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Inside Washington (08/12/2009)
* WASHINGTON (8/13/09)--The Federal Reserve Bank of Cleveland Tuesday released a study exploring the idea of separating systemic risk into three tiers. The first tier would include high-risk institutions--those whose failure would pose the biggest risk to the financial system. The institutions would include large interstate banks and multi-state insurance companies. They would be required to have strict reporting guidelines, stress tests, and additional capital to absorb losses. Tier two would include moderately complex financial institutions, such as large regional banks and insurance companies. The institutions would have periodic stress tests, additional reporting requirements and more rigorous supervision than they have today. Tier three would include non-complex institutions--those that fall outside of the systemic institution watchdogs’ purview because of their low probability that a failure or stress would cause problems in the financial system. The goal of the three-tiered system is to match the level of oversight and regulation needed for different kinds of institutions, the report said. The report was authored by James Thomson, a vice president in the Cleveland Fed’s Office of Policy Analysis ... * WASHINGTON (8/13/09)--The Treasury has sent a final piece of legislative language to Capitol Hill regarding over-the-counter (OTC) derivatives. The legislation will provide for the regulation and transparency of all OTC derivative transactions; have strong prudential and business conduct regulation of all OTC derivative dealers and other major participants in the derivative markets; and improve regulatory and enforcement tools to prevent manipulation, fraud and other abuse, the Treasury said. The language comes as the use of credit default swaps (CDS) and other OTC derivatives increases. The OTC and CDS markets have been largely unregulated. The risk can contribute to the collapse of major financial firms and trigger stress throughout the financial system, Treasury added ...


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