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On March 22, the Federal Reserve Bank of New York (New York Fed) announced the launch of its Fintech Advisory Group, which is designed to offer “views and perspectives on the emerging issues related to financial technologies, the application and market impact of these technologies, and the potential impact on the New York Fed’s ability to achieve its missions.” The group’s members will participate on a rotating basis, and will include representatives from financial institutions, nonprofits, and research providers. According to the head of the Supervision Group at the New York Fed, “The Fintech Advisory Group will provide the New York Fed with a more complete picture of the rapidly evolving fintech landscape. The Advisory Group will also gather insights that may inform our interaction with market participants and institutions, our training and hiring efforts, and the application of innovative approaches for internal business use.” The group’s first meeting will be held on April 1.
The Federal Reserve Bank of New York (New York Fed) released a February 2018 Staff Report titled, “The Role of Technology in Mortgage Lending,” which concludes that technological innovation by fintech mortgage lenders has improved the efficiency of lending in the U.S. mortgage market. In the report, the New York Fed defines a fintech mortgage lending model as one that features “an end-to-end online mortgage application platform and centralized mortgage underwriting and processing augmented by automation.” The report uses quantitative analysis to study the effects of technological innovation in the U.S. mortgage market by identifying several areas of friction in traditional lending and examining whether fintech lending improves them. Among other things, the report finds that, without increasing risk, fintech lenders (i) process mortgages more quickly; (ii) respond more elastically to fluctuations in demand; and (iii) increase borrowers’ propensity to refinance. However, the report notes that there is little evidence that fintech lending is more effective than traditional lending at providing financially constrained borrowers access to credit.
Global Bank and U.S. Subsidiaries Fined $246 Million for Deficiencies in Internal Foreign Exchange Trading Controls
On July 17, the Board of Governors of the Federal Reserve (Board) fined a global bank and two of its U.S. subsidiaries $246 million for allegedly lacking appropriate oversight and controls to ensure the bank’s foreign exchange (FX) trading activities were in compliance. According to the cease and desist order, the Board alleged that the bank’s “deficient policies and procedures” prevented it from detecting unsafe and unsound conduct and communications between bank traders and traders at other financial institutions concerning their trading positions. In addition to the fine, the bank is required to improve its oversight and controls over its FX trading activities, submit a written plan to improve its compliance risk management program, and provide an enhanced written internal audit program, subject to Board approval. Furthermore, the bank is prohibited from re-employing any individuals involved in the illegal communications.
It was noted in the order that the bank conducted a review of its FX trading activities covering the investigation time period, identified and reported the illegal conduct to the Board and the Federal Reserve Bank of New York, and fully cooperated with the investigation. Improvements to address identified deficiencies have already begun.
New York Fed Unveils Community Advisory Group to Offer “Views and Perspectives” Held by Local Community Stakeholders
On April 12, the Federal Reserve Bank of New York (New York Fed) launched the “Community Advisory Group” (CAG)—a “private-sector advisory group,” that is composed of leaders from the non-profit sector and will meet at least three times a year to advise the New York Fed “on socio-economic and financial conditions faced by communities in the Second District” of the Federal Reserve System. According to the Community Advisory Group Charter, “[t]he primary goal of the Group is to present . . . views and perspectives on the economy and monetary policy held by individuals and households in a diverse set of communities.” The Charter also explains that the 10-15 Group members, selected by the New York Fed to serve a three year term, will be appointed “based on their ability to represent the views of one or more communities in the Second District.” The Group’s first meeting is scheduled for April 19.
On December 14, the Federal Open Market Committee (FOMC) announced that it had voted unanimously to raise the target range for the federal funds rate by 25 basis points to 0.5 to 0.75 percent – marking only the second rate hike since the financial crisis. According to a statement released by the FOMC, Committee members attributed the increase to consistent economic growth, in particular strong job gains, throughout 2016. Projections released yesterday include accelerated growth over the next few years, which suggest a series of additional rate hikes throughout 2017. The Committee continued to stress, however, that future rate hikes will “depend on the economic outlook as informed by incoming data.” A transcript of Fed Chair Yellen’s press conference opening remarks can be found here.
As part of implementing the rate hike, the Federal Reserve Bank of New York, effective December 15, will conduct overnight reverse repurchase operations at an offering rate of 0.50 percent, with a per-counterparty limit of $30 billion per day. The regional bank’s Open Market Trading Desk estimates approximately $2 trillion of Treasury securities in its account will be available for these operations.
In a press release published on November 2, the Fed announced its decision to: (i) leave unchanged the interest rate paid on required and excess reserve balances at 0.50 percent; and (ii) take no action to change the discount rate (the primary credit rate), which remains at 1.00 percent. This decision came in response to a monetary policy statement released earlier Wednesday by the Federal Open Market Committee (FOMC), following its vote to “maintain the target range for the federal funds rate at 1/4 to 1/2 percent” for the seventh consecutive meeting. More information regarding open market operations may be found on the Federal Reserve Bank of New York's website.
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