A roundup of important news from last week that we otherwise didn’t cover including Europe’s CSDs, CCP liquidity, the SEC and repo, and the Fed’s bank stress tests.
The SEC focuses on broker-dealer repo. Not to miss out on the fun, the SEC is reportedly looking at rules to limit broker-dealer repo. According to a March 20 Bloomberg story, “The SEC is now considering changes to its own capital rules, including placing a cap on brokers’ borrowing and imposing a cushion of liquid assets to rely on in a crisis. While the SEC’s current rules require the largest brokers to maintain a capital cushion of at least $5 billion, they don’t set a strict cap on leverage.” Otherwise the story is a bit thin on details and most big brokers are already subject to parent company Fed, OCC and/or FDIC oversight. No can fault Bloomberg for trying to generate interest though – the title of the article is “Shadow Banking Deals Prompt SEC Plan to Cap Broker Leverage.” Just in case no one knows what repo is.
European CSD regulation. The European Securities and Markets Authority (ESMA) has issued a consultation paper on technical standards for CSDs. According to the paper, “ESMA is calling for public feedback on possible content to draft technical standards on matters such as settlement discipline, CSD registration and requirements, including confirmation rules (acceptance or rejection of terms in good time before the intended settlement date) for trading venues and investment firms, as well as access to CSDs by other CSDs, participants and other market infrastructures.” These are the kinds of regulatory details that really matter for how markets will function going forward. The consultation paper is here.
CCPs and loans from Central Banks. Risk Magazine carried a good article on the different rules Central Banks have for being the lender of last resort to CCPs. “Of nine central banks on four continents that Risk contacted, two refused to say whether they would provide an emergency loan to a central counterparty (CCP) that faced a liquidity shortage, two did not respond, two more conceded they would take “appropriate measures” if a CCP ran into trouble – but insisted their comments remain anonymous – and the remaining three said these measures would only be available after every other option had been exhausted.” Our information is that Central Banks absolutely do not want to be the lender of last resort but what else would they really do in a crisis? See our related SFM articles on CCPs and Central Bank access here: “Could US CCPs pay 25bps on cash collateral at today’s interest rates? The plot thickens” and “CFTC rules on CCP liquidity facilities: Treasuries need to be covered.
US bank stress tests. Mostly a yawner, but for the sake of argument, only Zions Bank looked poor in the Fed’s worst case “severely adverse” scenario. See pages 30 and 31 for the quick visual summary. Not surprisingly, the credit card companies looked the worst off in the Fed’s total loan loss rates under the “severely adverse” scenario. Here’s the link. The Fed later released a correction to the data but the first document has the charts.