News
Fed Report Finds Regulation Harming Repo Markets and Liquidity
As we reported in our January 3, 2017 post, a Fed staff report published in December 2016 found that the Volcker Rule was harming bond liquidity. Not a month later, a new Fed staff working paper[1] published this week found that regulations limiting banks’ balance sheets like the Supplementary Leverage Ratio have made repurchase agreements (repos) more expensive for dealers, and this in turn has had negative affects on on liquidity in the cash Treasury market.
SEC Chief Plans a Defiant Departure
SEC Chair Mary Jo White is not sticking around at the SEC after the inauguration next month. But she does not plan to be idle in her remaining time at the Commission. In a pointed response to an earlier request by GOP senators to stop issuing new rules called for by Dodd-Frank, White has vowed to push ahead with a list of open regulatory matters. Chairman White’s letter strikes a defiant tone and asserts the necessary and statutory independence of the SEC from political meddling.
Is Blockchain the Future of Securities Lending?
By now, all but the most strident luddite has heard of Bitcoin, the notorious stateless crypto-currency. Naturally, financial firms and regulators have started to take notice of Bitcoin. But it is not necessarily the currency they are interested in. Rather, they are exploring the technology that makes the virtual currency possible.
Industry Leaders Want Dodd-Frank Fixed Not Scrapped
As we mentioned last week it is premature to write the obituary for Dodd-Frank. Regulators have publicly recommitted themselves to seeing Dodd-Frank implemented fully. But regulators are not the only ones who would like to hold on to at least some aspects of the new regulatory landscape. Recently in speeches and congressional testimony, rather than calling for wholesale repeal, leaders of several of the largest banks and trade groups in the U.S. financial industry have advocated revision and refinement of the regulations under the Act, preserving what works while changing what does not.
Should Size Matter When it Comes to Financial Regulation?
In a June 8, 2016 address in Berlin, Dr. Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, spoke about potentially easing the burden on smaller financial institutions by calibrating financial regulation based on banking entities’ size and complexity. Dr. Dombret began his remarks by warning that the burdens of regulatory reform may be overwhelming smaller institutions. And with only larger banks able to cope, increased regulation may have the unintended effect of driving more consolidation, resulting in less diversity, more concentration of risk, and perpetuation of the too big to fail phenomenon.
Flash Crash Suit Against Congress and the SEC Goes Up in Smoke
Angry investor Clyde Calvin Grady II has had his day in court. In a November 2015 ruling, the U.S. Court of Claims dismissed Grady’s suit against Congress and the Securities and Exchange Commission alleging that, by failing to prevent the 2010 “Flash Crash,” the SEC had breached an implied contract with investors.
The New Shape of Shadow Banking Regulation
In a July 12, 2016 address at the Center for American Progress and Americans for Financial Reform Conference, Washington, DC, Federal Reserve Board Governor Daniel K. Tarullo provided some insights in to the Fed and FSOC’s current thinking on regulation of shadow banking.
Dodd-Frank Won’t Go Gently into that Good Night
Listening to the pundits, the press, and the political class, one gets the impression that the repeal of the Dodd-Frank Act and its new regulatory landscape is imminent and certain. But to paraphrase Mark Twain, the rumors of Dodd-Frank’s death have been greatly exaggerated. Lately, regulators at the Fed, CFTC, and OCC have been giving full-throated rhetorical support to the post-crisis financial reforms already in place, and have both tacitly and explicitly been signaling their commitment to completing what they believe is the unfinished work of the new financial regulatory regime. While the electoral triumph of those long opposed to Dodd-Frank almost certainly will introduce a strong deregulatory assault against the legislation, it does not necessarily mean the death of every aspect of Dodd-Frank Act.
Enlightened, not Reactive Regulation: Now It Starts
Since passage of the Dodd-Frank Act in 2010, the financial industry has been dealing with an almost unstoppable wave of regulatory reforms. Most, if not all have been designed to prevent a repetition of the problems that followed the failure of AIG and Lehman Brothers in 2008. Now, after the U.S. election of a conservative majority in two (and soon to be all three) branches of the U.S. federal government, many bankers feel that a huge regulatory weight is about to be lifted.
FSB Announces Priorities for 2017
At its November 17, 2016 plenary session in London, the Financial Stability Board (FSB) met to discuss current vulnerabilities and agree on priorities for 2017. While noting that the global financial system is more resilient as a result of the regulatory reforms introduced following the 2008 financial crisis, the FSB is keeping a close eye on areas of concern like high sovereign and corporate debt, asset quality and profitability issues faced by banks, and unfinished balance sheet repair in some parts of the financial system. With these and other potential vulnerabilities in mind, the FSB has assembled a list of the areas upon which they plan to focus their attention in the upcoming year.