Sunday, July 16, 2017

Securities Finance Faces 'Fickle' Future

EU Central Banker Raises Liquidity and Collateral Concerns

In a June 21, 2017 address before the 26th Annual Securities Finance and Collateral Management Conference in Berlin, Deutsche Bundesbank Board Member Professor Joachim Wuermeling warned that the securities finance sector faces some unique liquidity and collateral challenges. In particular, he noted that the extraordinary measures taken by central banks to shore up liquidity in the years since the financial crisis may be distorting liquidity and affecting collateral quality in securities lending and repo markets.  Measures like the Public Sector Purchase Programme (PSPP) and central bank securities lending and bi-lateral repo facilities intended to backstop liquidity in securities financing markets may, in the long run, have unexpected effects on liquidity and could have a negative effects on transaction costs and order book depth, creating “fickle” conditions for market participants. 

Monday, July 10, 2017

Fed Reports Post-Crisis Regulation Affecting Bond Market Liquidity

Affects are real, but do not not point to any substantial impairment in liquidity.

In its semi-annual Monetary Policy Report submitted to Congress on July 7, 2017, the Federal Reserve Board indicated that regulatory reforms since the global financial crisis "have likely altered financial institutions' incentives to provide liquidity.”  The Fed found that In recent years, market participants have been particularly concerned with liquidity conditions in the corporate bond market. This concern stems from the tendency for bonds to be traded less frequently and more reliance on dealer intermediation for liquidity provision than in many other markets. Despite these concerns, however, the metrics available to the Fed do "not point to any substantial impairment in liquidity in major financial markets.”

Friday, July 7, 2017

Deglobalizing or Reglobalizing?

Are Global Banks Pulling Back or Expanding Their Cross-border Connections?

On June 30, 2017, the Bank For International Settlements (BIS) published the results of a study examining trends in bank deglobalization since the financial crisis. Prompted by data indicating a decline in cross-border activity by banks, the BIS launched a study to determine whether the data support the hypothesis that the largest global banks have truly scaled back their cross-border activity since 2007, or whether it might be an indicator of some other trend.

Wednesday, July 5, 2017

Clock Runs Out on CALPERS' Lehman Claims

Supreme Court Upholds Strict Time Limit in Federal Securities Class Actions

On June 26, 2017, the Supreme Court handed down a 5-4 decision which ended California Public Employees' Retirement System’s (“CALPERS”) efforts to spin off its own Lehman-related claims from a larger class action because the claims were filed late.  The Court held that the three-year time limit in Section 13 of the Securities Act of 1933 is a statute of repose. Consequently, the Court held that the filing of a class action suit under Section 13 does not stop the clock on the statute of limitations for plaintiffs who subsequently opt-out of the class to pursue individual lawsuits.

Thursday, June 29, 2017

Fed urges Recalibration, Not Repeal, of Dodd-Frank Reforms

Outlines Fed's Guiding Principles for Recalibration

In Congressional testimony on June 22, 2017, Federal Reserve Governor Jerome H. Powell highlighted the progress that has been made since the financial crisis in improving the resiliency and resolvability of the U.S. banking industry. Having achieved the primary goals of re-regulation, however, Powell believes that the time is ripe "for us to look for ways to reduce unnecessary burden." In his statement, Governor Powell urged the lawmakers on the Senate Committee on Banking, Housing, and Urban Affairs not to roll back Dodd-Frank reforms, but to recalibrate them.

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