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79–870 PDF 2013

S. HRG. 112–743 

THE FINANCIAL STABILITY OVERSIGHT COUNCIL 

ANNUAL REPORT TO CONGRESS 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

ON 

EXAMINING THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL 

REPORT TO CONGRESS 

JULY 26, 2012 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

KAY HAGAN, North Carolina 

RICHARD C. SHELBY, Alabama 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

ROGER F. WICKER, Mississippi 

DWIGHT FETTIG, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

CHARLES YI, Chief Counsel 

LAURA SWANSON, Policy Director 

GLEN SEARS, Senior Policy Advisor 

BRETT HEWITT, Legislative Assistant 

ANDREW OLMEM, Republican Chief Counsel 

MIKE PIWOWAR, Republican Chief Economist 

JELENA MCWILLIAMS, Republican Senior Counsel 

DAWN RATLIFF, Chief Clerk 

RIKER VERMILYE, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

THURSDAY, JULY 26, 2012 

Page 

Opening statement of Chairman Johnson ............................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Shelby .................................................................................................. 2 

WITNESS 

Timothy F. Geithner, Secretary, Department of the Treasury ............................ 4 

Prepared statement .......................................................................................... 42 

Responses to written questions of: 

Chairman Johnson .................................................................................... 46 

Senator Shelby ........................................................................................... 47 

Senator Reed .............................................................................................. 48 

Senator Corker .......................................................................................... 49 

Senator Kohl .............................................................................................. 52 

Senator Toomey ......................................................................................... 53 

Senator Kirk .............................................................................................. 55 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Washington Post article submitted by Senator Bennet ........................................ 59 

Financial Stability Oversight Council 2012 Annual Report ................................. 60 

(III)

(1) 

THE FINANCIAL STABILITY OVERSIGHT 

COUNCIL ANNUAL REPORT TO CONGRESS 

THURSDAY, JULY 26, 2012 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 10:04 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Tim Johnson, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN TIM JOHNSON 

Chairman JOHNSON. Good morning. I call this hearing to order. 

Today we welcome Treasury Secretary Geithner to deliver the Financial Stability Oversight Council Annual Report to Congress, as 

required by the Wall Street Reform Act. 

Having recently marked the 2-year anniversary of Wall Street reform, I believe we have made important progress to enhance our 

financial system’s stability. Critics are quick to point to the unfinished rules, but the improved regulatory structure was not going 

to appear overnight. In 2 years, we have a mechanism in place to 

unwind failing nonbank financial firms, the regulators have proposed rules to enhance capital and prudential standards for our 

Nation’s largest and most complex financial institutions, and we 

have improved consumer and investor protections, among other efforts. 

The Financial Stability Oversight Council is a key part of these 

efforts to enhance financial stability and eliminate regulatory gaps. 

It manages the process to designate financial firms as systemically 

important, coordinates interagency rulemakings, monitors developments in the financial markets, and provides a forum for all of the 

financial regulators, Federal and State, to identify areas that need 

to be addressed to strengthen our Nation’s financial stability. I look 

forward to hearing from Secretary Geithner about the FSOC’s 

progress. 

The FSOC has had some early challenges too. The Office of Financial Research, FSOC’s data arm, has yet to have a confirmed 

Director, despite the President nominating a well-qualified candidate. Without the certainty of a Director in place, the OFR has 

struggled to attract the staff it needs to put the systems in place 

to raise red flags when our Nation’s financial institutions and economy are in trouble. I urge my colleagues to confirm Dick Berner 

in this role as quickly as possible. 

But the FSOC has also had many successes. The Annual Report 

we are reviewing today is solid. It provides important insight into 

2 

the workings of the Council. It identifies many important issues of 

concern and provides recommendations for the regulators to address these concerns. From the Banking Committee’s oversight perspective, this report provides a tangible way to measure the 

FSOC’s progress. 

The FSOC also recently designated eight financial market utilities as systemically important. This is a major step forward and is 

another example of how Wall Street reform is helping to provide 

financial stability. The FSOC has finalized the criteria and is in 

the process of designating nonbank financial companies as systemically important, another critical step. 

The FSOC also has its finger on the pulse of the economy’s most 

important issues. For example, as we can see from the public minutes and the Annual Report, the FSOC has been focusing on the 

situation in Europe, an issue that this Committee also has been 

monitoring. 

As I have previously stated, I asked Secretary Geithner to come 

prepared to speak about LIBOR. As the President of the New York 

Fed in 2008, he raised some early warning signs about the integrity of the LIBOR submission process and called on the Bank of 

England to specifically ‘‘eliminate incentive to misreport’’ LIBOR 

submissions by the banks. Shortly thereafter, the CFTC began its 

investigation leading to an international effort resulting in the recent enforcement actions by the CFTC, DOJ, and FSA. As additional investigations into this matter continue, I hope we can have 

a conversation today about what happened during the crisis and 

how, going forward, we can have more reliable benchmark rates 

that accurately reflect the cost of borrowing in both normal and crisis periods, protecting both borrowers and investors. 

While this Committee will continue to exercise oversight of regulators, we cannot lose sight of the fact that the LIBOR issue, at its 

core, is about fraud. There are some who seek to put the entire 

blame on the cops instead. But it would be a mistake to shift the 

focus away from the continued effort to hold the companies and individuals who committed fraud accountable. 

Our economy continues to face many challenges and it is unlikely 

that we will be able to stop every future crisis, but I do believe because of the work of the FSOC and Wall Street reform, we are better prepared. 

I will now turn to Senator Shelby for his opening statement. 

STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you, Mr. Chairman. 

As you said, Mr. Chairman, Secretary Geithner comes before the 

Banking Committee today to report on the work of the Financial 

Stability Oversight Council. The Council, as we all recall, was established by Dodd-Frank and is required to report annually on the 

State of the U.S. economy, threats to financial stability, and the 

Council’s activities. 

In this year’s report, the Council describes a stagnating U.S. 

economy with a mere 1.9-percent growth rate in the first quarter 

and a Federal deficit exceeding 7 percent of GDP. It also reports 

that U.S. households have seen only modest income growth, that 

access to mortgage credit is constrained, and that investment is reVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
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strained by continued subdued confidence and elevated uncertainty—their words. 

As the Council reports, the unemployment rate is still above 8 

percent while labor force participation has fallen to its lowest rate 

in 30 years. Nearly 4 years into this Administration, not even a 

Council headed by its own Treasury Secretary I believe can hide 

the President’s failure to revive the economy and put Americans 

back to work. 

Also troubling is the Council’s view of Dodd-Frank. Its report describes at length all of the new Dodd-Frank rules, but fails to mention their enormous cost to the economy. Nowhere does the report 

mention that these rules will require Americans to spend more 

than 24 million hours and billions of dollars every year to comply 

with them. 

If the Council wanted to understand why unemployment is high 

and mortgage lending is constrained, then examination of DoddFrank would have been a good place to start. More fundamentally, 

the Council’s report overlooks the serious structural flaws in our 

regulatory system, which Dodd-Frank only made worse. 

For all of the President’s talk about the need to reform Wall 

Street, Dodd-Frank has merely strengthened the advantage that 

large financial institutions possess in our financial system. 

First, Dodd-Frank Act imposes huge compliance costs on banks, 

conferring a competitive advantage on the large financial institutions that can more easily bear that burden. As a result, the banking system has and will become even more concentrated in the 

largest firms thanks to Dodd-Frank. 

Second, Dodd-Frank failed to address the preferential treatment 

that our largest banks receive from bank regulators. For far too 

long, regulators have viewed themselves as advocates and not supervisors of large banks. They have developed cozy relationships 

with their banks and actively sought bank-supported regulatory 

changes, such as lower capital requirements. Those close relationships, however caused regulators to ignore red flags from subprime 

loans to insufficient capital to dubious securitization practices. 

Regulators also adopted a mind-set that none of their large 

banks should ever fail on their watch. Consequentially, regulators 

have orchestrated a series of bailouts to benefit our largest banks, 

including the 1995 bailout of Mexico, the rescue of Long Term Capital Management, and most recently here TARP. Unfortunately, 

Dodd-Frank preserved and codified the preferential treatment for 

large financial institutions. 

Dodd-Frank solidified the close relationships between regulators 

and big banks by maintaining their preexisting prudential regulators. In contrast, the regulator for the smallest banks, the OTS, 

was abolished. 

It also protected the big banks from bankruptcy by creating a 

new resolution mechanism to ensure that large institutions do not 

fail. And all the while Dodd-Frank did nothing to make financial 

regulators more accountable. Instead, Dodd-Frank I believe made 

it more difficult to remove regulators who become captured by their 

banks. 

For example, the structure of the Consumer Financial Protection 

Bureau makes it effectively impossible to remove its Director. I 

4 

have said many times through the years here that nothing focuses 

the mind like the specter of being fired. Not one regulator, however, was held accountable in the wake of the financial crisis. 

To add insult to injury, the very same regulators that missed the 

warning signs were then closely consulted on how to draft DoddFrank. In fact, staff from the very same agencies that failed us 

were detailed to Congress to help write the bill. 

This is the type of thing that outrages the American people, but 

it is, sadly, business as usual in Washington. 

