Daily Archives: December 9, 2014

Fed passes capital surcharges for major banks

The Federal Reserve passed a proposal on Tuesday for risk-based surcharges on the most important U.S. banks to the global financial system.

These surcharges would require the eight U.S. banks with $50 billion or more in consolidated assets to maintain an additional capital supply based on the institution’s system importance, the Fed said Tuesday. The framework for these charges would be phased in beginning January 2016 through January 2019.

Read on.

UBS Turns to Artificial Intelligence to Advise Clients

UBS Group AG (UBSG), facing the threat of competition fromGoogle Inc. (GOOGL) and Amazon.com Inc., has turned to a Singapore-based technology company that uses artificial intelligence for help delivering personalized advice to the bank’s wealthy clients.

Sqreem Technologies Pte. Ltd. beat some 80 teams competing in the Innovation Challenge, a contest organized by Switzerland’s biggest bank that offered S$40,000 ($30,000) and a potential contract to the winner. Their task: Extract the information most relevant to an individual client from an explosion of data and deliver this tailored content to clients’ mobile phones, iPads and other digital devices.

“Banking is one of the most rudimentary industries when it comes to digitalization,” Dirk Klee, chief operating officer for UBS wealth management and responsible for digital initiatives, said in an interview. “EBay, Amazon – everything is getting more and more digital. The question is how we translate this into a similar experience for our clients.”

Read on.

Fannie Mae and Freddie Mac suspend foreclosure evictions during holidays

Fannie Mae and Freddie Mac will suspend evictions of foreclosed single-family properties during the holidays from Dec. 17, 2014 though Jan. 2, 2015.

Families living in foreclosed properties will be allowed to remain in the home, although legal and administrative proceedings for evictions may continue.

“As in previous years, we believe it is important to extend the timeline of help for struggling borrowers during the holidays,” said Joy Cianci, senior vice president of credit portfolio management for Fannie Mae. “If you are in trouble or facing foreclosure, reach out to Fannie Mae or your servicer today to get help. There are more options than ever before to avoid foreclosure. We want to help struggling borrowers whenever possible.”

Read on.

For Fed stress tests, U.S. banks form a study group

Executives at the biggest U.S. banks are sharing notes with each other before their next round of tests with federal regulators.

Banks are struggling to figure out what exactly the U.S. Federal Reserve is looking for when it conducts its annual “stress tests,” which measure how banks will hold up during times of economic turmoil, bank executives, former Fed officials and consultants involved in the process told Reuters.

In gatherings organized by industry groups as well as more informal forums, executives say they have swapped tips about everything from how to best communicate their data – regulators evidently appreciate robust summaries — to how to project legal losses in a hypothetical downturn.

The Federal Reserve deliberately keeps quiet about how it measures lenders’ performance during downturns, to prevent banks from finding loopholes in the process that would allow them to take more risk, senior regulators have said publicly. It has given banks a little more information recently, but many executives still gripe about the tests.

Red on.

Effective Jan 1: TBTF Banks’ Customers Must Move Their Cash Or Be Charged Fees

Zerohedge:

U.S. banking rules set to go into effect Jan. 1 compound the issue, especially for deposits that are viewed as less likely to stay at the bank through difficult times.

The new U.S. rules, designed to make bank balance sheets more resistant to the types of shocks that contributed to the 2008 financial crisis, will likely have little effect on retail deposits, insured up to $250,000 by federal deposit insurance. But the rules do affect larger deposits that often come from big corporations, smaller banks and big financial firms such as hedge funds. Hundreds of companies and other bank customers with deposits that exceed the insurance limits could be affected by the banks’ actions.

Overall, about $4 trillion in deposits at banks in the U.S. were uninsured, covering more than 3.5 million accounts, according to Federal Deposit Insurance Corp. data.


The rule primarily responsible involves the liquidity coverage ratio, overseen by the Federal Reserve and other banking regulators. The new measure, finalized in September, as well as some other recent global regulations, are designed to make banks safer by helping them manage sudden outflows of deposits in a crisis. The banks are required to maintain enough high-quality assets that could be converted into cash during a crisis to cover a projected flight of deposits over 30 days.

Because large, uninsured deposits would be expected to leave most quickly, the rule will now require that banks maintain reserves that they cannot use for profitable activities like making loans. That makes it much less efficient or profitable for banks to hold these deposits.

The new rules treat various types of deposits differently, based on how fast they are likely to be withdrawn. Insured deposits from retail customers are regarded as more safe and require that banks hold reserves equal to as little as 3% of the sums.

It’s not just the (very rich) moms and pops that will be affected by this move: so are large institutions for whom cash on the sidelines is a key aspect of doing business:

The change affects some hedge-fund customers, rather than corporate accounts.The charges include items such as a $500 monthly account maintenance fee for demand deposits and a $25 charge per paper statement.

Larger clients with broad, long-term relationships with their banks may get a break on the new fees, according to people familiar with the situation. Banks also are likely to differentiate between clients’ operational deposits, used for things like payroll, and excess cash that can be pulled more easily, the people said.

At a National Association of Corporate Treasurers conference in October, consultant Treasury Strategies noted that the new rules “will redefine the economics and dynamics of corporate banking relationships.”

And while we have discussed the implications of NIRP previously, here are two key unintended consequences: first, “safe” assets such as Treasurys will get even more expensive, as banks rush into the safety of “high quality collateral” (a topic beaten to death last summer):

Some argue that while it is a good policy on its face, the rule potentially magnifies problems in a recession by encouraging banks to hoard high-quality assets, potentially paralyzing markets for these assets such as Treasury securities and some corporate bonds.

This proposal, which is supposed to promote financial stability, actually does the opposite,” said Thomas Quaadman, a vice president at the U.S. Chamber of Commerce.