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Financial Secretary to the Treasury launches consultation on the implementation of financial regulation reforms announced at Mansion House
July 26, 2010--Financial Secretary to the Treasury, Mark Hoban MP, today launched the Government’s consultation on the implementation of reforms to financial regulation.
The document sets out detailed proposals for reform of the financial services sector, first announced by the Chancellor in his Mansion House speech on 16th June 2010.
The Chancellor set out plans to overhaul the system of Financial Regulation giving the Bank of England powers over macro prudential regulation through a newly established Financial Policy Committee (FPC), which will be established on an interim basis from Autumn 2010.
The consultation invites views on this proposal in addition to plans to create:
A new prudential regulator under the control of the Bank of England headed by a new Deputy Governor (the first of whom will be current Financial Services Authority Chief Executive, Hector Sants), which will be responsible for supervising the safety and soundness of individual financial firms. A new Consumer Protection and Markets Authority (CPMA) to act as a single integrated regulator focussed on conduct in financial markets Financial Secretary to the Treasury, Mark Hoban said
"The Coalition Government is delivering on its commitment to reform the financial system, to avoid repeating the mistakes of the recent financial crisis and to ensure that taxpayers are protected. Today is a crucial milestone in our programme of reform. To take this forward, we would welcome the input of everyone who has an interest, including regulators and the regulated community, to ensure that we get the design right.”
View the Government’s consultation on the implementation of reforms to financial regulation
The Group of Governors and Heads of Supervision reach broad agreement on Basel Committee capital and liquidity reform package
July 26, 2010--The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, met on 26 July 2010 to review the Basel Committee's capital and liquidity reform package. Governors and Heads of Supervision are deeply committed to increase the quality, quantity, and international consistency of capital, to strengthen liquidity standards, to discourage excessive leverage and risk taking, and reduce procyclicality.
Governors and Heads of Supervision reached broad agreement on the overall design of the capital and liquidity reform package. In particular, this includes the definition of capital, the treatment of counterparty credit risk, the leverage ratio, and the global liquidity standard. The Committee will finalise the regulatory buffers before the end of this year. The Governors and Heads of Supervision agreed to finalise the calibration and phase-in arrangements at their meeting in September.
Mr Jean-Claude Trichet, President of the European Central Bank and Chairman of the Group of Governors and Heads of Supervision, said that "the agreements reached today are a landmark achievement to strengthen banking sector resilience in a manner that reflects the key lessons of the crisis." He emphasised that "the Group of Governors and Heads of Supervision have ensured that the reforms are rigorous and promote the long term stability of the banking system. We will put in place transition arrangements that ensure the banking sector is able to support the economic recovery."
Mr Nout Wellink, Chairman of the Basel Committee and President of the Netherlands Bank added that "a strong banking sector is a necessary condition for sustainable economic growth." He added that the announcements today should provide additional transparency about the design of the Basel Committee reforms, thus reducing market uncertainty and further supporting the economic recovery. Mr Wellink underscored that "many banks have already made substantial strides in strengthening their capital and liquidity base. The phase-in arrangements will enable the banking sector to meet the new standards through reasonable earnings retention and capital raising."
German banks did not reveal full debt details: report
July 26, 2010--European banking regulators say six German banks did not reveal full details of sovereign debt holdings as part of a key test of the sector's health, the Financial Times reported on Monday.
"We agreed with all supervisory authorities and with the banks in the exercise that there would be a bank-by-bank disclosure of sovereign risks," the FT quoted Arnoud Vossen, secretary general of the Committee of European Banking Supervisors (CEBS), as saying.
The six German banks included the country's biggest, Deutsche Bank, as well as Deutsche Postbank, which has the nation's largest retail network, and Hypo Real Estate, which failed the so-called "stress tests," the newspaper said.
UK considers single powerful corporate governance watchdog
July 26, 2010-The UK government is considering creating a single “powerful” new corporate governance regulator which would supervise corporate governance, company disclosure and institutional shareholders’ stewardship of companies.
