Upon Further Analysis — Archives
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Regulatory Capture Revisited: The Tone from the Top
An earlier post discussed how the tone from the top can either mitigate or reinforce concerns around regulatory capture. The 2023 post concluded that regulatory capture was real, if overblown. More recent actions by agency leadership have made the situation decidedly worse by undercutting the examiner’s authority. Three prominent examples include revisions to the supervisory…
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Concentrations of “Low Risk” Assets
Excessive asset or liability concentrations have historically played a large role in bank failures. A recent proposal to revise the CAMELS ratings for banks appears to define asset concentrations more narrowly. The change is subtle and its motivation unclear. But it appears to rest on the underlying premise that concentrations of supposedly low risk assets…
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Travel: Some Guiding Principles
Whether for business or pleasure, travel remains a big part of our lives. The world is replete with guidebooks, videos, influencers, and even AI-generated itineraries. You can find tips on tourist traps and hidden gems elsewhere. But we should also consider how to approach travel. Here are some my own guiding principles when it comes…
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New Guidance on Model Risk – What’s In and What’s Out
Banking regulators recently revised guidance on model risk management (MRM), superseding earlier, more detailed guidance from 2011. What were the major changes? And what impact are these changes likely to have on bank supervision? Drawing upon my own experience, I’ll look at what’s in, what’s out, and the implication of these changes for both examiners…
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Understanding Mortgage Servicing Assets
Federal banking regulators have proposed changes to the capital treatment of mortgage servicing assets (MSA) One rationale for this change is to increase mortgage origination and servicing activity by banks, who have lost market share to nonbank entities. What are mortgage servicing assets and what are their risks? And are these proposed changes likely to…
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Fast-tracking New Bank Charters: A Cautionary Tale
Banking agencies have been fast tracking applications for new banking charters, with a particular emphasis on crypto and crypto-adjacent firms. This approach calls to mind an episode from early in my career. In that case, a banking agency ignored some clear red flags, providing yet another hit to its already tarnished image. Moreover, the situation…
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Regulation and Supervision – What’s the Difference?
Banking regulation in the US has two separate but closely related elements: regulation and supervision. These terms are often used interchangeably, even by professionals in the field. Not all activities by regulatory agencies fall squarely in one category or another. But there are important distinctions between the two. Understanding the distinctive roles associated with each…
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Sanewashing Regulatory Reform
Advocates for recent changes to bank regulation and supervision have characterized these efforts as merely an attempt to restore balance and to prioritize substance over form. More neutral observers also accept much of this premise. But is this really the case? Or are terms like reform, modernization, and material financial risks masking how extreme some…
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Understanding CAMELS Ratings
Regulators give banks report cards in the form of CAMELS ratings. These ratings can affect examination frequency, assessments, the ability to pursue acquisitions, and the likelihood of enforcement action. The ratings are also not publicly disclosed, except on an aggregated basis or in some limited instances. A recent proposal to define “unsafe or unsound” practices…
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Checking the Box?
Some key regulators and bank lobbyists characterize much of bank supervision as checking the box. “Checking the box” suggests a mindless emphasis on the superficial. Maybe the phrase test-markets well. But is box checking really that prevalent? My own experience suggests that it isn’t and that there are some fundamental contradictions associated with this narrative.…