News
Congress Introduces Bill Expanding Funding Options for US Financial Institutions
On November 9, 2011, Senators Kay R. Hagan (D-NC) and Bob Corker (R-TN) introduced a bill that would provide a legislative framework for establishing a US covered bond market. The purpose behind creating a covered bond market in the US is to enhance liquidity and provide a new source of stable, long-term financing to financial institutions and others derived from private capital markets. According to Senator Hagan, this legislation would provide an important source of funding for the capital markets sorely missing in the United States.
ISS Issues Policy Updates for the 2012 Proxy Season
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.
Model-Sensitive Disclosures Under Consideration
In a forthcoming article in the Vanderbilt Law Review, Robert P Bartlett III, Assistant Professor of Law at the University of California, Berkeley, proposes a disclosure regime designed to enhance accurate pricing of a bank’s exposure to credit risk while at the same time safeguarding the confidentiality of a bank’s proprietary investment strategies and customer information. The article, Making Banks Transparent, begins from the premise that bank disclosures are notoriously lacking in granular, position-level information concerning their credit investments. Consequently, in times of market stress, investors must speculate as to which and to what extent banks maybe exposed, causing disruptions in credit markets and amplifying systemic risk. Bartlett proposes a mandatory disclosure regime based on credit modeling employing the very analytical tools banks themselves have developed and use to understand their own credit exposures.
Geithner: Shadow Banking Remains a Key Regulatory Target
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
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.
Bank of England Examines Market Developments in Securities Lending
In their Quarterly Bulletin (Q3 2011), the Bank of England (BOE) examines the lessons the financial crisis revealed in the securities lending industry, as well as some of the more recent market driven and regulatory developments emerging to mitigate these risks. In particular, BOE voices a high level of concern over the risk of contagion arising from the interconnectedness between participants created by securities lending transactions, and the dangerous opacity of risks incurred across all participants prior to the financial crisis.
Proposed UK Financial Services Bill Would Radically Change UK Regulatory Structure
The Chancellor of the Exchequer has proposed a radical reformulation of financial services regulation in the UK unifying for the first time macro-prudential regulation, day-to-day oversight, and conduct of business regulation of all financial services firms. Under the UK’s current tripartite system, HM Treasury, the Bank of England, and the Financial Services Authority (FSA) share responsibilities. All three entities have come under fire for failing to anticipate the financial crisis, and the tripartite system has been blamed on many fronts for failing to deal with the crisis in a timely and effective manner. This legislation seeks to address some of the division and miscoordination alleged to have occurred amongst the tripartite entities. The proposed three new structure would do away with the FSA, and unify regulation and supervision under new structures housed in the Bank of England.
Senate Finance Committee Asks for Volcker Rule Delays and Revisions
In a December 7 letter to the Fed, SEC, CFTC, OCC, and FDIC, House Financial Services Committee Chair Spencer Bachus (R-ALA) requested that the comment period for the proposed regulations implementing the Dodd-Frank Volcker Rule be extended for at least 30 days to accommodate a January 18, 2012 Financial Services Committee hearing. At present, the comment period for the regulations expires on January 13, 2012.
UK Independent Commission on Banking Issues Recommendations
Following the financial crisis, the UK established the Independent Commission on Banking (ICB) to examine options for the reform of the country’s banking industry. In June 2010, the ICB was asked to study a range of structural and non-structural reforms to the UK banking sector that would foster financial stability and competition. The ICB issued their final report on September 12. The ICB’s proposals, if ultimately implemented, will have consequences not only for UK banks but also for foreign banks conducting business in the UK, and for counterparties, creditors, and other market participants.
European Central Bank Introduces New Data Sets
“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.