New York Fed researchers investigate shadow-banking regulation

Editor’s Note:  The Federal Reserve Bank of New York’s Staff Report, Shadow Banking Regulation, by Tobias Adrian and Adam B. Ashcraft is attached below.


The Federal Reserve Bank of New York has published a staff report that finds “uneven” progress in achieving a more stable shadow-banking system.

Authors Tobias Adrian and Adam Ashcraft review the rapidly growing literature on shadow banking and provide a “conceptual” framework for its regulation.

Having contributed to the credit boom in the early 2000s, the authors note how shadow banks “collapsed during the financial crisis of 2007–09”. Since that time, regulatory reform efforts have aimed at strengthening the stability of the shadow banking system.

How Shape-Shifting Banks Foil Dodd-Frank Act

From: Bloomberg

Deutsche Bank AG (DBK) recently separated its U.S. investment bank from its bank holding company, removing it from supervision by the Federal Reserve.

So far, U.S. regulators have reacted passively to such moves by foreign banks to avoid the heightened capital requirements mandated by the Dodd-Frank Act.

That’s because Dodd-Frank failed to heed a fundamental law of architecture: Form must follow function. For financial regulation to be effective, it should focus on economic function, rather than legal form. If it doesn’t, institutions will quickly find new forms that free them of regulatory constraints. What walks like a duck and quacks like a duck must be regulated as a duck, even if it is legally a goose.

Kan. gov. lets financial regulation bills become law without signature to protest feds’ push

From: AP

TOPEKA, Kan. — Gov. Sam Brownback on Monday allowed bills revising how Kansas regulates banks and real estate appraisers to become law, but he refused to sign them as a protest against states being “coerced” by the federal government into making such changes.

For the second time in three days, the conservative Republican governor used obscure legislation to object to what he sees as the over-regulation of businesses. A Democratic critic suggested his latest actions were “borderline grandstanding.”

Financial regulators sign off on plan to label companies as vital to financial system

From: The Hill

By Peter Schroeder

Financial regulators on Tuesday finalized their blueprint for determining what financial institutions pose a systemic risk to the financial system.

The nation’s top financial watchdogs unanimously signed off on final rules that lay out how they will go about determining which financial institutions are so integral to the financial system that they must be subject to heightened regulations.

Treasury Secretary Timothy Geithner, who chairs the Financial Stability Oversight Council (FSOC), said the need to identify key firms became evident after the financial crisis swept up vital entities that previously fell between the cracks of traditional regulation.