Category: Banking

The Office of the Comptroller of the Currency today released a proposed rule to implement the Genius Act, including how it would handle the law’s prohibition on paying interest or yield on payment stablecoins.

The Genius Act was passed by Congress last year and established a framework for the OCC and other federal agencies to regulate payment stablecoins. The 376-page proposed rule would set standards and requirements related to stablecoin activities, custody and risk management, among other things. For example, the OCC is proposing a floor of $5 million on the minimum capital requirement for de novo stablecoin issuers.

The regulations would apply to payment stablecoin issuers and foreign payment stablecoin issuers under the OCC’s jurisdiction, as well as certain custody activities conducted by OCC-supervised entities, according to the agency. Issues related to the Bank Secrecy Act, anti-money laundering and Office of Foreign Asset Control sanctions will be addressed in a separate rulemaking in coordination with the Treasury Department.

As for the law’s prohibition on payment of interest, the American Bankers Association and others have raised concerns that the ban could be bypassed when exchanges or other affiliates offer yield or rewards to stablecoin holders. The rule states that the OCC understands that issuers could attempt to bypass the ban through arrangements with third parties. As a result, it will presume a stablecoin issuer is paying interest or yield if two conditions are met:

• The stablecoin issuer has a contract, agreement or other arrangement with an affiliate or a related third party to pay interest or yield to the affiliate or related third party.
• The affiliate or related third party has a contract, agreement or other arrangement to pay interest or yield to a holder of any payment stablecoin issued by the permitted stablecoin issuer solely in connection with the holding, use or retention of such payment stablecoin.

“Other arrangements that are not captured by the presumption may also violate the statutory prohibition or constitute an evasion thereof,” the rule states. “The OCC would assess those arrangements on a case-by-case basis but does not believe that it is necessary to include other arrangements within the rebuttable presumption at this time.”

“The OCC has given thoughtful consideration to a proposed regulatory framework in which the stablecoin industry can flourish in a safe and sound manner,” Comptroller of the Currency Jonathan Gould said. “We welcome feedback on the proposal to inform a final rule that is effective, practical and reflects broad industry perspective.”

Comments on the rule are due 60 days after publication in the Federal Register.

Out of the 1,900 ATM jackpotting incidents reported since 2000, more than 700 occurred last year alone, resulting in roughly $20 million in losses, the FBI said in a new alert.

Criminals are deploying ATM jackpotting malware, including the Ploutus family malware, to infect ATMs and force them to dispense cash, the FBI said. Ploutus attacks the ATM itself rather than customer accounts, enabling fast cash-out operations that can occur in minutes and are often difficult to detect until after the money is withdrawn.

The alert lists several indicators that an ATM has been compromised with malware. It also encourages financial institutions to take steps to enhance both the physical security and hardware security of ATMs, such as installing threat sensors that alert personnel to suspicious activity and enabling hard drive encryption.

The agency encourages financial institutions that have identified suspicious activity to contact their local FBI field office, and to report the activity to the FBI Internet Crime Complaint Center. Each report should include the date, time, location, type of activity, number of people, and type of equipment used for the activity, the name of the submitting company or organization, and a designated point of contact.

Marco Del Negro, Elena Elbarmi, and Michael Pham

In this post we provide a measure of “global” r* using data on short- and long-term yields and inflation for several countries with the approach developed in “Global Trends in Interest Rates” (Del Negro, Giannone, Giannoni, and Tambalotti). After declining significantly from the 1990s to before the COVID-19 pandemic, global r* has risen but remains well below its pre-1990s level. These conclusions are based on an econometric model called “trendy VAR” that extracts common trends across a multitude of variables. Specifically, the common trend in real rates across all the countries in the sample is what we call global r*. The post is based on the discussion of an insightful paper by Lukasz Rachel on the drivers of r* presented at the Brookings Papers on Economic Activity Fall 2025 conference.

Is There a Global R*? Cross-Country Convergence in R*

The chart below plots estimates of r* using macroeconomic data for the eighteen developed countries included in the Jordà-Schularick-Taylor Macrohistory database. It shows that before the 1980s there is a lot of dispersion in r* across countries. But after the late 1980s this dispersion disappears all of a sudden, arguably as a result of financial market integration. Therefore, after the late 1980s, we can actually talk of a global r*, since the trends in real rates are one and the same across advanced countries. The important implication of this finding, which was first documented in “Global Trends in Interest Rates,” is that both the decline in r* from the 1990s to before COVID and the post-COVID rise that is evident from the chart are global phenomena.

