Sunday, July 17, 2016

EU Urges a New Look at Basel Reforms

Have we traded growth for stability?

Author: David Schwartz J.D. CPA

In his final address on July 12, 2016 as the EU’s Commissioner for Financial Stability, Jonathan Hill announced that the European Commission would push the Bank for International Settlements (BIS) to rethink some of its Basel III reforms in light of their affects on capital, trade finance, market liquidity, and access to clearing.  While applauding the regulatory work done to ensure financial stability, Hill worries that global regulators have become too risk averse, missing the big picture and trading growth for stabil

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Friday, May 27, 2016

Treasury Department Assesses Liquidity in Fixed Income Markets

Author: David Schwartz J.D. CPA

On May 5, 2016, the Department of the Treasury kicked off a series of blog posts on the fixed income market intended to “share our perspective on the available data, discuss key structural and cyclical trends, and reiterate our policy priorities.”   The posts are authored by a team of seasoned Treasury officials: James Clark, Deputy Assistant Secretary for Federal Finance; Chris Cameron, financial mathematician; and Gabriel Mann, policy advisor in the Office of Debt Management at the U.S. Treasury Department.

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Monday, May 16, 2016

BIS Publishes Survey on Integration of Regulatory Capital and Liquidity Instruments

Author: David Schwartz J.D. CPA

In March 2016, the Bank for International Settlements (BIS) published a paper reviewing the current knowledge and empirical data on the effects of new bank capital and liquidity requirements.  This literature review is comprised of three essays surveying the current body of research and empirical studies on liquidity and its interaction with capital and on other supervisory requirements.


Because the study is a literature review, BIS did not perform empirical analysis of its own. Rather, the authors carefully examined the available studies performed, assessed their scope, methodologies, and results, and drew conclusions regarding what has been learned thus far, noting gaps or areas still in development.  Overall, the literature review’s authors found that, because new capital requirements have been in place for quite awhile, a great deal of research has already been performed on their costs and benefits, as well as their effects on economic activity. In contrast, liquidity requirements and other supervisory tools like buffers and stress tests have only been implemented since the recent financial crisis. As a result, there has been far less time to study their efficacy or their knock-on effects, leaving gaps in the literature.

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Friday, March 18, 2016

Is Liquidity Suffering from Too Much Regulation?

Fed Cautiously Admits Regulation May be Having Negative Effects on Liquidity

Author: David Schwartz J.D. CPA

In a March 7, 2016 speech at the Institute of International Bankers Annual Washington Conference in Washington, DC, Federal Reserve Governor Lael Brainard remarked that new regulations may be having inadvertent effects on market liquidity. Governor Brainard’s statement is notable because Fed officials and regulators have been careful to avoid that inference.

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Thursday, February 11, 2016

SEC Rule Proposals Risk Unraveling the ETF Industry

Author: David Schwartz J.D. CPA

Modern financial markets are a finely woven tapestry of market makers, investment products and vehicles, and investors with diverse expectations and risk appetites.  Holding the whole thing together is a structure of rules and regulations. Altering this intricate weaving is always fraught with risk, and tugging on one thread may unravel another. The Securities and Exchange Commission’s recent liquidity and derivatives rule proposals for mutual funds and ETFs may have set the stage for a major unraveling.  The combination of these two proposals, if implemented as currently written, may unintentionally create conditions that would drive investors from ETFs toward riskier and less well-regulated exchange traded notes (ETNs).  

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