Disruptive Markets  

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Causal Capital ~ The Knowledge Capital Specialists

FSB Developments

Monday, July 31, 2017

When it comes to dealing with regulators, you can apply the same rule of thumb as you do to politicians. Let's watch the first fifteen minutes of this charade and draw out some real messages.

 

These guys kind of exemplify why banking regulation fails at the best of times and the whole process of policy development seems to have evolved into a game of politics. Nonetheless, moving the deck chairs around on the risk management balcony or specifically, transforming one risk into another does not generally reduce the threat of systemic risk from a regulators' perspective.

 

On Derivatives and Clearing

 

For the record: "There are now high levels of central clearing but challenges with legal barriers and lack of data harmonisation remain" ... says to me that transaction reporting is still kind of opaque, yes?

 

"A piece of work needs to be done for CCPs to enable orderly resolution of material difficulties should they appear" ... Says to us all that we have stuffed as many standardized financial contracts as we can into central repositories but if anything fails, if concentrated defaults rise, if the CCP is disrupted, if what happened to us in the GFC repeats itself again, we don't really have an operable solution for you guys as yet but stay tuned.

 

On Money Markets & Corespondent Banking

 

"Reforms have reduced the types of toxic activities that can occur in money markets, BUT credit intermediation has grown rapidly since the crisis introducing a new form of liquidity transformation risk." ... say no more there.

 

"Cross Border resolution for systemic failure remains open" ... as it has always been and laws, protocol and policy for Total Loss-Absorbing Capacity still requires regulatory work.

 

"Correspondent banking relationships have unfortunately been reduced for developing economies that threaten the ability for some countries to access the financial system". OMG ---> Let's tell it how it is !!!

 

On Operational Risk

 

and finally wait for it, everyone applause ... If breaking the correspondent banking system isn't enough, we have this from the corner of operational risk. "We have made changes to the model approaches for calculating operational risk" ... actually we have simply removed the model approach for operational risk LOL, and now there is nothing else to do here.

 

This little lot is a bit of a FAIL, that is the reality I am afraid. The world of banking should take note in this case and ponder on what really needs to be done. There is this sense that the markets remain vulnerable and as fragile as they have always been ~ long live the FSB.

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