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Yahoo
13-05-2025
- Business
- Yahoo
Analysis-Banking sector says easing of US leverage rules could support Treasury market
By Pete Schroeder, Saeed Azhar, Davide Barbuscia WASHINGTON/NEW YORK (Reuters) -The banking industry is optimistic that U.S. regulators will soon move to change how much capital they set aside against typically safe investments, particularly after the turmoil in Treasury markets last month. Such a move to revamp the "supplementary leverage ratio" could reduce the amount of cash banks must reserve, freeing them up for more lending or other activities, and could incentivize banks to play a larger role in intermediating Treasury markets. "Current leverage-based capital requirements are outdated and at odds with financial stability and economic growth. Reform is needed quickly to better serve U.S. taxpayers, capital markets, consumers, businesses, and the economy," said Kevin Fromer, the president and CEO of the Financial Services Forum, which represents the nation's largest banks. Regulators have flagged the SLR as meriting reconsideration and are mulling whether to tweak the rule's formula to reduce big banks' burdens or provide relief for extremely safe investments, like Treasury bonds. The debate is driving industry hopes that agencies could as soon as this summer propose an overhaul, according to three sources familiar with the matter. Bank lobby groups, including the Forum and the Bank Policy Institute, which also represents larger banks, have been pushing for the change. Treasury Secretary Scott Bessent told lawmakers last week that a revamp was a "high priority" for the three regulatory bodies charged with the rule: the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. Banks have argued for years that the SLR, established after the 2007-2009 financial crisis, should be reformed. They contend it was meant to serve as a baseline, requiring banks to hold capital against even very safe assets, but has grown over time to become a binding constraint on bank lending. BPI President and CEO Greg Baer called reform "overdue and welcome" in a statement to Reuters. When asked by Congress in February if the leverage requirements discouraged banks from helping intermediate the Treasury market, Fed Chair Jerome Powell agreed, and said it was time to revisit the issue. Such reforms are on a long wishlist the banking industry hopes to advance with the Trump administration, which has made deregulation to spur economic growth a top priority. Spokespeople for the Fed, FDIC and Office of the Comptroller of the Currency, which shares responsibility for the SLR, declined to comment. OPTIONS DEBATED Currently, all banks are required to hold 3% of their capital against their leverage exposure, which is their assets and other off-balance sheet items like derivatives. The largest global banks must hold an extra 2% as well in what is known as the "enhanced supplementary leverage ratio." Regulators could provide relief by simply exempting Treasury bonds and central bank deposits from calculations of the SLR. That is the approach the Fed took when it provided temporary emergency relief during the COVID-19 pandemic. Or, in what three industry sources believe is a more likely option, they could look at tweaking the "enhanced" SLR, which instead of exempting Treasuries broadly refines the formula, resulting in a lower ratio. Regulators tried to ease that requirement in 2018, during President Donald Trump's first term in the White House, setting the extra capital based on a bank's specific risk profile, but it ultimately failed to advance. The largest banks, which are also the most prominent Treasury market participants, would stand to benefit most directly from the second option. Banks hope any leverage relief coincides with a broader push to overhaul other capital requirements, including the so-called "GSIB surcharge" applied to the largest, most complex banks, and an ongoing effort to overhaul annual "stress tests" of big bank finances. While discussing quarterly earnings last month, several bank executives touted SLR reform alongside other capital relief. "The SLR requires us to hold capital to level against riskless assets and Treasuries and cash; that doesn't make a lot of sense," Bank of America CEO Brian Moynihan said in April. Proponents of the SLR argue it is critical to have a tool that is blind to risk as a key backstop, and a simple, direct requirement on leverage can help ensure no dangers are overlooked. But such relief could potentially lend more liquidity to Treasury markets, which have struggled to function amid periods of intense stress. The $29 trillion Treasury market, a cornerstone of the global financial system, saw an aggressive selloff in April, sending U.S. borrowing costs higher. Market expectations about potential reform helped push the spread of swap rates over Treasuries higher in recent months, as Trump's victory in the November 5 presidential election fueled hopes of broader deregulation in financial markets. Swap spreads, which reflect the gap between the fixed rate on an interest rate swap and the yield on a comparable Treasury security, are often used to hedge or bet on shifts in rates. They tightened dramatically, however, during the bond selloff that followed Trump's April 2 "Liberation Day" tariff announcement. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
30-04-2025
- Business
- Yahoo
US House panel to weigh cuts in consumer, audit oversight