Global Convergence in R*

The Decline, and Recent Rise, in the Global (and U.S.) R*

The dashed black line in the chart below shows the posterior median of global r* with the shaded areas showing the 68 and 95 percent posterior coverage intervals. The dotted black line shows the posterior median of U.S. r*. According to the model, global r* fell from about 3 percent in the early 1990s to below 0 percent after the financial crisis. It continued declining in the 2010s and then rose by about 1 percentage point after COVID. By and large, the U.S. r* has tracked global r* since the late 1980s, except that it declined comparatively more in the aftermath of the financial crisis. By 2024, the end of the sample, the median posterior estimates of both global and U.S. r* are around 0.5 percent (more precisely, 0.31 and 0.46). This figure is broadly consistent with “the GDP-weighted average of estimates of r-star for … Canada, the Euro Area, the United Kingdom, and the United States,” according to a recent presentation by New York Fed President and CEO John C. Williams, although the U.S. r* point estimate is a bit below current estimates of U.S. r* from the well-known Laubach-Williams and Holston-Laubach-Williams models, which are about 1 percent. However, the large posterior coverage intervals shown in the chart are there to remind us that extracting trend from cycle is a difficult task, and that one should take point estimates with more than a grain of salt. The 68 percent posterior coverage intervals for both global and U.S. r* range from about -0.5 to above 1 percent, while the 95 percent intervals range from about -1.5 to above 2 percent.

The Global and the U.S. R*

Even if the level of r* is very uncertain, the model is able to detect changes in r* over time with greater statistical confidence. The first row of the table below reports the decline in global and U.S. r* from 1990 to 2019, by our calculations. The median estimate of the decline is about 3.5 percentage points for both the world and the U.S. Although the width of the 95 percent posterior coverage intervals (in parentheses) indicate that the exact magnitude of the decline is uncertain, there is no question statistically that such a decline in r* has taken place from the 1990s to before COVID: the posterior probability that the change is less than zero is greater than 97.5 percent, as indicated by the three stars next to each number.

Both the table and the charts above also point to a statistically significant rise in both global and U.S. r* in the post-COVID period: of about 0.8 percentage point for the global r* and a little more than 1 percentage point for the U.S. r*. It is important to remark that the magnitude of the increase is smaller than that of the pre-COVID decline, hence r* remains well below what it was in the 1990s. To the extent that one believes the model’s message of a post-COVID increase in r*, it begs the question of what is driving it. Since the increase is not just a U.S. phenomenon but global—the first chart in the post shows that r* rose in pretty much all developed countries—its drivers better be global as well. Purely country-specific explanations for the increase in r* may not be the whole story.

In previous research, some of us have argued that an increase in the global convenience yield—that is, the convenience for safety and liquidity that applies to all advanced economies’ government bonds—is an important driver of the pre-COVID decline in r*. In other words, investors’ appetite for safety (and liquidity) drove government bond yields across advanced economies down between 1990 and 2019. To what extent did a sudden decline in the convenience yield between 2019 and 2024 drive r* up?

The bottom panel of the table above decomposes changes in r* into a component attributable to the convenience yield (“cy”) and a component attributable to other drivers (“Other”). The table shows that indeed the increase in the convenience yield explains about one-third of the decline in r* both for the U.S. and the world between 1990 and 2019. The decline in the convenience yield for government bonds also explains one-third to one-half of the post-COVID rise in r*, although it is not precisely estimated. This decline, which in the U.S. is reflected in a compression of corporate bond spreads, reflects the fact that for a variety of reasons, possibly including the surge in government debt across advanced economies, the appeal of government bonds in the U.S. and around the world in terms of safety and liquidity has declined. At the same time, the table shows that this decline is clearly not the entire story: the change in the remainder is larger and statistically more significant than the change in “cy.”

If not the convenience yield, what explains the post-COVID rise in r*?  Two plausible candidates are: a forthcoming artificial-intelligence-driven uptick in productivity growth and future surges in debt-to-GDP, possibly driven by a perceived unwillingness on the part of governments in advanced economies to raise taxes to deal with the demographic transition, and/or by higher expected military spending. Rachel’s Brookings paper considers these scenarios and shows that both factors might well be driving the rise in r*, although the abruptness of the rise is harder to rationalize in the model.

In sum, we find that r* has risen by about 1 percentage point in the U.S. and in advanced economies after COVID, and that about one-third of the change may be due to a decline in the convenience yield for government bonds. The r* estimates discussed in this post, and the replication code, are available on this GitHub page. We hope to update these estimates as new data becomes available.  

