Category: Change Overview and Rationale

Just How do Mutual Funds Use Derivatives Anyway?

by David Schwartz J.D. CPA | Sunday, June 19, 2016 | All, Change Overview and Rationale, Formal Regulatory Remedies

As a companion to the SEC’s recent proposed rules on the use of derivatives by registered investment companies, the SEC’s Office of Risk Analysis has published a white paper studying just how funds use derivatives. Based on data from Forms N-CSR and N-SAR supplemented with information from Morningstar, the study’s authors assembled data on derivatives positions held by 10 percent of funds registered in 2014. Because section 18 of the Investment Company Act restricts the ability of a fund to issue “senior securities,” the study focuses on those derivatives (and certain financial commitment transactions) that implicate section 18.[1] These kinds of derivative positions can potentially present “senior security” issues because a fund that enters into these transactions is or may be required to make a payment or deliver cash or other assets during the life of the instrument or at maturity or early termination.

April Fed Statistics Reveal Decrease in Collateral in the U.S. Tri-Party Repo Market

by David Schwartz J.D. CPA | Tuesday, June 14, 2016 | All, Change Overview and Rationale

The Federal Reserve Bank of New York’s (Fed) recently released its April 2016 statistics for the U.S. Tri-Party Repo Market reveal that between March 9, 2016 and April 11, 2016, total tri-party repo collateral decreased by approximately $82 billion to $1.517 trillion. The bulk of the decrease in collateral was attributed to US Treasuries, excluding Strips. The collateral value for US Treasuries Strips actually increased slightly from approximately $32 billion to $35 billion. Reversing an increase in March, April figures show that equities collateral decreased by $5 billion to total collateral of $113.5 billion, a 12-month low. The data showed very little change in the collateral value for agency MBS which saw a slight decrease of $820 million to a total value of $419.54 billion.

FSB’s Americas Group Concerned about Decline in Correspondent Banking Services

by David Schwartz J.D. CPA | Monday, June 06, 2016 | All, Change Overview and Rationale, Formal Regulatory Remedies

On May 26 and 27, 2016, the Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Americas convened in Montréal for a series of round tables covering the decline in correspondent banking services and issues relating to asset management activities. The RCG for the Americas is one of six Regional Consultative Groups established under the FSB Charter to provide a forum for FSB outreach to a wider range of countries in the region beyond the FSB membership on potential vulnerabilities affecting the region, on FSB initiatives, and on other measures that could be taken to promote financial stability.

Treasury Department Assesses Liquidity in Fixed Income Markets

by David Schwartz J.D. CPA | Thursday, May 26, 2016 | All, Change Overview and Rationale, Formal Regulatory Remedies

On May 5, 2016, the Department of the Treasury kicked off a series of blog posts on the fixed income market intended to “share our perspective on the available data, discuss key structural and cyclical trends, and reiterate our policy priorities.” The posts are authored by a team of seasoned Treasury officials: James Clark, Deputy Assistant Secretary for Federal Finance; Chris Cameron, financial mathematician; and Gabriel Mann, policy advisor in the Office of Debt Management at the U.S. Treasury Department.

FSB Review Concludes that Taming of Shadow Banking is Far From Complete

by David Schwartz J.D. CPA | Wednesday, May 25, 2016 | All, Change Overview and Rationale, Formal Regulatory Remedies

According to a peer review published the by Financial Stability Board (FSB) on May 25, 2016, regulation of shadow banking remains at an early stage, and much progress remains to be made. According to the report, notwithstanding the progress made, “more work is needed to ensure that jurisdictions can comprehensively assess and respond to potential shadow banking risks posed by non-bank financial entities, and support FSB risk assessments and policy discussion.”

Basel Chair Calls for More Research into Bank Risk Models

by David Schwartz J.D. CPA | Thursday, May 19, 2016 | All, Change Overview and Rationale, Formal Regulatory Remedies

In his December 2, 2016 keynote speech at the second Conference on Banking Development, Stability and Sustainability, Basel Committee Chairman Stefan Ingves invited the financial industry and academics to help better calibrate capital and liquidity standards. As the Committee finalizes Basel III, Ingves said that he welcomes research and rigorous analysis of how the Committee should think about the capital benefits of allowing banks to use internally modeled approaches to calibrate appropriate capital floors.

Transfer Agent Regulation Poised to Step Into the 21st Century

by David Schwartz J.D. CPA | Thursday, May 19, 2016 | All, Change Overview and Rationale, Formal Regulatory Remedies

On December 22, 2015, the Securities and Exchange Commission left a present in all our stockings with its publication of a 208-page advanced notice of proposed rule making and concept release on the regulation of transfer agents. Modernizing the aging rules for transfer agents has been rumored for awhile, but no doubt fell behind other priorities related to the financial crisis and Dodd-Frank mandates. Commissioner Luis Aguilar and now former Commissioner Daniel Gallagher have both been fairly vocal about the need for new transfer agency rules. Both would have preferred an actual rule proposal, but apparently will have to settle for an advanced notice/concept release at this stage.

BIS Publishes Survey on Integration of Regulatory Capital and Liquidity Instruments

by David Schwartz J.D. CPA | Sunday, May 15, 2016 | All, Change Overview and Rationale, Formal Regulatory Remedies

In March 2016, the Bank for International Settlements (BIS) published a paper reviewing the current knowledge and empirical data on the effects of new bank capital and liquidity requirements. This literature review is comprised of three essays surveying the current body of research and empirical studies on liquidity and its interaction with capital and on other supervisory requirements.

OFR Data Finds US Banks Still the Most Systemically Important

by David Schwartz J.D. CPA | Wednesday, April 27, 2016 | All, Change Overview and Rationale

On April 13, 2016, the Office of Financial Research (OFR) published its annual systemic importance data for the world’s larges banks. Based on data released in 2013 and 2014 by the Basel Committee, the OFR’s report examined data for the global 30 banks designated as G-SIBs, which included eight US bank holding companies. The OFR’s data collection and analysis is particularly significant because, beginning this year, regulators will employ this systemic importance data in determining capital requirements for banks.

FSOC Asks for Enhanced and Regular Data Collection for Securities Lending

by David Schwartz J.D. CPA | Wednesday, April 20, 2016 | All, Change Overview and Rationale, Formal Regulatory Remedies

In their April 16, 2016 report, Review of Asset Management Products and Activities, the Financial Stability Oversight Council (FSOC) requested that regulators make coordinated and permanent efforts to collect more data on securities lending. Noting that that current data collections do not provide regulators and policy makers with enough information to even know the size of the market for securities lending, the FSOC urged enhanced and regular data collection and reporting, as we all as interagency data sharing regarding securities lending activities.

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Change Overview and Rationale