Fed seeks market data from banks; Regulators encourage new technology

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Wanting more
Federal Reserve Gov. Lael Brainard said the Fed is close to reaching an agreement with the Financial Industry Regulatory Authority to start collecting Treasury bond market data from banks. It also plans to propose a rule to collect similar data on mortgage-backed securities issued by government-sponsored agencies. Under the agreement, Finra would collect transaction data from banks active in those markets and forward it to the Fed. The expanded data capture “will help round out [regulators’] view of these markets and ensure continuous coverage in circumstances where trading moves between the bank and the broker-dealer within a firm,” Brainard said.

Separately, Randal Quarles, the Fed’s vice chairman for supervision, and Comptroller of the Currency Joseph Otting, said they are looking into banks’ exposure to risky collateralized loan obligations “but stopped short of sounding alarm bells” despite record issuance of the securities by highly leveraged companies. “The best information we have is that they are not evolving in a way that would be a particular problem,” Quarles said about CLOs, although the Fed is “trying to get a handle on [it] and be vigilant about [it].”

Quarles is a good choice to head the global Financial Stability Board despite his reputation in the U.S. as favoring deregulation, says Patrick Jenkins, the Financial Times’ financial editor. “Is Mr. Quarles — a Trump appointee to the Fed at a time when the administration has been pushing a national deregulatory agenda — going to argue for similar liberalization at a global level? The chances of that look low,” Jenkins says. “Mr. Quarles is also likely to bring a welcome boost to the FSB’s transparency and engagement with the finance industry.”

Wall Street Journal

No harm in trying
A group of federal regulators said banks that use new technology to enhance their compliance programs against money laundering and other crimes won’t be penalized if they fail. “Pilot programs that expose gaps in [an anti-money-laundering] compliance program will not necessarily result in supervisory action with respect to that program,” the statement from the regulators said. The statement “nudges banks toward adopting new forms of technology, such as artificial intelligence, while recognizing that some of the new methods may be unsuccessful. The pledge comes as authorities encourage lenders to try out new technology and intelligence-gathering methods as they combat evolving illicit-finance threats.”

Better positioned
Banks will be less exposed in another debt crisis. But investors are likely to “suffer more losses directly. Nonbanks have become much more important providers of credit to companies and individuals since the financial crisis as a result of stiffer regulations and higher capital requirements for banks.”

Financial Times

Welcome to the big leagues
Zopa has become the first peer-to-peer lender to be awarded a full U.K. banking license. “The Financial Conduct Authority’s decision to grant the license marks the first major breakthrough by a P2P lender into mainstream banking,” the paper says. “The new bank will allow Zopa to broaden its funding base with a new fixed-term savings account and its own credit card. The firm is also expected to roll out a new money management app.”

On a separate issue, the FCA is urging global banks that operate in London to limit the number of clients they move out of the U.K. as part of their Brexit preparations. The U.K.’s financial regulator warned the banks to "make 'the minimum necessary changes' to where their clients are based" in order to avoid exposing clients “to unacceptable execution risks.”

Quotable

He liked the speech.” — Treasury Secretary Steven Mnuchin on President Trump’s reaction to Federal Reserve Chairman Jerome Powell’s speech last week, in which he said interest rates are “just below” neutral.

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