Mr. Geithner is no stranger to bank bailouts or bank regulation. 

He has played a key role in financial regulation for the past 20 

years. However, recent news reports about his handling of the alleged LIBOR manipulations suggests that he, too, may have tempered his response to what can be characterized as a significant 

problem within the banking industry. 

Accordingly, today’s hearing gives Secretary Geithner before the 

Banking Committee an opportunity to explain when he first 

learned of the allegations of LIBOR manipulation and how he did 

everything he could to protect the American taxpayer from any potential harm. 

Mr. Geithner I believe will also have an opportunity to explain 

to this Committee and to the American people how the President’s 

policies are improving the economy. It should not take too long. 

Thank you. 

Chairman JOHNSON. Thank you, Senator Shelby. 

In order to get to the questions of our witness as soon as possible, opening statements will be limited to the Chair and Ranking 

Member. I want to remind my colleagues that the record will be 

open for the next 7 days for opening statements and any other materials you would like to submit. 

Welcome back to the Committee, Mr. Secretary. You may begin 

your statement. 

STATEMENT OF TIMOTHY F. GEITHNER, SECRETARY, 

DEPARTMENT OF THE TREASURY 

Mr. GEITHNER. Thank you, Mr. Chairman. Chairman Johnson, 

Ranking Member Shelby, and Members of the Committee, thanks 

for the chance to come before you today to talk about the Council’s 

annual report. 

As the Council’s report outlines, we have made significant 

progress repairing and reforming our financial system since the crisis. We have forced banks to raise more than $400 billion in capital, to reduce leverage, and to fund themselves more conservatively. 

The size of the shadow banking system, where much of the risk 

was concentrated, has fallen by trillions of dollars. The Government has closed most of the emergency programs put in place during the crisis and recovered most of the taxpayers’ investments 

made in the financial system. On current estimates, as you know, 

the TARP bank investments will generate an overall profit of approximately $20 billion. Credit is expanding, and the cost of credit 

has fallen significantly for businesses and individuals since the crisis. These improvements have made the financial system safer, less 

vulnerable to future economic and financial stress, more likely to 

5 

help rather than hurt future economic growth, and better able to 

absorb the impact of potential future failures of large financial institutions. 

But, of course, we still face a number of very significant challenges. The ongoing European crisis presents the biggest risk to 

our economy. The growing recession in Europe is hurting economic 

growth around the world, not just in the United States, and the ongoing financial stress caused by the crisis in Europe is causing a 

general tightening of financial conditions, exacerbating the global 

slowdown in growth. 

In the United States, the economy is still expanding, but the 

pace of economic growth has slowed significantly during the past 

two quarters. In addition to the pressures from Europe and the 

broader global economic slowdown, U.S. growth has been hurt by 

the earlier rise in oil prices, the ongoing reduction in Government 

spending at all levels of Government, and slow rates of growth in 

household income. 

The slowdown in U.S. growth could be exacerbated by concerns 

about the approaching tax increases and spending cuts and by uncertainty about the shape of the reforms and, frankly, the political 

will of this town to put in place reforms to both tax policy and 

spending that are necessary to restore long-run fiscal sustainability. And these potential threats underscore the need for continued progress in repairing the remaining damage from the financial 

crisis and enacting financial reforms to make the system stronger 

for the long run. 

The regulators responsible have made important progress over 

the past 2 years designing and implementing the regulations necessary to implement financial reform. Roughly 90 percent of the 

rules that had deadlines before July 2nd have been proposed or finalized, and the key elements of the law will largely be in place 

by the end of this year. 

As part of this, we have negotiated much tougher, new capital requirements on the banking system, including higher levels of capital on the largest banks. We now have the ability to put the largest financial institutions under enhanced supervision, tougher prudential standards, whether they are banks or nonbanks, and we 

have the ability to subject key elements of the market infrastructure to tougher and more carefully designed safeguards against 

risk. 

The SEC and the CFTC are putting in place a comprehensive 

new framework of oversight to the derivatives market, providing 

new tools for combating market abuse and bringing this market out 

of the shadows. The FDIC has designed an innovative way to put 

large financial institutions through an equivalent to bankruptcy 

while protecting the taxpayers from the risk of any loss and protecting the broader economy from the fallout of those failures. And 

the Consumer Financial Protection Bureau has worked to simplify 

and improve disclosure of mortgage and credit card loans so that 

consumers can make better choices about how to borrow responsibly. 

Now, these reforms are very complicated. It is a complicated 

process. It is challenging, in part because our financial system is 

very complex. It is challenge because we need to be careful to tarVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
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get damaging behavior without damaging access to capital and 

credit. It is complicated and challenging because we want the reforms to endure as the market evolves and innovates. And it is 

challenging because we need to make sure we are coordinating the 

work of multiple agencies, not just in this country but across the 

major financial centers. 

Now, beyond the reforms enacted in Dodd-Frank, the Council has 

put forward a list of additional recommendations for other changes 

to help strengthen our financial system. Further reforms are needed to reduce vulnerabilities in wholesale funding markets, including to mitigate the risk of runs on money market funds and to reduce intra-day credit exposure in what is called the tri-party repo 

market, which is an important secure funding market. 

Regulators need to establish and enforce strong protections for 

customer funds that are deposited for trading. Financial firms and 

regulators need to continue to improve risk management practices 

with stronger capital buffers, better stress testing disciplines, and 

better internal risk management disciplines and controls for over 

complex trading and hedging strategies. 

The Council recommends further improvements in the quality 

and availability of financial data. The Office of Financial Research 

is going to continue to lead this effort, and I appreciate Mr. Chairman reminding people that we hope the Senate will act on the 

nomination of Richard Berner to head that office. 

And, finally, the Council continues to push for progress toward 

comprehensive housing reform so we can bring private capital back 

into the housing market. 

Now, these recommendations will help build on the considerable 

progress made by the Council over the past few years in making 

the system safer and stronger, both more resilient and less vulnerable to crisis, with better protections for investors and consumers. 

We still have a lot of work ahead of us, however, and we need 

your support to make these rules strong and effective, and we need 

your support to make sure that the enforcement agencies have the 

resources they need to prevent fraud, manipulation, and abuse. 

I want to convey my compliments and thanks to the members of 

the Financial Stability Oversight Council and their staff, and I 

want to emphasize again that we look forward to working with this 

Committee and with the Congress as a whole to build on this 

progress and address the remaining challenges we face in the financial system. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Secretary Geithner, thank you for your 

statement. 

We will now begin asking questions of our witness. Will the clerk 

please put 5 minutes on the clock for each Member? 

With regard to the LIBOR issue, last week I asked Chairman 

Bernanke what he knew, when he knew it, and what did he do 

about it. Secretary Geithner, you stated that you were aware of 

weaknesses and vulnerabilities with LIBOR, that you made recommendations on this matter in 2008. Were you aware of any actions any members of the President’s Working Group took after 

they were briefed at that time? In light of the recent enforcement 

action, is there more that should be done? 

7 

Mr. GEITHNER. Mr. Chairman, in early 2008, as the financial crisis intensified, as concern about the strength of banks in Europe 

in particular, and as those banks found it harder to borrow dollars—and they needed to borrow dollars—you saw the LIBOR rates 

increase. LIBOR, as you know, is a reference to the London interbank offered rate, which is a rate set in London by the British 

Bankers’ Association, which is an average of estimates of what a 

group of banks, predominantly foreign banks, might pay to borrow 

in 10 currencies at 15 different maturities. 

At that time, as the rate went up, there was a lot of concern in 

the market about the design of the rate and the potential that created for misreporting and the incentives banks faced to underreport as particularly foreign banks faced higher borrowing costs. 

At the New York Fed, we took a very careful look at those concerns in the market. Many of those concerns made it into the press. 

The Wall Street Journal and the Financial Times wrote about this 

in April of 2008. We looked at those concerns, and we thought they 

were justified. We were very concerned about them, and on that 

basis, we took the following steps: 

We briefed the President’s Working Group on Financial Markets, 

which is a group composed of the Secretary of the Treasury, the 

Chairman of the Federal Reserve Board, the Chairman of the SEC 

and the CFTC, among others, and my staff subsequently briefed 

the Treasury and the CFTC and the SEC following that initial 

meeting. 

But in addition to that, because, again, this was a rate set in 

London by the British Bankers’ Association, I raised this directly 

and personally with the Governor of the Bank of England, and I 

wrote a detailed memorandum to the Governor outlining a series 

of reforms to reduce the vulnerability in the rate. And the Bank of 

England was very receptive to those recommendations and indicated they supported them and would act on them. 

Now, it turns out, as the CFTC has testified, roughly at about 

the same time, the CFTC initiated a far-reaching confidential investigation that, as you have seen, ultimately resulted in the initial 

settlement announced earlier this month. And that investigation, 

which is still ongoing, has come to involve a range of other regulatory authorities. 

Now, if you think about what is ahead, I want to just take a 

minute and outline what we think is important and necessary 

going forward. 

In addition to this ongoing enforcement investigation—which, of 

course, is very important to the integrity of our system because a 

simple, important, necessary test for any financial system is do we 

have the capacity to hold people accountable when they do these 

kinds of things. So the investigation are still very important. But 

in addition to those, I want to highlight some of the additional 

work ahead of us. 

