President Obama hosted a meeting with lead financial regulators to discuss the progress made in strengthening the financial regulatory system, including Dodd-Frank implementation. Linked below is the press release for the meeting.
Today we release CFS monetary and financial measures for July 2013. CFS Divisia M4, which is the broadest and most important measure of money, grew by 3.8% in July 2013 on a year-over-year basis versus 4.3% in June.
For Monetary and Financial Data Release:
The Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System (“FRB”), and the Federal Deposit Insurance Corporation (“FDIC”) seek comment on a notice of proposed rulemaking (“NPR”) to strengthen the leverage ratio standards for the largest, most systemically significant U.S. banking organizations. The NPR was published in the Federal Register on August 20, 2013, with a 60-day comment period.
See: OCC News Release; 78 FR 51101.
See also: FRB, FDIC and OCC Issue Notice of Proposed Rulemaking on the Supplementary Leverage Ratio for G-SIBs (July 10, 2013).
The ISDA has outlined a set of principles designed to help attain a more harmonized framework of international derivatives regulations. The principles incorporate views expressed by international regulators and market participants to develop a framework through principles-based substituted compliance methodology. Additionally, the ISDA published examples of how the principles will apply to various areas within derivatives regulation. The ISDA suggested the following principles:
- An effective framework should be grounded in the declarations issued by the G-20;
- Regional and national regulators should evaluate each other’s regimes to allow for a principles-based approach to cross-border issues in order to maintain global markets and avoid market fragmentation;
- In order to substitute compliance or equivalence, regulators must start by identifying a set of common principles that elaborate on the G-20’s regulatory goals;
- Ultimate decisions regarding comparability require not only a bilateral dialogue between regulators, but also a transparent process; and
- Regulators should consult and cooperate with each other before implementing their derivatives regulations.
Lofchie Comment: Again, I repeat, shouldn’t the CFTC’s guidance on cross-border have been subject to a formal rulemaking process that would have allowed for industry comment?
See: Methodology for Regulatory Comparisons (Substituted Compliance); Common Principles – Examples (Substituted Compliance); ISDA Press Release.
See also: IIB Files Comments on CFTC Cross-Border Exemptive Order (August 20, 2013); Industry Groups Submit Critical Comments on CFTC Cross-Border Guidance (August 14, 2013); SEC Proposal on Cross-Border Security-Based Swaps (with Commissioners’ Comments) (May 2, 2013); MFA and AIMA Submit Comments on SEC’s Proposed Cross-Border Rules for Security-Based Swaps (August 19, 2013).
Professor Steve Hanke just wrote a fascinating article about the World Bank’s Doing Business report. Anyone involved in analytic assessment of a nation’s economic and financial fundamentals knows and values the work by the World Bank on the survey.
Steve’s report “Doing Business, Singapore Style” was just published in Globe Asia and is highly recommended reading.
He notes that, recently, some countries have been pressuring the World Bank to scrap the Doing Business rankings and weaken the report’s analysis to the point of irrelevance. This would be a mistake. The Doing Business report provides a framework for economic reform and serves as a challenge to implement it around the world.
The Board of Governors of the Federal Reserve System issued a paper evaluating the capital planning process at large bank holding companies. The agency found that while the process has improved, more work needs to be done to enhance practices for assessing the capital necessary to withstand stressful economic and financial conditions. The paper noted various aspects that need the most improvement, including: accounting risks for specific business activities, methods of projecting the effect of certain stresses on capital needs, and governance of the capital-planning process.
The IIB has submitted a comment letter to the CFTC regarding the July cross-border Exemptive Order and the Interpretive Guidance and Policy Statement. The letter seeks transitional relief beyond that contained in the order, identifying four key areas that transitional relief was not provided under the Exemptive Order, but for which the IIB sees relief as necessary: (i) the bona fide “foreign branch” test, (ii) guidance regarding U.S. branches of non-U.S. swap dealers and MSPs, (iii) large trader reporting, and (iv) the application of legal entity identifier recordkeeping requirements to certain non-U.S. swap dealers and MSPs.
The IIB also seeks clarification with respect to “the prospective nature of the Final Guidance,” requesting confirmation regarding: (i) the application of the new “U.S. person” definition to existing funds, and (ii) changes to the MSP threshold calculations.
Lofchie Comment: IIB’s request for delay and clarification illustrates why it was inappropriate for the CFTC to issue the Final Guidance without going through an ordinary administrative rulemaking process where ambiguities in the guidance that is supposedly not a rule could have been addressed.
See: IIB Comment Letter.
The CFTC has published proposed amendments in the Federal Register regarding regulations to establish additional standards for compliance with the DCO core principles set forth in Section 5b(c)(2) (“Common Provisions Applicable to Registered Entities”) of the CEA. Systematically important DCOs and Subpart C DCOs would be required to comply with the requirements applicable to all DCOs. In addition, the Commission is proposing certain delegation provisions and technical clarifications.
See: 78 FR 50260.
Looking back today at “Questions and Answers on the Bank for Reconstruction and Development,” distributed by the U.S. Treasury to the delegates and journalists attending the Bretton Woods conference, it is apparent that the World Bank has been less important than was expected in 1944. The document refers to the decline of foreign investment in the 1930s as evidence that without guarantees such as the World Bank is intended to provide, investment may be small even though sound investment opportunities are extensive. In a number of places the document stresses the pump-priming effect World Bank guarantees will have.
It is understandable that those who wrote “Questions and Answers” should be pessimistic about a rebound in foreign investment. They had just experienced the worst 15 years for foreign investment since…maybe ever. Moreover, under the proposed agreement for the International Monetary Fund that was the main focus of the Bretton Woods conference, member countries pledged to open their current accounts (trade in goods and services) but made no such pledge with respect to their capital accounts (financial investment).
As it turned out, the World Bank did little of the post-World War II reconstruction work envisioned in its long title, the International Bank for Reconstruction and Development. The Marshall Plan was larger and quicker. And once Western European countries undertook currency and other economic reforms, they moved from privation to adequacy and then to prosperity. The long Western European boom began a renewed era of growing foreign investment, which broadened and deepened over time until today it includes most of the world’s countries and an even larger share of its population.
The World Bank has played a role in reconstruction following a number of civil or regional wars, but it has mainly been a development institution. That it has had a supporting role rather than a main role in international capital markets testifies to the overall success of the internationalist spirit underlying the Bretton Woods conference. The terrible 15 years up until Bretton Woods were not a predictor of things to come. Given the right environment, private investment proved willing to move across borders on a large scale without the World Bank’s guarantee.
The Managed Funds Association (“MFA”) and the Alternative Investment Management Association (“AIMA”) submitted joint comments to the SEC in response to the SEC’s proposed rules on cross-border security-based swap activities. The letter begins by complimenting the SEC on the approach that it is taking with regard to swaps rulemaking – e.g., adopting its rules as a whole, rather than in part – and for working with other regulators. The letter urges harmonization of regulation between the various regulators, including the CFTC and the SEC. More substantively, the MFA and the AIMA argue generally for materially broader recognition of substituted compliance with respect to transaction level swap obligations.
See: MFA and AIMA Comment Letter; MFA Blog Release.
See also: IIB Files Comments on CFTC Cross-Border Exemptive Order (August 20, 2013); Industry Groups Submit Critical Comments on CFTC Cross-Border Guidance (August 14, 2013); SEC Proposal on Cross-Border Security-Based Swaps (with Commissioners’ Comments) (May 2, 2013).