Brexit, oil mergers and US regulatory divergence

The week in, March 17–23 2017

BREXIT blocking third-party Mifid guidance

OIL INDUSTRY mergers prepare for falling prices

US RIGHT stokes fears of regulatory divergence


COMMENTARY: Roll up that regulatory roadmap

Political pressures in the US could lead to a fracturing of the regulatory consensus on capital, with implementation of Basel III and the Fundamental Review of the Trading Book (FRTB) now very much in doubt. The new US administration’s supporters in Congress have been following the White House’s lead with blunt statements questioning the need for international co-operation on financial regulation. Christopher Giancarlo, nominated to chair the Commodity Futures Trading Commission, received an enthusiastic response last week in Boca Raton when he claimed new capital and leverage requirements had caused more than 30 flash crashes in the past six years, and promised to use his place on the US Financial Stability Oversight Council to push for looser capital regulations.

Giancarlo is not alone – right-wing senator David Perdue called the Basel III rules “extremely dangerous”, and Fed chair Janet Yellen was attacked last month for negotiating international financial regulations with foreigners. President Trump also attracted attention by promising a “one in, two out” rule for all new federal regulations – though this is widely viewed as impractical.

Banks and regulators on the eastern side of the Atlantic are all now seriously worried about whether the FRTB – and various other regulations – will come into force on time across the world. If the EU goes ahead and the US does not, the result will be upheaval and regulatory arbitrage; if the US delays and falls behind the EU, there will be uncertainty over the years-long transitional period, and still a risk of EU banks being priced out; if the EU decides to slow implementation to match the US schedule (as has been suggested), then there’s a risk that the next financial crisis will catch an industry still unable to learn the lessons of the last one.



In the first six months of 2016, China's four largest life insurance companies, with combined assets under management of nearly 10,000 billion yuan ($1,500 billion), wrote an average of 23% more life premiums than they did in the first six months of 2015 – leaving them with the problem of how to match long-dated liabilities with suitable assets.



Before the crisis, policymakers did not understand how central counterparties (CCPs) work, and that lack of understanding persists to this day. That corrupts some of the policymaking in respect to resilience, recovery and resolution. When I talk about contaminating the policy, I think there is a fundamental misunderstanding about CCPs. This is partly due to the involvement of bank regulators in setting policy – they tend to think of CCPs as banks” – Robert Steigerwald, Chicago Fed

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