Marco Del Negro is an economic research advisor in the Federal Reserve Bank of New York’s Research and Statistics Group.

Elena Elbarmi is a research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Michael Pham is a research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

 @article{
        Del NegroElbarmiPham2026,
        author={Del Negro, Marco and Elbarmi, Elena and Pham, Michael},
        title={The Post‑Pandemic Global R*},
        journal={Liberty Street Economics},
        note={Liberty Street Economics Blog},
        number={February 25},
        year={2026},
        url={https://doi.org/10.59576/lse.20260225}
    }

Walmart, GameStop, GigaCloud Technology, Pattern Group, OLB Group, WM Technology, and PSQ are the seven Ecommerce stocks to watch today, according to MarketBeat’s stock screener tool. Ecommerce stocks are shares of companies whose primary business is selling goods or enabling transactions online—this includes pure‑play retailers, marketplace platforms, payments processors, logistics providers and software vendors that support online commerce. For investors, these stocks are typically valued on metrics like online sales growth, customer acquisition and platform monetization, and carry sector-specific risks such as intense competition, technology disruption and regulatory or supply‑chain challenges. These companies had the highest dollar trading volume of any Ecommerce stocks within the last several days.

Walmart (WMT)

Walmart Inc. engages in the operation of retail, wholesale, other units, and eCommerce worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam’s Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores under Walmart and Walmart Neighborhood Market brands; membership-only warehouse clubs; ecommerce websites, such as walmart.com.mx, walmart.ca, flipkart.com, PhonePe and other sites; and mobile commerce applications.

Read Our Latest Research Report on WMT

GameStop (GME)

GameStop Corp., a specialty retailer, provides games and entertainment products through its stores and ecommerce platforms in the United States, Canada, Australia, and Europe. The company sells new and pre-owned gaming platforms; accessories, such as controllers, gaming headsets, and virtual reality products; new and pre-owned gaming software; and in-game digital currency, digital downloadable content, and full-game downloads.

Read Our Latest Research Report on GME

GigaCloud Technology (GCT)

GigaCloud Technology Inc. provides end-to-end B2B ecommerce solutions for large parcel merchandise in the United States and internationally. The company offers GigaCloud Marketplace integrates product discovery to payments to logistics tools into one easy-to-use platform. Its marketplace connects manufacturers primarily in Asia with resellers in the United States, Asia, and Europe to execute cross-border transactions across furniture, home appliance, fitness equipment, and other large parcel categories.

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Pattern Group (PTRN)

At Pattern, we are on a mission to help brands accelerate profitable growth on global ecommerce marketplaces. Today, our proprietary technology and on-demand experts operate across more than 60 marketplaces to increase product sales to consumers in more than 100 countries. Utilizing more than 46 trillion data points and sophisticated machine learning and artificial intelligence (“AI”) models, we strive to optimize and automate key levers of ecommerce growth, including advertising, content creation and management, pricing, forecasting and customer service.

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OLB Group (OLB)

The OLB Group, Inc. is a diversified fintech e-commerce merchant services provider and Bitcoin crypto mining enterprise. The Company’s eCommerce platform delivers e-commerce services for a digital commerce solution to over 10,500 merchants in all 50 states. The Company’s wholly owned subsidiary, DMINT, Inc, is engaged in the mining of Bitcoin utilizing low carbon natural gas with over 1,000 application-specific integrated circuit (ASIC)-based S19j Pro 96T mining computers.

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WM Technology (MAPS)

WM Technology, Inc. provides ecommerce and compliance software solutions to retailers and brands in cannabis market in the United States and internationally. The company offers Weedmaps marketplace that allows cannabis users to search for and browse cannabis products from retailers and brands, and reserve products from local retailers; and education and learning information to help newer consumers learn about the types of products to purchase.

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PSQ (PSQH)

PSQ Holdings, Inc., together with its subsidiaries, operates an online marketplace through advertising and eCommerce in the United States. It operates through two segments, Marketplace and Brands segments. The PSQ platform is accessible through its mobile application and website. The company also sells diapers and wipes to mothers online under the EveryLife brand name.

Read Our Latest Research Report on PSQH

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Tomas Jankauskas

Understanding how short- and long-term assets are priced is one of the fundamental questions in finance. The term structure of risk premia allows us to perform net present value calculations, test asset pricing models, and potentially explain the sources of many cross-sectional asset pricing anomalies. In this post, I construct a forward-looking estimate of the term structure of risk premia in the corporate bond market following Jankauskas (2024). The U.S. corporate bond market is an ideal laboratory for studying the relationship between risk premia and maturity because of its large size (standing at roughly $16 trillion as of the end of 2024) and because the maturities are well defined (in contrast to equities).

