The Shadow 

Who knows what truth lurks behind the headlines?

October 19, 2020 -  It must be official since it has an acronym:  CBDC

  • Bitcoin, Ethereum, Libra, Ripple.  Move aside and make room for CBDC - Central Bank Digital Currency.

  • Not satisfied with a seven fold expansion of central bank balance sheets over the past twelve years, there are new worlds for the Federal Reserve, Bank of England, the European Central Bank and the Bank of China to dominate ( or some might say "interfere with").

  • To be fair, the fragmented, opaque and volatile world of digital currencies ought to keep central bankers up at night.

  • However, we are beginning to see the broad outlines of the benefits digital currencies could usher in:

    • More efficient and lower lost payments​

    • Faster and cheaper international payments with less FX friction

    • Solutions for the underbanked / unbanked

    • Security

    • Privacy

  • Left to a free market, digital currencies such as Bitcoin, Ethereum, Libra or Ripple could disrupt some highly profitable corners of the banking business such as payments, foreign exchange and trade.  

  • No wonder central banks want a piece of that action.


October 1, 2020 -  Still trying to get it right.  Volcker Rule 2020 takes effect today.

  • Volcker Rule 2020 takes effect Oct. 1 and banks should be very happy.  Ten years after the Dodd-Frank Act/Volcker Rule took effect (see our July 2020 insights below), this new rule relaxes several provisions which had limited bank investment activity and proprietary trading.

  • It appears that banks may invest their own capital in VC funds and certain credit funds.

  • Banks may now invest alongside some of the funds they sponsor.

  • It liberalizes 23A trading.

  • We have long advocated that Dodd-Frank went way too far in its post crisis regulation.  This is a partial recognition of that reality.

  • But there is so much more that still needs to be addressed. Read here.

September 22, 2020 -  What ever happened to the charge that companies were "hoarding" cash?

  • U.S. Corporate Cash soared to $3.9 trillion or 20% of GDP.  That was comprised mainly of bank deposits and money market funds.  Read here

  • That is more than $2.0 trillion higher than just a few years ago.

  • Obviously, this is a prudent liquidity buffer in the face of the global Covid pandemic.

  • We strongly argued back then, cash levels are a function of hundreds of individual decisions and not some dark market cabal.  However U.S. regulators, notably the Securities and Exchange Commission, and legislators continued their stubborn pursuit of market villains.

  • What a difference a lit bit of context makes!  We wonder if they'll now go back an redo their ill conceived market regulations.

  • September 20, 2020 -  The run into BlackRock ETFs

  • On March 23, 2020, the U.S. Federal Reserve announced an unprecedented policy shift to calm the Covid-crushed markets.  For the first time ever, it would purchase up to $750 billion of corporate debt and debt-related exchanged traded funds (ETFs).  Further, it would hire BlackRock, the $7.3 trillion asset manager, to advise and execute the program.  Debt and ETF purchases began in May, 2020.

  • The results were immediate.  The announcement alone helped calm markets and the ultimate purchases were estimated at only $13 billion, barely 2% of the maximum.

  • The results for BlackRock were also remarkable.  The Wall Street Journal reports immediate and substantial inflows into BlackRock ETFs.  Essentially there was a stampede to front-run the Fed purchases. In fact, WSJ cites Morningstar in noting that BlackRock's market share in Fed eligible ETFs grew from 51% to 56% between late March and June.

  • BlackRock is estimated to earn 14 bps in management fees (WSJ) from front-running investors. LQD alone saw $8.2 billion in inflows in the days following the announcement.  That works out to $11 million in fees, just on the LQD front-runner hopefuls.

September 18, 2020 -  Do banks need more capital? How about 24%?

  • The not quite fully implemented Basel III accords, following the 2008 financial crisis, imposed higher capital and liquidity standards on commercial banks.  Neel Kashkari, president of the Minneapolis Federal Reserve Bank has long argued that the bank capital requirements should be even higher.

  • Kashkari is concerned that more capital in the financial system is necessary, given possible Covid economic impact scenarios.

  • According to Seeking Alpha, he said at a Council of Institutional Investors virtual event  "If the largest pension plans in America got together and said we aren't going to trade with banks that do not have at least 24% equity, they would increase their capital levels".

  • Is the regional Fed president fomenting a boycott?

September 4, 2020 - Basel III final implementation delayed again.

  • According to its press release, "the Basel Committee's oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), has endorsed a set of measures to provide additional operational capacity for banks and supervisors to respond to the immediate financial stability priorities resulting from the impact of the coronavirus disease (Covid-19) on the global banking system."

