Featured Product

    FED Governor Speaks on Remaining Regulatory Work for Financial Sector

    April 19, 2018

    The FED Governor Lael Brainard spoke, at the Global Finance Forum in Washington, D.C., about safeguarding financial resilience through the current economic cycle. He outlined the strong current conditions of the financial sector, along with the ongoing work to ensure that the buffers of the financial system continue to sustain resilience over the cycle. He also discussed the few yet-to-be implemented key elements of the regulatory framework.

    With respect to the ongoing regulatory work, he mentioned that the FED is close to finalizing the net stable funding ratio (NSFR). By most estimates, the large complex banking institutions are in a position to meet the expected requirements, with little adjustment. He added that the Dodd-Frank Act limits on large counterparty exposures need to be finalized. These limits will reduce the chances that outsized exposures, particularly between large financial institutions, could spread financial distress and undermine financial stability. Moreover, these large exposure limits will effectively update the traditional bank lending limits. He also supported efforts to improve the efficacy of the Volcker rule while preserving its underlying goal of prohibiting banking firms from engaging in speculative activities for which federal deposit insurance and other safeguards were never intended. "The interagency regulation implementing the Volcker rule is not the most effective way of achieving its very laudable and important goal. We are exploring ways to streamline and simplify the regulation to reduce costs without weakening the key objectives. We should be able to provide firms and supervisors with greater clarity about what constitutes permissible market-making. We should also identify ways to further tailor the Volcker compliance regime to focus on firms with large trading operations and reduce the compliance burden for small banking entities with limited trading operations, " said Mr. Quarles.

    He said he supports moving forward with minimum haircuts for securities financing transactions (SFTs) on a market-wide basis to counter the growth of volatile funding structures outside the banking sector. International agreement on a regulatory framework for minimum SFT haircuts was reached by financial regulators in 2015, and it is important to follow through on this work plan. Regulatory minimum haircuts calibrated to be appropriate through the cycle could help ensure that repo, securities lending, and securities margin lending and related markets do not become a source of instability in periods of financial stress through fire sales and run-type behavior. He also highlighted that he favors better tailoring the regulatory framework for smaller banking firms, with the aim of decreasing regulatory burden. Although FED has taken some important steps to reduce burden on smaller banking organizations—such as streamlining the Call Report for small, less complex community banks, increasing appraisal thresholds for Commercial Real Estate loans, and reducing the frequency of exams in certain circumstances—more work should be done in this area.

    With respect to the use of countercyclical capital buffer (CCyB) buffers, he highlighted that, in the United States, CCyB has not yet been activated, although other jurisdictions have developed some experience with the use of countercyclical buffers. This is because the condition set out in September 2016 for raising the CCyB above its minimum value of zero is that financial system vulnerabilities are meaningfully above normal. He concludes: "While we should carefully consider how to make our regulations more effective and better tailored, we must take great care to ensure that we do not inadvertently contribute to pro-cyclicality that would exacerbate financial conditions that are, on some dimensions, somewhat stretched. Although I believe it is too early today to reassess the calibration of existing capital and liquidity buffers because they have yet to be tested through a full economic cycle, I look forward to efforts that are planned in future years in the international standard-setting bodies to assess the framework quantitatively."

     

    Related Link: Speech

    Keywords: Americas, US, Banking, Proportionality, Large Exposures, Volcker Rule, Financial Stability, FED

    Related Articles
    News

    EIOPA Forms Consultative Expert Group on Digital Ethics in Insurance

    EIOPA established the Consultative Expert Group on Digital Ethics in Insurance to assist EIOPA in the development of digital responsibility principles in insurance.

    September 17, 2019 WebPage Regulatory News
    News

    FASB Proposes Taxonomy Changes Related to Topics 848 and 470

    FASB proposed taxonomy improvements for the proposed Accounting Standards Update on topic 848 on facilitation of effects of reference rate reform on financial reporting.

    September 16, 2019 WebPage Regulatory News
    News

    BoE Statement on Recalculating Transitional Measures Under Solvency II

    BoE notified that it will be willing to accept applications from firms to recalculate transitional measure on technical provisions (TMTP) as at September 30, 2019.

    September 16, 2019 WebPage Regulatory News
    News

    BIS Hosts Conference to Discuss Issues from Emergence of Stablecoins

    BIS hosted a conference in Basel to discuss policy and regulatory issues posed by the emergence of stablecoin initiatives backed by financial institutions and large technology companies.

    September 16, 2019 WebPage Regulatory News
    News

    BIS Paper on Embedded Supervision of Blockchain-Based Financial Market

    BIS published a working paper that investigates ways to regulate and supervise blockchain-based financial markets.

    September 16, 2019 WebPage Regulatory News
    News

    BoE Paper on Market-Implied Systemic Risk and Shadow Capital Adequacy

    BoE published a working paper that presents a forward-looking approach to measure systemic solvency risk.

    September 13, 2019 WebPage Regulatory News
    News

    HKMA Consults on Policy Module on Pillar 2 Supervisory Review Process

    HKMA is consulting on the revised Supervisory Policy Manual module CA-G-5 that sets out the HKMA approach to conducting the supervisory review process under Pillar 2.

    September 13, 2019 WebPage Regulatory News
    News

    PRA Publishes Waiver by Consent of Continuity of Access Rules

    PRA published a new waiver by consent to waive the Continuity of Access requirements contained in the Depositor Protection Part of the PRA Rulebook (DPP).

    September 13, 2019 WebPage Regulatory News
    News

    EBA Single Rulebook Q&A: Second Update for September 2019

    EBA updated the Single Rulebook question and answer (Q&A) tool with answers to three questions.

    September 13, 2019 WebPage Regulatory News
    News

    BoE Publishes Update on Meeting of Working Group on Risk-Free Rates

    BoE published the minutes of the July meeting of working group on sterling risk-free reference rates.

    September 13, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3827