Thursday, February 2, 2017

FSB Takes a New Approach to Collateral Re-use and Re-hypothecation

Author: David Schwartz

In dual releases published on January 25, 2017, the Financial Stability Board (FSB) expressed concern that re-use of collateral and re-hypothecation of client assets may pose financial stability issues. The financial crisis demonstrated that collateral re-use and re-hypothecation can transmit and amplify shocks to financial markets. While regulators have responded and prime brokers and clients have improved their risk management and practices since the crisis, the FSB has formulated recommendations to address residual financial stability risks associated with collateral re-use. In these releases, the FSB finalizes its data collection plans, and also explores whether uniform implementation of its recommendations is truly necessary, or whether a more flexible principles-base approach might be more effective. 

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Monday, January 23, 2017

Treasury Nominee Wants Regulation with Limits, Not Repeal

Author: David Schwartz

For the most part, Treasury Nominee Steven Mnuchin's five-hour confirmation hearing on January 19, 2017 focused on responding probing questions about his past associations and financial reporting oversights. Amid the sparring, however, Mnuchin was able to reveal a bit about his plans for Dodd-Frank, the Volcker Rule, and his thoughts on the future of financial regulation. Most notably, the wholesale repeal of Dodd-Frank promised during the election campaign does not appear to be on his agenda.  While he believes some aspects of Dodd-Frank regulations have gone too far and are stifling growth, Mr. Mnuchin said that rather than rolling back regulations, he favored placing limits on the existing framework to make it fairer, particularly to smaller financial firms. 

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Friday, January 6, 2017

BIS Postpones Final Act of Basel III

Miss Otis regrets she's unable to lunch today.

Author: David Schwartz

In a sparsely worded press release on January 3, 2017, the Bank for International Settlements announced that the January 8 meeting of the group of central bank governors and heads of supervision (GHOS) has been postponed. At this meeting, the GHOS were to finalize long awaited rules that will determine how much capital lenders have to set aside against loans and other assets. Citing unfinished work necessary to calibrate banks' risk-weighted capital ratios, BIS chose to move finalization off for the present.  

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Wednesday, December 28, 2016

Is Blockchain the Future of Securities Lending?

Author: David Schwartz

By now, all but the most strident luddite has heard of Bitcoin, the notorious stateless crypto-currency. Naturally, financial firms and regulators have started to take notice of Bitcoin. But it is not necessarily the currency they are interested in. Rather, they are exploring the technology that makes the virtual currency possible. Computer-driven concepts borrowed from Bitcoin like the blockchain, distributed ledgers, and self executing contracts are starting to become the new frontier in areas like securities lending and repo.  

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Friday, December 16, 2016

Dodd-Frank Won't Go Gently into that Good Night

Regulators are dedicated to the unfinished work of Dodd-Frank

Author: David Schwartz

Listening to the pundits, the press, and the political class, one gets the impression that the repeal of the Dodd-Frank Act and its new regulatory landscape is imminent and certain.  But to paraphrase Mark Twain, the rumors of Dodd-Frank’s death have been greatly exaggerated. Lately, regulators at the Fed, CFTC, and OCC have been giving full-throated rhetorical support to the post-crisis financial reforms already in place, and have both tacitly and explicitly been signaling their commitment to completing what they believe is the unfinished work of the new financial regulatory regime.  While the electoral triumph of those long opposed to Dodd-Frank almost certainly will introduce a strong deregulatory assault against the legislation, it does not necessarily mean the death of every aspect of Dodd-Frank Act. 

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