The idea is to merge the UK Listing Authority (UKLA), the arm of the Financial Services Authority which deals with stock exchange listings, with the Financial Reporting Council, the body which oversees the Corporate Governance Code and the Stewardship Code.
“This would have the benefit of bringing the UKLA’s regulation of primary market activity alongside FRC functions relating to company reporting, audit and corporate governance,” the government’s new consultation document states.
The reorganisation is part of a sweeping revamp in the wake of the financial crisis.
Global Equity Index & ETF Research : July brings calm as investors take a pause to fine tune their game
July 23, 2010-Weekly European ETP Market Roundup
Net Cash flows
-Equity markets remained ambivalent over the week that ended July 16, with no real push in either direction. The Euro Stoxx 50 declined by 1.5%, DAX fell by 0.4% and FTSE 100 rose by 0.5%. Gold (USD) fell by 1.7% while the Euro rose 2.1% against the US dollar.
-Total European ETP cash flows of €1.0 billion point to a positive, yet relatively calm week, where equity investors seem to be pausing to take stock, and on some occasions fine-tune their game.
In sharp contrast to last week, the sector received positive equity flows of €650 million, while precious metals flows came to a halt with only €128 million flowing in. Fixed income continued its positive flow trajectory with €184 million of inflows over the week.
A closer look at equity flow allocations suggests a slight improvement in market temperature. This might be due to improved confidence or it could be down to the fact that July generally tends to be a quiet month due to holiday schedules. Country (€324 million) and regional (€244 million) benchmarks started to receive inflows, while sector benchmarks saw elevated cash outflows (€250 million). Leveraged, long and short benchmarks had an especially good week, recording 350 million of inflows, a number that perhaps indicates market conditions that permit investors to form clear views.
-Sovereign inflows (€254 million) led fixed income ETP flows, while money market funds continued to experience outflows (€69 million). Sovereign inflows 2010 year to date totaled €4.4 billion, while money market outflows for the same period reached €1.3 billion.
-Gold investors also took a pause with only €32 million of inflows in the past week. Broad agriculture indices (€39 million) and crude oil (€35 million) saw some inflows, while most of the other commodity sectors were flat.
New Listings
-Emerging markets was the flavor of the week, with three new products launches this past week. Six other ETFs were cross listed.
-Comstage launched two new ETFs tracking the Hong Kong equity market, while HSBC launched one new ETF tracking MSCI Brazil.
-Lyxor made a strong push in the Spanish market by cross-listing nine ETFs on the BME (Bolsas y Mercados Españoles). The cross-listings included four Stoxx 600 sector ETFs, two MSCI broad equity market ETFs, two non European real estate ETFs and one Aaa Euro government bond fund.
Turnover
-Consistent with the general July calm trading environment, average daily onexchange ETP turnover declined 2.8%, maintaining its downward slope of the previous weeks, totaling €1.9 billion.
Assets-Under Management
-Modest weekly equity cash flows and a slightly downward trending equity market contributed to the European ETP AUM declining by 1.3% to €193.7 billion.
-The equity ETP segment fell by 1.5% on the back of a 1.5% fall in the Euro Stoxx 50 over the week. Fixed income rose by 0.4%, while commodities fell by 2.7% driven by the fall in gold (USD) price (1.7%).
-European ETP AUM growth for 2010 YTD remains robust, registering at shy of 14%. .
FSA implements new powers granted by Financial Services Act 2010
July 23, 2010--The document includes new rules and guidance covering the following areas:
Use of the power to impose financial penalties or public censure on those who breach short-selling rules;
Disclosure of significant net short positions (these will go in a new part of the Handbook covering financial stability and market confidence and the current provisions on short selling in the Code of Market Conduct will be deleted);
Use of the power to suspend firms or individuals by stopping them undertaking some or all of the activities which they are permitted to carry on for a period of time;
Use of the power to impose financial penalties on individuals who have carried out controlled functions without the necessary approval from the FSA;
Seven banks fail Europe stress test
July 23, 2010-- Just seven European banks failed a health check and were ordered to raise their capital by 3.5 billion euros ($4.5 billion), much less than expected, confirming fears the continent's long-awaited stress test was too soft.
