Gil Hodges was elected to the Baseball Hall of Fame in 2022.  More than 20,000 have played major league baseball, but only 271 reached the Hall of Fame as a player.  While making the Hall is certainly a big deal, his road to Cooperstown was a long one, especially considering the strong early support for…

Senator William Proxmire bestowed a monthly Golden Fleece Award that highlighted what he saw as wasteful government projects. Proxmire was a talented self-promoter, and the press ate it up. Unfortunately, his characterization of the supposed waste was sometimes misleading. The amounts involved were often trivial relative to overall government spending and illustrates a tendency in…

The FDIC’s Chief Risk Officer has released a postmortem report of the First Republic bank failure.  A close reading of the report indicates that supervisors largely overlooked weaknesses in interest rate risk and liquidity risk management at First Republic.  The FDIC’s supervision of First Republic appears to be a classic case of the halo effect,…

Current capital rules for U.S. Banks require only the largest and most complex banks to include accumulated other comprehensive income (AOCI) in regulatory capital.  Proposed new rules would extend this requirement to all banks over $100 billion in assets.  Much of the discussion on the proposed rules has focused on unrealized losses on available-for-sale (AFS)…

The spate of bank failures this past spring has triggered more interest in how the bank supervisory process works.  The Supervisory Letter (SL) is usually the most critical document coming out of the supervision of large banks.  I’ve written quite a few SLs in my time and can share how the letter writing process works…

As I observed in an earlier post, large banks tended to respond to rising interest rates not by hedging or rebalancing their portfolios but by classifying more securities at held-to-maturity.  This is one of many instances over the years where banks (and often their regulators) chose accounting form over economic substance.  Supervisory goodwill, trust preferred…

U.S. banking regulators recently released a Notice of Proposed Rulemaking (NPR) that would make changes to regulatory capital requirements.  The proposed changes, known as the Basel III Endgame, are expected to increase capital requirements for large banks.  The proposal runs 1,087 pages and covers multiple areas.  One proposed change would revise the capital treatment of…

Federal Reserve Vice-Chair Michael Barr has proposed requiring banks over $100 billion to incorporate unrealized losses on available-for-sale securities in regulatory capital.  Taking these unrealized losses into account better reflects the banks’ actual loss absorbing capacity.  However, if the experience with the banks already subject to this requirement is any indication, it will have the…