AIG, US Treasury reforms and a Brexit deadline

AIG decision threatens too-big-to-fail insurer label: Fragmentation of international rules on cards as US denounces systemic designations

ABS set for revival under US Treasury’s liquidity buffer plans: Allowing securitisations to count towards LCR and NSFR buffers could boost ABS market

Deutsche Bank expects early 2018 decision on LCH exit: LSE chief slams clearing relocation proposals for trying to create captive European Union market

COMMENTARY: Régulateurs sans avec frontières

Three of Risk.net’s lead stories in the past week describe the same underlying trend – regulators around the world are drifting away from the consensus, such as it was, that arose after the financial crisis.

There is increasing strain around the future of euro swaps clearing once the UK leaves the European Union in 2019. Deutsche Bank’s Sylvie Matherat set a deadline of early 2018 for the industry to decide whether to pull out of LCH in London to guarantee survival post-Brexit, but there is still no agreement between the UK and EU authorities over the kind of deal that could keep LCH in play. However, a leaked EU document indicates European authorities are preparing a more nuanced approach to relocation that could mean legacy swaps stay in London, or only certain clearing services move.

A European Parliament representative also hinted that the EU’s Markets in Financial Instruments Directive could be reviewed in the light of Brexit – a move likely to reduce LCH’s chances of hanging on to its euro clearing business even further.

Another international spat looms over the question of too-big-to-fail status for insurers. Earlier in the month, US representatives on the Financial Stability Board refused to sign off on a revised list of global systemically important insurers, and this week followed that up by voting to take AIG off the US’s own list of systemically important financial institutions, potentially undermining the G-Sii project even further. The US is also pushing for a move to an activities-based approach to systemic risk, but the worry is that it will not be ready in time to replace the entities-based approach, which is now being undermined.

Witness also – as the financial crisis diminishes in the rear view mirror – the growing level of comfort around the renascent mortgage-backed securities market in the US. International financial markets are political creations, dependent on the decisions of national governments. The next financial crisis lurks as governments descend into protectionism and draw away from international co-operation.

STAT OF THE WEEK

Volumes of Korean equity-linked securities have doubled to $6 billion issuance a month, two years after their underlying index crashed in 2015

QUOTE OF THE WEEK

“There is certainly a need to review and recalibrate, as much of the work [on Mifid II] has been done with London as the largest financial centre and part of the EU. Unfortunately, after the [Brexit] decision, it will not be” – Thomas Book, Eurex Frankfurt