Shadow Banking: Less is More.

Is Deregulation the Most Effective Way to Deal with Shadow Banking?

Wednesday, October 29, 2014

These heightened capital requirements for licensed banks may trigger even more regulatory arbitrage than was observed in the recent past, thereby inducing a large migration of banking activities towards the shadow banking system. The higher solvency of the licensed banking system may then be more than offset by such growth in shadow banking, ultimately increasing the aggregate exposure of the money-like liabilities issued by both the formal and shadow banking sectors to shocks on loans. It ...
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AIG Fights for $308M in Economic Substance Claim

Thursday, October 23, 2014

In 2009, American International Group (AIG) sued the IRS to recover approximately $306 million in denied tax credits. After negotiating a tortuous litigation process, the dispute has surfaced again in court. On October 17, 2014, AIG argued before the Second Circuit Court of Appeals that six transactions it entered into from 1993 to 1997 were part of a bona fide spread banking activity and that it should recoup millions in foreign tax credits denied by the IRS relating to the transactions. ...
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FSB Proposes New Framework for Haircuts on Non-Centrally Cleared Securities Financing Transactions

Thursday, October 16, 2014

The Financial Stability Board has published a new “Regulatory Framework for Haircuts on Non-centrally Cleared Securities Financing Transactions.”  The new framework addresses certain shadow banking risks relating to securities financing transactions by limiting the build-up of excessive leverage outside the banking system and reducing the procyclicality of that leverage.

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ESMA Proposes Mandatory Clearing for FX Non-Deliverable Forwards

Thursday, October 16, 2014

The European Securities and Markets Authority is seeking input on its plans for mandatory central counterparty clearing of foreign exchange non-deliverable forwards (FXNDF). FXNDFs are cash-settled foreign exchange forward contracts that cannot result in physical delivery of the designated currencies at maturity. FXNDFs allow hedging of currencies where government regulations restrict foreign access to local currency or the parties wish to compensate for risk without a physical exchange of ...
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List of Open Consultations and Rule Proposals

Thursday, October 09, 2014

With the November 15 and 16 G20 Summit in Brisbane fast approaching, policy makers and regulators in the US and the UK have been hard at work.  Not to be outdone, IOSCO, ESMA, and BIS have also been busy.  Eager to demonstrate progress on financial re-regulation and reform, there has been a flurry of consultation papers and rule proposals at all levels over the past quarter.  The following is a list, current as of October 9, 2014, of some of the more noteworthy proposals and ...
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What’s in a Name? Would a Derivative by Any Other Name Smell As Sweet?

Wednesday, October 08, 2014

The different approaches to the interpretation of MiFID I across Member States mean that there is no commonly-adopted application of the definition of derivative or derivative contract in the EU for some asset classes. Whilst this issue has in the past been noted as a concern since the implementation of MiFID, the practical consequences have come to the forefront with the implementation of the European Markets Infrastructure Regulation (EMIR). What exactly is a derivative? ...
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Shadow Banking Remains on the FSB Agenda

The FSB Has a New Shadow Banking Roadmap in Store for Brisbane in November

Wednesday, September 24, 2014

Following its September meeting in Cairns, the Financial Stability Board (FSB) has published a press release highlighting some of the vulnerability the FSB still sees as threatening the global financial system.  The release also lays out some work plans for some of the FSB’s ongoing core financial reform efforts, including the area of shadow banking.  

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UK's Financial Reporting Council Issues New UK Corporate Governance Code

Better Corporate Governance and Risk Management Through Shareholder Engagement

Monday, September 22, 2014

The Financial Reporting Council (FRC), UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment, has issued a revised UK Corporate Governance Code.  The changes to the Code are designed to strengthen the focus of companies and investors on the longer term and the sustainability of value creation. One aspect of this refocusing is shareholder engagement.  The revised code seeks to ensure better communication ...
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Bank Directors May Find Themselves With a Heightened Standard of Care

To What Extent Should Regulators Dictate How Bank Boards Oversee Risk?

Wednesday, September 17, 2014

A recent address by Federal Reserve Governor Daniel Tarullo has raised the specter of expanded fiduciary duties for bank directors.  Referencing a recent academic paper proposing a simple negligence standard for expanded board oversight responsibility for risk-taking by systemically important financial institutions, Mr. Tarullo discussed how the nature of finance and financial regulation affects corporate governance and why, in turn, special corporate governance measures are needed as ...
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Could Redemption Gates Actually Encourage Runs on Funds?

Economists at the NY Fed posit that in some cases redemption gates may the have opposite effect intended

Thursday, August 28, 2014

Under rules recently finalized by the SEC, all money market funds will be permitted, and under some circumstances required, to impose liquidity fees and gates against investor redemptions if the fund’s weekly liquid assets fall below specified thresholds. In their release, the SEC said the purpose of these new rules is to mitigate money market funds’ susceptibility to heavy redemptions and improve their ability to manage and thwart possible contagion from redemptions.  An ...
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