    • The implementation date of the Basel III standards finalised in December 2017 has been deferred by one year to 1 January 2023. The accompanying transitional arrangements for the output floor has also been extended by one year to 1 January 2028.

    • The implementation date of the revised market risk framework finalised in January 2019 has been deferred by one year to 1 January 2023.

    • The implementation date of the revised Pillar 3 disclosure requirements finalised in December 2018 has been deferred by one year to 1 January 2023.​

  • Sounds like the Bank for International Settlements doesn't want to let a good crisis go to waste.

  • Final, final implementation push out to 2028.  If our match is correct, that's nearly twenty years after the crisis.

August 14, 2020 -  Does the left hand know what the right is doing? 

  • Fannie Mae and Freddie Mac just slammed the brakes on the consumer mortgage refinance market.  It is instituting a 50 basis point (0.50%) fee on new refinancing.  That's roughly $1,500 on a $300,000 refi.  In a sidebar that seems unserious, it suggests that consumers will not be adversely impacted if lenders and mortgage originators do not pass the fee on.  Let's discuss Econ 101.

  • They call it an "Adverse Market Refinance Fee" to recoup the additional risk in the new Covid world.  That seems to ignore that fact that a nascent recovery has begun and the Federal government is using trillions of liquidity and fiscal stimulus to immunize lenders from such "risk".

  • It seems to be directly contrary to the objectives of the Federal Reserve's $1.25 trillion-dollar mortgage-back securities purchase program which was to "intended to provide support to mortgage lending and housing markets and to foster improved conditions in financial markets more generally".  

  • Why would Fannie and Freddie, under the guise of "risk management", institute a measure so directly counter to the Covid-19 stimulus efforts of both political parties?  Perhaps bolstering capital ahead of their exit from their Dodd-Frank mandated conservatorship?  

  • We're going to keep our eye on this and following the money wherever it flows.

August 3, 2020 -  Former Fed Chair Janet Yellen says the we need a new Dodd–Frank

  • She also praises Dodd-Frank.

  • So which is it????

July 2020 -  Dodd–Frank Wall Street Reform and Consumer Protection Act  - Ten Years Later

  • See our analyses and commentary in the posts below.

  • Put Dodd-Frank into Context

    • Read "Retracing the Financial Crisis 2007 - 2008", a collection of 75 vignettes which chronicle the unfolding saga which played out in broad daylight.

    • Recall that the actual market capitulation was triggered with the federal bailout of AIG.  While some historians still claim that Lehman Brothers or the Reserve Primary Fund was the proximate cause, our forensic examination of capital flows that week point instead to the $85 billion rescue of AIG.  Investors presumed the Fed felt that markets were strong enough to absorb a Lehman collapse.  But when the NY Fed stepped in two days later to rescue AIG, markets figured the Fed was in full panic mode and acted accordingly.  
    • Remember these names?  Washington Mutual, Indy Mac, Countrywide Financial, Wachovia, Golden West, Northern Rock, Dexia, Bear Stearns, Cheyne Financial, King County WA.
    • Remember these terms?  Structured investment vehicles (SIVs), Alt A mortgages, subprime loans, auction rate securities, enhanced cash, asset backed commercial paper, collateralized mortgages (CMOs), tranches, credit enhancement.
    • In 2007, Fortune magazine ranked Lehman Brothers at the #1 Most Admired Company among securities firm.  Bear Stearns ranked second.  Goldman Sachs was a distant third that year.

July 10, 2020 - Beta(m) - a Breakthrough in Money Market Investing

  • Join us for the unveiling of BETA(m)™ our new quantitative methodology for evaluating money market risks and returns. Register for the inaugural webinar on July 14.  

  • Applying modern portfolio theory to the money market space.  Constructing optimal money market portfolios along the efficient frontier.  Integrating modern portfolio theory and customized investment policies.

  • Each set of short term investment policies has its own efficient frontier, its own optimized portfolio, based upon risk and return tradeoffs as well as liquidity requirements.

July 9, 2020 - Structure of the U.S. Banking System.  Dodd Frank - Ten Years Later

  • According to the Federal Reserve Bank of St. Louis, there were 6,623 commercial banks in the U.S. when the Dodd-Frank Act (DFA) was signed in July, 2010.  That number fell to 4,427 in March, 2020.  One third of all U.S. commercial banks have disappeared in the ten years post Dodd-Frank.

  • Measuring through Feb. 2020 to factor out the $2 trillion surge in bank assets as a result of Covid-19 stimulus programs, U.S. banking assets had grown by 51% since the act was signed.  That barely outpaced nominal GDP which grew by 44% over the nearly ten years.  Clearly, DFA succeeded in reduce the growth rate of the banking sector.