Extracting Risk Premia from Yields

The forward-looking nature of yields, combined with the rich literature on expected default probabilities (Campbell, Hilscher, and Szilagyi [2008]; Feldhütter and Schaefer [2018]), allows us to extract expected returns without relying on historical price information. This feature provides powerful empirical advantages because in short historical samples realized returns may be driven by a few recessionary periods (for example, the Global Financial Crisis), structural shifts in the risk-free rate, or time-variation in risk premia, thereby biasing estimates of short- and long-duration returns.

The key input in the risk premium calculations is the expected default loss component. The corporate bond yield is composed of three main parts, as depicted in the figure below: the maturity matched risk-free rate, expected default losses, and a risk premium. The latter two components constitute credit spreads, which are directly observable in the data. The expected default component is estimated using a structural model of default following Feldhütter and Schaefer (2018), along with historical data on loss given default. The advantage of using a structural model to construct expected losses is that it provides ex-ante time-varying measures of risk premia for a wide range of maturities and firms. The resulting time-series and cross-sectional patterns can shed light on how investors price different types of risk.

Duration Varies Substantially Across Corporate Bonds

Corporate bonds display substantial variation in duration, ranging from just a few years to over fifteen years, as shown in the chart below. This duration dispersion is useful because it allows for the construction of duration-based bond portfolios that diversify idiosyncratic risk and isolate the effects of duration. I form these portfolios as of June each year and keep their composition fixed for a year. The average duration of such portfolios is reported in the table. The shortest-duration portfolios have an average duration of only one to two years, whereas the longest-duration decile has an average duration closer to fourteen years. These values serve as reference points when referring to short- and long-duration risk premia in the subsequent analysis.

Distribution of Bond-Month Observations Across Maturity and Duration

The Slope of the Risk Premia Term Structure

The next chart presents the decomposition of yields into the risk premium, credit loss, and risk-free rate components across the different duration portfolios. The average term structure of yields is upward-sloping, with most of the slope concentrated between portfolios 1 and 5 and driven primarily by the upward slope of the risk-free rate (depicted in gold). In contrast, the credit spreads, that is, the sum of the blue and red areas, are somewhat hump-shaped.

My analysis decomposes the credit spreads using a structural default model. The main finding is that the term structure of the risk premium is upward sloping (depicted in blue). Since the average risk-free rate term structure also has a positive slope, the total expected returns are strongly upward-sloping, yielding a term premium of roughly 3.4 percent. Most of this term premium is driven by the slope of the risk-free rate (2.1 percent), but a substantial part comes from the slope of the risk premia (1.3 percent). Importantly, the contribution of the risk premium is economically meaningful: it constitutes up to 20 percent of long-term bond yields, and up to 30 percent of total expected returns (the sum of the risk-free rate and the risk premium). The positive risk premia slope is consistent with classical habit and long-run risk models, which link asset maturity to higher risk exposure.

Risk-Free Rate and Risk Premium Term Structures Are Both Upward Sloping

The absolute size of risk premia falls well within a reasonable economic magnitude. Short-term bonds, with durations of one to two years, carry a premium close to 0 percent. This modest  short-term risk premium indicates that investors do not treat corporate bonds strikingly differently from short-term government bonds, despite corporate bonds’ substantial heterogeneity. At longer horizons, the risk premium is much more substantial: it peaks at around 1.8 percent at intermediate horizons (four to six years) and levels off at approximately 1.5 percent for the longest duration portfolios (twelve years and more). This nonlinear effect is largely driven by the fact that most long-term bonds are issued by the safest issuers.

At first glance, the risk premia may appear small, especially if one compares them with the equity term structure estimates of 10-20 percent reported in Weber (2018). Part of the difference arises because the bond returns are net of the maturity-matched risk-free rate. In addition, the equity risk premium arguably reflects compensation for upside risks, to which bonds have limited exposure.

Conclusion

In this post, I quantify the shape of the forward-looking term structure in the U.S. corporate bond market. Overall, the evidence from the market highlights that risk premia, while modest in absolute size, play a meaningful role in shaping the term structure of returns. The upward-sloping profile of both the risk-free rate and the risk premium generates a sizeable term premium, with the latter accounting for a nontrivial share of long-term yields. These findings suggest that the corporate bond market provides a good laboratory for studying how investors are rewarded with different types of risk, offering valuable insights into both asset pricing theory and practical portfolio allocation.

