Dear reader,

Welcome to the latest edition of The Forum File. In this edition, we are highlighting our firms’ efforts to provide innovative and resilient solutions to stay ahead of a changing market environment.

We hope you enjoy reading this edition and please do not hesitate to share your feedback.

Kevin Fromer, President and CEO, Financial Services Forum

Penny for Your Thoughts

At BNY Mellon, Laide Majiyagbe is the Head of Liquidity & Financing and Nathaniel Wuerffel is the Head of Market Structure.

Let’s start with one of the biggest topics in market reform: central clearing. How are you preparing for the rule’s implementation?

Nate: Central clearing is a really big topic in the Treasury market right now because it represents the most significant change to the structure and functioning of the market itself in decades. It fundamentally will reassemble the way the Treasury market works. The Treasury market is the most important financial market in the world because of two fundamental characteristics: it’s safe and liquid.

Of course, central clearing isn’t a cure-all. It guards against some risks but can’t solve for one-sided markets like we saw during the pandemic; and by itself it won’t ensure the liquidity of the market in times of stress. Keeping the Treasury market safe and liquid—its two foundational attributes—will take a range of efforts by both the public and private sectors.

Laide: The Treasury market is core to what we do at BNY Mellon. We are the primary provider of settlement services for the Treasury market, processing more than 12 trillion transactions per day. We have the largest triparty platform, which allows clients to use Treasuries and other securities as a source of liquidity. Further, BNY Mellon is a top provider of cleared repo with roughly 25% of total sponsored balances in its role as sponsoring member.

Preparedness for us is multi-faceted. We anticipate our client needs evolving and are innovating new solutions to support our client needs in the reassembled Treasury Market. Additionally, given our unique vantage point in the Treasury market, we are partnering with key participants and industry bodies as a thought leader in how the market transitions to meet the mandate.

What about readiness for the broader market and your clients?

Laide: To echo Nate: the central clearing mandate is the most substantial change to the US Treasury markets in recent history. We estimate as much as 3 trillion in cash and repo transactions will need to become centrally cleared under the mandate. We know that transitioning to central clearing is a significant change not just for us but for all market participants, including our clients.

Nate: Early preparedness will be key to successful implementation. The SEC included a phased implementation with eligible cash market transactions due to be centrally cleared by end of 2025, and then repo transactions by the end of June 2026. The timelines can be achieved but only if participants begin planning now. I agree that access is the main hurdle and needs to be considered well in advance. I also think planning ahead to better manage margin and collateral management will be key.

Deposits and pressure on lending and investment are also core topics, especially around regulations impacting the real economy. What are some of the big issues you’re seeing around liquidity? 

Laide: Over the last several years the US banking sector navigated significant changes in the operating environment, shifting from unprecedented easing and stimulus to increasingly restrictive policy while witnessing a rapid rise in benchmark rates to curb the highest inflation in decades.

The events of last March highlight the consequences of inadequate asset liability and risk management and how the velocity and magnitude of liquidity moves have evolved in the last several decades.

We welcome reviews to promote the resiliency and soundness of the US banking sector and encourage it being approached with rigorous qualitative and quantitative analysis and appropriate calibration to prevent unintended knock-on consequences to the broader economy.

Nate: Building off what Laide said, I think we are moving into an environment where liquidity and asset liability management will be more and more important. You have banks that have experienced stress in a way that they haven’t in a long time, new liquidity expectations, a growing market and shrinking reserves.  All these trends make it harder to know how much liquidity the banking system needs.

BNY Mellon is celebrating 240 years this year, the oldest bank in the US. What’s been the driving force for the company’s success for so long and for the future?

Nate: What has impressed me just as much is how innovative we can be. You don’t stay around for 240 years without innovating and staying ahead of a changing market environment. I’ve seen firsthand how dynamic the firm can be in providing solutions to facilitate market needs, for example, the types of new repo liquidity products we are rolling out on our triparty financing platform, like early morning maturity and intraday repo.

And I think that’s where we are really going to continue to be successful, by providing both resilient and innovative solutions that allow individuals, firms, governments, even CCPs (to bring us back to central clearing) to grow and prosper. That’s what it really means to provide financial services. Pretty exciting stuff!

Laide: I’ll be coming up on my third year at BNY Mellon, so I have bit more tenure than Nate at the firm.  For me, what really stands out is how core resiliency is to us, both as an institution and how we innovate. It’s baked into our identity; it’s why our clients work with us, and the markets rely on us.

As we see it, resiliency is very much commercial. And we do this by overseeing nearly $50 trillion in assets for our clients, and building and delivering innovative solutions for them as they execute on their vision and strategy.

Capital Gains

What we’re doing in Washington

Forum President and CEO Kevin Fromer issued a statement after the Federal Reserve Board released the scenarios for its annual bank stress tests. “The nation’s largest banks are strong, highly capitalized and resilient,” Fromer said. “Elements of the Basel III Endgame proposal would duplicate the stress test exercise, imposing unnecessary costs on companies, savers, investors, and the overall economy.”

The Forum released its latest factsheet that dispels twelve myths about the Basel III Endgame proposal.

Our Two Cents

Research from the Forum

In our latest BankNotes blog, Forum Chief Economist and Head of Policy Research, Sean Campbell, reviews the recent evidence on U.S. Treasury market illiquidity, relates these findings to the existing leverage ratio regime, and discusses how regulators can and should adjust policy to improve the functioning and stability of the world’s most important financial market.

Checking the Balance

Bank of America announced that the firm provided $7.1 billion in debt and equity financing last year to support affordable housing and economic opportunities in communities across the United States. This financing helped create and preserve 11,000 housing units for individuals, families, seniors, the formerly homeless and those with special needs.

BNY Mellon collaborated with America250, a nonpartisan initiative to encourage Americans to celebrate and commemorate the 250th anniversary of the United States, to launch a nationwide contest, “America’s Field Trip.” The contest invites elementary, middle, and high school students to submit artwork, videos and essays that reflect what America means to them.

Citi partnered with the Fifteen Percent Pledge on the Fifteen Shop, a digital shopping site featuring a curation of products from Black-owned businesses. To help further the Pledge’s mission of promoting economic justice and closing the racial gap, Citi launched a consumer donation campaign and will match purchases made with a Citi credit card on the Fifteen Shop in the form of a donation to the Pledge until March 31, 2024.

Goldman Sachs partnered with State Fair Community College in Sedalia, Missouri, to launch a small business education program to educate small business owners on how to improve and expand their businesses. The partnership is part of the firm’s $100 million dollar investment for rural small businesses.

JPMorgan Chase announced its renovation plans for Chase Tower in Chicago. With this investment in its Chicago headquarters, JPMorgan Chase will remain one of the city’s largest employers and continue to make a significant impact on the local economy.

Morgan Stanley’s E*TRADE received multiple honors from StockBrokers.com’s 2024 Online Broker Review. E*TRADE was rated the #1 Investor App for the second year in a row, and Power E*TRADE #1 Web Trading Platform for the 12th year in a row.

State Street announced a $100 million program to provide low-cost, stable deposit funding to Minority Depository Institutions and Community Development Financial Institutions. As partners with Optus Bank and Mechanics & Farmers Bank, State Street will support the firms’ collective missions of addressing inequities in our communities by working toward a more just and equitable future.

Wells Fargo announced at SXSW a new effort with ICON to support its Initiative 99 global architecture competition to design affordable homes for $99,000 or less. The Wells Fargo Foundation is committing $500,000 in grant funding to Austin-based nonprofit Mobile Loaves & Fishes to build winning 3D-printed designs to serve the underhoused community.