Fed Staff Paper Counters CBDC First-Mover Arguments
Supporting the Fed’s decision not to move quickly on CBDC (see FSM Report CBDC10), a new Fed staff paper found little evidence of any national first-mover advantages, running counter to many lawmakers’ concerns about the US falling behind China or Europe (see Client Report CBDC13). The paper argues that the speed of technological innovation, the ability of large economies to dictate technology standards, and the ability of subsequent movers to improve on the design of first movers minimizes any early advantages gained in international payments. It also reiterates the Fed’s view that the dollar’s position as the global reserve currency is not at risk, citing the slow nature of historical financial transitions.
Basel Turns Focus To NBFI Interconnectedness, Leverage-Ratio Risk
Continuing the global-regulatory focus on nonbank financial intermediation (see Client Report NBFI2), the Basel Committee last week concluded that continued NBFI sector growth poses financial-stability concerns and highlighted interconnectedness risks and inadequate management practices. Specific concerns center on due-diligence failures, margining practices, and limit frameworks. The Committee also identifies regulatory arbitrage regarding the leverage ratio, providing no explanation of what this might entail. Additional areas of concern include NBFI counterparty exposure through derivatives and securities financing, leveraged lending, prime brokerage, and cryptoasset services.