Tomas Jankauskas is a financial research economist in the Federal Reserve Bank of New York’s Research and Statistics Group. 

 @article{
        Jankauskas2026,
        author={Jankauskas, Tomas},
        title={Estimating the Term Structure of Corporate Bond Risk Premia},
        journal={Liberty Street Economics},
        note={Liberty Street Economics Blog},
        number={February 24},
        year={2026},
        url={https://doi.org/10.59576/lse.20260224}
    }

By Debra Cope

As National Bank of Indianapolis zooms past its 32nd anniversary, its boardroom still reflects the community roots that inspired its founding — paired with continual adaptation to a changing banking landscape.“We started in December 1993,” says CEO Mark Bruin. “For many years Indianapolis essentially had three banks, and within a few years, all were acquired by out-of-state institutions. We needed a locally owned bank.”

That commitment remains embedded in board composition. “All directors must live in the state of Indiana, preferably in central Indiana. We want evidence that they’re committed to the community,” Bruin says.

The 11-member board balances what Bruin calls the “corporate side” — executives from larger companies — with an “entrepreneurial wing.” It skews younger and more professionally active than the typical bank board. “We want people in the business world who are dealing with current issues,” he said.

The board has been both “strategic and selective” in adding three directors in the last three years. When the bank sought technology expertise, it recruited a director with experience managing and financing healthcare companies. After Bruin’s predecessor passed away, the bank filled what he called a gap in core banking experience with a CPA partner and a former chair of a competing bank.

Chemistry matters as much as credentials. “We have more people interested in being on our board than we have spots,” Bruin says. “We’re selective, and we really demand that they be collegial. We value consensus-building — and when we have difficult issues, that it’s done in a respectful, professional way.”

Chairman Greg Maurer says that dynamic is anchored in a clear division of responsibilities and mutual trust at the top. “My partnership with Mark is built on trust, clarity, and candor,” Maurer says. “He runs the bank; we ensure he has the support, resources, and accountability to do that effectively. We challenge each other, but always constructively and always in the service of the bank’s long-term mission.”

Since inception, the bank has separated the chair and CEO roles. “We always felt like the chair of the board ought to be independent,” Bruin explains. “If you concentrate the two, do you lose some level of independence of the board?”

Maurer sees that structural independence as essential to strong governance. “Independence gives a board the freedom to ask hard questions,” he says. “Constructive conflict isn’t a problem; it’s a tool. It’s how you avoid blind spots and make sure the decisions we ultimately align on are the right ones.”

For new directors, the biggest challenge is often learning how banking differs from other industries. “A bank’s balance sheet is sort of opposite of most companies,” Bruin notes. “And then there’s the many different types of competitors that don’t have a bank branch across the street — PayPal is the example I always use.”

To accelerate onboarding, the bank encourages new directors to sit in on other committee meetings, meet senior leaders one-on-one, leverage American Bankers Association resources and attend conferences and webinars.

Faced with mounting time demands on directors, the board recently cut its meeting schedule in half. “We had 10 meetings a year forever,” Bruin says. “This year we’ve reduced that to five. If you talked about something 30 days ago, it’s easier to pick the conversation back up. At 90 days, context starts to fade.”

To make each session count, the board revamped its agenda format and raised expectations for preparation. “Our books were reaching 800-plus pages,” Bruin says. “We’re taking a more aggressive approach to pare that back.”

Engagement remains the constant. “We’re a very engaged, active, collegial board who wants to do right by shareholders, employees, and the community,” Bruin says. “If a prospective director doesn’t check those boxes, they’re not going to be a director. We would not settle.”

The Office of Foreign Assets Control announced the following sanctions action in the last two weeks.

Enforcement Action

OFAC announces $1.72 million settlement with IMG Academy: OFAC announced a $1,720,000 settlement with IMG Academy, LLC for 89 apparent violations of U.S. counternarcotics sanctions, after the school entered yearly tuition agreements and processed payments from Specially Designated Nationals (SDNs) tied to a Mexico‑based drug cartel between 2019 and 2025. OFAC assessed the conduct as non‑egregious and not voluntarily disclosed, resulting in the agreed settlement amount. Read more.