The Council and the relevant agencies are taking a very careful 

look at the potential implications for the functioning of the financial system of these remaining challenges. We are carefully examining—this is the members of the Council—other survey-based 

measures of financial prices or interest rates to assets whether 

there is any other potential out there for the kind of problems we 

8 

have seen in LIBOR. These entities are carefully examining potential reforms to LIBOR and alternatives to LIBOR. 

A broad global effort is underway, led by the Chairman of the Financial Stability Board, which is a group that includes all the 

world’s major central banks and market regulators, like the SEC 

and the CFTC and their global counterparts, also examining reforms to the system. 

Now, in addition to these additional challenges ahead, we need 

to take a very careful look as a Council at how we deal with the 

circumstances in which a confidential investigation, enforcement 

action, reveals evidence of behavior or practices that could have implications for the financial system as a whole. This is a challenge 

because, as you know, we have to have very careful safeguards to 

protect the confidentiality of those investigations, and yet I think 

we have to find a way to make that information, if it has systemic 

implications, available to key members of the Council in this context. We are taking a careful look at that. 

Finally, we have to take a careful look at other parts of the financial system where the markets rely on private organizations 

composed of private firms like the British Bankers’ Association that 

have some quasi-regulatory or self-regulatory role. As you have 

seen in this case, we have got to be careful to make sure that the 

system is not relying on associations of private firms that leave us 

vulnerable to the kind of things we have seen. 

Of course, it is very important to the integrity of our system that 

the enforcement authorities have the resources they need to do 

their jobs. You know, if there is a small town in America and its 

population grows by 10-fold or 100-fold in a 5-year period, you need 

to increase the size of the police department. It is absolutely important to do that. 

Now, the members of the Council I am very confident will be 

fully responsive to the oversight conducted by this Committee and 

other bodies in Congress to examine this particular set of challenges and how we are dealing with them going forward, and we 

will continue to keep the Committee informed as we pursue the 

things I just outlined. 

Chairman JOHNSON. There has been continued criticism about 

wrongdoers on Wall Street not being held accountable by enforcement officials. We now know that investigations have been ongoing 

on this matter since 2008, and so far there has been one major settlement. I want you to commit to me and the American people, will 

the Administration make sure that those found to have been involved in LIBOR fraud are held accountable and prosecuted to the 

full extent of the law? 

Mr. GEITHNER. Absolutely. It is very important we do that, and 

I am very confident that the Department of Justice and the relevant enforcement authorities will make sure they meet that objective. 

Chairman JOHNSON. There have been additional developments 

this week in Europe that have been troubling. Do you think recently announced policy changes out of the EU, like the creation of 

the Banking Union, are going far enough toward solving the European financial crisis? Are there additional steps that the U.S. 

should take? 

9 

Mr. GEITHNER. Europe is working through—working to put in 

place a mix of very challenging reforms, reforms to make their 

economies more competitive, but also reforms that put better disciplines in place in how much countries can borrow, and better 

oversight of their financial systems. But those reforms are going to 

take some time, and in the interim, the European authorities are 

going to need to do more to restore confidence in the financial system to do more to make—to improve their prospects for economic 

growth, and they are going to need to do more to make sure the 

countries that are doing these reforms are able to borrow at sustainable interest rates. 

So there is absolutely more they need to do to underscore their 

commitment and their stated commitment, which is to do what is 

necessary to make sure the monetary union is going to work and 

hold together. But it is a very challenging crisis for them. The solutions to this have to be designed in Europe because they have to 

be willing to live within them, within the constraints, and make 

sure they work and pay the financial costs of this working. They 

are going to have to be designed in Europe if they are going to 

work. What we can do is what we are doing—to make sure that 

we are encouraging them to go as far as they can to protect the 

rest of us from a long and damaging European recession. And there 

are specific areas where we can help them financially in ways that 

are very much in our interest, which, for example, the Federal Reserve is doing with their swap lines. Again, that helps reduce the 

risk that European banks cut back on credit around the world and 

hurt prospects for growth here in the United States. 

There are a lot of challenges ahead. They are making some 

progress, but they have a lot more to do. 

Chairman JOHNSON. Senator Shelby. 

Senator SHELBY. Thank you, Mr. Chairman. 

Mr. Secretary, you referenced LIBOR. We all have. Tell us why 

LIBOR and the setting of LIBOR rates is so important not only to 

the American people but to the world financial, and what it does 

and approximately how many billions of loans are involved, billions 

of dollars involved in that? 

Mr. GEITHNER. Well, as I said, LIBOR is set in 10 currencies, not 

just the dollar or the pound sterling, 15 different maturities. It has 

implications around the world, in part because there are a variety 

of financial contracts—mortgages is one example in the United 

States—around the world that reference that rate. So it is important for that reason. 

But it is also important, of course, because we have seen a devastating loss of trust in the basic—of trust and confidence in the 

integrity of the financial system. So when you see a system vulnerable to banks’ misreporting, that can have more damage to the 

basic confidence people have about how the system works than any 

of the direct finance implications of the rate itself. And that is why 

it is consequential. 

Senator SHELBY. But historically a lot of banking has been based 

on trust, has it not, integrity? So when people realized that some 

people were perhaps manipulating the LIBOR rate or manipulating 

this and that or fraud here and there, it hurts the whole financial 

system, it hurts us all, does it not? 

10 

Mr. GEITHNER. I agree with that. As I said, I agree with that 

completely. 

Senator SHELBY. Mr. Secretary, going back to when you first 

learned about possible manipulation of LIBOR, was that in 2008, 

early 2008, I believe you said? 

Mr. GEITHNER. Yes, that is my judgment, looking back at that 

time, which, again, it was—these reports in the market and in the 

press and concerns started to come when the rates started to go up 

as the financial crisis intensified. 

Senator SHELBY. Who did you notify besides Mervyn King, who 

was chairman of the Bank of England, about your concerns and 

others’ concerns about the manipulation of the rate? 

Mr. GEITHNER. Well, as I said, I briefed what was then called the 

President’s Working Group on Financial Markets, which means 

the—that body includes the Secretary of the Treasury, Chairman 

of the Fed, Chairman of the SEC, Chairman of the CFTC, other officials, too. And then my staff briefed the Treasury and the SEC 

and the CFTC after that. That was important because, although it 

was clear that the reforms to this problem were going to have to 

come in London, this had implications for us. 

Senator SHELBY. Well, we had banks that fed into that rate, did 

we not? 

Mr. GEITHNER. Well, at that point, 16 banks were part of the 

sample. Three of those banks were American banks. 

Senator SHELBY. OK. Did you follow up after notifying the working group you talked about, did you notify the Attorney General of 

the United States, the Justice Department? 

Mr. GEITHNER. The New York Fed and my colleagues, my former 

colleagues, are carefully looking through all the records of whom 

the New York Fed staff informed at that point. 

Senator SHELBY. Did you, sir, as president of the bank, did you 

personally inform—— 

Mr. GEITHNER. No, I did—— 

Senator SHELBY. ——or someone on your staff to let the Justice 

Department know about the implications of probably manipulation 

of the rate? 

Mr. GEITHNER. To the best of my knowledge, what I did was to 

inform the President’s Working Group and those regulatory bodies, 

and the reason I did that is because those are the bodies which 

have a range of different authorities that relate to market manipulation and abuse. And so that was a very important and necessary 

thing to do. 

Senator SHELBY. When you first learned of possible manipulation 

of the rate, did you think this was a big deal? 

Mr. GEITHNER. I absolutely—— 

Senator SHELBY. Or a trivial thing? 

Mr. GEITHNER. I absolutely thought this was a problem, which 

is why I took the initiative to do the things we did. Again, the problem was you had a rate in London overseen by the British Bankers’ 

Association where banks were asked to provide an estimate of what 

they might pay to borrow, and then there was an estimate that was 

averaged over time. And that itself created this vulnerability to 

misreporting. So it was for that reason that we were concerned 

about the problem in this context, which is why we took the actions 

11 

we did to brief the broader regulatory community here in the 

United States and to encourage the British to fix it, to reform it. 

Senator SHELBY. Going back to the Justice Department, do you 

have any knowledge yourself of when the Justice Department got 

involved in this? Was it late? Was it recently? Or was it after the 

British hearings and regulators were involved, or what? 

Mr. GEITHNER. I do not—that is something you have to ask them 

in the enforcement agencies. My recollection from what other people have testified is that the CFTC’s investigation, which they 

started at about the same time, April of 2008, ultimately came to 

include the SEC and Justice Department as well as a mix of regulators in London and elsewhere. 

Senator SHELBY. Does the Federal Reserve Bank of New York 

have the authority to oversee misconduct by banks that would be 

under your jurisdiction? 

Mr. GEITHNER. The Congress has given the Federal Reserve, in 

this case the Board of Governors, a range of different enforcement 

powers. Those powers are given to the Federal Reserve as a whole, 

and the Reserve Banks, like the Federal Reserve Bank of New 

York, do play an active role in enforcement cases working with the 

Board of Governors when they implicate our direct authorities. 

Senator SHELBY. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Reed. 

