Comment Letter Responding to the Financial Stability Oversight Council’s Advance Notice and Request for Comment on the Criteria for Designating a Nonbank Financial Company as Systemically Important.

November 05, 2010

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Topics: Systemically Important Institutions Financial Stability Oversight Council, FSOC, Nonbank Financial Company, Systemically Important Financial Companies, market participants, Systemic Risk Monitoring, Board of Governors, Federal Reserve System, Systemically Relevant Firms, Congress, "too big to fail, U.S. Financial Stability, hedge funds, Financial Market Participants, counterparty risk management, banks, broker-dealer, hedge fund industry, collateral, Borrowing, counterparties, capital markets, financial system, global mutual fund industry, U.S. Banking Industry, systemic risk, assets under management, leverage, Colombia University, Investment Company Institute, Federal Financial Institutions Examination Council, BofA Merrill Lynch, risk monitoring, due diligence, Collateral Posting, credit exposure, Structure of the Industry, Financial Assets, investment portfolio, sophisticated investors, ultra-high net worth individuals, retail investors, diversified portfolio, Liquidity Restrictions, Periods of Redemption, Redemptions, gates, Side Pocket Vehicles, Highly Illiquid Assets, alignment of interests, performance fees, high water marks, risk-adjusted returns, Legally Distinct Funds, Common Adviser, financial institutions, insurance companies, Long Term Capital Managment, LTCM, Position Size, Inadequate Counterparty Risk, leverage ratio, OTC Derivatives Trades, OTC, Counterparty Risk Management Policy Group, Fed Chairman Bernanke, Securities Exchange Commission, SEC, regulatory regime, over-the-counter derivatives, Standardized Transactions, swap dealers, major swap participants, CFTC, Cleared Transaction, Uncleared Transaction, margin requirements, prime brokerage, Short-Term Funding, overnight borrowing, asset mix, off-balance sheet exposures, bank holding companies, Equity Capital Stability, FDIC, FDIC deposit insurance, Debt Guarantees, Government-Issed Charter, Government-Funded Capital, Troubled Asset Relief Program, TARP, Federal Reserve's Discount Window,
From: MFA, Richard H. Baker


The Honorable Timothy F. Geithner, Chariman, Financial Stability Oversight Council
Sheila C. Bair, Chariman, Federal Deposit Insurance Corporation; Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve System; Edward J. DeMarco, Acting Director, Federal Housing Finance Agency; Gary Gensler, Chairman, Commodity Futures Trading Commission
Debbie Matz, Chairman, National Credit Union Adminstration; Mary Schapiro, Chairman, U.S. Securities and Exchange Commission; John Walsh, Acting Comptroller of the Currency

MFA submitted a comment letter to the Financial Stability Oversight Council in response to the Councils advance notice and request for comment on the criteria for designating a nonbank financial company as systemically important. In the letter, MFA discussed the relatively small size, lack of concentration, structure of the industry and the relatively low use of leverage by the industry, each of which are factors likely to be considered by the Council in assessing the hedge fund industry. MFA expressed support for reporting to regulators to ensure they have the information needed to assess systemic risk and encouraged the Council to base its decisions on analysis of quantitative data. MFA also expressed the view, that in light of the key factors discussed in the letter, MFA believes it is highly unlikely that any hedge fund is systemically important at this time.