer a qualitative questionnaire about their approach to climate risks and provide detailed analysis of their largest counterparties’ exposures. The results are expected to be published in May 2022. BPI has published a blog post about the challenges of such exercises, particularly with uncertain data and decades-long time spans.
BPI Sanctions Report Covered in ‘The Banker’
BPI’s whitepaper on how to make the sanctions regime more effective was featured in a recent article in The Banker. The article quotes BPI’s Angelena Bradfield and CEO Greg Baer on bank compliance challenges related to both the use of more complex sanctions in the U.S. and proliferation of sanctions regimes around the globe.
Senate Passes China Bill
The Senate this week approved broad bipartisan legislation aimed at boosting U.S. competitiveness with China and addressing Chinese threats to national security, according to Reuters. The bill would bolster tech research and development in industries like telecom and semiconductors and intensify sanctions on China for cyberattacks and IP theft, among other provisions. The legislation faces uncertain prospects in the House as many members have expressed interest in crafting their own legislation to address similar concerns.
Financial Firms on CFTC Panel Set July 26 Target for Derivatives’ LIBOR Transition
A subcommittee of the CFTC’s Market Risk Advisory Committee, which includes members from several banks and financial firms, recommended a July 26, 2021 deadline as a market best practice for transitioning key derivatives markets from LIBOR to SOFR. The date is aligned with U.S. banking regulators’ supervisory guidance that banks should stop entering new LIBOR-based contracts at the end of 2021, Acting CFTC Chair Rostin Behnam said in a press release. The move would cover interdealer swap trading – trading of swap derivatives off exchanges — of linear LIBOR swaps, which hew closely to changes in the underlying benchmark interest rate.
Wells Fargo Relaunches Community Impact Website
Wells Fargo recently relaunched its community impact website, which showcases the bank’s support for the environment, underserved communities and other initiatives.
Capital One Inks New Data-Sharing Deal with Plaid
Capital One finalized a data-sharing agreement with Plaid, a data aggregator that links consumers’ bank account information with FinTech platforms like Venmo and Robinhood, according to a statement this week. Plaid will now access Capital One data through the bank’s application programming interface (API), a way of pulling customers’ data for easy account access across apps that is more secure than “screen scraping,” where they must provide bank login information on each app.