Senator REED. Mr. Secretary, when you reported to the President’s Working Group, including Secretary Paulson, Chairman 

Bernanke, Chairman Cox, and I think Chairman Lukken, did they 

direct you to do anything? Did they indicate that they would do 

anything? Essentially what was their reaction? 

Mr. GEITHNER. No, but as you know, as you now know, the CFTC 

did at roughly the same time—I think in response to the similar 

concerns we had, did begin this investigation, ultimately involved 

other parties. And, again, it took quite a bit of time, as these typically do. These are complicated things. But you had the CFTC and 

ultimately a variety of other regulatory enforcement authorities undertaking a very far-reaching investigation that is resulting in very 

tough enforcement actions. 

Senator REED. One of the things I think this illustrates again is 

the rather ambiguous position of the President of the Federal Reserve Bank of New York. This was brought to your attention. Did 

you communicate with Mervyn King on your own volition? Were 

you directed to do so? 

Mr. GEITHNER. No, I did that on my own. 

Senator REED. And why would you do that if you were not responsible for or clearly responsible for the policy of the United 

States with respect to LIBOR or anything else? You were simply 

chosen by the banking community of New York to regulate that 

bank. 

Mr. GEITHNER. Well, I thought it was the responsible thing to do 

because it had broad implications not just for London but for the 

United States, and so I thought that was the appropriate and necessary thing. 

Senator REED. Again, I think one of the things we tried to attempt in Dodd-Frank was to clarify the position of the President 

of the Federal Reserve Bank, the only person that has a statutory 

12 

position, I believe, on the Open Market Committee, by making that 

position subject to confirmation and—appointment by the President 

and confirmation. And ironically it was rejected—in fact, on a bipartisan basis, by all my colleagues who are here. So that was one 

of my ideas that just did not get any traction. 

But I think you would have been better served had you had 

much clearer authority and been on a level with the Secretary of 

the Treasury and with the Chairman of the Federal Reserve and 

had clear enforcement responsibilities. What is your view? 

Mr. GEITHNER. Well, I think I would say it this way: We had a 

financial system before the crisis where you had a huge amount of 

risk and activity that had important implications for the average 

American and the American economy that grew up outside the 

basic protections and safeguards and authorities we put in place 

after the Great Depression to deal with these kind of problems, and 

that was a terribly damaging problem for us. And neither the Federal Reserve Bank of New York nor the Chairman of the Federal 

Reserve Board or even the Chairman and Chairwoman of the SEC 

and the CFTC had authority at that stage to deal with that huge 

growth of risk and activity, and as you saw, a lot of manipulation 

and abuse and fraud came outside the safeguards of the traditional 

banking system. 

So the crisis was so severe in part because of that problem but, 

of course, also because within the banking system the constraints 

on leveraging capital were just not sufficiently prudent or careful 

or conservative. 

Senator REED. Do you now feel, given the Dodd-Frank legislation, that you have a much better capacity to deal with issues like 

this? 

Mr. GEITHNER. I do. I think, as I said in my opening statement, 

you know, it is not just that we forced $400 billion more capital 

into the banking system and negotiated much tougher constraints 

on capital and leverage globally with much tougher requirements 

on the largest banks so that large banks have to hold much more 

capital against risk than do small banks. We have given the authorities the ability to make sure that where there is risk outside 

that in derivatives or in the financial market infrastructure or in 

large institutions like AIG that are not banks but still present risk, 

that we can put similar constraints on leverage on them, too. 

So I definitely believe that Dodd-Frank has put us in a much 

stronger position than we were before the crisis, even recognizing, 

of course, that you have to get these rules right and there is a lot 

of work to do still to address the remaining challenges. 

Senator REED. Let me raise a final point in the few moments. Because of the ubiquity of the LIBOR, this presents huge potential liabilities for the banking system, back then and right now. On the 

one side, you might have a borrower that is benefiting from depressed rates, but then you have a bond holder that is not receiving 

what should be the rates that they contract for. And obviously was 

that—first, was that a consideration in your discussions with the 

Presidential Working Group that there could be huge potential liabilities for manipulation of this rate by particularly bond holders? 

And then moving to today, is that a potential going forward now 

13 

where you have actively consideration of suits against multiple institutions by numerous bond holders? 

Mr. GEITHNER. Well, absolutely, that was a concern then, and 

that is a critical concern going forward. And as I said in my opening statement or my initial remarks to the Chairman’s question, 

one of the issues that the Fed and the SEC and the CFTC are 

working on now, which the Council will review, is to make sure 

they are carefully examining not just the remaining implications 

for the integrity of the system but reforms and alternatives to 

make sure we address those remaining problems. That will be a 

critical focus of the remaining work ahead. And, you know, again, 

that basic vulnerability and reality is what motivated the actions 

I initiated in 2008. 

Senator REED. Thank you. 

Chairman JOHNSON. Senator Crapo. 

Senator CRAPO. Thank you, Mr. Chairman. Thank you, Secretary 

Geithner, for being here with us today. 

I want to switch to the housing issues, and in your testimony, 

you state, ‘‘As we move forward, we must take care not to undermine the housing market, which is showing signs of recovery but 

is still weak in many areas.’’ 

I am hearing a lot of concern about how Dodd-Frank will reduce 

credit availability in the housing market through some of the proposed rules for a qualified mortgage that increases liability and a 

qualified residential mortgage that requires a 20-percent downpayment. Recently, the Director of the CFPB, Mr. Cordray, said that 

if the qualified mortgage is drawn too narrowly, that could upset 

the mortgage market. That could be a notable example of a rule 

itself restricting access to credit. 

I would like your opinion on this. Do you believe that there needs 

to be a broad QM definition? 

Mr. GEITHNER. Well, I want to just start by saying that I completely agree that right now mortgage credit is tighter than it 

should be, and it is tighter than the basic requirements put in 

place by Fannie and Freddie and FHA, for example. And the main 

reason for that is because banks and servicers, given all the mistakes they made and the damage they made, feel much more vulnerable now to what people call ‘‘put-back,’’ which is these institutions protecting the taxpayer by putting back to those originators 

loans that did not meet those initial tests, you know, no-doc loans 

or some of the other loans they described in that context. 

Senator CRAPO. And that is why we are working on the QM and 

the QRM. 

Mr. GEITHNER. Yes, but I think that concern is the biggest remaining cause of the fact that credit is tighter in a mortgage than 

it needs to be. And independent of that rule-writing process ahead, 

I want to just make it clear that the FHFA—Ed DeMarco, to his 

credit, and the FHA are looking at ways even ahead of defining 

those rules that they can help address some of those concerns, that 

it is residual uncertainty about reps and warranties and put-back 

risk is leaving mortgage credit harder to get for an average individual with a good credit score than should be the case. 

Now, you are right that those rules have to be designed very 

carefully, and what the Chairman of the CFPB is doing, what the 

14 

other agencies responsible for what you call the qualified residential mortgage rules are doing is they are trying to figure out how 

to balance appropriately the obvious need for more careful, prudent 

underwriting standards, more standardization, better disclosure 

with the need to be careful not to overdo it, not to go too far. 

Senator CRAPO. But wouldn’t you agree that in that context we 

need to be sure that we do not define the QMs too narrowly so that 

we do not restrict access to credit more than is necessary? 

Mr. GEITHNER. Well, I would not say that. I agree with the objective completely. I think you want to make sure that both these two 

rules are designed together and carefully to reduce the risk that 

you restrict mortgage credit more than it would be prudent to do 

and is necessary to do. 

Senator CRAPO. All right. Thank you. I want to move to another 

topic now since the time is obviously short in these 5-minute sectors. I want to go to the end user issue. 

You may recall that ever since the Dodd-Frank conference, there 

has been a debate about whether nonfinancial end users were intended to be exempted from the margin requirements by the statute. That was clearly what the Members of Congress intended. In 

fact, Chairman Dodd and Chairman Lincoln acknowledged that the 

language was intended to exempt those entities that used swaps to 

hedge or mitigate commercial risk. 

The regulators, though, have read the statute otherwise and 

have issued regulations now that do, in fact, require margin from 

those nonfinancial end users, and they basically take the position 

that, notwithstanding their understanding of congressional intent, 

it was the exact language that they feel bound by. Because of that, 

I have introduced legislation to correct that and make it clear that 

there is an exemption for the end users, and when he was before 

the Banking Committee recently, I asked this question that I am 

going to ask you to Chairman Bernanke: Would it be appropriate 

for us to correct that language and provide an exemption for nonfinancial end users so that it is very clear that that is what congressional intent and what statutory language requires? 

Mr. GEITHNER. In my own view, I do not think you need to do 

that because I think the way the statute was designed, you gave 

flexibility and discretion to the regulators to try to achieve the objective you laid out. I think the concern is if you open this up too 

much, you are going to let the exception undermine the critical 

safeguards over financial institutions that the law was absolutely 

intended to cover. 

I do not think this requires a legislative fix. I think the law gives 

the regulators the discretion to get that balance right, but that is 

obviously something that we need to continue to look at, and I 

would be happy to consult with you more, to talk with you more 

closely about it to get a better feel for how they are defining that 

balance. 

Senator CRAPO. So are you saying that you believe that the statutory language as is currently gives the regulators the authority to 

exempt nonfinancial end users? 

Mr. GEITHNER. I think it gives the regulators—I want to be careful about how I do this, how I say this. And it is not my authority. 

