Formal Regulatory Remedies - Center for the Study of Financial Market Evolution (CSFME)

The Cost of Everything and The Benefit of Nothing

by David Schwartz J.D. CPA | Tuesday, August 16, 2016 | All, Change Overview and Rationale, Formal Regulatory Remedies

With the fundamental elements of post-crisis global financial regulatory reform in place, financial markets and market participants are beginning to experience more fully just how heightened capital requirements and leverage and liquidity restrictions are affecting their operations, business models, and products. While global financial markets are safer and global banks are more stable as a result of these reforms, it is becoming clear that the benefits of these regulatory solutions are not without significant costs. Some of the more obvious costs of bank capital reform were fairly easy to anticipate; and the cost-benefit models employed by the Bank for International Settlements (BIS), Financial Stability Board (FSB), IOSCO, and their teams of academics and economists astutely captured and factored those costs into their considerations.

Libor Spiked by Money Fund Rules

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

A recent uptick in the three-month US dollar Libor appears to be an unintended consequence of soon to be effective SEC money market fund regulations. Approved in 2014, the regulations intended to make structural and operational reforms to address risks of investor runs in money market funds provided for a two-year implementation period. With that period drawing to a close in October of 2016, prime money funds and their investors have been making strategic moves and investment decisions that are having knock-on effects on Libor.

FSB Chair Reports to the G20

by David Schwartz J.D. CPA | Saturday, July 23, 2016 | All, Change Overview and Rationale, Formal Regulatory Remedies

In a July 19, 2016 letter to the G20 Finance Ministers and Central Bank Governors ahead of their meeting July 23-24 meeting in Chengdu, Financial Stability Board Chair and Governor of the Bank of England Mark Carney updated the G20 leaders on the FSB’s progress made and priorities going forward. While touting successes, he also said that there was work yet to be done and urged global regulators and standard-setters to finish the job of implementing post-crisis reforms.

Basel Consults on Overhaul of Operational Risk Management

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

On March 4, 2016, the Basel Committee issued a consultation paper on the standardised measurement approach for operational risk. The newly proposed framework, dubbed the “single measurement approach” (SMA) for risk assessment, addresses weaknesses BIS has identified in the existing framework, which the consultation document describes as “unduly complex.”

Basel Committee Consults on Softening Leverage Ratio

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

On March 6, 2016, the Basel Committee on Banking Supervision (BIS) published a consultation paper proposing to amend or “calibrate” the Basel III non-risk-based leverage ratio. Banks have been lobbying the Committee quite aggressively to make changes to the way the leverage ratio leverage ratio is calculated to alter the ratio’s overly rigid approach, which they say ignores or fails to take into account the way banks handle transactions in derivatives in practice. This consultation proposes some softening of the rules by which banks that trade large numbers of financial derivatives calculate their leverage ratios. In addition, the consultation seeks comment on potentially raising the leverage ratio limit above 3% for certain global systemically important banks (G-SIBS) like Goldman Sachs, Societe Generale, Morgan Stanley and HSBC, while leaving it the same for other banks.

EU Urges a New Look at Basel Reforms

by David Schwartz J.D. CPA | Saturday, July 16, 2016 | All, Change Overview and Rationale, Formal Regulatory Remedies

In his final address on July 12, 2016 as the EU’s Commissioner for Financial Stability, Jonathan Hill announced that the European Commission would push the Bank for International Settlements (BIS) to rethink some of its Basel III reforms in light of their affects on capital, trade finance, market liquidity, and access to clearing. While applauding the regulatory work done to ensure financial stability, Hill worries that global regulators have become too risk averse, missing the big picture and trading growth for stability.

FSB Publishes Policy Framework for “Vulnerable” Asset Management Activities

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

On June 22, 2016, the Financial Stability Board (FSB) published a consultation paper proposing a framework to address four areas it sees as structural vulnerabilities from asset management activities that could potentially present financial stability risks. The consultation, Proposed Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities, proposes 14 policy recommendations to address four categories of structural vulnerabilities: 1. liquidity mismatch between fund investments and redemption terms and conditions for fund units;
2. leverage within investment funds; 3. operational risk and challenges in transferring investment mandates in stressed conditions; and 4. securities lending activities of asset managers and funds.

Treasury Department’s Singh Addresses the Future of Treasury Markets

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

On May 24, 3016 at the SIFMA Fixed Income Market Structure Seminar, Daleep Singh, the Department of the Treasury’s Acting Assistant Secretary for Financial Markets, provided an overview of the findings from the Treasury’s January 2016 request for information from industry on the future of the Treasury markets (RFI). The RFI sought input on changes in the treasury market structure, implications for changes in market fiction, and risk management policies and practices. Mr. Singh used his keynote address at the SIFMA event to summarize some of the comments received and findings from the RFI.

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.

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.

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Formal Regulatory Remedies