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

U.S. Finalizes Stress Test Guidance for Largest Banks

by David Schwartz J.D. CPA | Thursday, May 17, 2012 | All, Formal Regulatory Remedies

The Federal Reserve Board, Federal Deposit Insurance Corporation, and the Office of the Comptroller of Currency have issued definitive guidance on supervisory expectations for stress testing by banking organizations with more than $10 billion in total consolidated assets. This set of interpretations is a final version of initial guidance issued June 15, 2011, and provides high-level principles for stress testing practices required of big banks and depository institutions. Overall, it “highlights the importance of stress testing as an ongoing risk management practice that supports a banking organization’s forward-looking assessment of its risks and better equips the organization to address a range of adverse outcomes.”

Basel Seeks Input on Trading Book Capital Requirements

by David Schwartz J.D. CPA | Monday, May 14, 2012 | All, Formal Regulatory Remedies

The Basel Committee on Banking Supervision is seeking comment on initial policy proposals emerging from the Committee’s fundamental review of trading book capital requirements The consultation paper contemplates a revised market risk framework and proposes specific measures intended to improve trading book capital requirements. These proposals also reflect the Committee’s increased focus on achieving a regulatory framework that can be implemented consistently by supervisors and which achieves comparable levels of capital across jurisdictions.

Comparing US and EU Derivatives Regulation Regimes

by David Schwartz J.D. CPA | Sunday, April 29, 2012 | All, Formal Regulatory Remedies

As a result of commitments made at the G20 in 2009, member states across the globe are engaging in a number of regulatory reform initiatives addressing derivatives. Though the G20 members agreed to some basic principles of regulation, and officials say that some level of cooperation and coordination is happening, the proposed regimes are not identical, and each may have extraterritorial effects. These new sets of rules and regulations emanating from each jurisdiction’s initiative may present some difficult compliance issues for end users of derivatives with global trading operations. Sidley & Austin has put together a report comparing and contrasting some of the provisions and new regulations under the US’s Dodd-Frank Act and those under the EU’s European Market Infrastructure Regulation (EMIR) and Markets in Financial Instruments Directive (MiFID II). This report should help clarify areas where compliance issues may arise for global traders.

Fed Sets Volcker Rule Phase-In

by David Schwartz J.D. CPA | Wednesday, April 25, 2012 | All, Formal Regulatory Remedies

On April 19, the Federal Reserve Board clarified that an entity covered by Volcker Rule will have the full two-year period provided by the statute to conform its activities and investments. The guidance issued by the Fed also assures covered entities and institutions that no activities or investments will be prohibited by the Volcker Rule until the end of the implementation period, currently scheduled to occur on July 21, 2014.

Bernanke: Shadow Banking Remains a “Key Vulnerability”

by David Schwartz J.D. CPA | Tuesday, April 24, 2012 | All, Change Overview and Rationale

In an April 13 address, Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System, made clear that he sees the system of shadow banking as a key vulnerability that makes another catastrophic economic crisis nearly inevitable. In Bernanke’s view, the increased importance of the so-called shadow banking system is the primary reason for the severity and pervasiveness of the financial crisis, and the regulatory gaps in which shadow banking activities operate must be addressed by policy makers.

FSB Takes Aim at Repo Funding

by David Schwartz J.D. CPA | Sunday, April 22, 2012 | All, Formal Regulatory Remedies

As capital requirements and structural reforms of banks and financial institutions fall into place, global financial regulators are renewing their efforts to bring shadow banking and securitized credit extension under some form of regulatory discipline. Though shadow banking has many facets needing attention, in an April 19 address at Johns Hopkins University, Lord Turner, head of the UK’s Financial Services Authority announced that regulation of repo funding mechanisms would be a priority for the Financial Stability Board this year, and in particular the FSB’s Standing Committee on Supervisory and Regulatory cooperation (SRC), of which he is the chair.

US and EU in Basel III Standoff

by David Schwartz J.D. CPA | Thursday, April 19, 2012 | All, Formal Regulatory Remedies

Citing the large volume of comments received in response to the proposed rules, on Nov. 9, 2012, the Federal Reserve Board, the OCC, and the FDIC announced in a joint release that proposed rules to implement the Basel III regulatory capital accords will not take effect on January 1, 2013.

LIBOR Banks Face a Hurricane of Litigation

by David Schwartz J.D. CPA | Thursday, April 19, 2012 | All

A storm, or more aptly, a hurricane of litigation is on its way for the banks involved in the LIBOR rate-rigging scandal. The LIBOR banks face not just the prospect of criminal prosecution, but also exposure to law suits by thousands of market participants and others who relied upon the key interest rate in transactions and financial products.

Fed Governor Calls Dodd-Frank Flawed. Suggests Limits on Bank Size.

by David Schwartz J.D. CPA | Thursday, April 19, 2012 | All, Change Overview and Rationale, Formal Regulatory Remedies

In his October 10, 2012 remarks at the University of Pennsylvania Law School, Federal Reserve Board Governor, Daniel K Tarullo, criticized Dodd-Frank sharply for missing the mark in a number of vital ways in its framework for ensuring financial stability. Tarullo called Dodd-Frank a sweeping piece of legislation pieced together in a crisis, based on some theories of financial stability that are in many respects undeveloped or uncontested, and incomplete in a number of systematically important risk areas. According to Tarullo, this lack of an overarching unifying concept of financial stability or an officially embraced consensus theory of how financial stability is undermined presents a major weakness in the reform effort and is a significant hurdle for regulators in implementing and enforcing the legislation. This poor theoretical foundation for financial stability leaves major gaps in the handling of the moral hazard associated with too-big-to-fail institutions, as well as other areas like shadow banking. Consequently, Tarullo believes that these gaps in Dodd-Frank leave room for further Congressional action, including imposing caps on the size of banks.

FSB Publishes Interim Report on Securities Lending and Repos Workstream

by David Schwartz J.D. CPA | Thursday, April 19, 2012 | All, Change Overview and Rationale, Formal Regulatory Remedies

The FSB Workstream on Securities Lending and Repos (“Workstream”) under the FSB Shadow Banking Task Force has published an interim report on its findings and progress. The mission of the Workstream is to present, by the end of 2012, policy recommendations to strengthen regulation of securities lending and repos within the context of the shadow banking system. In order to inform its decision on proposed policy recommendations, the Workstream has reviewed current market practices through discussions with market participants, and existing regulatory frameworks through a survey of regulatory authorities. This interim report identifies a number of securities lending and repo issues that might pose risks to financial stability, and positions repo and securities lending in within the shadow banking framework, laying out the Workstream’s focus as it develops its recommendations.

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