Author Archives: Bristol Voss

SYSTEMIC RISK COUNCIL RESPONDS TO SECURITIES AND EXCHANGE COMMISSION CONSULTATION ON REFORM OF MONEY FUNDS AND OTHER OPEN-ENDED FUNDS

WASHINGTON, D. C. —– On April 12, 2021, the Systemic Risk Council issued its preliminary response to the Securities and Exchange Commission consultation on the President’s Working Group report on reforming money market and other open-ended funds in the light of the March 2020 turmoil in U.S. short-term financing markets.

The SRC welcomes the PWG report and the SEC’s initiative. After the money market has been bailed out twice in just over a decade, the current review is badly needed. In its response, the Council offers views on, among other details, gates and floating net asset values. More generally, it emphasizes that the underlying problem arises where particular asset classes are widely perceived as safe and liquid even when they are inherently fragile. The problem will not be solved until the authorities, working with Congress, determine what money-like instruments will be backed by Federal Reserve liquidity insurance, the regulatory and other conditions attached to that access, and how to prevent other non-banks getting access to the safety net.

Paul Tucker, chair of SRC, said:

“Shadow banking vulnerabilities are the financial system’s Achilles Heel, but have been neglected for years. Short-term financing markets have been driven by a widespread perception that money funds are safe, making it almost inevitable the federal government provides rescue facilities when trouble hits. Something has to change.”

The full text of the SRC’s letter to the SEC is available here or http://www.systemicriskcouncil.org/wp-content/uploads/2021/04/Systemic-Risk-Council-Comment-Letter-File-No.-S7-01-21.pdf

Systemic Risk Council Urges Congress To Demand Renewed Vigilance In Preserving Stability After US Equity Market Episode

WASHINGTON, D. C. —– On March 3, 2021, the Systemic Risk Council issued a letter to the US Congress on the resilience and stability of the financial system in the wake of the recent extraordinary equity market volatility.

In addition to well publicized questions on market integrity and efficiency raised by the GameStop episode, the Systemic Risk Council urges the Senate Banking Committee and House Financial Services Committee to ensure the following four financial stability-related issues are properly addressed by the administration and the regulatory agencies:

  • Whether the clearing house’s collateral practices were adequate
  • Whether capital requirements for broker dealers are high enough
  • Whether re-hypothecation of collateral should be banned, or constrained
  • Whether the financial authorities could have done more to maintain system-wide resilience as feverish levered trading in capital markets was fueled by sustained monetary measures to support economic recovery

 Paul Tucker, chair of SRC, said:

“While the recent equity market kerfuffle was not a direct threat to stability, the authorities must energetically learn from an ugly episode involving a scramble for collateral, to close out positions, and to cut off services. Congress should ensure the unfinished business of rebuilding the financial system’s resilience resumes.” 

The full text of the letter to Congress is here.

The text of the SRC’s 2020 statement on unfinished business is here: http://4atmuz3ab8k0glu2m35oem99-wpengine.netdna-ssl.com/wp-content/uploads/2020/10/SRC-Reigniting-the-Reform-Debate.pdf.

Systemic Risk Council Urges Congress To Demand Renewed Vigilance In Preserving Stability After US Equity Market Episode

WASHINGTON, D. C. —– On March 3, 2021, the Systemic Risk Council issued a letter to the US Congress on the resilience and stability of the financial system in the wake of the recent extraordinary equity market volatility.

In addition to well publicized questions on market integrity and efficiency raised by the GameStop episode, the Systemic Risk Council urges the Senate Banking Committee and House Financial Services Committee to ensure the following four financial stability-related issues are properly addressed by the administration and the regulatory agencies:

  • Whether the clearing house’s collateral practices were adequate
  • Whether capital requirements for broker dealers are high enough
  • Whether re-hypothecation of collateral should be banned, or constrained
  • Whether the financial authorities could have done more to maintain system-wide resilience as feverish levered trading in capital markets was fueled by sustained monetary measures to support economic recovery

 Paul Tucker, chair of SRC, said:

“While the recent equity market kerfuffle was not a direct threat to stability, the authorities must energetically learn from an ugly episode involving a scramble for collateral, to close out positions, and to cut off services. Congress should ensure the unfinished business of rebuilding the financial system’s resilience resumes.” 

The full text of the SRC’s letter to Congress is available here:

The text of the SRC’s 2020 statement on unfinished business is here: http://4atmuz3ab8k0glu2m35oem99-wpengine.netdna-ssl.com/wp-content/uploads/2020/10/SRC-Reigniting-the-Reform-Debate.pdf.

Awaiting the Will to Ensure Financial Market Stability

Paul Tucker, chair of the Systemic Risk Council (sponsored by CFA Institute) and former deputy governor for financial stability at the Bank of England, says that financial markets are still facing serious stability risks. In a conversation with Yale SOM’s Andrew Metrick, director of the Yale Program on Financial Stability, Tucker said it’s time for central banks to “break the back of this excess leverage psychology which grips our financial markets.”

Time to look again at the financial system’s dangerous faultlines

More from SRC Chairman Paul Tucker on the urgency of undertaking steps to address lingering systemic vulnerabilities.  https://www.ft.com/content/0d848d03-7d66-4a76-a4f2-8f09980747fa [Editor’s note: This is behind a password protected firewall.]

“The west cannot afford another financial crisis. It would be a disaster in every possible way domestically, and a geopolitical gift to strategic competitors in Beijing and elsewhere.”

SRC Statement on Financial System Actions for Covid-19

The Systemic Risk Council (SRC or Council) is a private sector, non-partisan body of former government officials and financial and legal experts committed to addressing regulatory and structural issues relating to global systemic risk, with a particular focus on the United States and Europe. It has been formed to provide a strong, independent voice for reforms that are necessary to protect the public from financial instability. The goal is to help ensure a financial system in which we can all have confidence.

The Council’s overriding concern stems from the slow progress being made by financial regulators, other policymakers and the financial services industry to address critical issues affecting financial stability, including reforms mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010.

Never again should policymakers be forced to choose between taxpayer bailouts or financial collapse.  We must implement strong and simple reforms now so that our markets can function fairly and freely in good times and in bad.

That concern increases each day that the implementation of significant systemic risk reform languishes. A sense of complacency – which is only magnified by often overwhelming regulatory complexity – has made reforms for effective oversight seem less urgent despite serious and long-identified problems in the global financial system.

It is essential that policymakers show leadership through a strong and coordinated rule-writing process that promotes the development of cohesive, consistent regulations and provides clear and transparent explanations of the reforms in a way that is understandable to the general public. The Systemic Risk Council was created to assist in that effort.

Never again should policymakers be forced to choose between taxpayer bailouts or financial collapse.  We must implement strong and simple reforms now so that our markets can function fairly and freely in good times and in bad.

SRC Statement on Financial System Actions for Covid-19

Awaiting the Will to Ensure Financial Market Stability

SRC Chairman Sir Paul Tucker cautions that we are not out of the financial emergency woods just yet, saying that financial markets are still facing serious stability risks. Listen to his discussion with Yale University below on the  pandemic economic emergency, unprecedented stimulus and the risks of new heights in financial repression.

https://insights.som.yale.edu/insights/awaiting-the-will-to-ensure-financial-market-stability