Week InReview | Time running out for ambitious SEC agenda | FDIC's Hoenig no fan of more long-term debt at banks | Global financial system has become dangerously unstable, says OECD's William White | ICYMI + Binge Reading
Agenda includes unfinished rules for asset managers
(Jan 21) Securities and Exchange Chair Mary Jo White has outlined a series of rules for asset managers, but large parts of them have not yet been adopted, and some not even proposed. Chair White outlined five rules on the asset management industry in a December 2014 speech. Three rules were proposed in 2015. The first set out data collection and disclosure requirements, and the second would regulate liquidity risk management in mutual funds and allow funds to use swing pricing during redemptions in times of market stress. The third proposal would restrict the use of derivatives by mutual funds and exchange-traded funds, laying out leverage limits for their portfolios, as well as a requirement to keep assets segregated. Still to come are proposals on transition plans and stress tests. Only one of the three proposals is likely to be adopted this year and the liquidity management rule will probably be it.
Fed likes long-term debt rule
FDIC's Hoenig, not so much
(Jan 20) Thomas Hoenig
, vice chairman of Federal Deposit Insurance Corp
., warns that the Federal Reserve rule for more long-term debt creates a perilous increase in industry leverage. The Fed proposed the TLAC (Total Loss Absorbing Capacity) rule in October and called for eight of the largest U.S. banks to have enough debt to absorb losses in a failure; firms faced a $120 billion shortfall to meet proposal
Hoenig advocates tossing the blanket requirement TLAC rule and replacing it with a focus on banks' individualized living-wills.
'It is paradoxical to suggest that the best way to manage the effects of excess leverage and financial vulnerability is to require more leverage, potentially raising financial vulnerability,' he said at the Peterson Institute for International Economics in Washington.
'Each firm and its regulators should identify debt and equity requirements that have a neutral effect on the firm and the industry's leverage positions, while also allowing for bankruptcy without public support should a firm fail.'
Situation worse than 2007, says OECD's William White
'A potent cause for mischief'
(Jan 19) The global financial system has become dangerously unstable, and faces an avalanche of bankruptcies that will test social and political stability, according to William White, the Swiss-based chairman of the OECD's review committee and former chief economist of the Bank for International Settlements.
'The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up.'
'Debts have continued to build up over the last eight years and have reached such levels that they've become a potent cause for mischief,' White said.