Risk management discussed at Senate Banking Committee hearing
The Senate Banking Committee holds a hearing on risk management and its implications for systemic risk
WASHINGTON DC – Federal Reserve vice-chairman Donald Kohn commented during a Senate Banking Committee hearing that the US’ financial system was in sounder shape now and that banks have improved their capital positions.
He said: “I think we've come a long way. The markets are in a lot better shape than they were in March, but having said that, I don't think anyone can guarantee what's going to happen next.”
Kohn and Erik Sirri, director, division of trading and markets at the US Securities and Exchange Commission, confirmed that the Fed and the SEC were nearing the completion of a formal memorandum of understanding (MOU) relating to the Primary Dealer’s Credit Facility (PDCF), where the Federal Reserve would operate as a backstop liquidity provider to all banks including securities firms. In connection with the PDCF, the Fed created a programme to monitor the financial and funding positions of primary dealers, and the MOU will enhance information-sharing on this between the Fed and the SEC.
There has been some success in this area. Kohn said that “broadly speaking primary dealers were strengthening their liquidity and capital positions to better protect themselves against extreme events”.
As no one agency is currently responsible for financial stability in the US, the MOU is intended to “provide one mechanism for two of the critical agencies with responsibilities in this area to gain a broader and continuous perspective on key financial institutions and markets that could impact the stability of the financial system,” said Sirri. He also added that the MOU will bridge the gap in the legal framework until Congress addresses, through legislation, fundamental questions about the future of investment bank supervision, “including which agency should have supervisory responsibility, what standards should apply to investment banks compared to other financial institutions, and whether investment banks should have access to an external liquidity provider under exigent conditions in the future”.
Kohn also stated that the Fed was ensuring that financial institutions were now taking a much more forward-looking approach to risk management and that banks fully understand the potential for their risks to crystallise in times of stress. Moreover, the Fed, and the SEC, recognise that liquidity risk management practices need to be enhanced, and that they are both working with banks to ensure they develop appropriate short-term and long-term liquidity risk management strategies.
Sirri stated that the SEC, learning lessons from the Bear Stearns debacle, has improved the supervision of the remaining investment banks, and enhanced existing relationships with other supervisors to address the current issues. But he states that it is imperative that new legislation should define explicitly “how and by whom large investment banks should be regulated and supervised, and specifically whether the Commission should be given an explicit mandate to perform this function at the holding company level, along with the authority to require compliance.”
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Risk management
Buy side would welcome more guidance on managing margin calls
FSB report calls for regulators to review existing standards for non-bank liquidity management
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
Benchmark switch leaves hedging headache for Philippine banks
If interest rates are cut before new benchmark docs are ready, banks face possible NII squeeze
Op risk data: Tech glitch gives customers unlimited funds
Also: Payback for slow Paycheck Protection payouts; SEC hits out at AI washing. Data by ORX News
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure
Industry warns CFTC against rushing to regulate AI for trading
Vote on workplan pulled amid calls to avoid duplicating rules from other regulatory agencies
Top 10 op risks: change brings challenges as banks splash the cash
Higher interest margins and a trend toward insourcing drive major tech projects
Top 10 op risks: deepfakes drive rise in fraud fears
External fraud re-enters top 10 as artificial intelligence provides new tools for criminals
Most read
- Top 10 operational risks for 2024
- Top 10 op risks: third parties stoke cyber risk
- Japanese megabanks shun internal models as FRTB bites