On December 3, 2015, US Federal Reserve Board Vice Chairman, Stanley Fischer, delivered remarks on “Financial Stability: Policy Analysis and Data Needs” at the 2015 Financial Stability Conference sponsored by the Federal Reserve Bank of Cleveland and the Office of Financial Research. In his speech, Mr. Fischer discussed vulnerabilities of the US financial system and risks posed by shadow banking. While he praised steps taken by banking regulators to strengthen financial stability generally, including requirements for more and higher-quality capital and other loss-absorbing capacity for banks, liquidity buffers and stress testing for banks, new margin requirements for uncleared derivatives transactions, mandated clearing of certain derivatives to CCPs and the designation of systemically important nonbank financial institutions, Mr. Fischer still believes that regulators’ views of developments in the shadow banking sector remain incomplete. Mr. Fischer noted that the lack of data available regarding nonbank financial institutions can impair the development of regulations in this sector and thereby pose a threat to the financial system. He calls for policymakers to improve data collection efforts and focus on modeling interconnectedness between shadow banking, banks and the larger financial system in order to better understand the interdependencies between the banking system and nonbank financial institutions. One specific example he gave was regarding the potential role of margin in securities financing transactions. He noted that more stringent regulation of banking organizations may push securities financing transactions to less regulated entities and that to limit such arbitrage, the Federal Reserve would be developing regulations that establish minimum margin requirements for securities financing transactions for all market participants.
Mr. Fischer’s speech is available at: http://www.federalreserve.gov/newsevents/speech/fischer20151203a.htm.