Week InReview
Friday | Nov 6, 2019
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The repo turmoil that put traders on edge in September has prompted a full scale review by regulators, who identified disruptions to short-term funding markets as a potential risk to the U.S. financial system. The Financial Stability Oversight Council is calling for federal agencies to collect data and scrutinize cleared repurchase transactions to determine what prompted rates to spike three months ago, according to Treasury Department officials. (Bloomberg Markets | Dec 4)
Massachusetts has joined the growing list of states to propose a fiduciary standard for financial professionals giving advice or recommending investments. "I am proposing this standard because the [Securities and Exchange Commission] has failed to provide investors with the protections they need against conflicts of interest in the financial industry with its 'Regulation Best Interest' rule," said Massachusetts Secretary of State William Galvin. (Financial Advisor IQ | Dec 2)
Active fund managers are responding to the popularity of passive investing by forsaking diversification in favor of focused portfolios that contain fewer stocks. The number of active funds with fewer than 35 stocks has almost doubled in the past decade, while assets under management in those funds have nearly tripled, according to Morningstar Direct. (The Wall Street Journal | Dec 2)
A report by the Federal Reserve notes shortcomings in compliance with cybersecurity and anti-money-laundering rules among big U.S. banks and foreign banks operating in the U.S. The report also notes weaknesses in compliance with capital, liquidity and resolution rules. (MLex | Dec 2)
Global assets held by exchange traded funds have climbed to a record $6tn, doubling in size in less than four years, in a surge turbocharged by the lengthy US stock market bull run. The sector’s explosive growth has attracted heightened scrutiny by regulators who are concerned about the influence of ETFs as they spread deeper and wider into financial markets worldwide. (Financial Times | Dec 1)
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Quarles cites liquidity stress tests for adding to repo strain
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(Dec 4) — Randal Quarles, Federal Reserve vice chair for supervision and Financial Stability Board chair, said stricter post-crisis banking rules might have contributed to money-market strain in September, though they were probably not the prime cause of the turmoil.
- “There were a complex set of factors that contributed to those events in September. Not all of them were related to our regulatory framework.”
- Quarles testified before the House Financial Services Committee.
- “We have identified some areas where our existing supervision of the regulatory framework – less the calibration or structure of the framework itself – may have created some incentives that were contributors.”
- Says these were “probably not the decisive contributors.”
- "I think we need to examine them. Particularly among them are the internal liquidity stress tests that we run."
- That testing "can create a preference at some institutions for central bank reserve over other liquid assets including Treasury securities for the satisfaction of their liquidity requirements."
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(Dec 4) — On Wednesday, the Financial Stability Oversight Council met in closed and open sessions at the U.S. Department of the Treasury. During the executive session, FSOC heard a presentation from staff of the Federal Reserve System regarding volatility in the repurchase agreement market in September 2019 and the Federal Reserve’s repurchase agreement market operations and ample reserves regime.
In the open session, FSOC voted to approve amendments to its interpretive guidance on nonbank financial company determinations. The interpretive guidance prioritizes an activities based approach to identify and address potential risks to financial stability and to leverage the expertise of existing primary regulators to address potential risks.
FSOC also voted to approve its 2019 annual report and the minutes of its previous meeting on November 7, 2019. Additional information regarding the Council, its work, its meeting minutes, and the recently approved interpretive guidance and annual report is available at http://www.fsoc.gov.
See the Nov. 7 meeting minutes
here
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Russian ‘Evil Corp’ is behind a decade of hacks, U.S. says
The U.S. unveiled criminal charges and sanctions against members of a hacking group that calls itself Evil Corp, which authorities blame for some of the worst computer hacking and bank fraud schemes of the past decade. The Justice Department, working mainly with the Treasury Department and British authorities, brought conspiracy and fraud charges against members of the group. It said it “has been engaged in cybercrime on an almost unimaginable scale,” using malware to steal tens of millions of dollars from customers doing online banking. Treasury said it would sanction the group and its leaders for cyber-thefts committed at hundreds of financial institutions around the world.
10 cyberattacks that reshaped the security landscape
Tech Republic looks at the 10 most significant cyberattacks of the past decade, including those targeting Equifax, Capital One and Sony Pictures. "For me, the largest hacks of the decade are not just the ones that were the biggest, but the ones that were game-changers in how we approach security," said Etay Maor, chief security officer at the cybersecurity firm IntSights.
NSA to issue advisory on cloud cybersecurity
The National Security Agency will issue advisories by the end of the year regarding cybersecurity in the cloud and vulnerabilities to foreign attackers. Although cloud providers generally use strong encryption and security practices, Anne Neuberger, NSA cybersecurity director, noted that they also are especially tempting targets for cybercriminals because they hold data from many entities.
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Workism: Why white collar worker spend all day at the office
The reasons behind America’s overwork are the subject of exhaustive study and theorizing — including on this site. Some observers focus above all on public policy. Others look to the character of “greedy” American industries, such as consulting and banking. Still others point out that in the past few decades, the dogged pursuit of meaning at work has become a kind of secular religion — workism.
How the EU is cracking down on golden passports and targeting money laundering
In his book "MoneyLand: Why Thieves And Crooks Now Rule The World And How To Take It Back," financial journalist Oliver Bullough talks about Moneyland as, “a legal construct that is divorced from any place on the map.” He says that money in Moneyland, “isn’t just drug money, or stolen money, or bribes” but includes “money, which has dodged taxes, regulations, and been stashed offshore to avoid detection.”
The five universal laws of human stupidity
Stupid people share several identifying traits: they are abundant, they are irrational, and they cause problems for others without apparent benefit to themselves, thereby lowering society’s total well-being. There are no defenses against stupidity. The only way a society can avoid being crushed by the burden of its idiots is if the non-stupid work even harder to offset the losses of their stupid brethren.
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