A Federal Reserve status report says a move in recent years toward tighter regulation may have lowered bond dealers' incentive to make markets, although it adds that it has not observed any significant decrease in liquidity. The report, released days before Chair Janet Yellen appears on Capitol Hill, states that financial stability in US markets remains moderate but faces upward pressure.
The European Central Bank's quantitative-easing policy is encountering difficulties due to a growing shortage of sovereign debt available for purchase. The ECB has missed its targets for buying Finnish, German, Irish and Portuguese bonds, leading to disproportionate French and Italian purchases.
Concerns by investors that the European Central Bank is getting closer to raising interest rates sent eurozone bond yields surging to their highest level in 18 months. Germany's 10-year bund yield rose to 0.57%, the highest level since January 2016.
Major US banks continue to be dogged by slow demand for business lending and historically low interest rates, despite a recent modest rate rise and the banks' passing of Federal Reserve stress tests last month. Analyst estimates for the six biggest banks' second-quarter share earnings have fallen since March, with some participants saying earnings expectations may still be unrealistically high.
Global banks' increased reliance on US dollar-denominated short-term loans has put the financial system in danger of a liquidity crunch, the Bank for International Settlements said. "Global US dollar funding markets are likely to be a key pressure point during any future market stress episode," the BIS said in a report.
Companies are taking a "cautious approach to investment" that could be partly the result of their uncertainty regarding US fiscal policy, said Federal Reserve Vice Chairman Stanley Fischer. Minutes of the Federal Open Market Committee's mid-June meeting show that some large businesses said policy-related concerns were a factor behind their reduced capital spending.
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Leaders from the Group of 20 nations meeting in Hamburg, Germany, reaffirmed their support for implementing Basel III banking rules. They did not establish a deadline but said the rules should be finalized "without further significantly increasing overall capital requirements across the banking sector, while promoting a level playing field."
President Donald Trump has nominated Randal Quarles as vice chairman of supervision at the Federal Reserve, a position Congress established after the financial crisis. Quarles, previously of the Treasury Department, has publicly criticized the Fed's restraint of major banks and the central bank's effort to stimulate economic growth.
The Basel Committee on Banking Supervision has offered additional guidance to banks offering simple, transparent and comparable short-term securitizations, as well as updating the criteria for meeting the definition of short-term STC for regulatory capital purposes.
The Basel Committee on Banking Supervision's proposed revision to its standardized measurement approach to calculating operational risk capital has not been well received, with a number of European regulators and bank risk managers expressing dissatisfaction. The revised approach is inaccurate and likely will cause fragmentation, critics say.
Paul Volcker says he is unconcerned by the Trump administration's stated intention to overhaul the Volcker rule. He says he expects that the rule, which restricts banks' participation in high-risk activities, will remain in principle regardless of any adjustments by the administration.
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