Friday, May 18, 2012

U.S. Finalizes Stress Test Guidance for Largest Banks

Author: David Schwartz J.D. CPA
The Federal Reserve Board, Federal Deposit Insurance Corporation, and the Office of the Comptroller of Currency have issued definitive guidance on supervisory expectations for stress testing by banking organizations with more than $10 billion in total consolidated assets.  This set of interpretations is a final version of initial guidance issued June 15, 2011, and provides high-level principles for stress testing practices required of big banks and depository institutions.  Overall, it “highlights the importance of stress testing as an ongoing risk management practice that supports a banking organization’s forward-looking assessment of its risks and better equips the organization to address a range of adverse outcomes.”

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Tuesday, May 15, 2012

Basel Seeks Input on Trading Book Capital Requirements

Author: David Schwartz J.D. CPA
The Basel Committee on Banking Supervision is seeking comment on initial policy proposals emerging from the Committee's fundamental review of trading book capital requirements The consultation paper contemplates a revised market risk framework and proposes specific measures intended to improve trading book capital requirements. These proposals also reflect the Committee’s increased focus on achieving a regulatory framework that can be implemented consistently by supervisors and which achieves comparable levels of capital across jurisdictions.
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Saturday, May 12, 2012

U.S. Senate Hearing May Test Volcker Rule Concepts

Author: David Schwartz J.D. CPA
In a letter to Senate Banking Committee Chairman Tim Johnson (D-SD), Senator Bob Corker (R-TN), a key member of the Committee, has called for immediate investigation into the details of the JPMorgan Chase & Co. trading losses. Senator Corker wants the committee to examine if the trades in question were bona fide hedging transactions or poorly managed proprietary trades, and wants to explore whether US taxpayers are fully protected from losses at major financial institutions. In addition, Senators Levin (D-MI) and Merkley (D-OR), authors of the Dodd-Frank Act's Volker Rule, have issued statements urging rapid adoption of Volker Rule regulations prohibiting hedge fund investments by large financial institutions being disguised as risk mitigation or market making.

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Tuesday, May 8, 2012

IOSCO Wants Feedback on Money Market Reforms

Author: David Schwartz J.D. CPA
At the request of the Financial Stability Board, IOSCO has published a consultation paper on the potential regulatory reforms of money market funds.  The study represents one of the five workstreams the FSB has organized for the analysis of the potential regulation of various aspects of shadow banking.  The purpose of the consultation paper is to share with market participants IOSCO’s preliminary analysis regarding the possible risks money market funds may pose to systemic stability, as well as possible policy options to address these risks.  IOSCO is actively seeking feedback on this preliminary work, and commenters have the opportunity to shape IOSCO's ultimate recommendations to the FSB.
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Friday, May 4, 2012

FSB Publishes Interim Report on Securities Lending and Repos Workstream

Author: David Schwartz J.D. CPA
The FSB Workstream on Securities Lending and Repos ("Workstream") under the FSB Shadow Banking Task Force has published an interim report on its findings and progress. The mission of the Workstream is to present, by the end of 2012, policy recommendations to strengthen regulation of securities lending and repos within the context of the shadow banking system.  In order to inform its decision on proposed policy recommendations, the Workstream has reviewed current market practices through discussions with market participants,  and existing regulatory frameworks through a survey of regulatory authorities.  This interim report identifies a number of issues that might pose risks to financial stability, and these financial stability issues will form the basis for the next stage of its work in developing appropriate policy measures to address risks where necessary.
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