Comment Letter Responding to FSB’s Background Note, ‘Shadow Banking: Scoping the Issues’

May 16, 2011

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Topics: ABCP conduits asset concentration, asset management structures, Background Note, bank holding companies, bank/broker counterparts, banks, borrowing arrangements, broker dealers, collateral, concentration of assets, counterparty risk management, Counterparty Risk Management Policy Group, credit intermediation chain, derivatives contracts, direct regulation of entities, Distribution/Wholesale Funding, Financial Stability Board, FSA, haircuts, hedge fund adviser, hedge fund borrowings, hedge fund industry, hedge fund leverage, highly leveraged financial institutions, individual adviser, initial margin, insurance companies, interconnectedness of hedge funds, investors, large corporate investors, legal separation of different funds, liquidity transformation, Long Term Capital Management, long-only mutual funds, low leverage, LTCM, macro-prudential approach, manage liquidity risk, margining process, mark-to market margining, maturity transformation, mutual funds, non-bank institutional investors, nonbank financial institutions, off-balance sheet vehicles, Pension Funds, private equity funds, regulation, regulatory arbitrage, regulatory arbitrage concerns, repo collateral, repo liabilities, repo sellers, secured basis, secured borrowings, shadow banking system, Shadow Banking: Scoping the Issues, short term liability, stable capital, systemic impact of hedge funds, systemic risk concerns, The UK Financial Services Authority, U.S. President's Working Group on Financial Markets, U.S. Securities and Exchange Commission,
From: MFA, Richard Baker


Secretariat of the Financial Stability Board
Bank for International Settlements

MFA submitted a comment letter in response to the FSBs Background Note on Shadow Banking. In our letter, we discussed the role of hedge funds in the financial system, noting that they generally are not part of the shadow banking system as defined by the FSB and that hedge funds do not pose systemic risk, at least currently. We discussed the structure of hedge funds and their financing arrangements to make the point that hedge funds generally do not engage in maturity transformation. We also explained that hedge funds are well regulated and subject to significant reporting and oversight requirements under the Dodd-Frank Act and the Alternative Investment Fund Manager Directive. Finally, we encourage the FSB to support the macro-prudential measures approach to regulation, which would allow the regulators to monitor the financial system as a whole and manage the systemic risks appropriately.