• Libor unlikely to survive until 2025 due to thin market, Fed’s Bowman says
    19 October 2018
    US-dollar Libor may survive as a benchmark beyond official plans for its 2021 phaseout, but it is unlikely to last until 2025 because of its waning market, a senior US Federal Reserve official said.

    David Bowman, head of the Fed-sponsored effort to transition away from the scandal-plagued benchmark, said it will be “a very hard slog” for Libor’s administrator to continue its publication for long.

    “It is very unstable,” Bowman, a senior advisor to the Fed’s board of governors, said at a recent Washington conference*. “Maybe they can continue to produce it for some time past 2021. But to 2025 or 2030? Very, very difficult.”

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  • CFTC officials say EU refuses to explain plan’s 'systemic risk' application to US clearinghouses
    18 October 2018
    US Commodity Futures Trading Commission officials say they have tried unsuccessfully to get the EU to explain how it expects to apply the “systemic risk” definition to US clearinghouses in its proposed regulation of third-country derivative clearinghouses after Brexit.

    The officials said in an interview with MLex that they have asked EU counterparts for specific criteria they would use in classifying a US clearinghouse such as CME Group or Intercontinental Exchange as systemic — without getting a clear answer.

    If deemed systemic, US clearinghouses with European operations would be subject to EU and American oversight under legislation that has been discussed in the European Parliament and is now before the Council of the EU.

    The disclosures, along with some made Wednesday by CFTC Chairman Christopher Giancarlo, offer new detail on escalating US concerns that US clearinghouses would have to face costly dual regulation under the proposal.

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  • Banks subject to liquidity coverage ratio create less liquidity, Fed researchers find
    17 October 2018
    Large and mid-size banks subject to the US liquidity coverage ratio have been creating less liquidity in the last few years, raising questions of whether the post-crisis standard is “socially harmful,” US Federal Reserve researchers said.

    The drop in liquidity creation occurred in commercial and residential real-estate loans made by banks with more than $50 billion in assets, and in their transactions in short-term, volatile overnight debt and trading liabilities.

    “Our results highlight the trade-off between lower liquidity creation and lower run risk from reduced liquidity mismatch of the largest banks,” Fed researchers Daniel Roberts, Asani Sarkar and Or Shachar said in a blog this week about their study. “Whether this reduction in liquidity creation is socially harmful is unclear.”

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  • Cryptocurrency fraud may increase despite enforcement push, regulators say
    16 October 2018
    Federal and state regulators expect cryptocurrency fraud to persist and possibly increase despite a plunge in Bitcoin prices and a step-up in enforcement efforts.

    “Any time there’s a new and hot thing, fraudsters gravitate toward it,” US Securities and Exchange Commission Chairman Jay Clayton said at a conference* last week. “As long as it remains something where people think they can do very well very quickly, and it remains unregulated, it’s fertile ground for fraud.”

    James McDonald, the top enforcement official at the US Commodity Futures Trading Commission, said in an interview: “I don’t think you’re likely to see a decrease in this area; rather, you’re going to see a continued ramp-up in anti-fraud enforcement actions.”

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  • Banks’ investments in crypto-assets pose potential risks that aren’t being tracked, FSB says
    15 October 2018
    Banks and investment firms are investing, trading or market-making in crypto-asset markets or their derivatives in more than a half-dozen jurisdictions around the world, posing potential risks to the world economy, the Financial Stability Board said.

    While traded volumes and open interest of Bitcoin futures are low, the extent of firms’ investments in crypto-assets isn’t clear, putting the onus on national regulators to devise data to track growth in these holdings, the global authority’s report said.

    “Should the use of crypto-assets continue to evolve, it could have implications for financial stability,” the report released last week said. “These implications may include confidence effects and reputational risks to financial institutions and their regulators.”

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