Nonbank Corporate Finance Stokes Systemic, Macro Risk
A new BIS paper supports bank assertions that nonbank corporate finance is considerably more procyclical in terms of its threat to financial stability and macroeconomic growth than that conducted by regulated companies. This risk-arbitrage question is germane not only to the ongoing debate about NBFI regulation, but also efforts to ensure that U.S. “end-game” capital rules sharply reduce the RWA for lower-risk corporate obligations.
FSB Fears Systemic Risk from Bank, CCP Commodity Risk
A new FSB report today assesses systemic risk posed by the oil, gas, and wheat commodity markets given its highly-leveraged and illiquid nature and its deep interconnections into the global banking system. Global regulators conclude that bank exposures in general are “manageable,” but some banks and CCPs have significant sector exposure and thus risk. Commodity firms have recently reduced liquidity risk, but they also hiked credit and market risk at a time of tightening that exacerbates them, leading the FSB to describe emerging risks and detail the data gaps that make it challenging to draw clear conclusions.
FSB Prioritizes Crypto, NBFIs
The FSB head’s letter to the G20 yesterday reiterates priorities outlined in his November letter, stating that global regulators will deliver a joint paper with the IMF later this year synthesizing policy findings and regulatory issues around cryptoassets. The FSB will also continue to prioritize NBFI supervision (see Client Report NBFI2), re-emphasizing the importance of studying hidden leverage and addressing liquidity mismatches in open-end funds.