  • Much like air in a balloon that simply moves around when the balloon is squeezed, assets of non-bank financial instruments have surged.  (See the July 5, 2020 post below.)

  • From the creation of the Federal Deposit Insurance Corporation (FDIC) in the 1930s and prior to DFA in 2010, there we between 150 to 175 new commercial banks established each year.  Most economists would view that as a sign of a robust industry and successful capital formation.  

  • Between 2010-2018, only 19 new banks were chartered in total.  14 banks have been chartered in the past year, a slight pick-up by still 90% below the historical pace.  For The Carfang Group, this effective halt in new bank creation is a cause for concern.


July 8, 2020  The Financial Stability Oversight Council (FSOC).  Dodd Frank - Ten Years Later

  • Following the financial crisis of 2008, there was a widespread recognition that several regulatory agencies missed some warning signals or viewed them too narrowly.  To remedy this, our legislators decided to form an uber-agency - the Financial Stability Oversight Council (FSOC) - comprised of the heads of several financial regulatory agencies including the SEC, FDIC, OCC, CFPB and CFTC, as well as the Federal Reserve Chair and the Treasury Secretary.

  • A cynic might say that those very same agency heads who failed to see the pre-crisis financial market dislocations would now form a committee to oversee each other.  Voila.  Problem solved.

  • In reality, this extended the regulatory processes, created additional overlap and resulted in a double jeopardy. There are examples of agency heads reaching informed conclusions but pressured to act against their better judgment to accede to the will of the Treasury Secretary.

  • FSOC was mandated to designate and supervise "systemically important financial institutions" or SIFIs.  This sweeping authority helped ensure that the largest and most interconnected banks had more liquidity and were better capitalized.  However, it was also a tool used to harass insurance companies and other non-banks, far removed from the market risk taking of 2006-08.

  • Most telling, the Treasury website boasts that FSOC creates "collective accountability".  That oxymoron says it all!

July 7, 2020  Dodd–Frank Wall Street Reform and Consumer Protection Act  - Ten Years Later


  • In two weeks, we mark the 10th anniversary of the signing of the Dodd–Frank Wall Street Reform and Consumer Protection Act.  Over these next two weeks, The Carfang Group will write on these pages and provide color and interpretation on how well it worked.  We have commented extensively in articles and in U.S. Congressional testimony, pointing our the successes and failures.  

  • The March Madness 2020 in the financial markets has provided the ultimate stress test and is a useful lens through which to view the Act.

  • Overall, we rate the bill a "C-".  

    • It began with an "A+" set of objectives to promote the financial stability of the United States by:

      • improving accountability and transparency in the financial system,

      • ending "too big to fail",

      • protecting the American taxpayer by ending bailouts,

      • protecting consumers from abusive financial services practices, and for other purposes.

    • It quickly descended into barely passing grade territory as two thousand pages of directives sowed confusion and raised compliance costs for all capital markets players, forcing smaller firms to close or merge into one of the giants. 

      • By outsourcing the actual rule writing to multiple, competing agencies, the jumble of inconsistent and overlapping regulations created a regulatory overhang that slowed the markets for years.  Working with different timetables, conflicting objectives and a wide range of competencies (or lack thereof), these agencies tripped over each other and confused markets for years.

        • Securities and Exchange Commission

        • Commodities Futures Trading Commission

        • Controller of the Currency

        • Federal Deposit Insurance Corporation.

    • Fortunately, coming in to the pandemic, the U.S. banking system was as strong as it has ever been.  We will give Dodd-Frank some of the credit.  However, more of that credit goes to the Basel III global framework for banks.

    • On the other hand, we would fault some Dodd-Frank provisions for the seizing up of the U.S. commercial paper markets and for the reluctance of the largest U.S. banks to fully facilitate the rollout of the Payroll Protection Program and other government stimuli.

  • Over the next two weeks, we will delve into the various planks of the Act including:

    • Too Big To Fail

    • Systemic Risk

    • Eliminating Bailouts

    • The Financial Stability Oversight Council (FSOC)

    • GSEs like Fannie Mae and Freddie Mac (see the Aug. 13, 2019 post below)

    • Volcker Rule

    • Consumer Finance Protection Bureau (CFPB)

  • Stay tuned.

July 5, 2020  Largest Financial Institutions - Ten Years After Dodd-Frank


  • In 2010 when Dodd-Frank was signed into law, financials comprised 15.6% of the S&P 500.  Their impact is now only 10.6%. 

