“Financial Stability Monitoring” by the Fed keeps looking for that line between the gold standard of risk management and the desire to let the economy grow

A recently revised staff research report from the Federal Reserve, “Financial Stability Monitoring,” by Tobias Adrian, Daniel Covitz, and Nellie Liang, looks at how risk should be tracked across financial markets. We review both the revised report and a new blog article by the authors.

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Shadow Banking: recent articles and speeches

We’ve seen several recent news articles and commentary on Shadow Banking, from The Economist’s special report to news on China’s CITIC. Below are the most interesting articles we’ve seen lately.

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Regulatory pendulum starting to favor liquidity instead of Shadow Banking restrictions

Following the initial reactions of regulators to protect market stability and dial down risk, we are seeing several points suggesting that the tide is turning: maintaining market liquidity is being looked at more kindly than in the last few years. In particular, we note European suggestions that securitization is really alright and that even Shadow Banking might not be so bad after all.

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The Fed’s Tarullo: ideas for making SFTs safer

The Federal Reserve’s Daniel Tarullo give a speech last Friday called “Shadow Banking and Risk Regulation,” in which he laid out a few new ideas for regulating securities finance transactions (SFTs) including repo and securities lending. Most of the speech was old news for those of us who follow shadow banking but some of the new ideas warrant closer investigation.

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