“We reiterate our commitment to support the timely, full and consistent implementation and finalisation of the agreed G20 financial sector reform agenda.”
G-20 Renews Its Commitment to Basel III
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Fed Finds Serious Liquidity Flaw in the Volcker Rule
Industry experts and regulators have debated for some time now about the effects regulation may or may not be having on liquidity. Critics of tough new bank regulations claim that the increased regulatory requirements, such as the higher capital requirements and new liquidity standards have reduced liquidity and banks’ market-making capacity. Regulators, on the other hand, have been skeptical and have called for evidence showing regulations negatively affecting liquidity. In a study published on December 22, 2106, the Fed itself has produced just such evidence.
Basel Issues Step-In Risk Consultation Sequel
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.
OFR Publishes Trio of Central Clearing Studies
Over the past few weeks, the U.S. Office of Financial Research (OFR) has published a trio of papers looking at various aspects of central counterparties (CCPs). These papers range from the best way to stress test CCPs, to the adequacy of CCP margin requirements and the relative risks and utility of central clearing to repo markets.
Is the US Poised to Break from Basel III?
In a letter dated January 31, 2017, Vice Chairman of the House Financial Services Committee Rep. Patrick McHenry (R-NC) called on Federal Reserve Chair Janet Yellen to cease negotiating “binding” international financial regulatory standards in such forums as the Financial Stability Board, the Basel Committee, and the International Association of Insurance Supervisors “until President Trump has had an opportunity to nominate and appoint officials that prioritize America’s best interests.”
Basel Clarifies NSFR Repo Treatment
On February 24, 2017, the Bank for International Settlements (BIS) published a new set of responses to interpretation questions related to the Net Stable Funding Ratio (NSFR)
Fintech Poised to Create a New Financial World
“Fintech,” or financial technology,” is a term that seems to be on everyone’s lips these days, from bankers to global finance ministers. Dramatic advances in computing power, speed, interoperability, and nearly instantaneous internet communication are changing the ways banks, brokers, and other financial institutions relate to their customers, investors, regulators, and each other.
The Overlooked Merits of Bank Disclosure
European bankers are caught up in a debate over whether to disclose their full supervisory capital demands to market participants. That’s an issue because bank supervisors, under Pillar 2 of the Basel III accord, can set a bank’s regulatory capital “guidance” at a level higher than its Pillar 1 “requirements.” Bank analysts and investors can discount the securities of banks with relatively high guidance, assuming that supervisors have learned something negative in their confidential reviews. That’s the essence of Pillar 3: Market Discipline.
FSB Takes a New Approach to Collateral Re-use and Re-hypothecation
In dual releases published on January 25, 2017, the Financial Stability Board (FSB) expressed concern that reuse of collateral and rehypothecation of client assets may pose financial stability issues. The financial crisis demonstrated that collateral re-use and re-hypothecation can transmit and amplify shocks to financial markets. While regulators have responded and prime brokers and clients have improved their risk management and practices since the crisis, the FSB has formulated recommendations to address residual financial stability risks associated with collateral re-use. In these releases, the FSB finalizes its data collection plans, and also explores whether uniform implementation of its recommendations is truly necessary, or whether a more flexible principles-base approach might be more effective.
Congressional Report Takes on FSOC “Too Big to Fail” Designations
The House Financial Services Committee (“House Committee”) issued a report on February 28, 2017 calling into question the process by which the Financial Stability Oversight Council (FSOC) designates certain non-bank companies as “too big to fail.” Based on subpoenaed documents requested by the House Committee and the sworn testimony of Treasury Department officials, the report concludes that the FSOC is “inconsistent and arbitrary” in exercising its power to designate certain nonbank companies as systemically important. The report echoes criticisms made by government watchdogs and courts of the FSOC’s transparency and its nonbank SIFI designation process.