The final rule for the supplementary leverage ratio (SLR) has probably been pushed back to the beginning of next year because regulatory bodies are devoting most of their remaining resources to dealing with the potential fallout from the debt ceiling crisis, according to a report from Citi analyst Josh Levin. Citigroup Inc. (NYSE:C) hosted a series of meetings in Washington DC last week with investors and regulators and found “the overall tone as not particularly encouraging vis à vis the likelihood of regulatory relief for banks.”
FDIC in favor of SLR
According to Levin the FDIC is in favor the SLR while other regulators are pushing for a risk-based capital approach. Levin thinks this means the SLR will apply to banks, but may not be used in stress tests. A few companies from each non-bank financial sector are expected to be designated as SIFIs (systematically important financial institutions), which means they would have to meet higher capital standards designated by Dodd-Frank. Also, the Volcker Rule will be finished by the end of the year according to Levin’s sources.
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“GSE reform will happen. The question is when and in what form,” writes Levin. His sense is that most politicians want to scale back Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), but they are only willing to see mortgage rates go up by 40 to 75 basis points, and more likely to be on the low end. “Ultimately, we will likely end up with legislation that provides for a government backstop limited and defined by a series of waterfalls.”
CFPB is opting for enforcement actions
Levin seems particularly frustrated with the Consumer Financial Protection Bureau (CFPB), which he says “is still trying to define the boundaries of its power and is working to push those boundaries as far as possible.” He specifically mentions that the CFPB is opting for enforcement actions instead of rule-making, bucking normal industry practice, that it considers any ‘abusive practices’ to fall in its jurisdiction even though the term has not been carefully defined, and that it makes a distinction between pricing and fees that doesn’t hasn’t been made clear. He notes that the CFPB is actively pursuing education loans at for-profit institutions, car loans, payday loans, and remittances.