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

Bank of England Examines Market Developments in Securities Lending

by David Schwartz J.D. CPA | Thursday, September 22, 2011 | All, Change Overview and Rationale, Disclosure Regimes

In their Quarterly Bulletin (Q3 2011), the Bank of England (BOE) examines the lessons the financial crisis revealed in the securities lending industry, as well as some of the more recent market driven and regulatory developments emerging to mitigate these risks. In particular, BOE voices a high level of concern over the risk of contagion arising from the interconnectedness between participants created by securities lending transactions, and the dangerous opacity of risks incurred across all participants prior to the financial crisis.

Proposed UK Financial Services Bill Would Radically Change UK Regulatory Structure

by David Schwartz J.D. CPA | Monday, September 19, 2011 | All, Change Overview and Rationale, Formal Regulatory Remedies

The Chancellor of the Exchequer has proposed a radical reformulation of financial services regulation in the UK unifying for the first time macro-prudential regulation, day-to-day oversight, and conduct of business regulation of all financial services firms. Under the UK’s current tripartite system, HM Treasury, the Bank of England, and the Financial Services Authority (FSA) share responsibilities. All three entities have come under fire for failing to anticipate the financial crisis, and the tripartite system has been blamed on many fronts for failing to deal with the crisis in a timely and effective manner. This legislation seeks to address some of the division and miscoordination alleged to have occurred amongst the tripartite entities. The proposed three new structure would do away with the FSA, and unify regulation and supervision under new structures housed in the Bank of England.

Senate Finance Committee Asks for Volcker Rule Delays and Revisions

by David Schwartz J.D. CPA | Monday, September 19, 2011 | All, Formal Regulatory Remedies

In a December 7 letter to the Fed, SEC, CFTC, OCC, and FDIC, House Financial Services Committee Chair Spencer Bachus (R-ALA) requested that the comment period for the proposed regulations implementing the Dodd-Frank Volcker Rule be extended for at least 30 days to accommodate a January 18, 2012 Financial Services Committee hearing. At present, the comment period for the regulations expires on January 13, 2012.

UK Independent Commission on Banking Issues Recommendations

by David Schwartz J.D. CPA | Wednesday, September 14, 2011 | All, Change Overview and Rationale, Disclosure Regimes

Following the financial crisis, the UK established the Independent Commission on Banking (ICB) to examine options for the reform of the country’s banking industry. In June 2010, the ICB was asked to study a range of structural and non-structural reforms to the UK banking sector that would foster financial stability and competition. The ICB issued their final report on September 12. The ICB’s proposals, if ultimately implemented, will have consequences not only for UK banks but also for foreign banks conducting business in the UK, and for counterparties, creditors, and other market participants.

European Central Bank Introduces New Data Sets

by David Schwartz J.D. CPA | Wednesday, September 14, 2011 | All, Disclosure Regimes, Formal Regulatory Remedies, Procedural Changes

“Not least the frequently cited deficiencies of the Greek statistical system (with respect to both methodological and institutional aspects) have reminded us of the importance of reliable, accurate and timely statistics for the functioning and credibility of our whole system.” Market events over the past several years have made it quite clear that meaningful and transparent financial data are vital to effective monitoring of market participants as well as understanding the scale of the shadow banking activities and their interconnectedness with the traditional banking system. In a June address in Frankfort, Jürgen Stark, a member of the Executive Board of the European Central Bank (ECB), announced new statistical data sets intended to improve the existing balance sheet and interest rate reporting by “monetary financial institutions.” The ECB has introduced these new data sets as part of their effort develop relevant and real-time policies to assess systematic risks and keep apace of innovations and movements in the financial landscape.

US Banking Regulators Seek Additional Comment on Market Risk Capital Rules

by David Schwartz J.D. CPA | Friday, August 19, 2011 | All, Formal Regulatory Remedies

The Fed, the FDIC and the OCC have issued a release seeking additional comment on proposed modifications to the agencies’ market risk capital rules for banks with significant trading activities. This release amends a December 2010 proposal, and includes alternative standards of creditworthiness to be used in place of credit ratings to determine the capital requirements for certain debt and securitization positions covered by the market risk capital rules.

House Subcommittee Approves Legislation Allowing Pension Plans to Use Swaps to Hedge Risks

by David Schwartz J.D. CPA | Sunday, June 19, 2011 | All, Formal Regulatory Remedies

On November 15, the House Capital Markets Subcommittee approved legislation that would amend the Employee Retirement Income Security Act, the Commodity Exchange Act, and the Securities Exchange Act to ensure that pension plans can use swaps to hedge risks. The Retirement Income Protection Act, HR 3045, sponsored by Rep. Francisco Canseco (R-TX), and co-sponsored by Chairman Scott Garrett (R-NJ), was approved on a partisan vote of 19-14. The purpose of the bill is to address regulatory interpretations of Dodd-Frank Title VII that could potentially prohibit pension plans from using swaps to hedge against market volatility and manage the obligations owed to retirees.

FSB Identifies Five Areas for Detailed Study

by David Schwartz J.D. CPA | Thursday, May 19, 2011 | All, Change Overview and Rationale, Formal Regulatory Remedies, Procedural Changes

The Financial Stability Board announced on September 1 the formation of dedicated work streams to help gauge the case for further regulatory action in five areas associated with shadow banking, notably including securities lending and repos.

FSB Task Force Frames the Regulation of Shadow Banking

by David Schwartz J.D. CPA | Wednesday, April 27, 2011 | All, Change Overview and Rationale, Formal Regulatory Remedies

The “shadow” banking system played a major role in the financial crisis, but was not a central focus of many countries’ reform legislation and potentially remains largely unregulated. At the November 2010 Seoul Summit, the G20 Leaders heralded the development of new bank capital and liquidity requirements under Basel III. But concerned by the growing importance of the “shadow banking system,” which grew out of the securitization of assets and the integration of banking with capital market developments, the G20 Leaders called on the Financial Stability Board (FSB), in collaboration with other international standard setting bodies, to develop recommendations to strengthen the oversight and regulation of the “shadow banking system” by mid-2011.

FSB Red-flags Securities Lending by ETFs

by David Schwartz J.D. CPA | Tuesday, April 19, 2011 | All, Formal Regulatory Remedies, Procedural Changes

In a report issued April 12, 2011, the Financial Stability Board (FSB) highlighted a number of practices engaged in by exchange-traded funds that may be sources of risk to financial stability. Calling for greater disclosure and transparency, securities lending was among the practices red-flagged by the FSB.

The FSB warns that in the low margin environment of ETFs, pressures to boost returns may provide undue incentives to aggressively, and potentially unwisely, lend the underlying securities of the ETF.

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