Early in August, the European Repo Council of the International Capital Market Association released the results of its 23rd bi-annual survey of the European repo market. The survey results reflect that risk aversion is still a vital important factor to banks in the selection of collateral, but the survey shows that this is no longer automatically reflected in increased use of government bonds.
In their communiqué from June’s Los Cabos meeting, the G20 said that it expects member nations to finalize their OTC derivatives regulations in order to meet the the G20’s fast approaching deadline. The communiqué urges member nations to fast track their legislative and regulatory policy processes so that by the end of 2012 all standardized OTC derivative contracts are traded on exchanges or electronic trading platforms (as appropriate) and cleared through central counterparties. In addition, the G20’s committment calls for OTC derivative contracts to be reported to trade repositories, and non-centrally cleared contracts to be subject to higher capital requirements by the end of 2012 as well.
Per the fiscal year 2013 Financial Services and General Government Appropriations bill of the House Appropriations Committee, the SEC must perform an in-depth study on the effectiveness of the Commission’s long standing rules, as well as the more recent money market regulatory reforms. In particular, Congress wants to know whether these rules help in providing liquidity to the capital and municipal markets and to what extent they promote and enhance money market fund stability, resiliency, and transparency. This proposed legislation just adds to the ongoing discussion among US regulators, Congressional leaders, and international oversight bodies on the systematic risks still posed by money market funds.
Deloitte LLP has come up with clever new way to describe and track the size and changes in the shadow banking industry. Recognizing that market participants and regulators lacked clarity and consistency when it came to defining, measuring, and framing the debate about this complex and dynamic subject, Deloitte has devised a “Shadow Banking Index.”
In anticipation of the G20 Leaders Summit in Los Cabos, Mexico on June 18-19, The Basel Committee has issued its latest progress reporton the implementation of its banking standards across member countries. The Committee finds that, though significant progress has been made since its last report, there are jurisdictions which have missed the globally-agreed implementation dates for Basel II and 2.5. In addition, there are also jurisdictions, including the US, that the Committee feels have not made enough progress to date on Basel III and and run the risk of failing to meet the agreed Basel III implementation date.
The SEC has issued a policy statement laying out a roadmap for how it plans to implement new rules regulating security-based swaps and security-based swap market participants under authority granted to it by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The Statement presents a sequencing of the compliance dates for these final rules by grouping the rules into five categories and describes the interconnectedness of the compliance dates for these rules, both within and among the five categories.
Verena Ross, Executive Director of the European Securities and Markets Authority, says that the EU will lead by example in the harmonization and convergence of regulation of OTC derivatives. With the plan for the EU regulation of OTC derivatives, central counterparties, and trade repositories (EMIR) now having been agreed upon by the European Parliament and the Council, ESMA is due to deliver draft regulatory and implementing technical standards under EMIR in June. Ross believes that if the EU is able to harmonize regulation and integrate supervision in Europe, the same convergence is possible, and necessary, globally.
In an April interview with BaFin Quarterly, Dr. Elke König, the head of Germany’s Federal Financial Supervisory Authority (BaFin), called for the swift regulation of shadow banking and derivatives. Critical of the FSB’s data gathering approach to shadow banking, König said that regulators must push ahead with regulating shadow banking straight away, or they will be regulating banks while more dangerous shadow banking risks grow.
Shadow banking, i.e., credit intermediation outside the regular banking system, may represent the greatest challenge facing financial policy makers today. Since the G20 Summits in Seoul in 2010 and Cannes in 2011, regulators have struggled to envision the changes needed to reign in shadow banking practices. At an April 27 conference in Brussels, which was dedicated solely to shadow banking, the European Commission released a Consultation Paper with three questions intended to guide future regulation.
The rush to reregulate the financial markets after the financial crisis understandably has many concerned about unintended consequences. Regardless of good intentions, the fixes put in place by legislators, central bankers, and regulators no matter how well thought out are bound to affect the complex and constantly evolving global financial markets in unanticipated ways. Professor Roberta Romano of the Yale Law School shares these worries and proposes in her latest paper, Regulating in the Dark, a mechanism for addressing and remediating the inevitable unintended consequences of hasty financial regulation.