It is the authority of the regulatory agencies. I believe it gives 

15 

them the ability and the discretion and the authority to define an 

exception that I think meets your objective. 

Senator CRAPO. You are not saying that there should be no exception for end users. You are saying we need to get it right. 

Mr. GEITHNER. Yes, that is right. I agree. I believe the law as 

you wrote it does try to make sure you are not capturing people 

in risk you do not need to capture. But we are worried always that 

if you create exceptions and loopholes in this context that you will 

end up swallowing or undermining the broader safeguards that are 

necessary. I know that is not your intent, but that has to be our 

concern. 

Senator CRAPO. But if I understand you correctly, then you are 

saying that you are worried that if Congress does this, they may 

get it wrong and be too broad in the exception? 

Mr. GEITHNER. I did not mean to quite imply that. I am just saying that I think the balance the Congress struck in the law I 

thought was right, and I think the regulators were given the ability 

to try to get that balance right. 

Senator CRAPO. Then would you at least agree that if the law is 

interpreted to mean otherwise—in other words, if the regulators— 

I understand the prudential regulators to be taking the position 

that they do not have that discretion. Would you agree that the 

regulators need to have the discretion to address this issue and 

provide an appropriately formed exemption? 

Mr. GEITHNER. I think I want to talk to them a little more carefully about it and come back to you and follow up on it. But, again, 

I just want to say this: In general, we are trying to be very careful 

to make sure that we do not legislate—this is not your intention— 

that we do not legislate things that would weaken the overall protections in the bill, and we think the law gave the regulators the 

ability to strike an appropriate balance in this context. 

Senator CRAPO. And you are not saying there should be no exemption, appropriately defined, for end users? 

Mr. GEITHNER. No. What I am saying is I think they should implement the law as you intended it. 

Senator CRAPO. Thank you. 

Chairman JOHNSON. Senator Tester. 

Senator TESTER. Yes, thank you, Mr. Chairman. Secretary 

Geithner, welcome. 

In the Council’s report, one of the emerging threats that you 

identify in the fiscal policy outlook of the United States and the uncertainty posed by the impending fiscal cliff. Over the past year the 

cost of dysfunction here in Washington has caused volatility in the 

financial markets, frustration on Wall Street, and uncertainty in 

an already tenuous economic recovery. This week, the GAO released a report showing that the Treasury Department was forced 

to spend $1.3 billion in additional borrowing costs associated with 

the actions taken to avoid the default last year. That was a selfinflicted wound which was completely irresponsible. That was people putting political agendas ahead of the country, and I do not like 

the situation that we found ourselves in. 

We do need a long-term plan to get our fiscal house in order. 

There is no doubt about that. But I also do not like having to tell 

folks that because folks in Washington could not get it together to 

16 

solve our country’s problem, it cost us over a billion bucks. That 

happened because some were willing to see the Federal Government default on its debt. As a result our credit rating was downgraded by Standard & Poor’s. There is a real cost associated with 

our lack of action on this important issue. Our debt and the costs 

associated with it increased by billions every day, and Washington 

does not act. 

Just this week, we had a made-in-Washington fight encouraged 

by interest groups over competing tax plans that we know have little chance of being signed into law. And instead of working to address the debt, we are no closer to resolving our problems. We can 

spend the next few weeks pointing fingers and blaming each other, 

but if we continue to play political games, nothing is ever going to 

get done. We have to get a lot more urgent about this issue. 

The bottom line is we do need a bipartisan, balanced deficit reduction plan that is broad in scope and large enough to address the 

magnitude of the problem. It is going to have to cut spending. It 

is going to have to include revenue. And I think we all know that 

there is only one bipartisan plan that has achieved this broad scale 

and scope necessary to begin to tackle the challenges before us. 

That plan was developed by the President’s Commission on Fiscal 

Responsibility and Reform, a Commission that the Administration 

did not initially support. And when we tried to create that Commission through legislation, seven Senators who had previously supported that idea turned around and opposed it. 

Now, I do not support everything in the Commission’s plan, but 

it is a real starting point. It is a real plan. The Commission’s efforts are now in their third iteration with input and compromise 

from a number of Members from this Committee and renewed support by a number of CEOs. I am concerned that the President has 

given only lukewarm support to these efforts so far, and that came 

after the Gang of Six introduced a plan last July and it was evident 

that there was wide spread support for it. 

Given the experiences of the past few years, do you regret that 

the Administration did not engage earlier on this issue and get behind the framework presented by the Fiscal Commission? 

Mr. GEITHNER. Senator, I completely agree with you that this 

problem of the unsustainable long-term deficits we face is a very 

serious economic problem, and it is not something we can avoid 

and defer. And I completely agree that the solution to this is going 

to lie in the broad frame of what Bowles-Simpson laid out in the 

sense that it is going to require a substantial amount of carefully 

designed deficit reduction with a balance of revenues through tax 

reform tied to significant changes to help reduce the rate of growth 

of costs in health care and other parts of spending. That is where 

this began. That is where it is going to end. And even if you and 

others have some disagreements with the precise composition of 

that, or the design, we have been very, very supportive of that 

basic strategy. 

As you know, the President of the United States in April of 2011 

and September of 2011 and the budget in 2012 they released in 

February laid out a detailed set of recommendations, both on the 

tax reform side but also on the spending side, that would meet that 

basic test of restoring our deficits to a sustainable level. And I 

17 

think it is very important to keep reminding people that we face 

these two critical challenges. One is we have an economy that is 

not growing fast enough, and we need to make sure that we are 

doing everything we can to make growth faster so we are healing 

the remaining damage caused by the crisis. But we also have to get 

Congress to come together on a bipartisan basis and agree on a set 

of reforms to start to restore sustainability, and you have got to do 

those carefully so they do not hurt growth. They have to be designed carefully. We have got to make sure they are going to make 

us more competitive over the long run, things for education, for infrastructure, for private investment that make sense. But absolutely we need to get the country to come together around a set of 

these reforms, and we have to demonstrate we can make some 

tough choices in this area. 

You expressed concern about the actions the Senate took on the 

tax side yesterday, but I just want to speak in favor of what happened, because what the Senate did was to extend tax rates for 98 

percent of Americans but also demonstrate they are prepared to do 

the fiscally responsible and the fair thing by allowing those tax 

rates for the top 2 percent to expire. And I think that was a good 

example of what you can do that is good for the economy for certainty, but also demonstrating that this town can make some tough 

choices to start to restore sustainability. 

Senator TESTER. My concern was more with the fact that if it 

ever comes to fruition, I am not sure it will. I just want to ask one 

more thing, and my time has run out. I think the country is ready 

for a long-term, well-thought-out plan to take care of our deficit 

and debt in the long term. I think the country is far ahead of 

Washington, DC, on that. The question that I have—and Congress 

has its own faults. I talked about it in my opening. The question 

I have is: What have you learned, what are you going to recommend to the President when the time is right to push forth a 

real plan to get our deficit under control? 

Mr. GEITHNER. Well, I have been a long and consistent supporter 

of action on a balanced framework of tax reforms that raise revenue tied to long-term reforms across Government on the spending 

side that are designed not just to protect the safety net but make 

it more sustainable over time, but also preserve the ability for us 

to invest in things that matter for growth. I am a longstanding 

supporter of that. I will continue to be. And that is just driven by 

a basic recognition that if we are going to do more for growth to 

make the economy stronger, we also have to deal with these longterm fiscal needs. 

We cannot just do the long-term fiscal stuff, though. If we do 

that alone and do not address this broad range of major challenges 

that middle-class America still faces, the erosion of competitiveness 

we face, then we will leave the country worse off as well. So we 

have to do both those two things. 

Senator TESTER. OK. Well, thank you very much. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary, for being here. 

18 

I want to talk to you mostly about the things FSOC has the ability to look at, and I know that in Title II, as we wrote the bill, 

there were lots of words like ‘‘liquidate’’ throughout it. And as the 

FDIC has come forth with their proposal, what really is happening—and I think you know this—is that in these large, highly 

complex institutions, they found out that they were so intertwined 

that the best way to deal with them was to let the entity continue 

to operate but to take the stockholders out and some of the creditors at the holding company level, but continue to allow the institution to operate, which is very different than liquidation. And for 

people who are concerned about consolidation of banking, on the 

one hand that solves that problem, but it does not deal with really, 

you know, said over and over and over, we want to put these banks 

out of business. We have heard some of the leaders in the industry 

say that. 

The FDIC mechanism really does not do that. I mean, it is a 

process where they in essence operate these entities for up to 5 

years and then re-IPO them. I mean, in essence, everything stays 

the same. I know the stockholders obviously, though, are crushed, 

thankfully, and the leadership is gone, and those are all good 

things if the institution fails. 

But I am just wondering—I mean, I think I have accurately discussed how that is going to be, and we spent a lot of time with 

them. I am just wondering if you feel comfortable about that, or 

would we be better off, if there is systemic risk, for the FDIC to 

step in potentially during the immediate phase but then move it 

on to an orderly bankruptcy at that time, because, again, that is 

what happens in a bankruptcy, the entity continues to operate. But 

you would really move away from any kind of potential—I am not 

saying this would happen—potential crony capitalism where certain creditors were dealt with differently because they knew the 

right people. 

