January 3, 2024 | In this issue of The Institutional Risk Analyst, we provide our comments on the Basel III Endgame ("B3E") proposal from the Fed and other prudential regulators. Suffice to say that the B3E proposal reads like a bad comic book for banks and the US economy.
“This proposal reflects a view of financial risks facing US banks that is decades out of date and ignores the public record regarding recent bank failures,” notes WGA Chairman Christopher Whalen. “Specifically, the current proposal continues the historical focus of Basel on credit risk and gives too little weight to market risk."
We also discuss the Risk Based Capital rule proposed by Ginnie Mae and how this ill-considered initiative may combine with Basel III to hurt the housing sector and especially government-insured loans, servicing and MBS. Happy thought: If a Republican wins the White House in November, the Ginnie Mae RBC rule may never take effect.
Our letter concludes:
"While the proposed risk weights for 1-4 family loans in this proposal are clearly too high, the Board and other regulators need to take another look at the market risk weights for conventional and government MBS. These securities are all government insured to some degree against credit loss, yet the peculiar market attributes of MBS make these assets problematic for many banks. The market volatility that makes mortgage servicing assets (MSAs) appear risky makes MBS very dangerous as a matter of fact. This proposal largely ignores the very real risk from MBS and instead mistakenly demonizes whole loans and MSAs."
The full text of the comment letter and related charts may be downloaded using the link below. As always, please send your comments and questions to us at email@example.com or on X at @rcwhalen. We post replies to many reader questions on X.
And remember that our sale lasts through
Little Christmas, January 6, 2024!
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