  • There are certainly apples and oranges issues when comparing commercial banks, central banks and asset managers.  But no matter how you slice it, the league tables have changed radically since the passage of Dodd-Frank.  (We're still waiting for second quarter numbers.)

  • Remember when banks were the worry?  Remember names like Bank of America, JPMorgan Chase, Citibank?  Recall "systemically important".  Well? Barney Frank, Chris Dodd and others put an end to that.

  • It looks like June 30, 2020 data will show the U.S. Federal Reserve's twelve banks having combined balance sheet assets of $7 trillion.  That's up eightfold since the beginning of the 2008 financial crisis.  But today that only get's them second place.  BlackRock's assets under management (different from balance sheet assets but market impacting, nonetheless) are likely to top the listing, exceeding $7 trillion with Vanguard not too far behind in the neighborhood of $5.5 trillion.  Meanwhile, growth of "systemically important" banking assets and liabilities have barely kept pace with growth of GDP.  We don't believe JPMorgan's balance sheet will top $3 trillion at quarter end.

  • Check back in a couple weeks when the official June 30 numbers become public.

July 2, 2020 - Big Finance vs. Big Tech


  • Keep Your Eye on those Crypo-Regulatory Turf Wars.  They're fierce.

  • This intense clash of the titans is largely taking place behind the scenes now that most headlines are on Covid.

  • Even if you haven't heard much lately about Bitcoin, Libra, Ripple, Etheream or dozens of others, there is plenty of action.

  • Entrenched interests look to create regulatory barriers, keeping big tech out of the digital currency realm even as big tech is rending old line payment systems obsolete.

  • Read our LinkedIn piece on the key issues shaping up in DC.

  • We discuss the trends in digital currencies in our seminal piece "Megatrends in Treasury, Money and Banking".

June 25, 2020 - Treasury Coalition's Global Recovery Monitor.  Treasurers prepare for the long haul.

  • The Carfang Group is a founding member of Treasury Coalition which surveys treasurers bi-weekly to monitor their activities and outlook as the Covid19 pandemic continues to unfold.  Over 1,350 organizations have participated and the findings are instructive.

  • This week's respondents report healthy access liquidity but still see it as a top concern.  Corporate treasurers are less pessimistic about their accounts receivable.

  • Treasurers except a return to financial normalcy in about 11 months.  That's up from 10 months in the prior period.  Most don't expect to see GDP growth until 1Q2021.

  • Most expect a "W' shaped recovery.  

  • The Carfang Group will go out on a limb a posit a square root shaped recovery.    

    • Historic levels of stimulus and liquidity will take nominal GDP and stock indices above their previous highs.​

    • Then three things will happen to flatline global economies for awhile:  ​​

      • Stimulus will be slowly withdrawn slowing growth,

      • New regulations will slow growth,

      • Inflation arising from the stimulus will negatively impact some sectors and countries.

      • Read full article here.

  • Take the 5 minute Global Recovery Monitor survey here and receive the biweekly results as soon as they are published.

June 19, 2020 - Follow the money - U.S. Corporate Cash blasts through prior record.

  • The Carfang Group reported that U.S. corporate cash surpassed $3 trillion for the very first time, providing an ample cushion to help weather the Covid19 storm.  Checkable bank deposits, money market mutual funds, bank time deposits and the direct investments all showed strong growth.

  • FDIC reported that bank deposits grew by $1.2 trillion in the first quarter, including a $760 billion increasingly in accounts larger than the insured $250,000.

  • Bank reserves held at the Federal Reserve at the end of May were $3.2 trillion, almost double the $1.63 trillion total at year-end. 

  • Banks earn interest on these reserves called IOER (Interest on Overnight Excess Reserves) as a result a post 2008 emergency program that never expired.  We opposed IOER when first implemented and continue to oppose it.  Literally, banks get paid to hold the cash at the Fed and not lend it out.

  • Connect the dots.  The Fed announces an alphabet soup of stimulus programs to pump money into the markets.  That cash finds its way from corporate coffers and ultimately into banks.  The banks let it sit in their reserve accounts at the Fed earning interest.

  • So did the Fed just print money and pump it back on to its own balance sheet?  Hmmmm.

June 11, 2020 - Treasury Coalition's Global Recovery Monitor hopeful.

  • The Carfang Group is a founding member of Treasury Coalition which surveys treasurers bi-weekly to monitor their activities and outlook as the Covid19 pandemic continues to unfold.  

  • Over 1,200 organizations have participated and the findings are instructive.

  • 46% except a "W" shaped recovery whereas only 6% expect a "V"

  • Very few companies report treasury staff moving back on site.