Mr. GEITHNER. Senator, I understand your concerns, but I do not 

share them in this case, and let me explain. I think what the FDIC 

designed is designed to do exactly what you said the objective 

should be, which is to come in, if necessary, and dismember the institution, put it out of its misery, sell whatever is remaining viable—that is viable remaining back into the market—— 

Senator CORKER. That is not what they are doing. 

Mr. GEITHNER. I believe that is exactly what they are doing. 

Now, you are—— 

Senator CORKER. No, they are just doing it at the holding company level. 

Mr. GEITHNER. No, I think that is a slight misimpression, but, 

again, I understand your concerns about this. What they are trying 

to do is to make sure they have a practical way to do the practical 

equivalent of bankruptcy for a large, complex financial institution. 

And what Congress did, which is very important, is to deprive 

them and the Fed and the other relevant agencies of the ability to 

protect them from their mistakes and to leave them to survive to 

fight another day. 

You deprived them of that ability, which you should have done. 

And I know Ranking Member Shelby’s longstanding concern about 

this, and you said in your opening remarks you have the same 

19 

basic concern. And I do not think it sounds right for these reasons. 

Again, what the bill does is force the largest, most complicated institutions to hold more capital against risk than would a normal 

commercial bank, a small regional bank, a community bank. And 

it means that if they end up making mistakes that put them in 

jeopardy, the Government can do nothing but step in and dismember them safely at no risk to the taxpayer. 

Now, your concern, I understand your concern, but I do not think 

it is justified by their strategy. 

Senator CORKER. What I would like to do, because I do not want 

to spend the whole 5 minutes on this, but I do not think the word 

‘‘dismember’’ is appropriate, and I would love to—we do not necessarily have to talk to you. 

Mr. GEITHNER. That is not really a technical term. I just 

meant—— 

Senator CORKER. Well, ‘‘dismember’’ means—and I think what 

the FDIC has found is that these organizations are so intertwined, 

they are not like stovepipes that you can just move off to the side. 

Mr. GEITHNER. That is absolutely—— 

Senator CORKER. That because of that they are not dismembering them. They are going to allow them to operate up to 

5 years and then re-IPO them. And so that is a different concept. 

And, by the way, I see some of the benefits of not creating concentration, because another large institution might have to take 

those pieces. I understand the problem. But I do not think that is 

exactly what Congress intended, and I just think that if it is going 

to be laid out the way that it is, one of the things we might think 

about is a real bankruptcy taking place, because, in essence, the institution continues to operate under background. 

Let me just move on to one other point. This took longer than 

I thought. The money market funds. I think you all believe that 

they create systemic risk as they are currently set up, the FSOC. 

Is that true or false? There could be systemic risk—— 

Mr. GEITHNER. Well, I believe that although they are in the 

stronger position and smaller in size because of the reforms that 

were taken by the SEC, I still think—I still believe, as does the 

SEC and the Fed, that they are still vulnerable to runs that could 

not just disadvantage the investors but could hurt the system as 

a whole. 

Senator CORKER. So the SEC obviously—and, by the way, contrary to some of the folks on my side of the aisle, I do not understand why we are protecting them exactly the way that we are 

right now, and I think the SEC maybe has not come up with the 

right solution. But I am wondering if you happen to know what 

that right solution might be. It seems to me we still have not quite 

come to the right conclusion on the money markets. And if the SEC 

does not take action, I think the FSOC can. And I am just wondering what your thoughts might be in that regard. 

Mr. GEITHNER. Well, I think it is important that the SEC propose 

a range of options for how to go forward on this so that the market 

can assess those and comment on them, and the SEC and others 

can reflect on what that means for trying to get this balance right. 

I think the SEC has to go further than they have gone. There are 

20 

a range of options people are considering, as you know. One option 

is to go to a full floating NAV. One option is—— 

Senator CORKER. And that would take a tax change to make that 

work, right, a Tax Code change. 

Mr. GEITHNER. That would take a range of things. One option is 

to have a mix of investment restrictions, liquidity requirements 

and capital requirements to protect against this risk. And another 

option is to have a mix of those things and some type of hold-back 

provision. And it is a very complicated question in that context. 

And my own judgment is the SEC needs to go further—they can 

go further, and we should get on with the business of letting them 

expose to the world and to the market a set of options that the 

world can comment on and help refine. 

Senator CORKER. And I agree, it should be more market based 

than what it is, and I think a de minimis floating NAV should not 

create tax consequences, and that might be a way of solving it. 

If I could just ask one more question, a lot of the community 

banks are in here lobbying us about the transaction account guarantee. I think it expires at year end. I am reticent to want to continue things like that. I mean, if you look at a transaction accounts, 

there is almost—it does not take much activity to have a transaction account, and so if you have got excess reserve with money 

markets paying almost nothing and you can move into a transaction account that is fully guaranteed—as a matter of fact, I think 

there has already been tremendous flight into transaction accounts 

for this reason, because it is fully insured. I would just love to have 

your thoughts as we consider this at year end. I mean, should we 

continue to extend full guarantees on transaction accounts—full 

guarantees? Or should we end Government involvement in that 

way? 

Mr. GEITHNER. Very good question, and the relevant parts of the 

FSOC are thinking through that question now. Our judgment so 

far has been that it is not necessary to extend it. That has been 

the judgment of the relevant authorities so far. But I know this is 

an issue and a concern to many people, and we are going to look 

at those concerns carefully. I am happy to talk to you about it. 

Senator CORKER. You are good. 

Chairman JOHNSON. Senator Merkley. 

Senator MERKLEY. Thank you, Mr. Chair, and thank you, Mr. 

Secretary. 

A section of your report addresses housing finance reforms as an 

issue to be concerned about, and you note that differing State 

standards on foreclosure practices, the lack of national service 

standards, the lack of agreed standards for mortgage underwriting, 

all of these are relevant to restoring a market for private capital 

in financing. But I wanted to focus on a different piece of that puzzle, and that is, we have about 4 million families who are underwater who do not have Fannie and Freddie loans, and they are essentially locked into high interest loans with no chance of refinancing. And I consider this a systemic risk from my perspective 

because those families become high risk for foreclosures, foreclosures drive down the price of the market, and the high amount 

of money they are paying every month compared to what they 

would pay under a lower interest means that they do not have 

21 

extra spending money, if you will, that would strengthen other 

parts of the economy. 

So all of those are interconnected, and so that is a piece the 

President identified in his State of the Union and certainly I have 

been immersed in, and I would like to ask if you share concern 

about those 4 million families with no refinancing options, and if 

we can kind of get an effort, as much support as you can possibly 

give to help us address that piece of the puzzle. 

Mr. GEITHNER. We share your view completely. As you know, the 

President has been very supportive of legislation in that context. 

Your own leadership in this stuff we fully support. We like the way 

you designed it. I think it would be—it is good economic policy, 

good for the country for that to become law just for the reason you 

said. It is not just a fairness question, but it would help reduce the 

remaining pressures that housing is putting on the economy as a 

whole. There is a very good economic case for doing it. You could 

do it in ways that do not leave the taxpayer exposed to any meaningful risk in that context. So we would be very supportive of 

progress in that area. 

Senator MERKLEY. Thank you. Well, and I would encourage you 

to help in any way you can with launching pilots. I realize there 

are questions that have to be resolved legally about whether a program is a modification of an existing program, but we have a number of these funds out there congressionally approved that are 

being underutilized, and if one refinancing program is a modification of another, it seems like launching a few pilots in the balance 

of this year would really help pave the path for us to build some 

momentum. 

Mr. GEITHNER. Well, I think the policy is very good. It is very 

well designed. We would like to work with you on it. And the question is whether we can find legal authority and resources to test 

on a pilot basis. 

Senator MERKLEY. Great. Thank you. 

I wanted to turn to another issue that I thought carried some 

systemic risk. There was an article in the Financial Times just 

about a week and a half ago about banks’ stepping up their oil 

trade role, and what the article basically says is that several of the 

largest banks have got into close relationships with refineries in 

order to have contracts to provide the crude to the refinery, to buy 

the refined products after they are refined. And this is essentially 

because under the draft rules, spot commodities are exempted from 

proprietary trading restrictions, and banks are also pressing for 

forward commodity contracts to be exempted as well. 

My question is, you know, 3 years from now are we going to have 

a situation where, because one entity is both affecting the supply 

of oil and trading over the contracts related that are affected by the 

price of oil, essentially a conflict of interest that is going to be an 

Enron-style issue? 

Mr. GEITHNER. Good question. So I think you need to think about 

this in two different ways. First, it is very important that we have 

in place safeguards that limit the risk. Banks take risks in these 

areas that could threaten the ability of the firm or the markets 

more generally. That is about making sure they hold capital 

22 

against the risks they hold, we limit the risks they hold. And provisions like the Volcker Rule are part of that important objective. 

But in addition to that, you need to make sure that the market 

regulators have the authority that they need to make sure that 

they can police and deter manipulation, and one of the things that 

is very important—the most important consequences of the fact 

that the SEC and the CFTC have now adopted the definitions they 

adopted earlier this month on swaps is that that will unlock now 

a range of additional authorities they have to police abuse and manipulation. 

