Big Bank Custody Fight

March 8, 2018  |  WSJ         The Senate is debating a bill that would relax Dodd-Frank’s chokehold on small banks, but a couple of provisions that ease capital and liquidity standards for the giants will make the financial system more vulnerable in a panic.

Tucked into Banking Chairman Mike Crapo’s legislation is a directive to federal agencies to amend the “supplementary leverage ratio” for custodial banks by excluding deposits at a central bank. Custodial banks secure assets for clients such as large institutional investors and fund managers.

At first glance, this provision would appear to apply only to Boston-based State Street , Chicago’s Northern Trust and Bank of New York Mellon . But Citigroup and J.P. Morgan also offer custodial services and are trying to join the party. You can bet others will want in too. “As Congress has sought to make a common sense change to the way capital rules treat custody assets, we have asked that they apply that change to all custody banks to maintain a level playing field in this important business,” a Citi spokesman said last week.  Read more here.