Nov 202014
Bill Longbrake

Bill Longbrake

Markets have shrugged off recent anxieties and have stabilized because market participants still want to believe in market-friendly outcomes. “Hope” is ascendant. But, unfavorable demographic trends, a global excess supply of goods and services relative to underlying demand, monetary profligacy, negative real rates of interest, and huge and rising debt-to-GDP ratios collectively are the hallmarks of a slowly developing global deflationary bust. The climactic moment of capitulation and realization that the status quo is neither fixable nor sustainable is not yet at hand. Also in this month’s letter, Bill Longbrake provides a brief update on economic developments in the U.S., examines U.S. housing and fiscal policy, and discusses the plunge in global oil prices.

Full report

Nov 162014

The Asia-Pacific Economic Cooperation (APEC) in Beijing was this past week’s main focus in addition to assessing last week’s election results.  The summit aims to strengthen economic partnership between China and the U.S.   The two countries reached an agreement on visa validity extension for tourists and students by both U.S. and Chinese government, along with a deal to remove tariffs on high-tech goods.

On the regulatory front, the SEC announced they will begin reviewing the rules underpinning U.S. equity markets, including the pricing and rebate systems used by the exchanges, two issues covered at the CFP’s September 17th conference with FINRA.  The papers and presentations from the conference can be found on the CFP’s website.

Next week on Nov. 20th, the CFP and MFDF will be co-hosting “Best Execution in Today’s Complex Markets”at the Ronald Reagan Building, DC, focusing on the current trading environment as it relates to mutual funds.  To register, click here.


Top News

Carney-Yellen Neck-and Neck on Being First to Raise Rates

‘Too-Big-to-Fail’ Rule Would Raise Bar for Bank Capital

APEC Officials Agree to Free Trade Area of the Asia Pacific ‘Study’ 


Mortgage Markets

Easier mortgage rules, stable rates bring back U.S. homebuyers

Fannie Mae Chief Details Plan to Ease Mortgage Rules


Risk Management

Banks Poised to Settle FX-Rigging Cases

FSB consults on proposal for a common international standard on Total Loss-Absorbing Capacity for global systemic banks


Market Microstructure

SEC chief says undertaking comprehensive U.S. stock market review

A new kind of exchange-traded fund has been “approved” by SEC

Nov 072014

As our post yesterday highlighted, the election and what the shift in leadership means for next year’s legislative agenda was the main story on the policy front this week.  The U.S. Federal Reserve unveiled a final rule on Wednesday designed to prevent large financial firms from becoming so big that their failure could shake the core of the U.S. financial market.  The final rule, required by the 2010 Dodd-Frank Wall Street reform law, prohibits banks and certain large financial firms from acquiring another company if that merger would cause their liabilities to exceed 10 percent of the total consolidated liabilities for all financial firms.  As CFP Special Advisor Phill Swagel noted we could see some parts of Dodd-Frank modified, including the SIFI designation criteria in 2015.  Separately, the Financial Stability Board also announced their list of global systemically important banks, which could cost some banks up to 2.5% more in capital.

The CFP has two upcoming events in Washington, DC.  The first is a luncheon panel discussion on proxy access with the CFA Institute on November 17th.  The second event is a day-long conference on best execution for mutual funds held in conjunction with the Mutual Fund Director’s Forum and sponsored by Ropes & Gray on November 20th.  Please visit the CFP’s website for more information and to register.


Bank and Asset Management Regulation

Fed issues rule to prevent oversized U.S. financial firms

FSOC to Discuss SIFI Designation Process with Finance Groups

FSB Announces List of Global Systemically Important Banks

Biggest Banks Brace for Poisoned Chalice of a Place at Top of Table

Panel Steps Up Review of Threats Posed by Asset Managers

Read the CFA Institute’s report on whether asset managers are the new SIFIs



Smaller Banks See Regulatory Relief After Election

Businesses See Hope For Stalled Agenda

GOP Senate Takeover Puts Fed on Hot Seat

Chance for Tax Overhaul Is Seen in Shift of Power


Market Microstructure

Exchanges Ask Judge To Dismiss High Frequency Trading Lawsuit

Nasdaq OMX to experiment with ultralow trading fees




Nov 062014

With the Republicans taking control of the Senate, picking up ten additional seats in the House and moving into governor’s mansions across the country, many wonder what this will mean for the regulatory and policy outlook.

  • Will Congress revise or repeal parts of the Dodd-Frank act, particularly those that disproportionately affect small businesses and small banks?
  • Will the standards for SIFI designation be revised?
  • Will we get the long awaited (and much needed) tax reform?
  • Will we see substantive changes to our energy policy, such as loosening the rules regarding oil and LNG exports?  Several news sources are already reporting the Republicans have a filibuster-proof majority to pass the Keystone pipeline project.

CFP Special Advisor and Professor of Public Policy, Phill Swagel, believes changes to Dodd-Frank will be high on the legislative agenda.  “I expect to see changes that reduce the burden of the law on community banks, and that change the threshold for SIFI designation to something higher than $50 billion – that would simply things for banks that are large but not immense. Full repeal is not going to happen, but changes to fix problems are likely.”

He does not believe we will see any substantive tax reform.  “Perhaps a corporate tax reform combined with something like an EITC expansion. But even that is a stretch.  The two sides are simply far apart on tax policy, and the President has shown no willingness—or even ability—to compromise.”  Phill does believe we will see legislation with respect to energy transportation and the Keystone pipeline pass.  “We will see energy exports.”

It would be naively optimistic to expect all of the political logjams to clear, but 2015 is shaping up to be an interesting year on the regulatory and policy front.

Nov 022014

This week officially marked the end of QE3 when Fed announced that it would end the bond purchasing at their monthly meeting, but the central bank noted that it will continue to keep short-term interest rates around zero for a “considerable time.”  With market volatility surging in recent weeks, the SEC has started to test money managers ability to comply with redemption requests during financial stress.

The Federal Reserve brought its risk management policies into alignment with international rules for the largest U.S. clearing, payment and settlement firms. The change also reflects Dodd-Frank legislation, which requires central clearing of over-the-counter transactions. The CFP’s July conference, “Risks in Banking Symposium” co-sponsored by The Clearing House, discussed the importance of a single central counterparty and evolution of the clearinghouse system.  The FSB released a report on the estimated size of the shadow banking industry grew by $5 Trn to reach $75 Trn, a topic also covered at our July conference.  


Fiscal & Monetary Policy

End of an Era: Fed Concludes QE; Stocks Fall

Fed ends QE3, to hold key rate for “considerable time”


Regulations & Market Structure

Studies find fast traders get data from SEC seconds early:WSJ

U.S. regulator reported scrutinizing private equity marketing

Volatility spurs SEC to step up exams of money managers

Capital rule could raise investors’ costs, options exchanges say


Mortgage Markets

Urban Legends of Fannie and Freddie       

U.S. regulators approved Eased Mortgage Lending rules


Risk Management

FSB Report on Shadow Banking

U.S. Fed revises rules for clearing, settlement firms

About 25 Eurozone Banks to Fail ECB Stress Tests