FED LOOKS TO EXPAND INFLUENCE WSJ’s Ryan Tr
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Posted On: 01/12/2016 6:25:09 AM
FED LOOKS TO EXPAND INFLUENCE
WSJ’s Ryan Tracy: “The Federal Reserve is dusting off a legal power it has largely ignored for four decades, a move that could significantly expand the Fed’s influence over financial markets. Margin requirements — rules limiting what portion of stocks or bonds can be purchased through borrowing — are moving up the Fed’s to-do list as officials fret about whether they have adequate tools to suppress dangerous asset bubbles that could lead to another financial crisis. They also allow the Fed to exert influence on all financial firms, not just banks. A little-noticed global agreement recently paved the way for the central bank to move forward with plans to alter margin requirements. Under the accord announced Nov. 12, regulators representing 25 economies agreed to adopt rules similar to ones the Fed is developing, a united front intended to prevent financial firms from moving transactions offshore in response to tighter Fed rules. …
“Unlike earlier Fed margin rules, which focused largely on stock purchases, the new rules being crafted by the central bank would apply to securities-financing transactions, a multitrillion dollar market involving repurchase agreements, or repos, for stocks and bonds, as well as lending of securities. … The U.S. Office of Financial Research recently estimated the securities-financing transaction market is worth about $4.4 trillion, less than the crisis peak but still substantial. … The Fed declined to discuss the rule’s timing, but officials have signaled it is moving toward the front burner, discussing it publicly with greater frequency”
http://on.wsj.com/1mOToEM
WSJ’s Ryan Tracy: “The Federal Reserve is dusting off a legal power it has largely ignored for four decades, a move that could significantly expand the Fed’s influence over financial markets. Margin requirements — rules limiting what portion of stocks or bonds can be purchased through borrowing — are moving up the Fed’s to-do list as officials fret about whether they have adequate tools to suppress dangerous asset bubbles that could lead to another financial crisis. They also allow the Fed to exert influence on all financial firms, not just banks. A little-noticed global agreement recently paved the way for the central bank to move forward with plans to alter margin requirements. Under the accord announced Nov. 12, regulators representing 25 economies agreed to adopt rules similar to ones the Fed is developing, a united front intended to prevent financial firms from moving transactions offshore in response to tighter Fed rules. …
“Unlike earlier Fed margin rules, which focused largely on stock purchases, the new rules being crafted by the central bank would apply to securities-financing transactions, a multitrillion dollar market involving repurchase agreements, or repos, for stocks and bonds, as well as lending of securities. … The U.S. Office of Financial Research recently estimated the securities-financing transaction market is worth about $4.4 trillion, less than the crisis peak but still substantial. … The Fed declined to discuss the rule’s timing, but officials have signaled it is moving toward the front burner, discussing it publicly with greater frequency”
http://on.wsj.com/1mOToEM
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