Author Archives: Bristol Voss

CFA INSTITUTE SYSTEMIC RISK COUNCIL ANNOUNCES REORGANIZATION

On September 16, 2021, CFA Institute announced that it will be reorganizing the Systemic Risk Council initiative that it established in 2013. 

The Council has been reorganized to feature two co-chairs — Simon Johnson as Council Co-Chair (U.S.) and Erkki Liikanen, Council Co-Chair (Euro area) – to cover the two primary regions of activity.  The SRC will continue to operate as a private sector working group dedicated to serving as the independent, non-commercial voice for proper systemic risk oversight and regulation of markets. “We are excited and honored to carry on the Council’s work and to emphasize our commitment to a clear, trusted and independent voice on needed systemic oversight.  This is particularly true as issues like the global pandemic, climate change and crypto currency bring new challenges to global economic stability,” noted Johnson and Liikanen.

Simon Johnson is the Kurtz Professor of Entrepreneurship and Professor of Global Economics and Management at the MIT Sloan School of Management. He is  a former member of the Congressional Budget Office’s Panel of Economic Advisers and previously served as the International Monetary Fund’s Economic Counsellor (chief economist) in March 2007.  From 2012 to 2019, he was a member of the FDIC’s Systemic Resolution Advisory Committee.  From July 2014 to 2017, Johnson was a member of the Financial Research Advisory Committee of the U.S. Treasury’s Office of Financial Research (OFR), within which he chaired the Global Vulnerabilities Working Group.

Erkki Liikanen currently serves as Chairman of the IFRS Foundation Board of Trustees. He was a two-term Governor of the Bank of Finland and served on the Governing Council of the European Central Bank from 2004 to 2018.  Mr. Liikanen has had an extensive career in public service including two terms as a Commissioner of the European Union and service as Finland’s Ambassador to the European Union.  Mr. Liikanen has worked internationally for many years serving as a governor of the International Monetary Fund and in his role as member of the Governing Council of the European Central Bank, he chaired a group of experts set up by the European Commission to consider EU banking sector reforms in the wake of the financial crisis. The group’s recommendations are known as the ‘Liikanen report’. 

Meanwhile , Jean‐Claude Trichet will continue to serve as Senior Adviser to the Systemic Risk Council, a role he has served in since 2017.   Mr. Trichet was President of the European Central Bank, the European Systemic Risk Board and the “Global economy meeting” of Central Bank Governors in Basel until the end of 2011. Previously, he oversaw the French Treasury for six years and was Governor of the Banque de France for ten years.   Mr. Trichet was a member of the G-20 High level independent panel on financing the global commons for Pandemic, set up in January 2021 . He is Honorary board chairperson at Bruegel (Brussels) , Honorary chairman of the Group of Thirty (Washington), European Chairman of the Trilateral Commission .  He is also member of “Institut de France” (Académie des Sciences Morales et Politiques).

In addition, Sheila Bair, the former chair of Federal Deposit Insurance Corporation (FDIC) from 2006 to 2011 and the founding chair of the Systemic Risk Council,  will continue to support the Council in the role of Senior Advisor filling the vacancy created by the passing of Paul Volcker.  Ms. Bair currently serves on several corporate and governing boards, including the first women Chair of Fannie Mae, Deputy Chair at  Bunge Ltd., and as a Trustee of the Economists for Peace and Security organization.  She served as President of Washington College from August 2015 to June 2017.  Ms. Bair previously served as Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury, Senior Vice President for Government Relations of the New York Stock Exchange and as a Commissioner of the Commodity Futures Trading Commission.

 “We are extremely pleased to have these top-level leaders and policy experts leading this initiative going forward,” said  CFA Institute Managing Director Paul Andrews. Andrews, who will also become a member of the Council confirmed that  moving forward the initiative will be renamed the CFA Institute Systemic Risk Council.   “Our intention is to associate the SRC with the CFA Institute more visibly to demonstrate our commitment and sustained financial support of this independent working-group effort,” noted Andrews.  

Outgoing SRC chair, Sir Paul Tucker, former deputy governor of the Bank of England, has been serving as the SRC chair for nearly six years and leaves the Council in a stronger place. “We are exceedingly grateful to Sir Paul Tucker for the leadership he has provided over the past several years, advancing us to this new phase of the Council’s endeavors,” said Paul Andrews.  “It has been an honor to lead such an extraordinarily expert group of members, from both sides of the Atlantic, in highlighting what, a decade after the global crisis, still needs to be done to ensure an adequately resilient financial system,” said Tucker. “With the constituency for stability always weaker than the public interest warrants, it is important for the Council to carry on this vital work.” 

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