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

FSB Task Force Issues Recommendations for Shadow Banking Regulation

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

At the request of the G20, a Financial Stability Board task force (Task Force) has published recommendations to strengthen the oversight and regulation of the shadow banking system. As we discussed in our April 28, 2011 post, “FSB Task Force Frames the Regulation of Shadow Banking,” the FSB formed a task force (Task Force) whose primary goal is to develop recommendations to strengthen the regulation and oversight of the shadow banking system by mid-2011.

This report follows an April 12, 2011 document, “Shadow Banking: Scoping the Issues,” clarify what is meant by the “shadow banking system” and set the stage for public comment and regulatory tracking.

Taiwan Moves to Discourage Short Selling and Securities Lending

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

Taiwan has recently taken steps to curb short selling and securities lending to address extreme share price volatility. In an effort to stabilize equity markets, Taiwan’s Financial Supervisory Commission on November 21 set a new daily limit on short selling of stocks. According to the new daily cap, only 20 percent of average trading volume in the last 30 sessions could be used for short-selling. The previous rules permitted short-selling of up to 3 percent of the company’s total outstanding shares.

In addition, regulators called Taiwanese insurance companies and state pension funds directly to urge them to stop lending securities to short sellers and asked securities borrowers to return their loaned shares in a bid to reduce the volume of short selling and prevent further volatility in share prices.

September 2011 Basel Committee Recap

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

At its September 28, 2011 meeting, the Basel Committee (the “Committee) approved a range of measures aimed at finalizing the Committee’s July 2011 consultative document, “Global systemically important banks: Assessment methodology and the additional loss absorbency requirement.” The document sets out the Committee’s proposal on the assessment methodology for (1) determining global systemic importance, (2) determining the magnitude of additional loss absorbency that global systemically important banks should have, and (3) proposes the arrangements by which the methodologies will be phased in.

Reinventing the Banking Social Contract

by David Schwartz J.D. CPA | Wednesday, January 19, 2011 | All, Change Overview and Rationale, Procedural Changes

In a June address before the British Bankers’ Association Annual International Banking Conference in London, Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, explained his thoughts on redrawing the social contract between banking and society in light of the contract’s failure leading up to and during the financial crisis. According to Mr. Tucker, the traditional social contract wherein bank regulation is balanced against insulation from certain market risks through industry-wide deposit-insurance programs and state sponsored measures to reduce the probability of unwarranted failure is now deeply fractured.

Better Hedge Fund Data can Help To Inform Legislative Actions

by David Schwartz J.D. CPA | Friday, November 19, 2010 | All, Disclosure Regimes, Procedural Changes

Legislators will be better equipped to enact appropriate reforms if their deliberations are based on meaningful data regarding hedge funds. IOSCO: IOSCO believes that regulators should seek to develop a comparable and consistent set of data to be collected from local hedge fund managers and advisers to monitor systemic risks and prevent gaps in regulatory reporting requirements. We recognise that the legislative process is ongoing in many jurisdictions and their outcomes could further influence the information needed to monitor systemic risk in the hedge fund sector, as well as who collects the data. Nonetheless, setting out these categories of information may help regulators in the assessment of systemic risk and help to inform the relevant legislative debates.

Regulators Will Engage Third-Parties When Appropriate

by David Schwartz J.D. CPA | Sunday, September 19, 2010 | All, Disclosure Regimes, Procedural Changes

Although much will be expected of regulators over the next several years, it is unlikely that their budgets will be enhanced commensurately. As a result, creative affiliations will be established with the private sector, to include in-house compliance professionals and external advisors.

Improved Analytics Can Help to Monitor Systemic Linkages

by David Schwartz J.D. CPA | Thursday, February 25, 2010 | All, Disclosure Regimes, Procedural Changes

Dr. Franz-Christoph Zeitler, vice president of the Deutsche Bundsbank, speaking in Frankfurt on September 24, 2009, noted the failures of backward-looking quantitative risk measurement methods, such as value-at-risk or expected- shortfall models, which “have proved necessary but inadequate and should be supplemented by forward-looking instruments such as stress tests and scenario analyses, which also take into account changes in third party behaviour.” On the same day, Dr. Weber was speaking on the same topic, as were other central bankers around the world.

Central Banks should Monitor Counterparty Liquidity

by David Schwartz J.D. CPA | Thursday, February 25, 2010 | All, Disclosure Regimes, Procedural Changes

Through their open market operations, the trading desks at central banks gain first-hand knowledge of evolving stresses in the inter-dealer funding markets – information which can help to monitor systemic risks.

More Intelligence is Needed from (and for) Market Participants

by David Schwartz J.D. CPA | Tuesday, December 22, 2009 | All, Disclosure Regimes, Procedural Changes

Regulators intend to increase the flows of bilateral information so as to isolate sources of risk as well as the ability of market participants to improve their risk management and business models. European Central Bank: Any well-functioning macro-supervisory framework needs the support of market participants, because a rigorous monitoring of systemic risks will require continuous market intelligence.

Regulatory Failure is not an Option

by David Schwartz J.D. CPA | Sunday, December 20, 2009 | All, Disclosure Regimes, Procedural Changes

European Central Bank: We have to succeed. At stake is not only the stability of one of the world’s largest financial systems, but also the support from the over 490 million citizens in the European Union who are watching our efforts very closely. We have counted very heavily on their support for the financial system, and they would not forgive us if we had to do so a second time.

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Procedural Changes