IMF Warns U.S. Is Struggling With Financial Markets Oversight
IMF Says Regulators Responded, Partially, With Considerable Delay, to Money-Fund Risks
By Andrew Ackerman
Updated April 9, 2014 9:16 a.m. ET
http://online.wsj.com/news/articles/SB1000142...reno64-wsj
WASHINGTON'U.S. policy makers are stumbling at responding quickly and effectively to financial-system risks including those posed by money-market funds, the International Monetary Fund warned Wednesday.
The IMF, in a report, said U.S. regulators responded "only partially and with considerable delay" to pressure from the Financial Stability Oversight Council'a panel of top regulators created to prevent a repeat of the financial crisis'to rein in risks posed by the $2.6 trillion money-market mutual-fund industry.
"These difficulties suggest that the process of issuing recommendations to member agencies could be too cumbersome if an important and time-sensitive systemic threat is identified," the IMF wrote it in its latest Global Financial Stability Report.
The Securities and Exchange Commission, whose chairman sits on the FSOC, is under pressure from the panel to finalize new rules to reduce risks of destabilizing investor runs in money funds during times of market tumult.
The FSOC issued a series of recommendations to overhaul money funds in November 2012 after the five-member SEC, amid internal disagreements and industry lobbying, failed to agree on a plan. The SEC now aims to finalize tighter rules for money funds as early as this summer, though they are expected to be limited in scope.
An SEC spokesman didn't have immediate comment on the IMF report.
The IMF said the FSOC may need additional "backup" authority to ensure that the activities of "nonbank intermediaries," or products offered by a class of investment trusts, are subject to more stringent regulation. The FSOC currently can recommend that its member agencies subject certain activities to additional regulation but can't automatically bring those activities under Federal Reserve oversight the way it can for individual companies.
"As a means to further increase traction of FSOC recommendations, thought could be given to providing the FSOC with a 'backup' power to designate as systemically important well-defined classes of nonbank intermediaries that might collectively pose systemic risks," the report said.
It added FSOC member agencies might need strengthened powers "to regulate products offered in wholesale and retail financial markets."
The IMF highlighted ongoing concerns with mortgage real-estate investment trusts, or mortgage REITs, which are publicly traded financial companies that invest in real-estate debt. The IMF sees mortgage REITs as another potential threat to financial stability. The FSOC also has cited mortgage REITs as a concern but hasn't moved beyond highlighting the risks.
"Although the size of U.S. mortgage real-estate investment trusts has modestly declined over the past year, authorities should continue their close oversight of them," the IMF said, adding that mortgage REITs "could pose financial stability risks in an environment of sharply rising interest rates."
'Ryan Tracy contributed to this article.
Write to Andrew Ackerman at andrew.ackerman@wsj.com
http://online.wsj.com/news/articles/SB1000142...reno64-wsj
IMF Says Regulators Responded, Partially, With Considerable Delay, to Money-Fund Risks
By Andrew Ackerman
Updated April 9, 2014 9:16 a.m. ET
http://online.wsj.com/news/articles/SB1000142...reno64-wsj
WASHINGTON'U.S. policy makers are stumbling at responding quickly and effectively to financial-system risks including those posed by money-market funds, the International Monetary Fund warned Wednesday.
The IMF, in a report, said U.S. regulators responded "only partially and with considerable delay" to pressure from the Financial Stability Oversight Council'a panel of top regulators created to prevent a repeat of the financial crisis'to rein in risks posed by the $2.6 trillion money-market mutual-fund industry.
"These difficulties suggest that the process of issuing recommendations to member agencies could be too cumbersome if an important and time-sensitive systemic threat is identified," the IMF wrote it in its latest Global Financial Stability Report.
The Securities and Exchange Commission, whose chairman sits on the FSOC, is under pressure from the panel to finalize new rules to reduce risks of destabilizing investor runs in money funds during times of market tumult.
The FSOC issued a series of recommendations to overhaul money funds in November 2012 after the five-member SEC, amid internal disagreements and industry lobbying, failed to agree on a plan. The SEC now aims to finalize tighter rules for money funds as early as this summer, though they are expected to be limited in scope.
An SEC spokesman didn't have immediate comment on the IMF report.
The IMF said the FSOC may need additional "backup" authority to ensure that the activities of "nonbank intermediaries," or products offered by a class of investment trusts, are subject to more stringent regulation. The FSOC currently can recommend that its member agencies subject certain activities to additional regulation but can't automatically bring those activities under Federal Reserve oversight the way it can for individual companies.
"As a means to further increase traction of FSOC recommendations, thought could be given to providing the FSOC with a 'backup' power to designate as systemically important well-defined classes of nonbank intermediaries that might collectively pose systemic risks," the report said.
It added FSOC member agencies might need strengthened powers "to regulate products offered in wholesale and retail financial markets."
The IMF highlighted ongoing concerns with mortgage real-estate investment trusts, or mortgage REITs, which are publicly traded financial companies that invest in real-estate debt. The IMF sees mortgage REITs as another potential threat to financial stability. The FSOC also has cited mortgage REITs as a concern but hasn't moved beyond highlighting the risks.
"Although the size of U.S. mortgage real-estate investment trusts has modestly declined over the past year, authorities should continue their close oversight of them," the IMF said, adding that mortgage REITs "could pose financial stability risks in an environment of sharply rising interest rates."
'Ryan Tracy contributed to this article.
Write to Andrew Ackerman at andrew.ackerman@wsj.com
http://online.wsj.com/news/articles/SB1000142...reno64-wsj
