Congrats Randal Quarles on Financial Stability Board Appointment

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Congratulations to Randy Quarles on his appointment to serve as Chair of the Financial Stability Board.

CFS is thankful for Randy’s early and constant support of our organization. As an Advisory Board Member and Trustee, he has been a source of wisdom on a wide range of topics. In particular, his involvement in “Bretton Woods: The Founders and Future” was especially productive and meaningful. The inspiration and encouragement from Randy will continue to guide CFS especially as we plan to honor the 75th anniversary of the birth of the international financial system and think strategically about the future.

See “Summary and Next Steps – Bretton Woods: The Founders and Future.”

Randy is uniquely experienced, remarkably learned, and thoughtful on virtually any monetary, regulatory, or related legal topic. Likewise, few to none are more honorable in character.

We wish him the best at the Financial Stability Board and continued success at the Fed.

CFS Monetary Measures for February 2019

Today we release CFS monetary and financial measures for February 2019. CFS Divisia M4, which is the broadest and most important measure of money, grew by 4.5% in February 2019 on a year-over-year basis versus 4.4% in January.

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Feb19.pdf

For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’

Senate Committee on Banking Considers Bills on Capital Formation and Corporate Governance

The U.S. Senate Committee on Banking, Housing and Urban Affairs (the “Senate Banking Committee”) considered legislative proposals on capital formation and corporate governance.

Chair Senator Mike Crapo (R-IA) stated that the Banking Committee has held three hearings in 2018 on legislative proposals – (i) the Helping Angels Lead Our Startups Act, (ii) the Fair Investment Opportunities for Professional Experts Act and (iii) the JOBS and Investors Confidence Act of 2018 – with respect to capital formation, corporate governance and the proxy process. Mr. Crapo said the purpose of the hearing is to address these bills again “in the context of identifying areas where we can find bipartisan consensus in the new Congress.” Mr. Crapo described the importance of unified legislative action, and added that it is “time to re-examine the standards of inclusion” for proposals that pursue environmental, social or political agendas.

In a separate statement, Senator Sherrod Brown (D-OH) touched on the importance of putting workers before Wall Street when considering these bills. He criticized the notion that it was a necessity for bills that facilitate capital formation, stating that time is better spent making sure that workers at companies such as Uber are receiving the wages and benefits they have earned, rather than “letting companies cut corners on their accounting controls.” Mr. Brown emphasized the importance of protecting ordinary American investors, noting that support for American companies should put employees first.

Lofchie Comment: It is disappointing that Senator Brown thinks it productive to attack the supposed “shortsighted obsession” of Wall Street. If he believes that the private sector is particularly cursed by an inability to think into the future, he should suggest a cure, rather than merely rehearse a cliché. Or is he suggesting that everything would be better if only elected officials made decisions as to capital allocation? That seems unlikely on its face, but if he believes it to be so, he should try to make the case for it. To what government – federal, state, or city – would he point as a model of long range investment planning?

New York Fed Officer Urges Firms to Prepare for LIBOR Transition

Executive Vice President and General Counsel of the Federal Reserve Bank of New York (“New York Fed”) Michael Held urged firms to prepare for the transition from LIBOR to an alternate interest rate. He cautioned that the transition from LIBOR has been identified by the Financial Stability Oversight Council as a financial stability risk. Mr. Held stated that “[t]he gross notional value of all financial products tied to U.S. dollar LIBOR is approximately $200 trillion – about 10 times U.S. GDP.” He further reported that approximately 95 percent of LIBOR exposure is in derivatives contracts.

In remarks at the SIFMA Compliance and Legal Society luncheon, Mr. Held stated that market participants with LIBOR exposure must undertake two tasks: (i) begin using the Secured Overnight Financing Rate (“SOFR”) or another robust alternative to LIBOR (or make sure that new contracts have workable fallback language) and (ii) deal with the “trillions of dollars of existing contracts that extend past 2021” which don’t currently have a sufficient fallback. According to Mr. Held, understanding the scope of an institution’s exposure to LIBOR-based products, and the contractual impact on those products when LIBOR is no longer available, is an important risk management assessment that should be completed as soon as possible.

UK and U.S. Swaps Regulators Agree to Maintain Existing Arrangements Post-Brexit

In a Joint Statement, the Bank of England (“BoE”), the Financial Conduct Authority (“FCA”) and the CFTC said that the United Kingdom’s withdrawal from the European Union would not serve to disrupt existing agreements as to the regulation, or exemptions from regulation, of firms engaged in the trading or clearing of derivatives.

The parties said that:

  • by the end of March 2019, the BoE, FCA and CFTC will put in place “information-sharing and cooperative arrangements to support the effective cross-border oversight of derivatives markets and participants and to promote market orderliness, confidence and financial stability”;
  • post-Brexit, U.S. trading venues, firms and central counterparties may continue to operate in the United Kingdom on the same basis that they do today; and
  • post-Brexit, the CFTC intends to issue new no-action letters and orders to permit UK firms to continue to operate in the United States on the same basis that they do today.

The notes to the document provide a “non-exhaustive list” of existing cooperation documents among the BoE, FCA and CFTC that will require amendment or reaffirmation post-Brexit.

 

SEM / ECB conference Call for Papers

The Society of Economic Measurement’s (SEM) 2019 conference will be held at Goethe University in Frankfurt with cosponsorship by the European Central Bank (ECB) on August 16-18, 2019.

The Call for Papers deadline for submissions is April 1, 2019.