By Pete Schroeder and Chris Prentice WASHINGTON (Reuters) -A U.S. congressional panel is set to consider legislation Wednesday that looks to drastically curtail existing government efforts to police consumer financial markets and scrutinize public company accounting. The House Financial Services Committee is set to consider draft legislation that would significantly trim the funding received by the Consumer Financial Protection Bureau, and aims to effectively eliminate the Public Company Accounting Oversight Board, a watchdog formed in 2002 to improve oversight of auditors amid high-profile accounting scandals, including the collapses of Enron and WorldCom. The measure is part of a broader effort by Republicans in Congress to carve out a hefty amount of savings as part of their bid to pass a sweeping tax cut bill. Several committees have been charged with finding cuts under their jurisdiction to add to a so-called "reconciliation package," which is a streamlined way for Congress to consider tax and spending measures, requiring only majority support in both chambers. The banking panel was charged with finding at least $1 billion in cuts. Spokespeople for the committee and the CFPB did not respond to requests for comment. The SEC declined to comment. When the CFPB was created as part of the 2010 Dodd-Frank financial reform law, it received its funding directly from the Federal Reserve, and is capped as a percentage of the Fed's operating expenses. That level currently stands at 12%, allowing the CFPB to request up to $823 million. The House bill would slash that to 5%, and order any excess or unallocated funds to be handed over to the Treasury. Republicans have long criticized the CFPB as too powerful and lacking oversight, and the Trump administration has attempted to effectively gut it by firing most of its staff. Those efforts have been held off amid court challenges. The other major provision of the measure would see the SEC effectively replace the PCAOB. Specifically, the measure would eliminate the audit regulator's ability to garner fees and fold the nonprofit's responsibilities and potentially some of its staff into the Securities and Exchange Commission. Over two decades, audit quality has improved, restoring investor confidence in the financial reporting of public companies - a trend many attribute to the legislative overhaul and to the accounting watchdog. But the PCAOB has also faced years of criticism, including from now SEC Chairman Paul Atkins. The SEC controls the PCAOB, and the SEC's chairman can appoint and fire its leaders, making it more subject to political changes. Under its current chair, the auditor watchdog has pursued a more aggressive enforcement agenda, fueling scrutiny. PCAOB Chair Erica Williams said in a speech Tuesday that she was "deeply troubled" by the measure, arguing the SEC cannot simply step in and perform the same role. "The unique experience and expertise built up by the PCAOB over decades cannot simply be cut and pasted without significant risk to investors at a time when markets are already volatile," she said in prepared remarks to an investor advisory group. She also warned shifting responsibilities to the SEC would force the renegotiation of several cooperative agreements with other countries, including China, where it oversees audits.
Yahoo
30-04-2025
- Business
- Yahoo
US House panel to weigh cuts in consumer, audit oversight
By Pete Schroeder and Chris Prentice WASHINGTON (Reuters) -A U.S. congressional panel is set to consider legislation Wednesday that looks to drastically curtail existing government efforts to police consumer financial markets and scrutinize public company accounting. The House Financial Services Committee is set to consider draft legislation that would significantly trim the funding received by the Consumer Financial Protection Bureau, and aims to effectively eliminate the Public Company Accounting Oversight Board, a watchdog formed in 2002 to improve oversight of auditors amid high-profile accounting scandals, including the collapses of Enron and WorldCom. The measure is part of a broader effort by Republicans in Congress to carve out a hefty amount of savings as part of their bid to pass a sweeping tax cut bill. Several committees have been charged with finding cuts under their jurisdiction to add to a so-called "reconciliation package," which is a streamlined way for Congress to consider tax and spending measures, requiring only majority support in both chambers. The banking panel was charged with finding at least $1 billion in cuts. Spokespeople for the committee and the CFPB did not respond to requests for comment. The SEC declined to comment. When the CFPB was created as part of the 2010 Dodd-Frank financial reform law, it received its funding directly from the Federal Reserve, and is capped as a percentage of the Fed's operating expenses. That level currently stands at 12%, allowing the CFPB to request up to $823 million. The House bill would slash that to 5%, and order any excess or unallocated funds to be handed over to the Treasury. Republicans have long criticized the CFPB as too powerful and lacking oversight, and the Trump administration has attempted to effectively gut it by firing most of its staff. Those efforts have been held off amid court challenges. The other major provision of the measure would see the SEC effectively replace the PCAOB. Specifically, the measure would eliminate the audit regulator's ability to garner fees and fold the nonprofit's responsibilities and potentially some of its staff into the Securities and Exchange Commission. Over two decades, audit quality has improved, restoring investor confidence in the financial reporting of public companies - a trend many attribute to the legislative overhaul and to the accounting watchdog. But the PCAOB has also faced years of criticism, including from now SEC Chairman Paul Atkins. The SEC controls the PCAOB, and the SEC's chairman can appoint and fire its leaders, making it more subject to political changes. Under its current chair, the auditor watchdog has pursued a more aggressive enforcement agenda, fueling scrutiny. PCAOB Chair Erica Williams said in a speech Tuesday that she was "deeply troubled" by the measure, arguing the SEC cannot simply step in and perform the same role. "The unique experience and expertise built up by the PCAOB over decades cannot simply be cut and pasted without significant risk to investors at a time when markets are already volatile," she said in prepared remarks to an investor advisory group. She also warned shifting responsibilities to the SEC would force the renegotiation of several cooperative agreements with other countries, including China, where it oversees audits. Sign in to access your portfolio
