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fsoc details October 8, 2010

Posted by Bradley in : financial regulation , add a comment

The FSOC‘s documents announced on October 1 were published in the Federal Register on October 6th, and comments are due November 5th. Both documents show a recognition of the international context of financial activity. For example, the ANPR on regulation of non-banks asks:

Since foreign nonbank companies can be designated, what role should international considerations play in designating companies? Are there unique considerations for foreign nonbank companies that should be taken into account?

And the Volcker Rule RFI asks:

How should the international context be considered when implementing the Volcker Rule? Are
there any factors or considerations that should be taken into account regarding the application of the Volcker Rule to banking entities or nonbank financial companies that operate outside the United States? What issues does implementation of the Volcker Rule present with respect to the following:(i) Domestic banking entities that have access to foreign exchanges, (ii) foreign affiliates of domestic banking entities, and (iii) foreign non-bank financial companies

financial stability oversight council October 1, 2010

Posted by Bradley in : financial regulation , add a comment

Adopted a Transparency Policy, published a Roadmap, and announced an ANPR Regarding Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies and a Notice and Request for Information Regarding the Council’s “Volcker Rule”Study and Recommendations. These documents will not be available from the Council’s web pages until they are published in the Federal Register.

speculation: pro and con (again) September 24, 2010

Posted by Bradley in : financial regulation , add a comment

This week the UK’s Business Department announced a review of corporate governance and economic short-termism and the Independent Commission on Banking published an issues paper and call for evidence which identifies as one concern excessive risk-taking by banks:

This separation of the costs of risk and the benefits of reward produces inefficiencies through the distortion of resource allocation and risk management; it incentivises excessive risk-taking.

And Adair Turner gave a speech in which he reiterated his concern about whether financial practices were all socially useful and said:

underlying all of these problems, and far more fundamental, were prudential rules and an entire philosophy of market regulation — embraced by policy makers throughout the world — which failed to identify and adequately address the dangers of excessive leverage and maturity transformation, and which too confidently relied on supposedly efficient and rational markets always to produce good results.

Last week the EU Commission published its proposals on short-selling and CDS and noted that one of the reasons for short selling is speculation. The Commission doesn’t say this is bad, but does suggest that disorderly markets (which may be in part the result of speculative short selling) are a Bad Thing:

in extreme market conditions there is a risk that short selling can lead to an excessive downward spiral in prices leading to a disorderly market and possible systemic risks.

In contrast, the bottom line of the ISDA Research Note on speculation published this week is:

In theory, a market could exist in which intermediaries match hedgers, investors, and borrowers with each other. But such a market would be costly and inefficient without the liquidity and price discovery provided by speculators hoping to profit from their investments in information. As discussed above, the news borne by speculators, especially short sellers is not always welcome. But the alternative is a world in which markets would function in a slow and costly manner.