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.  

Comments (0)
Number of views (6030)

Wednesday, February 11, 2015

Fed Remains Concerned About Firesale Risks

Asset Management Industry Still a Source of Worry

Author: David Schwartz J.D. CPA
In a January 30, 2015 address, Federal Reserve Board Governor Daniel K. Tarullo once again voiced the Fed's concerns about the systemic risk posed by potential firesales in the asset management industry. Tarullo indicated that as regulators implement reforms under the Basel and FSB proposals and frameworks, they should take into account the “system-wide demands on liquidity during stress periods and correlated risks among asset managers that could exacerbate liquidity, redemption and fire-sale pressures."

In his address, Mr. Tarullo noted the rapid growth of the asset management industry  since the financial crisis, both in terms of the dollar amount of assets under management and in the concentration of assets managed by the largest firms. As stricter prudential regulation makes investment in certain forms of assets more costly for banks, this growth is expected to continue apace.
Comments (0)
Number of views (6331)

Thursday, December 11, 2014

Tarullo: Liquidity Regulation Today and Tomorrow

Who Will Be Swept Up in the Next Round of Liquidity Rules?

Author: David Schwartz J.D. CPA

The financial crisis of 2007-08 was a crisis of liquidity. Facing deep uncertainty about the condition of counterparties and the value of collateral assets, investors refused to offer new short-term lending or even to roll over existing repos and similar extensions of credit. As a result, many funding markets ground to a halt.  The role liquidity, or rather the sudden lack of liquidity, played in the most recent crisis is unlike that experienced in the savings and loan crisis or the Latin American debt crisis of the 1980s.  Consequently, regulators and policy-makers have found the regulation of liquidity to be a new frontier, and one that remains the focus of keen interest to the Federal Reserve.  Recently, Fed Board Governor Daniel K. Tarullo outlined his thoughts on both the importance of liquidity regulation, and the direction he sees it heading.

Comments (0)
Number of views (6182)

Wednesday, November 19, 2014

FSB Moves for More Transparency in Repo and Securities Lending Markets

Proposals for Standards and Processes for Global Securities Financing Data Collection and Aggregation

Author: David Schwartz J.D. CPA

On November 13, the Financial Stability Board published a consultation report that sets forth proposed standards and processes for global securities financing and data collection and aggregation. Previously, the FSB recommended that national/regional authorities collect appropriate data on securities financing markets to help the FSB better assess ongoing financial stability. These latest proposals are intended to provide guidance on what kinds of data on repo, securities lending, and margin lending should be collected, how they should be collected, and in what format. Mark Carney, Chairman of the FSB, characterized the proposed standards as "an important step to ensure that authorities fully understand trends and risks in one of the core funding markets for wide range of market participants. The global data collection and aggregation based on the FSB standards and processes will help transform securities financing markets into more transparent and resilient sources of financing that would better serve the needs of the economy."

Comments (0)
Number of views (15364)

Wednesday, September 17, 2014

Bank Directors May Find Themselves With a Heightened Standard of Care

To What Extent Should Regulators Dictate How Bank Boards Oversee Risk?

Author: David Schwartz J.D. CPA
A recent address by Federal Reserve Governor Daniel Tarullo has raised the specter of expanded fiduciary duties for bank directors.  Referencing a recent academic paper proposing a simple negligence standard for expanded board oversight responsibility for risk-taking by systemically important financial institutions, Mr. Tarullo discussed how the nature of finance and financial regulation affects corporate governance and why, in turn, special corporate governance measures are needed as part of an effective prudential regulatory system.
Comments (0)
Number of views (10974)
RSS
12