On October 15, the Systemic Risk Council filed a comment letter to bank regulators on the proposed enhanced supplementary leverage ratio for large bank holding companies and their insured depository institution subsidiaries.
Read the full letter below:
On October 15, the Systemic Risk Council wrote to the Basel Committee on Banking Supervision to strongly support the Committee’s efforts to simplify the Basel capital standards.
You can read the full letter below:
Publication: New York Times
Author: Floyd Norris
9/19/2013 —Bank regulators around the world are forcing banks to hold more capital than they did before the financial crisis revealed just how inadequate their capital truly was. But one set of American banks appears to be on the verge of keeping the right to have no capital at all.
That group is the money market funds, which function as banks but historically have had the best of all regulatory worlds: no capital requirements, no reserves, no fees for deposit insurance and a belief by their customers that they were at least as safe as banks.
This week the comment period closed on proposed money market rules set forth by the Securities and Exchange Commission. The rules are pitifully weak and inadequate. They could even make the system more vulnerable in a crisis, as the presidents of all 12 Federal Reserve banks pointed out in a letter to the S.E.C.
But that has not stopped the mutual fund industry from trying to weaken them even more.
By coincidence, the deadline for comments was on Thursday, just five days after the fifth anniversary of the collapse of Lehman Brothers. It was that collapse that revealed to all just how shaky the money market industry was.
The answer is — or ought to be — remarkably simple:
“They either have to be banks or mutual funds,” Paul A. Volcker, the former Federal Reserve chairman, told me in an interview. “If they are banks, promising to pay at par on demand, they should be regulated like banks. If they are mutual funds, they should be regulated like mutual funds.”
Read the full article, Money Funds Are Circling the Wagons on Rules, on the New York Times website.
Publication: Bloomberg
Author: Dave Michaels
9/18/2013 —Money-market mutual fund providers and the municipalities and corporations relying on them to manage cash are telling U.S. House lawmakers to be wary of new regulation for the $2.6 trillion industry.
The groups are using a House Financial Services panel’s hearing in Washington today to kick off a lobbying campaign against a Securities and Exchange Commission proposal that would force funds that buy corporate and municipal debt and cater to institutional investors to adopt a floating share price. The agency is weighing arguments as it decides whether to amend its plan, which was issued in June after a previous effort splintered the five-member commission last year.
Read the full article, Money-Fund Rule Fight Goes to House as Providers Lobby Anew, on the Bloomberg website.
On September 18, Systemic Risk Council chair Sheila Bair testified before the House Financial Services subcommittee on Capital Markets and Government Sponsored Enterprises about money market fund reforms.
The full testimony is below:
Systemic Risk Council
September 16, 2013
Dear Commission:
The Systemic Risk Council is writing to recommend that the Commission strengthen its proposed money market fund reforms and put in place a final rule that will fully address the destabilizing risks created by the stable NAV accounting fiction and so-called “penny rounding”.
As we have noted previously, the SRC believes prompt and decisive action is needed to curb systemic risks posed by money market funds. When the Reserve Primary Fund “broke the buck” in 2008, extraordinary actions were required to back-stop and calm investors in money market funds and protect the short-term lending markets. While we commend the Commission for overcoming significant industry pressure aimed at derailing this essential reform, the two primary options are not sufficient to address these risks. The first (limited floating NAV) option will create a host of gaming and arbitrage opportunities and the second (gates and fees option) could make matters worse.
A much better approach would be to require a floating NAV for all money market mutual funds. This is the same, simple, regulatory framework that applies to all other mutual funds: a framework that the SEC has implemented successfully (and without systemic risk or taxpayer bailouts) since 1940.
Read more below:
Systemic Risk Council Letter on Money Market Funds Sep 16 13
Publication: Bloomberg
Author: Dave Michaels and Christopher Condon
9/05/2013 —A year ago, when opposition from the asset-management industry killed her plan to make money-market mutual funds safer, U.S. Securities and Exchange Commission Chairman Mary Schapiro looked to Timothy Geithner, then the Treasury Secretary, to tackle “one of the pieces of unfinished business from the financial crisis.”
It remains unfinished.
As Schapiro and Geithner prepared to leave government toward the end of 2012, the effort started anew to make the $2.6 trillion money-fund industry less likely to disrupt global financial markets. Norm Champ, a Harvard University-trained lawyer and the SEC’s top regulator of mutual funds, canvassed the remaining four commissioners, seeking to find common ground on which new rules could be built after Schapiro failed to corral enough votes to push her plan forward.
Read the full article, Money-Fund Rule Fight Goes to House as Providers Lobby Anew, on the Bloomberg website.
Systemic Risk Council
June 7, 2013
Dear Chairman Bernanke:
The Systemic Risk Council has consistently supported stronger and higher quality capital requirements for our largest banking organizations. We also support the implementation of Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) that gives the Federal Deposit Insurance Corporation (FDIC) the authority to resolve a large complex financial institution (LCFI) should the need arise. Capital requirements and the orderly liquidation authority are powerful tools that address key aspects of “too big to fail.”
The FDIC, working in consultation with the Federal Reserve Board and international regulators, has developed an innovative strategy for the orderly resolution of a large, internationally active bank which involves seizing control of its holding company. In the event of an LCFI failure, the FDIC would use its authority as receiver to form a bridge financial company. The holding company’s shareholders and creditors would absorb losses associated with the failure, while some of their claims would be converted to equity to recapitalize the new enterprise.
However, the success of the FDIC’s orderly liquidation authority using this “single point of entry” strategy depends on the top level holding company’s ability to absorb losses and fund recapitalization of the surviving operating entities. Currently, we have no regulation that addresses the need for these firms to hold sufficient senior debt to meet this need. We agree with the increasing number of financial regulators at the Federal Reserve and FDIC and other experts that we need to address this gap in regulatory reform.
Read more below:
Publication: Reuters
Author: Emily Stephenson
4/09/2013 —A bipartisan group of senators on Tuesday urged bank regulators to finish new capital rules, forcing banks to meet higher capital ratios and rely less on complicated calculations of the riskiness of their assets.
Debate in Washington has heated up over whether the 2010 Dodd-Frank law and other measures did enough to crack down on banks such as JP Morgan Chase & Co, Citigroup Inc and Bank of America Corp.
Two members of the group, Republican David Vitter of Louisiana and Democrat Sherrod Brown of Ohio, are working on legislation that would halt implementation of an international accord known as Basel III and instead impose a much higher 15 percent capital ratio on the biggest banks, according to a draft of their bill.
The pair, plus Republicans Bob Corker of Tennessee and Susan Collins of Maine and Democrat Elizabeth Warren of Massachusetts, called for similar proposals in a letter to Federal Reserve Governor Daniel Tarullo, Comptroller of the Currency Thomas Curry, and Martin Gruenberg, chairman of the Federal Deposit Insurance Corp.
Read the full article, Senators call for higher bank capital in letter to regulators, on the Reuters website.
Read the full letter here.
Publication: New York Times
Author: Diana Henriques
4/06/2013 —This is the kind of market that makes cautious investors long for the comfort of cash.
Stocks? They seem a little frothy. Bonds? Ugh — low rates, inflation worries. Real estate? Still a hard sell.
For decades, investors have waited out financial fogs like these in the haven of money market mutual funds. Unfortunately, the outlook for money funds themselves is just as obscure these days.
Read the full article, Money Funds, Waiting for the Fog to Lift, on the New York Times website.