Sunday, March 19, 2017

Basel Issues Step-In Risk Consultation Sequel

Author: David Schwartz J.D. CPA

On March 15, 2017 the Basel Committee on Banking Supervision published a second consultation paper on guidelines for the identification and management of step-in risk. The first consultation on the topic in December of 2015 set out a framework for identifying and managing step-in risk – the risk that a bank might support unconsolidated entities, beyond any contractual obligation, to protect itself from any reputational damage arising from its connection to such entities. This second consultation takes into consideration comments received on the first proposal, includes proposed reporting and other templates to regulators, and offers a timetable for adoption of the framework. 

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Tuesday, July 12, 2016

The New Shape of Shadow Banking Regulation

Runnable Funding Takes Center Stage in Policy and Analysis

Author: David Schwartz J.D. CPA

In a July 12, 2016 address at the Center for American Progress and Americans for Financial Reform Conference, Washington, DC, Federal Reserve Board Governor Daniel K. Tarullo provided some insights in to the Fed and FSOC’s current thinking on regulation of shadow banking.  

 

Shadow banking is an imprecise term, so Tarullo counsels turning away from definitional questions and efforts to create a shadow banking taxonomy in favor of a greater focus on characteristics of shadow banking-related financial activities and institutions that are most likely to pose risks to financial stability.   According to Tarullo, the financial crisis began as a run on short-term liabilities by investor who had come to doubt the value of the assets they were funding through various kinds of financial intermediaries. Because these kinds of runs and panics are characteristic of every financial crisis, Tarullo suggests focusing analysis and policy initiatives with regard to the universe of shadow banking activities on the presence of runnable funding.  

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Sunday, June 26, 2016

FSB Publishes Policy Framework for “Vulnerable” Asset Management Activities

Urges Better Data on Securities Lending Indemnities

Author: David Schwartz J.D. CPA

On June 22, 2016, the Financial Stability Board (FSB) published a consultation paper proposing a framework to address four areas it sees as structural vulnerabilities from asset management activities that could potentially present financial stability risks.  The consultation, Proposed Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities, proposes 14 policy recommendations to address four categories of structural vulnerabilities:

 

  1. liquidity mismatch between fund investments and redemption terms and conditions for fund units;
  2. leverage within investment funds;
  3. operational risk and challenges in transferring investment mandates in stressed conditions; and
  4. securities lending activities of asset managers and funds.
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Monday, March 14, 2016

Despite Delay, MiFID II Remains a Priority

Author: David Schwartz J.D. CPA

Among the priorities in the European Commission’s (EC) list of its planned initiatives for 2016 is a new push to refine a package of reforms under its Markets in Financial Instruments Directive (MiFID II). After announcing just last month that MiFID II implementation would be delayed by year to January 3, 2018 due to the overwhelming complexities involved, the EC indicated that it would focus on a number of technical points in MiFID II that need to be specified further.

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Monday, February 15, 2016

B of E Issues Consultation on Systemic Risk Buffer for Ring-Fenced Banks

Author: David Schwartz J.D. CPA

On January 29, 2016, the Bank of England (B of E) issued a consultation paper laying out its proposed framework for the systemic risk buffer (SRB) to be applied to ring-fenced banks and large building societies holding more than £25 billion of retail and small and medium enterprise deposits. The proposals are intended to provide clarity to banks on how much capital they will be required to reserve in connection with the activities of their "ring-fenced" arms.

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