US
US Treasury Department Report on Systemic Liquidity Risk
US Treasury Undersecretary Nellie Liang spoke at the ISDA annual general meeting on current/future efforts by regulators to mitigate broad liquidity risk issues in markets. She framed remarks in terms of how regulators are addressing liquidity risks that banks, non-bank financial intermediaries (NBFIs), and US Treasuries markets currently face. Characterized bank liquidity in terms of most recent regional banking crisis, indicating banks, regulators to review social media, technology influence on bank and investor behavior. Highlighted inherent liquidity mismatch dilemma that is of critical importance to regulators given growth of private credit by NBFIs in last half century.
Office of the Comptroller of the Currency (OCC) Testimony on Prudential Banking Regulation
The OCC’s Acting Comptroller Hsu testified before the House Financial services Committee (FSC) on Prudential Banking Regulation. Hsu provided observations on recent bank failures and discussed the OCC’s work to guard against complacency by banks, reduce inequality, digitalization, and climate risks. The OCC is closely monitoring the conditions of the institutions they supervise and working with them to ensure that their liquidity and capital positions remain sound, including reviewing banks with significant levels of uninsured deposits to ensure that their cash holdings and borrowing capacity can easily meet potential depositor withdrawals.
Securities & Exchange Commission (SEC) Proposed Rule: Clearing Agency Margin
The SEC has proposed rule changes to amend intraday margin and risk-based margin systems of covered clearing agencies, e.g., London Clearing House (LCH) & Chicago Mercantile Exchange (CME). In addition, a new rule regarding a covered clearing agency (CCA) recovery and wind-down plan (RWP) was added. The goal is to mitigate risk from intraday price/position movements impacting margin calls, as currently no requirement exists to monitor intraday exposures on an ongoing basis. The nine elements cover critical services, vendors, scenario analysis, process, and governance. Comments to be received on or before 30 days after publication in the Federal Register.
Securities & Exchange Commission (SEC) Issued Risk Alert on LIBOR Transition Preparedness
The SEC issued a risk alert regarding observations from examinations of investment advisers and investment companies concerning LIBOR-transition preparedness. It reminded firms that LIBOR is scheduled to be discontinued after June 30th, 2023 and discussed certain practices firms have implemented to address the transition, as preparation efforts varied considerably, depending on type and amount of exposure. Key observations relate to a firm’s risk management practices, operations, portfolio management, fiduciary responsibilities, and investor communications as well as keeping abreast of ongoing and new challenges to a smooth transition.
Canada
Canada Office of the Superintendent of Financial Institutions (C-OSFI) Liquidity Guideline Review (Retail-like Wholesale Funding Sources)
C-OSFI launched a review of liquidity treatment provided in the Liquidity Adequacy Requirements (LAR) guideline for wholesale funding sources with retail characteristics, such as High-Interest Savings Account Exchange-Traded Funds (HISA ETFs). The guideline provides a framework for assessing the liquidity adequacy of banks, bank holding companies, and federally regulated trust and loan companies. The stated purpose of this review is to assess the need for new wholesale funding categories to appropriately reflect the risks of such retail-like wholesale products. Input is requested by June 21st, 2023 and should be sent via e-mail. 2024 would be the earliest implementation date.