RD News 21March12

• Daniel Tarullo: Regulatory reform
• Capital regulation – as well as a firm-based approach to capital regulation we need the creation of a more systemic, or macroprudential, component of capital regulation.  
• Basel is assessing the consistency of risk-weighting practices by banks.
• Liquidity standards:
• Liquidity Coverage Ratio (LCR), is designed to ensure a firm’s ability to withstand short-term liquidity shocks through adequate holdings of highly liquid assets.
• Net Stable Funding Ratio (NSFR), is intended to avoid significant maturity mismatches over longer-term horizons.
• SIFI failure resolution:
• The coexistence of internationally active firms with nationally based insolvency regimes means that there could be important cross-border legal complications when a home jurisdiction places into receivership a firm with significant assets, subsidiaries, and contractual arrangements in other countries.
• A comprehensive, treaty-like instrument for a global bank resolution regime is an unrealistic prospect for the foreseeable future.

• Jens Weidmann (Pres, Deutsche Bundesbank): Lessons from the crisis for monetary policy and financial market regulation
• Regulatory reform should reinvigorate the principle that risks and returns have to be closely aligned:
• Market participants must be held responsible for their actions, the possibility of losses or even default is a constitutive element of any functioning market, and the financial markets are no exception.
• The financial system plays an indispensable role in fostering innovation and growth. This role has never been static: it is evolving constantly. And throughout history, this process has been accompanied by exaggerations.
• The continuing, never-ending challenge of financial market regulation is to limit the latter without stifling the undeniably beneficial forces at work in the financial system – we have to tame market forces and self-interest, but should not exorcise them.

• ESRB: Main issue is the provision of credit
• The key systemic risk remains the mutual negative feedback loops between three main risks:
• (i) persistent uncertainties on sovereign debt;
• (ii) pressures on bank funding and excessive and/or disorderly bank deleveraging in some countries;
• (iii) subdued growth prospects.

• IOSCO: updated systemic risk data requirements for hedge funds
• 10 proposed categories of information which incorporate both supervisory and systemic data:
• General firm/advisor and fund information
• Performance and investor information for each qualifying fund
• Market and Product Exposure for strategy assets
• Geographical focus
• Turnover/ number of transactions
• Trading and clearing
• Leverage and risk
• Liquidity risk
• Counterparty risk
• Concentration & portfolio complexity

• Reuters: Volcker Rule May Be Delayed and Simplified
• Congressman Barney Frank, one of the architects of the Dodd-Frank Act, has urged regulators to simplify the rule and release a new version by 3 September.
• Frank’s proposal is for regulators to issue guidance on the time period between 21 July and 3 Sept, and then subject a simplified version to a two year review period, throughout which regulators would be able to learn from experience.

• IAIS: Summer Consultation on Systemically Important Insurers Scheduled
• IAIS announce consultations relating to a methodology for identifying globally systemically important insurance companies (G-SIIs).
• The IAIS has been investigating the issue at the request of the Financial Stability Board (FSB), as part of the G20’s agenda on regulatory reform.

• Reuters: Basel liquidity requirements to be softened
• BCBS is set to allow all bank deposits at central banks with a maturity period of under 30 days to be classified as short-term liquid assets, eligible for inclusion in the new liquidity coverage ratio (LCR) buffer.
• Previously it had been expected that only 50% of these deposits could be used to meet banks' liquidity requirements.