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| Newsletter June 09: New EU supervisory system looks set for 2010 launch |
 Proposals for a macro/micro-prudential supervision framework win political backing. But tough wrangling lies ahead over precise details By Melvyn Westlake An ambitious new, two-pillar framework for curbing systemic risk in the EU financial system, and strengthening bank supervision across the 27-country bloc, now looks set to be in place before the end of 2010. European government leaders meeting in Brussels during mid-June reached broad agreement on the main elements of the new supervisory architecture, overcoming the concerns of a small minority of other countries, notably Britain. Although further intensive wrangling is likely once the European Commission, the EU’s executive arm, issues a detailed legal text in the autumn, the political approval of government leaders means the project has a high chance of becoming law. In fact, despite fears of a clash between Britain and other big European countries, unanimous agreement was reached quite quickly on two of the key issues that concerned London. More>>> |
| Newsletter June 09: US regulatory reform plan kicks off political battle |
 Systemic risk powers, more regulators, and oversight of unregulated markets sought. Congress, regulators, industry fight their corners By Nick Paraskeva Falling short of the ideal, but a practical solution nevertheless seems to be the early verdict on US President Barack Obama’s proposals for a major overhaul of the way America regulates its financial services sector in the wake of the worst financial and banking crisis since the Great Depression.The proposals, issued in mid-June as a White Paper (policy document) by President Barack Obama's administration as GRR went to press, cover a wide swathe of areas. These include systemic risk, capital adequacy and liquidity, over-the-counter (OTC) derivatives, hedge fund regulation, consumer protection, and investor disclosure. More>>> |
| Newsletter June 09: US Congress sets up crisis inquiry commission |
 Wide-ranging investigation into causes of the financial crisis could have worrying outcome for regulators and bankers In a little-noticed move, the US Congress has initiated a project that could potentially influence the shape of future financial regulation and prove embarrassing, even damaging, to finance industry executives, regulators and politicians whose actions or inactions contributed to the global credit crisis. This initiative is contained in a late amendment to the Fraud Enforcement and Recovery Act (FERA), passed by Congress with very large majorities, and signed by President Barack Obama in late May.It calls for the creation (in Section 5) of a Financial Crisis Inquiry Commission “to examine the causes, domestic and global, of the current financial and economic crisis in the United States.” The ten-man commission will have the power to hold hearings and subpoena witnesses, records, documents, correspondence, memoranda and other papers. A sweeping brief will permit the commission to study all aspects of the crisis, from monetary policy, regulation, and global and fiscal imbalances, to the behaviour of markets and institutions, and the concept of firms that are ‘too-big-to-fail.’ More>>> |
| Newsletter June 09: Financial fragmentation alarms banking industry |
 Growth in protectionist measures threatens global recovery. A new study calls for urgent G20 action to roll them back Bankers are sounding the alarm over the slide into financial protectionism in recent months, and calling on governments of the Group of 20 systemically important countries, and key international bodies, to reverse the tide before more damage is done to the global economy.A number of countries have adopted measures that may appear rational from a short-term political and stabilisation perspective. But, they are resulting in the fragmentation of financial markets. “If allowed to continue, such policies could stand in the way of a return to efficient cross-border financial intermediation, limiting the ability of the global financial system to contribute to economic recovery and renewed job growth,” according to the influential Institute of International Finance (IIF). More>>> |
| Newsletter June 09: Key Features of US Regulatory Proposals |
 Fed powers over systemic firms The Federal Reserve is given new authority to supervise all institutions that could pose a threat to financial stability, even those that do not own banks. These firms will be known as Tier 1 financial holding companies – Tier 1 FHCs. The Fed will be given new powers to require reports, conduct exams, or impose prudential requirements on subsidiaries of Tier 1 FHCs that are functionally regulated or bank subsidiaries.New Financial Services Oversight Council A new Financial Services Oversight Council will identify emerging systemic risks and improve interagency cooperation. Its membership will comprise the US Treasury, and the heads of the Fed, the new bank supervisor, the Federal Deposit Insurance Corporation (FDIC), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission, the new consumer agency and the Federal Housing Finance Agency. More>>> |
| Newsletter June 09: Besieged IASB sticks to its reform timetable |
Despite political pressure, global accounting standard-setter wants to work to its own deadlines for fair value changes Embattled global accounting standard-setters are sticking to their timetable for reforming controversial fair value and impairment rules, despite continued European pressure to move faster to conform to the requirements of politicians and bankers.But fears that Europe’s banks face an unlevel playing field in accounting terms should be allayed by the issue in late May of proposals to bring international guidance on using controversial fair-value concepts into line with recent changes in the US, according to professional accounting sources (see box). More>>> |
| Newsletter June 09: IASB proposes unified fair value definition |
The International Accounting Standards Board (IASB) issued long-promised proposals in May that would replace fair value guidance contained in individual International Financial Reporting Standards (IFRS) with a single, unified definition of fair value. The proposals, which are open for comment until September 28, also give guidance on using fair value, or mark-to-market, approaches in inactive markets such as those for complex financial products that have frozen up as a result of the global financial crisis. More>>> |
| Newsletter June 09: US agencies are pressed to harmonise derivative rules |
WASHINGTON – “Comprehensive regulation” of the huge over-the-counter (OTC) derivative markets, announced as part of the Obama Administration’s wider, June 17, financial regulatory reform in the US, contains few elements that were not already flagged in the package of measures announced by the Treasury a month earlier. The main new element is the details of how the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are going to share responsibility for regulating the OTC derivatives market. It had already become clear that the CFTC had succeeded in its rearguard action to block the much-canvassed merger of the two regulators. Under the reform plan, the Commodities Exchange Act and securities laws will be amended to require all standardised OTC credit default swaps and other derivatives to be cleared through regulated central counterparties (as proposed in May by Treasury secretary Tim Geithner). All OTC derivatives dealers and all other firms whose activities in those markets create large exposures to counterparties will be subject to “a robust and appropriate regime of prudential regulation and supervision.” This includes “conservative capital requirements” (more conservative than existing bank regulatory capital requirements for OTC derivatives), business conduct standards, reporting requirements, and conservative requirements relating to initial margins on counterparty credit exposures. More>>> |
| Newsletter June 09: Wave of new EU financial regulations coming in 2009 |
BRUSSELS – The dying days of the present European Commission are set to witness a wave of fresh moves to tighten and extend the regulation of EU banks and other financial firms. Most of the proposals now in preparation will mirror, broadly, those under way in international institutions, notably the Basel Committee, which sets prudential standards for banks around the world. But, in some cases, the European Commission is considering going further. It is a “challenging and audacious” regulatory agenda, says Patrick Pearson, head of the Commission’s banking and financial conglomerates unit. Speaking at a London conference in May, he said proposals on trading book capital for banks and securitisations were planned for June (this timetable now seems to have slipped), along with recommendations on bank remuneration practices. Further proposals were scheduled for October. The latter will include proposals for the introduction of a capital leverage ratio for banks; “dynamic buffering” to make prudential capital counter-cyclical; liquidity requirements; and proposals to eliminate the 123 national discretion and options that currently exist in Capital Requirements Directive (CRD). More>>> |
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