Week InReview |  G-7 is said to plan conference call Friday to discuss markets in wake of Brexit vote, according to a government official at a G-7 country who asked not to be named | FSOC flags tech threats in annual report  Fed's Powell says alternative plan for Libor benchmark credible  G20 group proposes capital flow, financial security, SDR improvements   | ICYMI | 'Something shiny" in Binge Reading Disorder

Friday, June 24, 2016
Let's recap
In case you missed it . . .

Cyber security, market structure, market instability

FSOC report examines threats, vulnerabilities

(Jun 21) The Financial Stability Oversight Council unanimously approved its 2016 annual report, in which they examined a number of potential emerging threats and vulnerabilities in recent months including cyber security, market structure and market instability in Europe and and global markets. 
  • Cyber attacks were the first threat flagged by the panel's annual report, with the panel of regulators recommending more information sharing and a 'common, risk-based approach' for protections at regulated firms
  • 'Malware attacks represent a unique threat in that they are both infrequent and yet potentially catastrophic,' according to the report
  • In online marketplace lending, regulators 'need to be attentive to signs of erosion in lending standards' as the industry continues to grow, the report says
  • Advances in the speed and volume of automated trading should be matched with more coordination among regulators, as similar products such as Treasuries and Treasury futures are traded in different markets watched by different agencies, FSOC said
  • Distributed-ledger systems are so new that 'it is possible that operational vulnerabilities associated with such systems may not become apparent until they are deployed at scale'
  • FSOC also flagged risks in the ongoing reliance on Libor, need for more data on repo markets and the pressure that a flat yield curve is putting on large banks
Alternative plan for Libor benchmark
Fed's Powell says it's credible
(Jun 21) ' Ongoing regulatory reforms and changing market structures raise questions about whether the transactions underlying Libor will become even scarcer in the future, particularly in periods of stress,' Federal Reserve Governor Jerome Powell said to the New York Fed's roundtable on the Alternative Reference Rates Committee's interim report.
  • 'We need end users to begin to think more seriously about how they use benchmarks and the risks they are taking on by relying so heavily on a reference rate -- in this case U.S. dollar Libor -- that is less resilient than it needs to be'
  • Powell said benchmarks sometimes come to a halt and 'the sudden cessation of a benchmark as heavily used as Libor would present significant systemic risks'
  • 'I believe the ARRC has provided a workable and credible plan for creating liquidity in a new rate and beginning the process of moving trading to it'
Capital flow, financial security, SDR
G20 group has some ideas
(Jun 20) The Group of 20's International Financial Architecture working group met in Seoul, Korea and submitted a work report that proposed to
  • improve the monitoring of capital flow, and create a financial safety net centered around the International Monetary Fund
  • continue with IMF reform on quota and governing structure
  • increase predictability of sovereign debt restructuring
  • expand use of special drawing rights (SDR), and improve local-currency debt markets
Binge reading disorder
Hand-curated, chosen with love
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