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Fed’s Fischer Says More Work Needed to Protect Financial System

By Jeff Kearns
March 27, 2015, Bloomberg Business

Federal Reserve Vice Chairman Stanley Fischer said while the non-bank financial industry appears less vulnerable since the financial crisis, more work must be done to reduce risks in short-term wholesale funding markets.

“While progress has been substantial, areas for continued work remain,” Fischer said in the text of remarks prepared for delivery Friday in Frankfurt. “To say that the non-bank sector today appears less vulnerable than it did during the global financial crisis is not to say that authorities in the United States have tamed the non-bank sector.”

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Regulators Clash Over Swap Threat to Covereds

By Billy Thornbill
March 26, 2015, GlobalCapital

Covered bonds from outside Europe could be forced to meet onerous swaps rules while those from Europe escape, unless the Basel Committee and European regulators can forge a consensus.

Earlier this month the Basel Committee on Bank Supervision released a document suggesting that covered bonds would not be excluded from two way swap agreements.

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Treasury Help Sought in Cross-Border Swaps Dispute

By Andrew Ackerman
March 26, 2015, The Wall Street Journal

Senate Agriculture Committee Chairman Pat Roberts (R., Kansas) is pressing the Obama administration to help resolve a protracted cross-border dispute over derivatives regulation, a fight that threatens to harm big U.S. firms like CME Group Inc. that fall under the committee’s oversight.

Mr. Roberts, whose panel has jurisdiction over derivatives markets, is asking the U.S. Treasury Department to help resolve a dispute over the cross-border treatment of clearinghouses—entities that are supposed to help prevent a market-wide collapse by ensuring either party in a derivatives transaction would get paid if the other side falters.

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Regulators Cast Shadow on U.S.-EU Recognition Hopes

By James Rundle
March 26, 2015, Financial News

The ongoing dispute between the US and EU over recognising one another’s regulatory regimes for derivatives trading will not be easily solved, European regulators have said, amid urgent calls from the industry to fix the problem.

Regulators are currently feuding over whether US rules on risk management at central counterparties are inter-operable with EU regulations, with both sides refusing to recognise the other.

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ESMA Looks to Limit Retail Access to Embedded Derivatives

By Gabriel Suprise
March 24, 2015, GlobalCapital

As part of MiFID II, the European Securities and Markets Authority is soliciting comment on debt instruments with embedded derivatives. The outcome could restrict retail customers’ access to such products.

An ESMA consultation paper on the matter, which solicits public feedback until June 15, 2015, addresses a number of complex debt instruments and structured deposits that will be subject to scrutiny under the Markets in Financial Instruments Directive II. They focus is on how customers are able to comprehend the risks inherent in the product’s structural complexity.

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CME Urges Tougher U.S. Response to EU Clearing Dispute

By Philip Stafford
March 25, 2015, Financial Times

The head of the US’s largest derivatives exchanges has suggested European clearing houses be restricted from US markets, if a long-running regulatory spat between the world’s two main regions for derivatives trading is not resolved soon.

Terry Duffy, executive chairman of CME Group, will tell an agriculture committee of the US House of Representatives on Wednesday that equivalent recognition of US clearing houses by European regulators is “the one overriding issue” facing the country’s derivatives markets.

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SEFs Coming of Age

March 23, 2015, Markets Media

The U.S. Commodity Futures and Trading Commission, in drafting rules for swap execution facilities, was placed in an uncomfortable position of reconciling the OTC and listed derivatives markets.

On the one hand, the Dodd-Frank Act made clear that swaps must be offered on one-to-many platforms, but on the other hand, the CFTC had nothing to use as a starting point for rulemaking other than the futures exchange model.

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Warren Sharply Criticizes Fed Staff Over Dodd-Frank Views

By John Heltman
March 24, 2015, American Banker

Federal Reserve Chair Janet Yellen found herself on the defensive Tuesday as Sen. Elizabeth Warren, D-Mass., cast doubt on a top staff member of the Fed, suggesting he was not committed to implementing the Dodd-Frank Act.

During an unusually aggressive bout of questioning for Yellen, particularly from a lawmaker generally regarded as supportive of the Fed chair, Warren questioned comments made by Fed General Counsel Scott Alvarez last year raising concerns with aspects of the financial reform law.

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U.S. Regulators Veto ‘Living Wills’ of RBS, HSBC, and BNP Paribas

By Tom Braithwaite and Eric Platt
March 23, 2015, Financial Times

US regulators vetoed the living wills of Royal Bank of Scotland, HSBC and BNP Paribas on Monday, ordering the banks to improve the planning in the event of their demise.

The US regulatory reforms in 2010 forced large US and overseas banks with significant US operations to draft detailed plans to wind themselves down in a crisis, avoiding the expensive government bail-out of AIG or the calamitous collapse of Lehman Brothers.

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Comment: Despite Regulatory Advances, Experts Say Risk Remains a Danger to Large Banks

By Mayra Rodriguez Valladeres 
March 23, 2015,  New York Times

With all the new laws and regulations since the financial crisis, it would be easy to believe that the banking industry is safer. Unfortunately, speakers at the Federal Reserve conference at George Washington University on Friday offered a range of reasons for why that’s not the case.

First, the regulatory framework remains fragmented. Not only do we have “a dual state and federal banking charter system,” as former Representative Barney Frank told the audience of regulators, bankers, lobbyists, consultants and academics, we also have three national bank regulators, 50 state bank regulators and two derivatives regulators, not to mention different regulators for securities, broker-dealers and insurance companies. Private equity and hedge funds remain largely unregulated. It is unreasonable to expect that all these entities would communicate, not to mention work well together, to detect the next crisis.

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