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

Bank Board Structure and Performance

by David Schwartz J.D. CPA | Friday, December 16, 2011 | All, Formal Regulatory Remedies, Procedural Changes

The financial crisis has put a spotlight on the corporate governance structures of financial institutions, raising questions about whether the prevailing governance structures of banks are ineffective and whether implementing independence standards imposed by the Dodd-Frank Act, the Sarbanes-Oxley Act and the major stock exchanges will improve bank governance. A recently published paper by Renee Adams, Professor of Finance at the University of New South Wales, and Hamid Mehran of the Federal Reserve Bank of New York, attempts to answer to this question by examining the relationship between board composition and size and bank performance.

European Parliament Restricts Short Selling and Use of Credit Default Swaps

by David Schwartz J.D. CPA | Sunday, November 27, 2011 | All, Formal Regulatory Remedies, Procedural Changes

At the height of the financial crisis in September 2008, financial regulators in several EU Member States adopted emergency measures to restrict or ban short selling in some or all securities. These regulatory actions were prompted primarily by concerns that at a time of considerable financial instability, short selling can be highly disruptive and could aggravate the downward spiral in the prices of shares, notably in financial institutions, in a way which could ultimately threaten their viability and create systemic risks. These measures implemented by the EU member states were not coordinated as the EU does not yet have a common regulatory framework for dealing with short selling issues, resulting in divergent and fragmented sets of restrictions between the states.

SEC Chairman on the Challenges of Regulating Derivatives

by David Schwartz J.D. CPA | Thursday, November 24, 2011 | All, Change Overview and Rationale, Formal Regulatory Remedies, Procedural Changes

In a dialog at the Managed Funds Association Outlook 2011 seminar held in October between SEC Chairman Mary Schapiro, former SEC Chairman Harvey Pitt, and Managed Fund Association head, Richard Baker, Chairman Schapiro commented on the international and domestic challenges regulators face in coordinating the regulation of derivatives.

Domestically, coordination between the SEC and CFTC in the area of derivatives is critical because the agencies have different approaches to regulation, statutory authority, and the OTC derivatives markets they are charged with overseeing are not exactly the same. In addition, while the CFTC and SEC may effectively demarcate the types of OTC derivatives the oversee, the firms using these derivatives are not similarly demarcated. Differences in regulation between the two agencies may cause these firms difficulties.

Draft Volcker Rule Prompts Buyers’ Remorse

by David Schwartz J.D. CPA | Tuesday, November 22, 2011 | All, Change Overview and Rationale, Formal Regulatory Remedies, Procedural Changes

In a strongly worded letter to Federal Reserve Chair Ben Bernanke, Rep. Maurice Hinchey (D-NY), Rep. Peter Welch (D-VT), and 15 other House members urged the Fed and other federal regulators to reject the current draft of the Volcker Rule regulations and replace them with stronger language to prohibit commercial banks from engaging in investment activities. Citing the current version of the Volcker Rule as unnecessarily complex and filled with loopholes, the letter contends that the Fed’s current draft of the rules fails to protect bank deposits from risky trading activities and falls short of what the Dodd-Frank Act intends.

ISS Issues Policy Updates for the 2012 Proxy Season

by David Schwartz J.D. CPA | Friday, November 18, 2011 | All, Formal Regulatory Remedies, Procedural Changes

Institutional Shareholder Services Inc. (ISS) has published the 2012 updates to its US and international corporate governance policies. These guidelines are applicable to shareholder meetings held on or after February 1, 2012. Given the attention regulators and legislators have taken in corporate governance issues as of late, the new ISS guidelines for US companies include changes in several important areas.

Geithner: Shadow Banking Remains a Key Regulatory Target

by David Schwartz J.D. CPA | Friday, October 28, 2011 | All, Change Overview and Rationale, Procedural Changes

In his October 6, 2011 testimony before the before the US Congress’s Committee on Banking, Housing, and Urban Affairs, Treasury Secretary Timothy F. Geithner made it clear that shadow banking remains an an area of great concern on his regulatory agenda. Geithner testified that “shrinking the shadow banking system” is a major item in the Department of the Treasury’s recent regulatory successes. This testimony, coupled with his other recent statements makes it clear that that he hopes to see the shadow banking system further reduced.

Dodd-Frank Developments Affecting Swaps

by David Schwartz J.D. CPA | Wednesday, October 12, 2011 | All, Change Overview and Rationale, Formal Regulatory Remedies, Procedural Changes

For the most part, provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111-203, H.R. 4173 (the Act) relating to derivatives are aimed at increasing transparency, altering clearing and exchange trading requirements, regulation of swap dealers and other swap market participants, restrictions on swaps trading by banks and associated increases in capital and margin requirements. The Act leaves many of the details of implementation to regulators. With over a year behind us, we can now reflect on what regulators have proposed, adopted, and left unfinished with regard to swaps.

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.

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 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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Procedural Changes