Global MMF, Nonbank Standards Take Final Shape

Late Monday, the FSB built on all the reports released ahead of the G-20 ministerial summit (assessed in FedFin daily briefings) with an in-depth survey of its current regulatory plans, which are analyzed in this report.  Most substantively, the global body has decided on an activity- and/or entity-based approach to governing shadow banking, moving away from prior plans instead to bar banks from taking risks related to otherwise-unregulated shadow firms.  First up in a set of recommendations now due to be finalized by September 2013 are MMF rules along the lines finalized earlier this month by IOSCO (see FSM Report MMF8), with FSB head Mark Carney indicating that proxy capital and liquidity rules are being planned for this sector.  Securities lending, repos, ETFs, monoline insurers and securitization are also to be subject to express regulatory standards.  The FSB document also reaffirms FedFin’s prior alert to clients regarding revised operational risk-based capital rules.  The FSB is very concerned about the continued impasse among accounting standard-setters over loan-loss reserving, trying here to push for a negotiated settlement by mid-2013.  It is also trying to force regulators to agree on the extraterritorial effect of derivatives rules by the end of this year – a goal FedFin thinks is even more aspirational than the impaired-asset wish list.

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