Aug 222014

Fed Chairwoman Janet Yellen’s Jackson Hole comments came and went without much fanfare.  Her speech shifted to a more neutral tone on the state of the U.S. employment market, skirting over the policy implications of such a view, and emphasized the need for flexibility.  She notes: “Monetary policy ultimately must be conducted in a pragmatic manner that relies not on any particular indicator or model, but instead reflects an ongoing assessment of a wide range of information in the context of our ever-evolving understanding of the economy.”

Though it was a relatively quiet week on the news and policy front, equity markets continued to grind steadily higher and index investor Vanguard saw their AUM rise above $3 trillion for the first time.  The battle between active and passive investing is something CFP Director, Russ Wermers, has written extensively about in his research on the mutual fund industry.


Vanguard Sees Record Inflows

The Rise and Fall of Performance Investing$topic42

Fight Brews on Changes That Affect Derivatives

Yellen’s Speech in Jackson Hole

FSB Report on Shadow banking in the Americas and Asia

FSB Consultative Report on Foreign Exchange Benchmarks

Aug 152014

No news is good news.  That’s what a Tabb Group survey of market players and watchers tells us, anyway.  Between the Flash Crash, last year’s Hash Crash, and Michael Lewis’ Flash Boys, market microstructure and concerns regarding the stability of the market remain a central issue for financial market participants and regulators alike.  The absence any recent glitches seems to have led to rising confidence in the market’s structure according to this survey.  The majority of respondents supported a measure to eliminate the “maker-taker” fee structure, a topic that will be addressed along with microstructure, at the upcoming conference the CFP is co-hosting with FINRA on September 17th.  In a related topic, bidding is now underway for the CAT (Consolidated Audit Trail) supercomputer to track the US equity and options exchanges, along with bank dark pools.  The need for a central clearing system was one topic covered at our shadow-banking conference back in July.

The Federal Reserve confirmed Chairwoman Janet Yellen will speak at Jackson Hole forum for central bankers next week.  Former Chairman Bernanke launched several of the Fed’s bond-buying programs in his speeches at this event, thus market watchers will keep a close eye on her remarks in what should otherwise be another quiet week.

 SEC Computer Called CAT will Peer into Dark Pools, Track Orders

With Absence of Glitches, Confidence Rising in Market’s Structure

High-Frequency traders flee investment banks

Deutsche Bank Ordered by U.S. Relators to Improve Risk Controls

Appeals Court Says Dodd-Frank Whistleblower Protections Don’t Apply Abroad

Aug 082014

Foreign policy overshadowed financial policy in the headlines this week, but two key stories from the banking sector are worth noting.

In Europe, the Bank of Portugal unveiled a plan to rescue Banco Espirito Santo.  The restructuring plan will divide the bank into two separate entities effectively creating a “good bank” and “bad bank”.  Shareholders and junior bondholders will bear the brunt of the losses.  ISDA ruled that it isn’t a bankruptcy credit event, thus the CDS will not be paid out.  In 2016, a tougher set of bail in rules for creditors will apply, which could wipeout senior bondholders, as well.

In the US, regulators rejected the top bank’s “living wills”, which are to show how they could be wound down in a crisis without inflicting widespread damage to the economy.  The FDIC and Fed released a joint statement, though the regulators were split on their response, the FDIC taking a harsher stance.  Both regulators must agree in order to implement punishments, such as more stringent capital or leverage ratio requirements.


Banco Espirito Restructure

The implications of bail-in rules for bank activity and stability.  Opening speech by Benoît Cœuré, Member of the Executive Board of the ECB (2013)



Biggest US Banks Told to Simplify Their Living Wills

CFP Senior Fellow David Kass quoted in the following article:

Federal Reserve Press Release


Big banks still a risk

 (7/31) Hearing on Examining the GAO report on Expectations for Government Support for Bank Holding Companies


Aug 012014

The US monetary policy outlook was front and center in financial markets this week.  On Wednesday, the Federal Reserve affirmed that the bond buying program will end in October.   The statement also indicated that rates will stay low for “a considerable period of time after the asset purchase program ends.”  When surveyed in June, policy makers said they did not expect to move to raise rates until the middle of next year.  Today’s non-farm payrolls report confirmed their patient outlook, but that’s provided little comfort to equity markets which are down for the second day in a row at the time of writing.

The FSOC met yesterday regarding the designation of some asset managers as systemically important (SIFIs).  GE’s financial unit and AIG are expected to be reaffirmed as SIFIs, while asset managers Blackrock and Fidelity are expected to escape this designation.  The council directed staff to do a more focused analysis of industry wide products and activities to assess potential risks within the asset management industry.  The committee could hand the SEC additional oversight responsibilities and require them to address specific risky activities.  The council pressured to SEC to address the risks posed by the money-market industry back in 2012, which were announced last week.  Next week should be fairly quiet on the policy front with Congress adjourning for the summer and no major economic data releases on tap.


 Federal Reserve Statement

 Fed Keeps Same Narrative Taper Proceeds But Markets Move

CFP Senior Fellow, Cliff Rossi on the FOMC Meeting

 Fed Boosts View of Economy

Hilsenrath: Fed Can Remain Patient on Rate Hike Debate After Data

Asset Managers May Avoid Oversight

OFR’s Initial Report on Asset Management Industry to FSOC (2013)

 China’s Banks Post World’s Largest Systemic Risk

New Accounting Rules on Bad Debts for Banks Outside U.S.


Jul 252014

It might be the dog days of summer, but regulators and policy makers continue to make headlines. The key stories from this past week were the SEC’s ruling on money market reform, the fourth anniversary of Dodd-Frank and President Obama announcing planned steps to stem the rising number of corporate inversions for tax purposes.  As CFP Director, Russ Wermers commented on the money-market reform ruling – it will be interesting to see how all of this plays out over the coming months.

Next week, monetary policy returns to forefront as the Federal Reserve meets on Tuesday and Wednesday.  Little is expected to change on the surface of the statement, but markets will be watching to see if she starts to lay the groundwork for the months ahead as the bond program expires.  CFP Special Fellow and Professor of International Economic Policy, Phillip Swagel, commented on this in his WSJ Op-Ed last week.


Weekly News Round-Up

 Dodd-Frank’s Four Years of Doing Nothing

Dodd-Frank at a Crossroads

 Obama Says Tax Law Needs to Stop ‘Corporate Deserters’

 SEC’s long path to money market fund reform ends in compromise

 IMF Lays Out Own Fed Exit Strategy

NYT: The Importance of Shedding Some Light on Dark Pools

SIFMA Publishes Recommendations for Enhancing Fairness, Stability and Transparency in US Equity Markets