News
FSB Takes Aim at Repo Funding
As capital requirements and structural reforms of banks and financial institutions fall into place, global financial regulators are renewing their efforts to bring shadow banking and securitized credit extension under some form of regulatory discipline. Though shadow banking has many facets needing attention, in an April 19 address at Johns Hopkins University, Lord Turner, head of the UK’s Financial Services Authority announced that regulation of repo funding mechanisms would be a priority for the Financial Stability Board this year, and in particular the FSB’s Standing Committee on Supervisory and Regulatory cooperation (SRC), of which he is the chair.
US and EU in Basel III Standoff
Citing the large volume of comments received in response to the proposed rules, on Nov. 9, 2012, the Federal Reserve Board, the OCC, and the FDIC announced in a joint release that proposed rules to implement the Basel III regulatory capital accords will not take effect on January 1, 2013.
LIBOR Banks Face a Hurricane of Litigation
A storm, or more aptly, a hurricane of litigation is on its way for the banks involved in the LIBOR rate-rigging scandal. The LIBOR banks face not just the prospect of criminal prosecution, but also exposure to law suits by thousands of market participants and others who relied upon the key interest rate in transactions and financial products.
FSB Publishes Interim Report on Securities Lending and Repos Workstream
The FSB Workstream on Securities Lending and Repos (“Workstream”) under the FSB Shadow Banking Task Force has published an interim report on its findings and progress. The mission of the Workstream is to present, by the end of 2012, policy recommendations to strengthen regulation of securities lending and repos within the context of the shadow banking system. In order to inform its decision on proposed policy recommendations, the Workstream has reviewed current market practices through discussions with market participants, and existing regulatory frameworks through a survey of regulatory authorities. This interim report identifies a number of securities lending and repo issues that might pose risks to financial stability, and positions repo and securities lending in within the shadow banking framework, laying out the Workstream’s focus as it develops its recommendations.
Fed Governor Calls Dodd-Frank Flawed. Suggests Limits on Bank Size.
In his October 10, 2012 remarks at the University of Pennsylvania Law School, Federal Reserve Board Governor, Daniel K Tarullo, criticized Dodd-Frank sharply for missing the mark in a number of vital ways in its framework for ensuring financial stability. Tarullo called Dodd-Frank a sweeping piece of legislation pieced together in a crisis, based on some theories of financial stability that are in many respects undeveloped or uncontested, and incomplete in a number of systematically important risk areas. According to Tarullo, this lack of an overarching unifying concept of financial stability or an officially embraced consensus theory of how financial stability is undermined presents a major weakness in the reform effort and is a significant hurdle for regulators in implementing and enforcing the legislation. This poor theoretical foundation for financial stability leaves major gaps in the handling of the moral hazard associated with too-big-to-fail institutions, as well as other areas like shadow banking. Consequently, Tarullo believes that these gaps in Dodd-Frank leave room for further Congressional action, including imposing caps on the size of banks.
Senators Introduce Legislation to Delay Volcker Rule
A bi-partisan group of six Senators introduced a bill (S. 2223) on March 22 that would postpone the implementation of the Volcker Rule set for on July 2. Instead, S. 2223 links the effective date of the Volker Rule to the date regulators finish drafting their Volker Rule regulations. Based on their concerns that Federal Reserve Chairman Ben Bernanke and others have said the regulations implementing the rule may not be completed by the current deadline, Sens. Mike Crapo (R-ID), Mark Warner (D-VA), Kay Hagan (D-NC), Tom Carper (D-DE), Pat Toomey (R-PA), and Bob Corker (R-TN) proposed the legislation.
Proxy Season 2012 Issues & Resources
With all the legislative changes, additional required disclosures, say on pay and corporate governance issues percolating in the background, investors, companies, and investment managers are faced with a challenging 2012 proxy season. Today we alert you to two issues involving proxy advisory services and point you to a resource for navigating the 2012 proxy season.
IOSCO Issues Consultation Paper on Distribution of Complex Financial Products
Last week, the Technical Committee of the International Organization of Securities Commissions (IOSCO) issued a consultation paper on the distribution by intermediaries of complex financial products to retail and non-retail customers. The paper focuses on customer protections, proposing nine principles governing suitability and disclosure obligations, and will carry much weight as jurisdictions and IOSCO member regulators design or strengthen their regulatory regimes governing complex securities.
Harvard’s Coates on Proposed Securities Law Reforms
John C. Coates IV, professor of law and economics at Harvard Law School, testified before the U.S. Senate Subcommittee on Securities, Insurance and Investment on December 14. In his testimony, Professor Coates took up three themes related to pending proposals to revise securities laws to (among other things) deregulate widely held but unlisted companies and banks, to permit unregistered “crowdfinancing,” and to loosen constraints on small public offerings:
ESMA Issues Consultation Draft on Regulation of OTC Derivatives, CCPs and Trade Repositories
The European Securities and Markets Authority has issued a discussion draft on proposed regulation of OTC Derivatives, CCPs and trade repositories. The draft introduces provisions to improve transparency and reduce the risks associated with the OTC derivatives market and establishes common rules for central counterparties and for trade repositories.
The discussion paper follows the structure of the European Market Infrastructure Regulation proposal (EMIR) published in 2010, with the first section focusing on OTC derivatives and in particular the clearing obligation, risk mitigation techniques for contracts not cleared by a CCP and exemptions to certain requirements.