The Fed’s Basel Endgame and the lazy supervisor problem

12 September 2023BanksBasel III, Federal Reserve, internal models, regulation, Silicon Valley BankNick Dunbar

The Federal Reserve is proposing to end its long flirtation with Basel internal models, and now is ousting the lead supervisor of Silicon Valley Bank. The actions are two sides of the same coin.

Conditioning and the Bank of England’s credibility problem

30 June 2023EconomicsBank of England, central banking, Federal Reserve, inflation, interest rate swapsNick Dunbar

The Bank of England uses forward rates derived from the swap market to forecast future base rates. This approach is flawed, and has contributed to the Bank’s loss of credibility in the fight against inflation.

JP Morgan swallows First Republic Bank

5 May 2023Banks, Risk CommentaryAccounting, bank resolution, Federal Deposit Insurance Corporation, Federal Reserve, interest rates, JP MorganNick Dunbar

Six months ago we warned about held-to-maturity bond losses at US banks, but now the giants that hedged the risk are hoovering up depositors while unhedged regional banks are in crisis

Regulators zero in on commodities

30 May 2022Bankscommodity risk, Federal Reserve, JP Morgan, nickelNick Dunbar

Bank exposures to commodities have reached record highs and in the wake of the nickel market turmoil in March, the Fed is warning about financial stability implications

Cash positioning for an upwards rate shock

3 May 2022Funds, Risk Commentarycash, Federal Reserve, inflation, money market funds, repo lendingNick Dunbar

While the Federal Reserve anticipates 2-3% interest rates will be enough to combat inflation, the choice of cash holdings for financial institutions provides a clue to their confidence in the Fed’s strategy. The evidence shows that they expect a bumpy ride.

Facing up to JP Morgan’s leverage relief threats

18 March 2021BanksBank of America, Covid-19, Federal Reserve, JP Morgan, leverage ratios, regulationNick Dunbar

The banking giant warned that it might slash its vast balance sheet if the Fed doesn’t roll over temporary leverage ratio relief. Could it unleash a wave of turmoil in wholesale markets if it doesn’t get what it wants?

How Covid-19 sent a shiver through bank balance sheets

28 May 2020Bankscounterparty credit risk, credit valuation adjustment, Federal Reserve, mortgage-backed securities, quantitative easing, stress VaR, Value-at-riskNick Dunbar

In value-at-risk models, counterparty exposure and securities holdings, the impact of the pandemic appears across bank balance sheets

How JP Morgan broke the repo market

17 December 2019BanksFederal Reserve, JP Morgan, money market funds, repo lendingNick Dunbar

The Fed relied on JP Morgan to lend out cash into the repo market. But that was before the too-big-to-fail giant made a pivot out of cash into securities.

Collins wedge pushes internal credit models towards irrelevance

2 November 2018BanksBasel rules, Dodd-Frank Act, Federal Reserve, JP Morgan, PNC Financial, Wells FargoNick Dunbar

The Collins amendment has become a binding capital constraint for the biggest US banks. Does this support the Fed’s argument for rolling back the advanced approaches provisions of Dodd-Frank?