Russia-related Sanctions

Update to OFAC’s SDN List: OFAC has updated the entry for Limited Liability Company Investment Consultant Elbrus Capital, revising its listed name and address. The entity—previously recorded at Nab. Presnenskaya D. 10, Floor 27, KOM. 11V, Moscow 123112, Russia—now appears as Limited Liability Company Investment Consultant Elbrus Capital (a.k.a. Capella Capital Limited Liability Company) with an updated address at 3/10 Elektricheskiy pereulok, building 1, office 1N/6, Presnenskiy District, Moscow 123557, Russia. All associated identifiers, including its tax ID, registration number, and secondary‑sanctions risk under Executive Order 14024, remain unchanged.

Foreign Terrorist Organization Sanctions

OFAC sanctions CJNG-linked timeshare fraud network: On Feb. 19, OFAC sanctioned a timeshare fraud network led by the OFAC-designated Cartel de Jalisco Nueva Generación (CJNG), targeting Kovay Gardens—a Mexican timeshare resort—along with five individuals and 17 companies tied to the scheme. Many of the sanctioned actors operate in or near Puerto Vallarta, a CJNG stronghold, where the network has defrauded vulnerable older Americans of significant savings. Read more.

Additionally, OFAC issued Counter Terrorism General License 34, which temporarily authorizes limited wind‑down transactions involving Kovay Gardens until March 21, 2026, while maintaining all blocking requirements.

OFAC targets key Hizballah revenue and procurement networks: On Feb. 10, OFAC sanctioned Lebanon-based gold exchange company Jood SARL, which operates under Hizballah’s U.S.-designated Al-Qard Al-Hassan and helps convert the group’s gold reserves into liquid funds. OFAC also designated an international procurement and shipping network run by Hizballah financiers across the region, including Iran, aimed at sustaining the group’s financing and operations. Treasury emphasized that these actions are part of ongoing efforts to cut Hizballah off from the global financial system and counter its destabilizing activities in the Middle East. Read more.

Sudan-related Sanctions

OFAC sanctions RSF commanders for atrocities in El‑Fasher: On Feb. 19, OFAC sanctioned three commanders of Sudan’s Rapid Support Forces (RSF) for leading the group’s 18‑month siege and eventual capture of El‑Fasher in Sudan, where RSF fighters carried out a brutal campaign of ethnic killings, torture, starvation, and violence. These sanctions come amid extensive evidence that, since Sudan’s civil war began in April 2023, the RSF and allied militias have committed widespread atrocities amounting to war crimes, crimes against humanity, and genocide. Read more.

Venezuela-related Sanctions

OFAC expands authorizations for Venezuela’s energy sector: In mid‑February, OFAC issued General License 49 and General License 50 authorizing negotiations of contingent contracts and certain oil and gas sector transactions in Venezuela. Days later, OFAC released amended General License 50A, refining permitted oil and gas activities for specified entities, and published two new FAQs (1236 and 1237) to provide additional guidance on updated Venezuela authorizations.

Saying that existing capital rules have discouraged bank participation in mortgage lending, the American Bankers Association and seven other associations today offered proposed reforms to help reverse that trend.

Earlier this week, Federal Reserve Vice Chair for Supervision Michelle Bowman announced the Fed would soon issue proposals to change the regulatory capital framework in ways that incentivize banks to originate and service mortgages. ABA and the other associations made several recommendations for reforms in a joint letter to Bowman and other banking regulators.

“Excessive capital requirements that are misaligned with empirically derived risk assessments can negatively affect the cost of and access to credit,” the groups said.

Recognizing that changes are currently under review, the associations urged the agencies to issue a proposal expeditiously. Among their recommendations:

• Risk weights for mortgage loans can and should more accurately reflect real-world credit performance and avoid unnecessary “gold-plating” or other measures that might make homeownership less attainable for first-time or low- to moderate-wealth borrowers.
• Capital charges and limits or deductions from capital tied to mortgage servicing rights, or MSRs, should be empirically justified and appropriately calibrated.
• The capital framework should promote the continued availability of warehouse lines of credit and other short-term funding that support mortgage origination, servicing and liquidity for MSRs.
• Regulators should recognize that mortgage insurance and proven credit risk transfer mechanisms, including both cash-market and insurance-based executions, can play a critical role in reducing the risk and severity of losses for regulated entities in instances of default, while preserving and enhancing credit options for homeowners.
• The banking agencies and federal housing regulators should take a comprehensive view of the mortgage credit ecosystem, align capital frameworks, and avoid regulatory inconsistencies that could distort the market, reduce competition or inappropriately migrate risks, particularly from private capital to taxpayers.