A selection of news items generated by the American regulatory reform agenda

Analysis of reforms to banks’ capital markets businesses points to long-term structural change and falling equity returns

LONDON – A top British central banker has mooted the possibility of using macro-prudential policy to stimulate risk-taking and economic activity, with the implied suggestion of a temporary reduction in bank capital requirements. This is the first time a senior financial official from a major economy has hinted that it might be time to use macro-prudential tools to address the economic recession afflicting both sides of the Atlantic.

MEXICO CITY – Strong approval for Mexico’s prudential framework comes from the International Monetary Fund (IMF), the global economic policy watchdog, in an early-August report on the country, which is described as “well placed” to meet the new Basel III capital and liquidity standards ahead of schedule.

BASEL – Global regulators are stepping up work on new rules to supervise so-called “shadow banking”, that is banking activities undertaken outside the regular banking system by non-bank firms.

BASEL – Global regulators are recommending as a minimum requirement that transaction level data in the over-the-counter (OTC) derivatives market be reported to trade repositories as part of G20 efforts to bring greater transparency to OTC trading.

OTTAWA – Canadian regulators became the first, in mid-August, to issue detailed guidance on how the new generation of hybrid instruments will operate in the light of the proposed Basel III capital and liquidity regime. Many of the existing hybrids, which combine equity and debt features, were revealed during the financial crisis to be less loss-absorbing than had been believed. These instruments will now be grandfathered, and phased out from regulatory capital.

NEW YORK – Netting, the process of offsetting of financial assets and liabilities to produce a net exposure, played a key role in reducing counterparty credit risk arising from US bank participation in the $600 trillion over-the-counter (OTC) derivatives market, according to an industry study.

NEW YORK – Most large US banks that are deemed to be systemically important financial institutions (SIFIs), will be able to meet the proposed regulatory capital surcharge from normal earnings retention. Given the 2019 implementation date, even those banks with the largest capital shortfalls will be able to cover this surcharge – or buffer – well ahead of time, assuming uninterrupted, normalised earnings according to a research note issued by ratings agency Fitch in late August.

HAMILTON, Bermuda – Bermuda insurers and regulators welcomed the recognition by European regulators in August that regulation in the world’s biggest offshore insurance centre meets the criteria for Solvency II equivalence.