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Independent Commission on Banking Publishes Final Report
The Independent Commission on Banking (ICB) published their final report on reforms to improve stability
and competition in UK banking. Notably, the Commission recommends the implementation of a retail ring-fence to isolate those banking activities where
continuous provision of service is vital to the economy and to a bank’s customers " to ensure, first, that this provision is not threatened as a result of activities which
are incidental to it and, second, that such provision can be maintained in the event of
the bank’s failure without government solvency support."
The ICB report also recommends that UK G-SIBs with a G-SIB surcharge below 2.5 percent, and ring-fenced banks with a ratio
of risk weighted assets (RWAs) to UK GDP of in between 1percent and 3percent, should be required to have
primary loss-absorbing capacity set by a sliding scale from 10.5 percent to 17 percent of RWAs. It also suggests that resolution authorities should have a primary bail-in power allowing them to
impose losses on long-term unsecured debt (bail-in bonds) in resolution before imposing losses on other non-capital, non-subordinated liabilities. The report goes into further depth on resolution buffers, bail-in capabilities, leverage ratios, depositor preference, and primary loss-absorbing capacity.
Finally, the Commission recommends the Prudential Regulatory Authority (PRA) work
with the Office of Fair Trading (OFT) to review the application of prudential standards
to ensure that prudential requirements for capital and liquidity do not unnecessarily
limit the ability of new entrants to enter the market safely and to grow. "it
should ensure that use of the standardized approach to calculating risk weights does
not penalize banks that are unable to transition to an advanced approach because of
the high fixed cost of doing so," the report added.
ICB report
Vickers' opening remarks
France and Germany Issues Letter Outlining Transaction Tax Proposal
French Finance Minister Francois Baroin and German Finance Minister Wolfgang Schauble
outlined their proposal for a transaction tax to European Commissioner in charge of taxation and customs, Algirdas Semata The tax will apply to "all financial and foreign exchange transactions" though loans and deposits and transactions on primary equity markets will not be subject to the tax. Notably, the proposal acknowledges more work needs to be done to determine the appropriate tax base for derivatives transactions, repurchase agreements, and securities borrowing and lending.
The letter called for the transaction tax to be installed either at a global level or at the European Union level but recommended the tax rate be low to "minimize the risk of distortion and circumvention." If a transaction is made with a party outside of the EU, the party in the EU will be responsible for payment in the full amount.
Baroin/Schauble letter
ESMA Launches Call for Evidence on Empty Voting
The European Securities and Markets Authority (ESMA) launched a call for evidence on empty voting as
there are no specific rules relating to empty voting at the European level. Currently,
two Member States, however, have taken or are planning to take steps to address empty voting. ESMA has decided to issue this call for evidence to collect information and evidence on the extent to which empty voting practices exist in practice and the effects of such practices. The deadline for comment is November 25.
ESMA call for evidence
ECB Publishes Paper on Global Crisis, Equity and Contagion
The European Central Bank (ECB) published a working paper that analyzes the transmission of
crises to country-industry equity portfolios. The paper finds evidence of systematic contagion from US markets and from the global financial
sector, but the effects are very small. By contrast, there has been systematic and
substantial contagion from domestic equity markets to individual domestic equity
portfolios, with its severity inversely related to the quality of countries’ economic
fundamentals and policies. The paper rejects the globalization hypothesis
that links the transmission of the crisis to the extent of global exposure and instead confirm the old “wake-up call” hypothesis, with markets and investors focusing
substantially more on idiosyncratic, country-specific characteristics during the
crisis.
ECB working paper
IOSCO Announces Commodity Derivatives Markets Supervisory Principles
The Technical Committee of the International Organization of Securities Commissions (IOSCO) published its report on Principles for the Regulation and Supervision of Commodities Derivatives Markets.
The principles outlined in the report are aimed at ensuring a globally consistent approach to the oversight of commodity derivatives markets that will deliver effective supervision, combats market manipulation and improves price transparency. The report addresses the following areas:
the design of physical commodity derivatives contracts;
surveillance of commodity derivatives markets; disorderly markets; enforcement and information sharing; and enhancing price discovery and transparency. The report addresses the G20’s November 2010 request for further work on regulation and supervision of physical commodity derivatives markets.
IOSCO report
IMF Publishes Chapters 2 and 3 of Global Financial Stability Report
The International Monetary Fund (IMF) published chapters 2 and 3 of its semiannual Global Financial Stability Report. Chapter 2 examines the fundamental drivers of the longer-term asset allocation
decisions of longer-term unleveraged private and public institutional investors and suggests that sovereign asset allocation may provide a counterweight for
changing private sector behavior. Chapter 3 looks at the information needed to best identify the buildup of systemic risk and suggests policymakers should also examine high frequency indicators to prepare for the
potential near-term materialization of a crisis and the release of built-up buffers.
IMF GFSR - Chapter 2
IMF GFSR - Chapter 3
FDIC Adopts Final Rules on Resolution Plans
The Federal Deposit Insurance Corporation (FDIC)
approved a final rule to be issued jointly by the FDIC and the Federal Reserve Board to implement Section 165(d) of the Dodd-Frank.
provision requires bank holding companies with assets of $50 billion or more and companies designated as systemic by the Financial Stability Oversight Council to report periodically to the FDIC and the Federal Reserve the company's plan for its rapid and orderly resolution in the event of material financial distress or failure.
The Final Rule requires the company to describe its plan of how it could be resolved in a bankruptcy proceeding and
also sets specific standards for the resolution plans, including requiring a strategic analysis of the plan's components, a description of the range of specific actions to be taken in the resolution, and analyses of the company's organization, material entities, interconnections and interdependencies, and management information systems among other elements.
Final rule on resolution planning
Resolution planning work streams
UK and China Hold Fourth Annual Economic and Financial Dialogue
The UK’s Chancellor of the Exchequer George Osborne and China’s Vice-Premier Wang Qishan concluded the meeting of the Fourth UK-China Economic and Financial Dialogue in London.
Both sides agreed to continue to strengthen their co-operation on international financial regulatory reform in multilateral fora such as the G20 and Basel III. They also welcomed the private sector interest in developing the offshore RMB market in London and the growth of the market to date, an initiative that will be supported by a joint collaboration project involving the private sector on the development of RMB-denominated financial products and services in London, including analysis of sources of demand and supply and potential areas for regulatory cooperation. Finally, both sides
welcomed the launch of a market-oriented evaluation system for licensing the underwriters of non-financial enterprises debt instruments in the Chinese inter-bank market by National Association of Financial Institutional Investors (NAFMII) in early 2011.
Joint communique
UK EFD press statement
The Weeks Ahead
September
- 21 September - Deadline for comment on FSA proposed guidance on liquidity swaps
- 23 September - Deadline for comment on Australian Treasury consultation on financial recovery costs
- 23-25 September - IMF fall meetings (Washington, D.C.)
- 26 September - ESMA open meeting on AIFMD and UCITS
- 27 September - ESMA open meeting on HFT
October
- 3 October - Deadline for comment on ESMA consultation on HFT
- 6 October - First deadline for comment on FSA quarterly consultation
- 31 October - Deadline for comment on RBI proposed guidelines on bank licensing
November
- 1 November - Mervyn King appointment to GHOS take effect
- 3-4 November - G20 Leaders’ Meeting (Cannes, France)
- 9 November - Deadline for comment on FSA consultation and discussion paper on resolution and recovery planning
- 25 November - Deadline for comment on ESMA's call for evidence on empty voting**
December
- 6 December - Final deadline for comment on FSA quarterly consultation
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