Week InReview
Friday | Mar 8, 2019
‘Look, your worship,’ said Sancho, ‘what we see there are not giants but windmills, and what seem to be their arms are the sails that turned by the wind make the millstone go.’   — 'Don Quixote' by Cervantes

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in case you missed it...
The world’s second-largest bond market moved a step closer to its much-anticipated overhaul on Thursday when Wall Street firms voted to support a single mortgage-backed bond for Fannie Mae and Freddie Mac. (The Wall Street Journal | Mar 7)

For the largest U.S. lenders, the so-called qualitative portion of the exams will no longer be a factor in whether they pass or fail, the Federal Reserve said in a Wednesday statement. But some foreign banks that have had trouble clearing the hurdle — such as Deutsche Bank AG — will still face the measure. (Bloomberg Markets | Mar 6)

Wall Street banks and hedge funds are closing in on a fix that they hope will clean up an $8 trillion portion of the derivatives market that’s gained a reputation for being one of the shadiest corners in finance. (Bloomberg Law | Mar 6)

Wall Street could face fresh restrictions on bonus payments as regulators consider dusting off post-crisis rules that have long been on the back burner. Agencies including the Federal Reserve have discussed re-proposing the regulations after previous attempts to approve them in 2011 and 2016 failed. (Bloomberg Law | Mar 6)

Federal Reserve is considering imposing stricter rules on foreign bank branches to tighten what critics say is a loophole that has allowed overseas lenders to shield assets from the toughest U.S. bank rules. (Reuters | Mar 5)
Threat panel to watch for risky business, not individual firms
  • Systemic-risk council proposes guidance to set new approach
  • Last year, FSOC abandoned the last of its risk labels on firms

(Mar 6) — The group of U.S. regulators responsible for guarding against the threat of future financial crises is embracing a new approach to spotting potential risks — shifting away from identifying individual firms and focusing on specific activities that could pose hazards.

The Financial Stability Oversight Council — whose members include the heads of the Treasury Department and the Federal Reserve — outlined the proposed revisions to the way it will do business at a meeting in Washington on Wednesday.

The group agreed with its chair, Treasury Secretary Steven Mnuchin, on what he called “significant improvements” that would make it more difficult for FSOC to declare companies such as American International Group Inc. as threats to the financial system. Instead, when the council identifies a risky activity, it will work with the regulator of that area to address it.

Designations of individual firms would be tougher to make, requiring a cost-benefit analysis and a review of whether the firm is really likely to run into trouble, according to the guidance. The process for designating a company would also be compressed from three stages to two and FSOC would set a clearer path for risk-labeled firms to get out.

Risk designations were the biggest power of the council, which was created by the Dodd-Frank Act to act as fire watchers to head off another crisis. In its initial years, the group affixed risk tags on four of the biggest nonbank financial firms, including the U.S. insurance giants. That list thinned out in recent years as the companies restructured or challenged the designations. In the end, FSOC released AIG and the final designee, Prudential Financial Inc.

Republican lawmakers had long criticized the designations, and Treasury proposed a road map in 2017 that would make it harder to affix the risk tags. The plan urged the council to focus on how an entire industry might pose risks, rather than prioritizing the dangers presented by specific firms.

The council stopped labeling individual companies years ago, but the power to do so still makes big asset managers and insurance companies nervous.

Source: Bloomberg Government
binge reading disorder
If you can remain dispassionate about what people think of you while you’re trying to obtain a particular outcome, or about the noise around you during the process, you have an advantage that I doubt one in a hundred thousand has in the financial industry.
— Collaborative Fund

There’s a new app in town that’s stirring up a lot of buzz. It gives you superhuman powers to tackle one of life’s most soul sucking activities: e-mail. It’s actually called Superhuman and borrows marketing tricks from both Supreme and trendy nightclubs — building up a waiting list of users and using luxury pricing ($30/month, gasp!).
— RadReads

Swedbank AB regularly topped rankings of Europe’s safest banks half a decade ago. Last week, Sweden's finance ministry told regulators to explain how the venerable institution had become enmeshed in allegations of money laundering.
— Bloomberg Markets