OTC infrastructure ready, but no regulatory certainty - FSB

    The private sector infrastructure necessary to trade, clear and record over-the-counter (OTC) derivative transactions is now ready but regulatory uncertainty is blocking everyone from using these new exchanges, according to the Financial Stability Board (FSB).
    The FSB’s fourth progress report on reforming OTC derivatives, which triggered fears of contagion during the global financial crises, showed that the United States, the European Union, Hong Kong and Japan have made further progress in meeting the goal of trading and clearing through central counter parties by end-2012.
    But agreeing on cross-border rules is lacking and the FSB urged regulators worldwide to identify and develop options to tackle the shortcomings to help meet the end-2012 commitment to central clearing.
    The financial crises revealed that OTC derivatives had contributed to the build-up of systemic risk and the global nature of these markets - where buyers and sellers are frequently located in different jurisdictions - makes globally consistent regulation essential.

More finance not always better - BIS paper

    If credit and finance helps businesses grow, it follows that a country should encourage a vibrant and large financial sector. That, at least, was the logic behind the wave of financial deregulation that swept through advanced economies in the 1990s.

    But with the repercussions of the 2008 financial crises still reverberating, economists are starting to question that belief with some concluding that finance can indeed become excessive and this has a negative effect on growth.

    The latest contribution to this debate comes from the Bank for International Settlements (BIS), with a working paper that concludes that at low levels, such as in developing economies, a large financial system can spur faster growth in productivity.

    “But there comes a point – one that many advanced economies passed long ago – where more banking and more credit are associated with lower growth,” wrote BIS chief economist Stephen Cecchetti, and BIS staff economist Enisse Kharroubi in “Reassessing the impact of finance on growth.”

FSB: Emerging markets fear for credit under new rules

    Developing nations fear that credit and liquidity in their markets will dry up as major international banks struggle to meet tougher global rules, the Financial Stability Board said.

    In a report on the effect on emerging markets from Group of 20-led regulatory reforms, the FSB said some developing economies were worried that higher capital requirements levied on major international banks could have unintended consequences, both on their own financial markets and domestic banks.

    The FSB, which carried out a study with the International Monetary Fund (IMF) and World Bank, also found that emerging economies were concerned over a "home bias" in the design or implementation of the reforms that would have adverse effects on their own financial institutions.

    Click to read: Identifying the Effects of Regulatory Reforms on Emerging Market and Developing Economies: A Review of Potential Unintended Consequences.

    www.CentralBankNews.info

FSB: No need for treaty, Swiss law OK for now

    The Financial Stability Board, the global financial reform body that was created by Group of 20 leaders without a formal legal status, does not believe it needs the legitimacy of an international treaty to carry out its work right now, the FSB said in a report to the G20.
    Instead, the FSB, whose legitimacy has been questioned, said it could be given a legal form by creating an association under Swiss law and a draft of the articles should be formulated.
    The FSB, which is widening its steering committee to make it more representative, said it would not levy membership fees but continue to rely on the Bank for International Settlements (BIS) for funding.
    And in a move that should appease critics of its lack of transparency, the FSB said it "should adopt a structured mechanism for public consultation on FSB policy proposals; it should also engage in dialogue with market participants and other stakeholders, including through round-tables, hearings and other appropriate events."


    Click to read "Report to the G20 Los Cabos Summit on Strengthening FSB Capacity, Resources and Governance."


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