The systematic effect of money market funds on the wider financial system is a topic of hot debate, with finance ministers, regulators, and standard setting bodies all over the globe weighing in. The New York Federal Reserve Bank is the latest to do so, asking “does money market fund intermediation make the banking system inherently unstable?”
Does a complex and ever changing financial system require a complex and ever changing system of regulation? History has taught us over and over again that it is not credible to argue that the financial system should be unregulated.
On December 10, 2013, five federal agencies issued final rules developed jointly to implement section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”). The final Volker Rules prohibit FDIC insured depository institutions and companies affiliated with insured depository institutions from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options on these instruments, for their own account.
In a joint letter issued on November 5th, the FDIC, Bank of England, German Federal Financial Supervisory Authority, and Swiss Financial Market Supervisory Authority requested that the International Swaps and Derivatives Association adopt language in derivatives contracts to delay the early termination of those instruments in the event of the resolution of a global systemically important financial institution.
Specifically, the four resolution authorities are concerned with the cascading effects these derivatives contract termination rights and other remedies may have in the event of the insolvency of a major global counterparty.
On November 5, 2013, the Financial Stability Board (FSB) launched the second stage of its two-stage quantitative impact study on the proposed regulatory framework for securities financing transactions. As you may recall, on August 29, 2013, the FSB published the results of the first stage of its look into securities finance.
On November 8, 2013, a three-judge panel of the UK Court of Appeals handed down a much awaited ruling in two LIBOR-related cases. The ruling allows plaintiffs in two cases involving interest rate swap transactions referencing LIBOR to amend their claims to allege that the defendant banks made implied representations that their participation in setting the LIBOR rate was honest.
R]eforms of domestic banking are far from sufficient for a global hub like London. Now is the time for a greater focus on what’s needed for resilient international banking and robust global markets.
Is collateralized commercial paper (CCP) the the new “killer app” for liquidity? Finadium, a leading specialist research and advisory firm in the securities and investments industry, has published a a research report, “Collateralized Commercial Paper: Regulatory Arbitrage or Elegant Solution?” exploring whether innovative forms of CCP may at least in the short term take the place of repo.
The Office of the Comptroller of the Currency (OCC) and Board of Governors of the Federal Reserve System (Fed) published final rules in the Federal Register on October 11, 2013 revising risk-based and leverage capital requirements for banking organizations and replacing existing interim rules.
The Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) have published their final framework for margin requirements for non-centrally cleared derivatives. The document sets forth globally agreed standards for all financial firms and systemically important non-financial entities that engage in non-centrally cleared derivatives.