Keynote Speakers:

  • Richard Blundell, University College London
  • Erwin Diewert, University of British Columbia
  • Arthur Lewbel, Boston College
  • Helmut Lütkepohl, Free University of Berlin
  • Kjetil Storesletten, University of Oslo
  • Apostolos Serletis, University of Calgary, Presidential Address

Local Organizing Committee:

  • Michael Kosfeld, Goethe University Frankfurt (Chair)
  • Ester Faia, Goethe University Frankfurt
  • Francis Gross, European Central Bank
  • Florian Hett, Johannes Gutenberg University Mainz
  • Loriana Pelizzon, Goethe University Frankfurt

Program Chairs:

  • Stephen Spear, Carnegie Mellon University
  • Apostolos Serletis, University of Calgary

Logistics:

Conference Maker is now ready to accept submissions. You can find the Conference Maker site for the Frankfurt conference here:
http://editorialexpress.com/conference/SEM2019/

The deadline for submission of invited and contributed papers is April 1 (no extension), with decisions to be announced by May 1.

Invited Sessions: If you are organizer of an invited session, the information on the four papers invited for your session must be entered into Conference Maker before the April 1 deadline. There are three ways you can do that:
(a) You can enter the information about the four speakers and their papers into Conference Maker yourself.
(b) You can have your four authors enter the information into Conference Maker themselves.
(c) You can provide the information by email to Kristin Scheyer and request her to enter it into Conference Maker for you. Kristen’s email address is: SEMconferences@outlook.com

Contributed Sessions: If you would like to submit a contributed paper, please submit to Conference Maker and choose a Contributed Session Organizer whose area of expertise is a good match for the topic of your paper.

If you have questions about the use of Conference Maker, please contact Kristin Scheyer at SEMconferences@outlook.com or Steve Spear at ss1f@andrew.cmu.edu

With best wishes to the new SEM President – Apostolos Serletis – and congratulations to William A. Barnett for his leadership in founding the SEM and serving as the Society’s first President.

SEC Proposes Greater Flexibility on Communications with Institutional Investors

The SEC proposed a new rule and related amendments that would allow issuers to communicate with certain potential investors to determine whether such investors might be interested in a “contemplated registered securities offering.” Under the proposed rule, such communications would be exempt from restrictions imposed by Securities Act Section 5.

The proposal is intended to give more flexibility to issuers regarding their communications with institutional investors. According to the SEC, the proposal would expand the “test-the-waters” accommodation to all issuers, including investment company issuers. The accommodation is currently only available to emerging growth companies. Under the proposal:

  • there would be no filing or legending obligations;
  • “test-the-water” communications must not be at odds with material information in the related registration statement; and
  • issuers that are subject to Regulation FD would be obligated to consider whether any information in a “test-the-water” communication would lead to disclosure obligations under Regulation FD.

Comments must be received by the SEC no later than 60 days after the date of publication of the proposal in the Federal Register.

CFTC Commissioners Urge Bank Regulators to Change to Leverage Ratio Treatment of Cleared Derivatives

Four Commissioners of the CFTC urged U.S. banking regulators to amend the calculation of the supplementary leverage ratio in order to recognize client-posted initial margin in cleared derivatives. The Commissioners’ comments came in response to a rule proposal by the banking regulators to update the calculation of derivative contract exposure amounts under the regulatory capital rules, previously covered here.

In a comment letter, CFTC Commissioners Dan Berkovitz, Rostin Behnam and Brian Quintenz said that the banking regulators (the Federal Reserve Board, the FDIC and the Office of the Comptroller of the Currency) neglected to acknowledge the “risk-reducing impact” of client initial margin that the clearing member banking organization holds on behalf of clients. The Commissioners contended that a supplementary leverage ratio (“SLR”) calculation that permits initial margin to offset potential future exposures would eliminate an unnecessary impediment to banks offering client clearing services.

According to the Commissioners, the adoption of the standardized approach for counterparty credit risk (SA-CCR) without offset will:

  • “maintain or increase the clearing members’ SLRs by more than 30 basis points on average”;
  • continue to “disincentivize clearing members” from supplying clearing services; and
  • limit access to clearing in “contravention of G20 mandates and Dodd-Frank.”

Commissioner Dawn Stump recused herself from providing commentary on the proposed rule.

CFS Monetary Measures for January 2019

Today we release CFS monetary and financial measures for January 2019. CFS Divisia M4, which is the broadest and most important measure of money, grew by 4.4% in January 2019 on a year-over-year basis versus 4.2% in December.

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Jan19.pdf

For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’

OFAC Imposes Additional Venezuelan Sanctions

The U.S. Treasury (“Treasury”) Department Office of Foreign Assets Control (“OFAC”) designated five officials affiliated with “illegitimate former” Venezuelan President Nicolas Maduro, pursuant to Executive Order 13692. According to OFAC, these five individuals “continue to repress democracy and democratic actors in Venezuela and engage in significant corruption and fraud against the people of Venezuela.” The individuals include Manuel Salvador Quevedo Fernandez, the “illegitimate President” of Venezuela’s state-owned oil company, Petróleos de Venezuela, S.A.

Treasury stated that it may continue to sanction officials “who have helped the illegitimate Maduro regime repress the Venezuelan people.” As a result of OFAC’s action, all property and interests in property of the designated individuals subject to U.S. jurisdiction are now blocked, and U.S. persons generally are prohibited from engaging in any dealings with them.

New Papers on Lessons for the Future from the Global Financial Crisis

The Center for Financial Stability (CFS) was delighted to co-host a conference with the Central Bank of Iceland and the University of Iceland.

Leaders in academia, government, and finance from around the world joined together to present and discuss notable and pointed papers.  Held on the tenth anniversary of the Global Financial Crisis, discussions delved into crisis causes, the regulatory response, and lessons for the future.

Agenda and working papers can be found here
http://centerforfinancialstability.org/iceland.php

A conference volume published by Palgrave Macmillan will be forthcoming.