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The Federal Reserve Board, Federal Deposit Insurance Corporation, and the Office of the Comptroller of Currency have issued definitive guidance on supervisory expectations for stress testing by banking organizations with more than $10 billion in total consolidated assets.  This set of interpretations is a final version of initial guidance issued June 15, 2011, and provides high-level principles for stress testing practices required of big banks and depository institutions.  Overall, it “highlights the importance of stress testing as an ongoing risk management practice that supports a banking organization’s forward-looking assessment of its risks and better equips the organization to address a range of adverse outcomes.”

The Basel Committee on Banking Supervision is seeking comment on initial policy proposals emerging from the Committee's fundamental review of trading book capital requirements The consultation paper contemplates a revised market risk framework and proposes specific measures intended to improve trading book capital requirements. These proposals also reflect the Committee’s increased focus on achieving a regulatory framework that can be implemented consistently by supervisors and which achieves comparable levels of capital across jurisdictions.

In a letter to Senate Banking Committee Chairman Tim Johnson (D-SD), Senator Bob Corker (R-TN), a key member of the Committee, has called for immediate investigation into the details of the JPMorgan Chase & Co. trading losses. Senator Corker wants the committee to examine if the trades in question were bona fide hedging transactions or poorly managed proprietary trades, and wants to explore whether US taxpayers are fully protected from losses at major financial institutions. In addition, Senators Levin (D-MI) and Merkley (D-OR), authors of the Dodd-Frank Act's Volker Rule, have issued statements urging rapid adoption of Volker Rule regulations prohibiting hedge fund investments by large financial institutions being disguised as risk mitigation or market making.

At the request of the Financial Stability Board, IOSCO has published a consultation paper on the potential regulatory reforms of money market funds.  The study represents one of the five workstreams the FSB has organized for the analysis of the potential regulation of various aspects of shadow banking.  The purpose of the consultation paper is to share with market participants IOSCO’s preliminary analysis regarding the possible risks money market funds may pose to systemic stability, as well as possible policy options to address these risks.  IOSCO is actively seeking feedback on this preliminary work, and commenters have the opportunity to shape IOSCO's ultimate recommendations to the FSB.

The FSB Workstream on Securities Lending and Repos ("Workstream") under the FSB Shadow Banking Task Force has published an interim report on its findings and progress. The mission of the Workstream is to present, by the end of 2012, policy recommendations to strengthen regulation of securities lending and repos within the context of the shadow banking system.  In order to inform its decision on proposed policy recommendations, the Workstream has reviewed current market practices through discussions with market participants,  and existing regulatory frameworks through a survey of regulatory authorities.  This interim report identifies a number of issues that might pose risks to financial stability, and these financial stability issues will form the basis for the next stage of its work in developing appropriate policy measures to address risks where necessary.

As a result of commitments made at the G20 in 2009, member states across the globe are engaging in a number of regulatory reform initiatives addressing derivatives. Though the G20 members agreed to some basic principles of regulation, and officials say that some level of cooperation and coordination is happening, the proposed regimes are not identical, and each may have extraterritorial effects.  These new sets of rules and regulations emanating from each jurisdiction's initiative may present some difficult compliance issues for end users of derivatives with global trading operations.  Sidley & Austin has put together a report comparing and contrasting some of the provisions and new regulations under the US's Dodd-Frank Act and those under the EU's EMIR and MiFID II.

In an April 13 address, Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System, made clear that he sees the system of shadow banking as a key vulnerability that makes another catastrophic economic crisis nearly inevitable.  In Bernanke's view, the increased importance of the so-called shadow banking system is the primary reason for the severity and pervasiveness of the financial crisis, and the regulatory gaps in which shadow banking activities operate must be addressed by policy makers.

As capital requirements and structural reforms of banks and financial institutions fall into place, global financial regulators are renewing their efforts to bring shadow banking and securitized credit extension under some form of regulatory discipline.  Though shadow banking has many facets needing attention, in an April 19 address at Johns Hopkins University, Lord Turner, head of the UK's Financial Services Authority announced that regulation of repo funding mechanisms would be a priority for the Financial Stability Board this year, and in particular the FSB’s Standing Committee on Supervisory and Regulatory cooperation (SRC), of which he is the chair.

Two new studies examine the influence proxy advisory services like ISS and Glass-Lewis have on the outcomes of proposals made to shareholders in firms' annual proxies, particularly say-on-pay votes, which became mandatory for most public companies in 2011.  Both studies look at the data behind the level of influence ISS and Glass-Lewis have on proxy voting outcomes, but they also look at the extent to which these voting recommendations may affect market reactions and change the way in which executive compensation packages are designed. These reports add valuable data and insights on shareholder voting and the related policy debate.