  • Treasurers except a return to financial normalcy in about 10 months.

  • Although concerns about liquidity have lessened, accounts receivable remain a problem.

  • Take the 5 minute survey here.

June 5, 2020 - Playing the blame game already.

  • Regulators appear to be scapegoating money market funds for contributing to the panic in the financial markets in March.

  • The commercial paper markets froze in mid March, imperiling the ability of corporations to efficiently raise cash to fund their operations.  Interest rate spreads widened to as much as 200 basis points.

  • Keep in mind that the Fed lowered interest rates in two steps in early March.  So the widened CP spread was more like CP rates moving somewhat higher while Fed rates dropped an unprecedented 125 bps in a few short weeks.

  • Prime money market funds had historically been the largest buyer of corporate commercial paper.  The Securities and Exchange Commission, goaded by FSOC, promulgated draconian regulations which took effect in 2016 resulting in 60% or $1 trillion of assets exiting prime funds.  Of course, this rendered them unable to buy the corporate paper when the liquidity markets tightened in March, sending corporate borrowers scrambling.  We predicted this in April, 2017 here

  • During March, investors withdrew another 25% their Prime fund assets.  You could hear the dog whistlers shout "run".  Of course, that was dwarfed by the 40% drop in equities and even some bonds but no dog whistles there.

  • So now they'd have you believe that Prime funds were somehow responsible for the CP crunch in March and require another round of regulation.  Hmmmm.

May 22, 2020 - The Carfang Group Career Network

  • With 540,000 members, our Banking Careers is one of LinkedIn's largest groups.  It has be growing rapidly over the past year.  Technology disruption, along with the changing complexion of financial markets is created career opportunities.

  • On the corporate side of the market, Treasury and Finance Careers has surpassed 75,000 members.  Not surprisingly, risk management, cyber and liquidity expertise is in demand.

  • Lots of activity in our Investment Banking Careers group.  Over 50,000 members have access to the latest capital markets opportunities.

May 8, 2020 - The Carfang Group Idea Exchange

  • Fintech 20/20, with 125,000 members, is at the intersection of technology and finance.  Our members are at the cutting edge of thought leadership.

  • Financial Risk Management network members are discussing risk-based financial responses to the Covid19 pandemic.  75,000 members have access to the latest conversations on financial management in time of crisis.

  • In our Liquidity Management Network, 11,000 members focus on how to maintain the liquidity and cash to stay afloat during the pandemic.  

August 13, 2019 - On Dodd-Frank Act, SIFIs, Fannie Mae and Freddie Mac


  • To some, it's a bit surprising that Fannie Mae and Freddie Mac, with a combined $5.7 trillion in total assets have emerged largest unscathed from the Dodd-Frank fallout.  In fact, they are stronger than ever. 

  • But should they continue to escape the reach of FSOC and now be designated as SIFIs, systemically important financial institutions?

  • Yes, they are subject to annual stress tests but escape some of the more draconian SIFI obligations.

  • Dr. Alex J. Pollack, former head of the Federal Home Loan Bank of Chicago offer this concise syllogism today on Real Clear Markets.

1. SIFIs must be regulated by the Fed.

2. Fannie and Freddie are obviously SIFIs.

3. Therefore, Fannie and Freddie must be regulated by the Fed.

  • If you believe in the Dodd-Frank Act, it is simply “Q.E.D.”

March 3, 2019 - Five Decades of Corporate Treasury in the U.S.

  • As part of its 40th anniversary festivities, London based Association of Corporate Treasurers invited Tony Carfang to document the parallel period of corporate treasury in the U.S.  Read the full article here.

  • 1970s - 15,000 banks in U.S., many prohibited from branching.  Paper based transactions.  High inflation with interest rates approaching 20%.  Reg E lays early groundwork for electronic banking.

  • 1980s - Monetary Control Act unleashes innovation.  ACH grows.  Treasury workstations emerge.  Banks consolidate.  Treasury Management Association come of age.

  • 1990s - Money funds, sweep accounts and investment portals take hold.  Liquidity management and payment operations come together in the modern treasury department.

  • 2000s -  Global supply chains and regional treasury centers take center stage as treasury departments globalize.  Global banks emerge as the transaction banking powerhouses. 

  • 2010s - Business analytics and intelligence tools introduced in corporate treasury.  Cyber security issues become problematic.  


The Carfang Group periodically updates this page with important information for financial professionals.  Our decades of experience in the markets and first hand dealings with key players affords us a unique perspective.  Most of all, we help you look beyond the headlines and understand what is really happening and how it will affect you and your company.

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