Results of the test of how 91 banks in 20 countries would cope with another recession was released on Friday in a bid to restore investor confidence after the Greek debt crisis spooked markets earlier this year. But it fell on deaf ears.
"There is little evidence that the tests have been applied consistently and there is a distinct lack of credibility, making this a wasted opportunity," said Richard Cranfield at international law firm Allen & Overy.
While the modest findings cast doubt on the credibility of the bank tests, some analysts said that may not matter because the European economy is improving fast.
The survey also showed how much government bonds are marked down on bank books, with Greek debt discounted the most, at 23 percent.
Strong GDP figures lift sterling
July 23, 2010--The pound advanced this week as a surge in UK growth eased fears that the economy was headed for a double-dip recession.
Figures released on Friday showed the UK economy grew at its fastest pace in four years in the second quarter. The data supported sterling, prompting speculation in some quarters that the Bank of England could move to exit its ultra-loose monetary policy stance sooner than expected.
The UK’s gross domestic product rose by 1.1 per cent in the second three months of the year. This was far greater than the 0.6 per cent rise forecast and took the UK’s annual growth rate up to 1.6 per cent.
CEBS Press release on the results of the 2010 EU-wide stress testing exercise
July 23, 2010--Further to its statements issued on 18 June, 7 July and 19 July 2010, CEBS today releases its summary report on the results of the EU-wide stress test exercise.
CEBS was mandated by the ECOFIN to conduct, in cooperation with the European Central Bank (ECB), the European Commission and the EU national supervisory authorities, a second EU-wide stress testing exercise.
The overall objective of the 2010 exercise is to provide policy information for assessing the resilience of the EU banking system to possible adverse economic developments and to asses the ability of banks in the exercise to absorb possible shocks on credit and market risks, including sovereign risks.
The exercise includes a sample of 91 European banks, representing 65% of the European market in terms of total assets, in coordination with 20 national supervisory authorities. It has been conducted over a 2 years horizon, until the end of 2011, under severe assumptions. The stress test focuses mainly on credit and market risks, including the exposures to European sovereign debt. CEBS has coordinated the exercise and conducted extensive cross-checks over the results, which were submitted to a rigorous peer review process in order to ensure their consistency and comparability.
The report provides details on the scenarios, methodologies and aggregate results of the stress test exercise.
In total, aggregate impairment and trading losses under the adverse scenario and additional sovereign shock would amount to 566bn € over the years 2010-2011.
The aggregate Tier 1 ratio, used as a common measure of banks’ resilience to shocks, under the adverse scenario would decrease from 10.3% in 2009 to 9.2% by the end of 2011 (compared to the regulatory minimum of 4% and to the threshold of 6% set up for this exercise). The aggregate results depend partly on the continued reliance on government support for currently 38 institutions in the exercise.
The aggregate Tier 1 ratio incorporates approximately 197bn € of government capital support provided until 1 July 2010, which represents 1.2 percentage point of the aggregate Tier 1 ratio. As a result of the adverse scenario after a sovereign shock, 7 banks would see their Tier 1 capital ratios fall below 6%.
The threshold of 6% is used as a benchmark solely for the purpose of this stress test exercise. This threshold should by no means be interpreted as a regulatory minimum. All banks that are supervised in the EU need to have at least a regulatory minimum of 4% Tier 1 capital.
view Summary of the 91 bank-by-bank results, by country
ECB hails results of EU bank stress tests
July 23, 2010--The European Central Bank on Friday hailed the results of European Union stress tests on major commercial banks, saying the findings confirmed banks could survive severe shocks.
The ECB "welcomes the publication of the results" of tests on 91 banks, which "confirms the resilience of EU and euro area banking systems to major economic and financial shocks," a statement said.
Only seven banks, five in Spain and one each in Germany and Greece, failed the exam.
The London-based Committee of European Banking Supervisors (CEBS) released the results of tests conducted in close cooperation with national supervisory authorities and the ECB to reassure investors that European banks stood on firm financial footing.
