Week InReview

"Open-end mutual funds face redemptions by investors, but the sale of the underlying assets depends on the portfolio decision of asset managers. If asset managers use their cash holding as a buffer to meet redemptions, they can mitigate fire sales of the underlying asset. If they hoard cash in anticipation of redemptions, they will amplify fire sales. We present a global game model of investor runs and identify conditions under which asset managers hoard cash. In an empirical investigation of global bond mutual funds, we find that cash hoarding is the rule rather than the exception, and that less liquid bond funds display a greater tendency toward cash hoarding."

Excerpt from BIS Working Paper No. 608 Redemption risk and cash hoarding by asset managers by Stephen Morris, Ilhyock Shim and Hyun Song Shin
Fri Feb 3, 2017
Let's recap
In case you missed it . . .
Yellen eyes commercial real-estate froth as Fed weighs '17 risks
Property prices have doubled, leading to repeated Fed warnings; t he boom creates anxiety even as supervision is main defense (Feb 2)

Unprepared counterparties risk being shut out of swaps business after March shake-up (Feb 1)

The European Union has placed the United States on a draft list of 90 countries viewed as potential tax havens citing lack of transparency and tax breaks for corporations, putting it in  the same category as Brazil, Malaysia, Panama and Singapore (Jan 31)

Casting a ray of sunlight on a case that has been shrouded in secrecy, a federal appeals court ruled on Monday that the government must produce a raft of documents to plaintiffs suing over its decision to seize all the profits of Fannie Mae and Freddie Mac (Jan 30)

How worried should we be about re-hypothecation? Notes on the FSB's recent report and recommendations
While professionals and regulators have long understood that re-hypothecation is essential to financing customer trading activities, public and political perception is at best ambivalent and at worst downright hostile (Jan 30)
Meet Fannie, Freddie & the FHFA
On INVESTORS Mortgage Securitization Council call
Please join us...

All INVESTORS members are invited to join the INVESTORS Mortgage Securitization Council on Wednesday Feb. 8 at 3:30 pm ET  when they host their quarterly meeting, with representatives from Freddie Mac, Fannie Mae and the Federal Housing Finance Agency (FHFA) on the phone to discuss, and answer questions, on the single security issue. The purpose of the Mortgage Securitization Council is to develop market-based, legislative and regulatory solutions that create a well-functioning residential mortgage-backed securities market (RMBS). 

For more information, and call-in information:
Matthew Jones, INVESTORS staff director
mjones@association.institutionaINVESTORS.org
(202) 712-9050
Too-big-to-fail clearinghouses
FSB publishes resolution guidelines
(Feb 1) In order to aid failing clearinghouses in the $544 trillion derivatives market, the Financial Stability Board published draft resolution guidelines for regulators who step in during  a crisis to help the firm continue to perform key functions or transfer its business to a separate entity to avert a market disruption. "It is essential that authorities have effective resolution planning arrangements in place, including legal powers and tools to take action in a crisis," Elke Koenig, chair of the FSB's Resolution Steering Group, which oversees the policy, said in a statement. Failure of a clearinghouse "would have a significant impact on financial stability," she said.
Bank capital talks on hold
EC to wait out change in U.S. administration
(Feb 1) Revamp of global capital standards in the Basel Committee on Banking Supervision will have to wait on the U.S.  to carry over the change of administration,  said Olivier Guersent, a director-general of the European Commission, the European Union's executive arm.  "I would have been delighted that we could have a GHOS [Group of Governors and Heads of Supervision, the Basel Comittee's oversight body] meeting in January and an agreement with the Obama administration that works for everybody," Guersent said at a conference in Brussels. "It was not possible."
Binge reading disorder
Hand-curated, chosen with love
The secrets of people who never get sick
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Why Leadership = Storytelling
The great storytellers have an unfair competitive advantage.

Six items that should never be on your To-Do list
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Why asset bubbles are a part of the human condition that regulation can't cure
Here, finally, is a security with security - no doubt about its true value, no hidden risks, no crazy ups and downs, no bubbles and panics

Stock markets & the rule of law
How many multiple points on the S&P 500 are at risk if the populace gets to a place where they no longer believe we are a country of laws - laws that apply to everyone, including the politicians who happen to be in control at a given a moment?