Tuesday, December 3, 2013

Despite Uptick in Settlements Financial Crisis Litigation is Far From Over

Study finds that settlement activity is up, but the end is not in yet sight.

Author: David Schwartz J.D. CPA

The financial crisis has given rise to record numbers of law suits.  But six years on, are we seeing the end of this litigation frenzy?  In an effort to answer this question, Fatan Sabry, Eric Wang, and Joseph Mani of NERA Economic Consulting have surveyed existing cases, settlement trends, and new filings looking for trends.  In an October 2013 publication, “Credit Crisis Litigation Update: It is Settlement Time,” the three authors take a quantitative look at recent trends in settlement activity, review some major settlements in credit crisis litigation, examine current trends in filings, and discuss mortgage settlements related to repurchase demands by mortgage sellers and Fannie Mae and Freddie Mac.  While the study finds that the pace of new filings has slowed, and the size and number of settlements has increased, litigation arising from the financial crisis “far from over,” according to the authors.

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Monday, November 11, 2013

FSB Launches Second Phase of Its Securities Lending and Repo Study

Author: David Schwartz J.D. CPA

On November 5, 2013, the Financial Stability Board (FSB) launched the second stage of its two-stage quantitative impact study on the proposed regulatory framework for securities financing transactions.  As you may recall, on August 29, 2013, the FSB published the results of the first stage of its look into securities finance.  The report, Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos, sets out policy recommendations for addressing financial stability risks in relation to securities lending and repos. These measures formed part of an overall set of policy recommendations to strengthen oversight and regulation of shadow banking, an overview of which was published on the same date.

The second prong of the FSB's look into securities finance will be a more comprehensive quantitative assessment of the effect of the FSB's earlier haircut proposals on a broader set of firms.  The study will look into both the effects of the proposed minimum standards for methodologies used by firms in calculating their own haircuts and the numerical haircut floors to be applied to certain securities financing transactions.

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Wednesday, November 6, 2013

Despite Reforms, Tri-Party Repo Remains a Fed Concern

New York Fed President Urges Industry to Present Solutions or Be Presented With Solutions

Author: David Schwartz J.D. CPA

In an October 14, 2013 address, William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, expressed some lingering concerns he and the Fed have about the tri-party repo market. Despite the reform efforts of both regulators and the tri-party repo industry, Mr. Dudley worries that tri-party repo still remains an area of significant systematic risk. In particular, he worries that current reforms do not address the risk that "a dealer's loss of access to tri-party repo funding could precipitate destabilizing asset fire sales, whether by the dealer itself, or by the dealer’s creditors following a default." As we learned in 2008, these fire sales can have devastating and far reaching effects.

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Thursday, October 31, 2013

A Resilient UK Financial Sector Requires a Global Focus

Will the Bank of England Become an Indispensable Global Financial Asset?

Author: David Schwartz J.D. CPA
[R]eforms of domestic banking are far from sufficient for a global hub like London. Now is the time for a greater focus on what’s needed for resilient international banking and robust global markets.

London is the home of global markets as well as global banks. And London’s markets serve a vital role as Europe’s window to global capital, as well as a center of emerging market finance. Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, believes that in order for the UK to continue to be a global financial hub, the UK's reform agenda must extend well beyond domestic banking. That is why Mr. Carney is urging greater international cooperation and a renewed focus on what is needed for resilient international banking and robust global markets. Accordingly, Mr. Carney has introduced the Bank of England’s new and outwardly focused Financial Stability strategy.

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Friday, October 25, 2013

Finadium: Collateralized Commercial Paper an "Elegant" Alternative to Repo

Author: David Schwartz J.D. CPA
Is collateralized commercial paper (CCP) the the new "killer app" for liquidity? Finadium, a leading specialist research and advisory firm in the securities and investments industry, has published a a research report, "Collateralized Commercial Paper: Regulatory Arbitrage or Elegant Solution?" exploring whether innovative forms of CCP may at least in the short term take the place of repo. In this report, Finadium looks at the role that CCP is currently playing in solving funding challenges for banks and broker-dealers, and investment challenges for cash borrowers. While Collateralized CP is not brand new, new forms of CCP are effectively reworking existing structures for a new purpose. According to the paper's authors, the small but growing use of new forms of CCP "represents a new sub-category of investment product that warrants attention for its funding and regulatory opportunities, and potential for pitfalls.
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