Both those two things are important to address the risks they 

pointed out, and we are going to be very focused on making sure 

we are not just limiting the risk they take too much risk in those 

areas but that the market is not vulnerable to manipulation and 

abuse. 

Senator MERKLEY. Well, thank you very much, Mr. Secretary. 

Thank you, Mr. Chair. 

Mr. GEITHNER. Senator Vitter. 

Senator VITTER. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary. 

I also wanted to ask some things about this very concerning 

LIBOR issue. As we sit here today, do we know whether Citibank, 

Bank of America, and JPMorgan, which participate in the LIBOR 

process like Barclays, did or did not similarly manipulate LIBOR? 

Mr. GEITHNER. We do not know that, but I think that is a question you need to refer to the enforcement agencies, and I suspect 

you are going to find that because this is still a confidential investigation, they will not be in a position to answer that question until 

the remaining investigation is brought to its natural conclusion. So 

I do not—— 

Senator VITTER. So we do not know that as we sit here today? 

Mr. GEITHNER. Well, I can only tell you what I know, and I do 

not know that. I do not know what they know. And the reason I 

do not is because, as you would expect, they have very careful protections around their investigations to preserve confidentiality. 

Senator VITTER. When did you first know about this LIBOR issue 

and manipulation? 

Mr. GEITHNER. Well, as I said, in roughly the spring of 2008. 

Senator VITTER. So spring of 2008. 

Mr. GEITHNER. Right. 

Senator VITTER. So we are now over 4 years later, and we have 

not answered that question. Doesn’t that—— 

Mr. GEITHNER. No, I do not think that is quite right in the sense 

that—you know, again, what we did at a very early stage in this 

process is bring this to the attention at the highest levels of the 

relevant agencies with authority to prevent manipulation and 

abuse and push—— 

Senator VITTER. You brought it to the highest levels, but we have 

not gotten to the bottom of it 41⁄2 years later? 

Mr. GEITHNER. Well, no, I do not—— 

Senator VITTER. Doesn’t that unequivocally suggest somebody 

dropped the ball? 

Mr. GEITHNER. Well, I do not think you should look at it this 

way, but the CFTC at that same time started this investigation, ulVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
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timately involved the SEC and the Justice Department in it, and 

it is true it took 4 years for them to find the evidence they disclosed in the settlement. I do not know that that is surprising if 

you look at what is typical in financial cases like this. Again, if you 

look at a cross-history of these things, these things take a lot of 

time. You have to do them very carefully. But they were—— 

Senator VITTER. Do you think it is reasons to take 41⁄2 years and 

we do not know as we sit here today whether Citi, Bank of America, or JPMorgan were involved in this activity? 

Mr. GEITHNER. I think that you have to address that to them, 

but I think that, again, what they did—and to their credit, they 

started very early, like we did, in trying to make sure that they 

were examining carefully what there was any not just risk of this 

behavior but it was actually happening in that context. And they 

deserve enormous credit for doing that. 

Senator VITTER. As the prudential regulator through the New 

York Fed of these three institutions, did you and the New York Fed 

look into the issue directly? 

Mr. GEITHNER. I believe that we did the necessary and appropriate things, as I said, in bringing this to the attention not just 

to the Fed and the SEC and the CFTC, which was a very important thing to do at that early time, but also to the attention of the 

British. And, remember, these concerns—— 

Senator VITTER. Can I just follow up on the question? You do not 

think this issue with regard to those three institutions potentially 

impacted their safety and soundness? 

Mr. GEITHNER. I thought this was—— 

Senator VITTER. The New York Fed was the primary regulator 

of that. 

Mr. GEITHNER. I thought this was a very important issue not just 

for our financial system but for the global financial system, which 

is why we did what we did. And, again, I think that—— 

Senator VITTER. Do you think it directly potentially went to the 

safety and soundness of those three institutions? 

Mr. GEITHNER. I do not know, but I am not sure that I needed 

to know that because I thought the concerns themselves were sufficiently troubling to justify a very substantial response. 

Senator VITTER. Given what we all now agree is very troubling 

information about LIBOR, why was it allowed to be essentially the 

repayment metric for TARP? 

Mr. GEITHNER. Well, what you are referring to, I believe, is that 

in a series of specific programs that the Fed and the Treasury undertook in the financial crisis, we, like many investors, used 

LIBOR as a reference rate. In many ways, we were in the position 

of investors around the world, which is we had to make use of the 

best available index at that time. 

Now, you are raising the concern of were we disadvantaged by 

that. We do not know whether we were or not, but we are looking 

very carefully at that question, and we will obviously be in a position to brief you on that once we have looked at it carefully enough. 

Senator VITTER. When LIBOR was used in those contracts, you 

and others had knowledge of the fundamental systemic concerns 

about its validity, right? So why was it used in those contracts? 

24 

Surely there were some other alternatives, and surely the Federal 

Government was calling the shots about the repayment metric. 

Mr. GEITHNER. Well, no, you are right. We, the Fed and the 

Treasury, at that point needed to choose what rate to reference, 

and we made a judgment at that time what was the best rate at 

that time. And it is true that in that same broad timeframe, we 

knew this rate was vulnerable to the type of practice we faced. But 

what we do not know is whether we were disadvantaged by that 

choice. 

Again, it is not clear at this stage—although this is really a question you should talk to the SEC and the CFTC about, we do not 

know at this point what impact that behavior had the rate up or 

down for investors and borrowers. As one of your colleagues said 

earlier, it is possible that people who borrowed money were advantaged by this. It is possible people who borrowed money were disadvantaged. But we do not really know the extent that happened. 

Senator VITTER. It is certainly easy to imagine—let me put it 

this way—that mega banks that borrowed money were advantaged 

by manipulation of LIBOR that artificially pushed it down, correct? 

Mr. GEITHNER. It is possible, but, again, if—— 

Senator VITTER. And if that happened, the taxpayer was disadvantaged. 

Mr. GEITHNER. But I think if you read carefully the SEC settlement documents, you will find that the attempted behavior went in 

both directions. So what you do not now know is what impact that 

had on the rate itself or the direction of the impact. But, again, 

that is a very important issue, and it is an issue which those agencies and the other agencies that are part of the Council are going 

to examine very carefully. And, of course, it is going to be a matter 

of litigation as well. 

Senator VITTER. But you knew when using LIBOR that it was 

manipulated so there was that potential, so why did we use it? 

Mr. GEITHNER. No, that is not quite accurate, what you said. 

What we knew is that the way the rate was designed, as I said— 

and this was fully in the public domain—that the rate was designed where banks, mostly foreign banks, presented estimates of 

what they might pay to borrow across these different currencies. 

And, therefore, as you might expect, any rate that is an average 

of estimates, there is some risk in that context. And it was just 

that risk that caused us to push for broader reforms and make sure 

we briefed the enforcement agencies. But—— 

Senator VITTER. But beyond that, you knew of reports of manipulation. 

Mr. GEITHNER. No. We knew of reports of underreporting in that 

context, misreporting in that context, but, again, what we did, in 

terms of choosing a reference rate, which is we do what investors 

around the world did, which is we had to make a choice among alternatives, and that was the best alternative available at the time. 

And I cannot say now with confidence that that choice in any way 

disadvantaged the American taxpayer. I think it is quite unlikely, 

but we are going to take a careful look at that. 

Senator VITTER. Well, again, let me just wrap up because I am 

over time. It seems to me that Treasury and the Fed and the New 

York Fed knew of basic problems with LIBOR, knew of charges of 

25 

manipulation that underreported and pushed down the rate, and 

then the Treasury adopts that very metric for TARP repayment. 

Now, it is very clear that that raises the huge potential of 

advantaging those mega banks and disadvantaging the taxpayer. 

Chairman JOHNSON. Senator Menendez. 

Senator VITTER. Thank you, Mr. Chair. 

Senator MENENDEZ. Thank you, Mr. Chairman. Mr. Secretary, 

thank you for your service and your testimony. 

You know, I was reading, as someone who wrote a letter to you 

on this issue on LIBOR, that documents that were released by the 

Fed banks show that as early as August 2007 Barclays told Fed analysts about possible problems. And you testified earlier that some 

time in early 2008 you made not only recommendations to the 

Bank of England but you informed—and correct me if I am 

wrong—the Securities and Exchange Commission, the Commodity 

Futures Trading Commission, and the Fed under Federal Reserve 

that had the control here. Those are all 2008. Now, let me just see 

my history. In 2008, who was the President of the United States? 

Mr. GEITHNER. Well, you know the answer to that question, Senator. President Bush was President. 

Senator MENENDEZ. Right. And who were the appointees in those 

respective agencies made by? 

Mr. GEITHNER. By the President of the United States and confirmed by the Senate. 

Senator MENENDEZ. OK. So we start off with a reality that this 

was known to entities going back into the Bush administration, 

and when you became aware of it, you raised it to all of those appropriate entities that had the wherewithal to conduct investigatory abilities to pursue. Is that a fair statement? 

Mr. GEITHNER. That is absolutely a fair statement. 

Senator MENENDEZ. All right. So with that in mind, so that we 

cast this in the appropriate context, it still is challenging and troubling because, obviously, the reason that Barclays enters into a 

consent agreement is they did something wrong. And when they 

did something wrong, there is a manipulation of some sort. 

