All - Center for the Study of Financial Market Evolution (CSFME)

Are Bank Regulations Harming Small Businesses?

by David Schwartz J.D. CPA | Saturday, April 22, 2017 | All, Change Overview and Rationale, Formal Regulatory Remedies

A Federal Reserve Report published on April 18, 2017 found that U.S. small businesses are facing hurdles in obtaining much-needed financing for growth. The study indicated that small businesses presently face significantly more stringent credit conditions when approaching their traditional sources of loans for equipment and expansion. The Fed report itself does not point the finger at regulation as the cause for this restriction in the ability of small businesses to access credit. However, large banks have had to tighten credit conditions significantly as a result of increased capital requirements, liquidity restrictions, and stress tests. Because these big banks are the primary source of the for all business financing in the U.S., and the number one source of loans to small businesses, any restrictions on the flow of financing arising out of new banking regulation will perforce affect small businesses.

Financial CHOICE Act 2.0

by David Schwartz J.D. CPA | Thursday, April 20, 2017 | All, Change Overview and Rationale, Formal Regulatory Remedies

On April 19, Rep. Jeb Hensarling (R-TX) published a discussion draft of his Financial CHOICE Act (Version 2), updated from his original 2016 draft (Version 1).

Fed Paper Seeks Optimal Capital Ratio for U.S. Banks

by David Schwartz J.D. CPA | Wednesday, April 19, 2017 | All, Change Overview and Rationale, Formal Regulatory Remedies

A working paper published on April 3, 2017 by the US Federal Reserve attempts to quantify the costs and benefits of bank capital to arrive at an estimate of the optimal capital ratio for U.S. banks. In their paper,[1] authors Simon Firestone, Amy Lorenc, and Ben Ranish begin their analysis by estimating to what extent the probability of financial crises falls as bank capital rises and calculate the output costs of a financial crisis. Against this cost, the authors then balance the cost of equity, a more expensive source of funding for banks than debt. The authors conclude that interest rates would rise by around seven basis points if banks pass on all of the increase in the cost of capital to borrowers. Balancing the difference between costs and benefits, they estimate that the optimal level of capital is between 13% and 26%.

FSB Publishes its Sixth Annual Shadow Banking Survey

by David Schwartz J.D. CPA | Wednesday, April 19, 2017 | All, Change Overview and Rationale, Formal Regulatory Remedies

The Financial Stability Board’s (FSB) sixth annual shadow banking survey found that the shadow banking market remains robust and growing, equivalent to 13 percent of total financial system assets and 70 percent of the GDP of 28 covered jurisdictions.

Basel Report: “Repo Markets are Not Settled Yet”

by David Schwartz J.D. CPA | Saturday, April 15, 2017 | All, Change Overview and Rationale, Formal Regulatory Remedies

An April 12, 2017 report issued by the Bank for International Settlement’s Committee on the Global Financial System (CGFS) takes stock of the state of repo markets. Drawing on a number of sources, the report surveys the landscape of the repo markets, taking into account the effects of the financial crisis, changes in the regulatory landscape, and the unprecedented period central bank stimulus.

FSB Launches Holistic Look at Regulatory Reforms

by David Schwartz J.D. CPA | Thursday, April 13, 2017 | All, Change Overview and Rationale, Formal Regulatory Remedies

With the main elements of the G20’s core financial reforms underway, the Financial Stability (FSB) has proposed a framework to assess the effects of the reforms. In an April 11, 2017 consultation paper, the FSB proposes a structured framework specifying the processes and appropriate analytical approaches for the evaluation of the social benefits and cost of reform measure as well as identifying unintended adverse consequences.

Lack of Haircut Data Hampers E.U. SFT Risk Assessment

by David Schwartz J.D. CPA | Thursday, March 30, 2017 | All, Disclosure Regimes, Formal Regulatory Remedies

The European Securities and Markets Authority (ESMA)’s report on Trends, Risks, and Vulnerabilities No. 1, 2017 (TRV) is the body’s latest effort to highlight areas of risk facing European financial markets. Noting that financial markets remained relatively calm since its last quarterly assessment, ESMA said that risks in the markets “remained at high levels, reflecting very high risk in securities markets, and elevated risk for investors, infrastructures, and services.” ESMA’s overall risk assessment remained unchanged with market and credit risks remaining at “the highest level,” while liquidity and contagion risk remained merely “high.” The report also identified political and policy uncertainties following Brexit and the U.S. elections as well as potential repercussions from the upcoming elections in some E.U. member states as the main risk drivers for 2017. ESMA also expressed concerns about haircut levels in securities financing transaction (SFT) markets but said that lack of haircut data was a significant impediment to assessing risks in SFT markets.

OFR Launches Initiative to Reduce Regulatory Reporting Burden

by David Schwartz J.D. CPA | Wednesday, March 29, 2017 | All, Disclosure Regimes, Formal Regulatory Remedies

In a March 16, 2017 address before the Financial Data Summit in Washington, DC, Richard Berner, Director of the Office of Financial Research (OFR), announced an initiative to identify areas of “duplication, overlap, and inefficiency in regulatory reporting.” The initiative is being undertaken in partnership with the Financial Stability Oversight Council (and its member agencies). The goal of the project is to “improve data quality and reduce the reporting burden” faced by regulated financial firms.

House Committee Hearing Examines SIFI Designation Process

by David Schwartz J.D. CPA | Monday, March 27, 2017 | All, Change Overview and Rationale, Formal Regulatory Remedies

The House Oversight and Investigations Subcommittee held a hearing on Tuesday, March 28, 2017 to examine the process used by the Financial Stability Oversight Council (FSOC) to designate systemically important financial institutions (SIFIs). The subcommittee heard testimony from a panel of witnesses about the designation process and about the House Financial Services Committee’s February 28, 2017 report criticizing the FSOC and what it termed its “inconsistent and arbitrary” SIFI designation process.

SIFMA Asks G-20 for More Regulatory Balance

by David Schwartz J.D. CPA | Tuesday, March 21, 2017 | All, Change Overview and Rationale, Formal Regulatory Remedies

In a March 15, 2017 letter, SIFMA urged Treasury Secretary Steven Mnuchin to take a leading role in the G-20 to reassess existing regulatory reforms and strike the appropriate balance between growth and stability. While acknowledging that regulatory reforms since the financial crisis have made markets more stable, SIFMA believes that too much emphasis on stability may be unnecessarily impeding growth.

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