Yahoo
28-04-2025
- Business
- Yahoo
Democratic credit union officials sue Trump over firings
By Pete Schroeder WASHINGTON (Reuters) - A pair of Democratic officials recently fired from a credit union watchdog have sued U.S. President Donald Trump and other senior government officials, alleging that their removal was "patently unlawful." Todd Harper and Tanya Otsuka filed the suit in the U.S. District Court for the District of Columbia, seeking to be reinstated as board members of the National Credit Union Administration, which oversees the nation's $2.3 trillion credit union sector. The pair said in their complaint that they were fired without explanation or cause, via brief emails sent by Trent Morse, deputy director of the White House Presidential Personnel Office. Both had several years left on the fixed terms they were supposed to serve at the agency after being confirmed to the roles by Congress. Spokespeople for the White House and NCUA did not immediately respond to requests for comment. Harper and Otsuka said in separate statements that the firings violate the law, undermine the regulator and hinder its ability to protect the financial system. "The President's unprecedented and unlawful decision to terminate two-thirds of the NCUA Board legally serving within their Senate-confirmed terms and without providing any cause should concern everyone who uses a federally insured financial institution like a credit union or a bank," Harper said in his statement. The lawsuit marks the latest challenge to Trump's efforts to abruptly remove senior officials at agencies Congress had intended to be independent of the president. Two Democrats removed from the Federal Trade Commission filed a similar suit in March, and a parallel fight over removals at the National Labor Relations Board and the Merit Systems Protection Board has risen to the Supreme Court. The credit union firings from earlier this month have left the regulator, which is supposed to operate as a bipartisan three-member panel, with a sole Republican official, Kyle Hauptman, as its chairman. The lawsuit alleges that the removals were not only illegal, but also may cripple the agency, since the law requires a quorum of the majority of the board to exert its authorities, including supervising and writing rules for credit unions.
Yahoo
25-04-2025
- Business
- Yahoo
Fed survey finds global trade fight, policy uncertainty top financial stability risks
By Pete Schroeder and Michael S. Derby WASHINGTON (Reuters) -Rising risks around global trade, general policy uncertainty, and the sustainability of U.S. debt topped the list of potential risks to the U.S. financial system in a new Federal Reserve survey released on Friday. The bi-annual Fed survey of financial risks was the first since President Donald Trump returned to office, and the impact of his aggressive policy agenda was apparent, especially around tariffs. Seventy-three percent of respondents cited global trade risks as a top concern, more than twice the number reported in November. Half cited policy uncertainty in general as a top concern, up as well from the fall. "Concern over changes to trade policy was the top-cited risk this cycle. While many respondents viewed tariffs as the key risk, some noted that the domestic economy could weather incremental tariffs on imported goods with only modest disruption," the report stated, adding, "Respondents considered that the potential for an escalatory trade war could have more severe consequences." Respondents cited "changes in government spending priorities and the extent of U.S. international engagement" as driving uncertainty. The latest survey also found more attention focused on issues related to recent market turmoil, with 27% of contacts worried about functioning Treasury markets, up from 17% in the fall. Foreign divestment of U.S. assets and the value of the dollar also rose on the list of concerns. The Fed said the "vast majority" of the 22 survey respondents, who include academics, investors and finance professionals, submitted their answers before April 2, the day Trump announced a sweeping set of tariffs on countries around the world. A week later, Trump put the most punishing levies on hold for 90 days as the administration looks to negotiate fresh trade deals. The heightened policy uncertainty that has pushed up market volatility since Trump returned to the White House was partly offset by the Fed finding relative stability in a range of other areas. For example, the U.S. central bank said commercial real estate prices, a long-running concern following the COVID-19 pandemic, showed signs of stabilizing. And while markets were strained in early April as liquidity was low in both stocks and Treasury bonds, the Fed said both markets remained orderly. However, the Fed cautioned that even following the April selloff, asset valuations remained relatively high, and residential real estate prices also were elevated. The Fed said the U.S. banking system remained sound and resilient, as firms maintained robust capital ratios. But it did find that bank credit commitments to less regulated non-banks continued to increase. It also cautioned that hedge fund leverage, particularly at the largest firms, was at or near historical highs, although it believes that leverage diminished in early April as funds unwound positions. Sign in to access your portfolio