Now, depending upon that moment that you borrowed, as has 

been said, you might have actually benefited, or you might have actually been caused harm. And considering how many mortgages 

and other commercial instruments are indexed to LIBOR, that is 

a real concern. 

My question is: As we move forward here, has the Treasury or 

the Fed considered issuing our own American LIBOR or using 

banks’ data when calculating a number? Is that feasible? And how 

do we prevent this from happening again? Because one of my frustrations is that we can in the Congress pass and have the President sign laws that define what is acceptable and unacceptable 

practices. But we cannot seem to get the culture in financial institutions—many, not all, but in many financial institutions—to accept that. 

So, one, can we have an equivalent of an American LIBOR or 

other index that would be more transparent, less subject to any 

manipulation? And how do we get the culture here to turn around? 

Mr. GEITHNER. Let me start with the latter question. You need 

tough rules, tough safeguards, enforced by people who have the reVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
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sources to enforce them. There is no alternative to that. You cannot 

regulate for ethics. You cannot regulate for culture. You have to assume these institutions are going to have incentives to do the 

wrong things sometimes, take risks they understand or do not understand. That is inherent in finance. The job of Washington and 

Government is to make sure there are tough rules in place that can 

be enforced, and that requires resources, not just authority. 

Now, we are looking very carefully at not just what reforms 

make sense to how LIBOR is determined, but what alternatives 

might be better for the system of LIBOR going forward. And we are 

going to so that very carefully and involve all the relevant people, 

and we will brief this Committee and the Congress as we go 

through that process. 

As you are pointing out, it is an interesting thing that an interest rate that affects the price at which Americans might borrow in 

dollars was set in London by a group of foreign banks, largely by 

a group of foreign banks who needed to be able to borrow dollars 

occasionally under a process overseen by the British Bankers’ Association. It is a strange thing. And so it is right to think about what 

is a better alternative to that now, and that is one of the things 

we are very focused on. 

Senator MENENDEZ. Well, I think the question is very ripe to 

think about what is an appropriate alternative here, and I appreciate your answer to my question of culture. But let me just say 

that if we have the rules, the regulations, the laws, and even if we 

give—which I support—the regulators the resources to pursue this, 

what we need is vigorous sanctions at the end of the day so that 

people get the message this is not simply the cost of doing business. 

Mr. GEITHNER. I agree. That is what enforcement means. 

Senator MENENDEZ. And I have a challenge here with many of 

my colleagues who actually want to retract from those vigorous 

sanctions and the essence of the process that would bring those to 

a determination when someone should be sanctioned, because otherwise we are not going to change the culture, and the American 

people are ultimately going to be subject to the risk of those who 

make decisions that ultimately create collective risk. And that is a 

huge problem. 

Finally, I would like to ask you, can you tell us at a time that 

your testimony talks about the European debt crisis remaining a 

looming challenge for the United States, with the possibility of defaults in certain countries, what have we done to know the full exposure of U.S. banks and other institutions to the debt of European 

countries, and if they were to materialize at this point in time, 

what are we doing to limit the effects on Americans in that context? 

Mr. GEITHNER. A very good question. The Federal Reserve has 

throughout the past 3 years not just carefully looked at how best 

to measure the potential exposure—actual and potential exposure 

of U.S. banks and other financial institutions to those parts of Europe, but as I said in my opening testimony, we force banks to hold 

much, much more capital against the risks than they held before 

the crisis, $400 billion more capital than they held before the crisis. 

And banks have moved very aggressively to significantly reduce 

27 

and limit their exposure to the risks you pointed out. That has happened in money market funds, too, by the way, which is important 

in this context. 

Now, it is important to recognize, though, that Europe is a very 

large part of the global economy, and the strongest economies in 

Europe still are very big and very consequential. So a prolonged serious financial crisis in Europe that goes well beyond a long recession would still have significant implications for our economy because, you know, export growth would be weaker, financial conditions would be tighter here, and that would add to the pressure we 

are facing on the U.S. economy. 

But U.S. institutions have much less exposure, they hold much 

more capital against the risk in that exposure, and that is a good 

thing for us. 

Senator MENENDEZ. Thank you. 

Chairman JOHNSON. Senator Toomey. 

Senator TOOMEY. Thank you, Mr. Chairman. Mr. Secretary, 

thanks for being with us. 

Just briefly, I want to follow up on the discussion that we had 

in the anteroom earlier about the money market funds. I just want 

to strongly urge you to reconsider the position that the SEC needs 

to adopt a new round of regulations now, for several reasons. 

First, I am not aware—we certainly have not seen the evidence— 

that the new wave of regulations that was already imposed in 2010 

is somehow inadequate, and we have seen that this industry is now 

on a stronger footing and got through some very difficult times last 

summer without a single hitch, suggesting, in fact, that they are 

in pretty good shape. 

The second point I would make is this notion that I see repeated 

often that they are somehow very susceptible to runs is quite ironic 

to me given that over the 40-year history of hundreds and hundreds of funds through all kinds of extraordinary historical moments, there have not been runs. 

So to suggest that we need this new wave of regulations, some 

of the proposals of which I am concerned would destroy the product—I mean, the capital requirement I do not think achieves its 

stated objective. I think it is unaffordable. Withholding requirements I think badly damaged the product. So I would like to just 

urge you to reconsider this. I think this is the wrong way to go. 

The question I would like to get to, if I could, is on LIBOR. First 

of all, there has been some suggestion that some of the British regulators may have known and, in fact, may have condoned or even 

encouraged some misreporting during the financial crisis for fear 

that otherwise a perception of risk at these banks might cause 

problems. So I think I know the answer, but just for the record, did 

you or any of the regulators that you are aware of ever actually 

condone or encourage misreporting of LIBOR? 

Mr. GEITHNER. Absolutely not. 

Senator TOOMEY. OK. That is what I thought. 

Here is what I do not understand, and that is, how you were 

aware of this in early 2008, and for the last 4 years you never used 

the bully pulpit that you had to, A, warn the American people— 

all right? So there are literally hundreds of municipalities across 

Pennsylvania that were engaging in interest rate swaps where they 

28 

were paying a fixed rate typically and receiving LIBOR payments, 

and we know and you knew that those LIBOR payments may not 

be the correct payments, in fact, might very well be less than what 

they ought to be getting. These municipalities did not know that, 

and they should have. 

The second thing—and then I will let you answer. But the second 

thing is: Why did you not use the enormous influence that you 

have had, both at the Fed and at Treasury, to persuade the financial institutions to adopt a different mechanism that would not be 

subject to this kind of manipulation when there are other alternatives available? 

Mr. GEITHNER. On your first question, again, I did what I 

thought was the most effective way to get to the heart of this. In 

general, you are right, there are some problems that you can address by talking about them, but generally, I am of the view that 

it is better to act on these things, and that is what we tried to do. 

Now, these concerns that you refer to, as you know, were in the 

public domain at that time. The Wall Street Journal, among others, 

did a very good job of reporting these concerns. And the vulnerability that we were worried about was there for people to see. 

Now, in this period between that time, the spring of 2008, when 

we acted, and when the CFTC announced the settlement earlier 

this month, they were involved, to their credit, in a far-reaching, 

complicated, difficult investigation which ultimately uncovered the 

damage that you referred to. And, again, they ultimately involved 

the SEC and Justice in that context, fully appropriate I am sure 

in this context, and that process took some time. 

But in the interim, the British did do some things to try to reform the way the rate was structured. I do not think those reforms 

went far enough. But our system has to work this way, which is 

you have to combine reforms to the underlying problem, which we 

set in motion, with enforcement action, with consequences. And 

that is exactly what happened in this context. 

Senator TOOMEY. I am not at all suggesting that we should not 

have had enforcement. 

Mr. GEITHNER. Right. 

Senator TOOMEY. I think we should have, absolutely. My concern 

is that knowing that this rate did not have integrity, you nevertheless stood by while thousands of transactions were being executed, 

you know, interest rate swaps, loans, all kinds of agreements, and 

it seems to me you could have used the enormous persuasive power 

that the Secretary of the Treasury has to encourage and, in fact, 

persuade the financial institutions to fix this or start using an alternative mechanism. 

Mr. GEITHNER. Well, that was exactly the objective of the actions 

I took at that early stage in the process. I do think it is important 

to recognize that the market began some time ago because the 

market was broadly aware of these concerns, both investors, borrowers, and lenders were aware of these concerns, has started to 

evolve toward other alternatives, and that is happening. And that 

was driven by the recognition that their interests might be better 

served. 

Again, I want to just caution, though, that it is important to take 

some time to carefully examine what was the impact of the behavVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
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ior on those rates. Again, I do not think we know with confidence 

now the direction of the impact or the magnitude of the impact, but 

that is a very important issue and critical to restoring trust and 

confidence in the system. And I think the relevant authorities are 

doing a careful job now of looking through that. 

Senator TOOMEY. And my time has expired. I will just close by 

saying I understand that we do not yet know exactly the direction 

or magnitude of the costs, but we know that this was a process 

that lacked integrity, and I would suggest that some of the transactions that were entered into, and subsequently resulted in significant losses, might never have been entered into in the first 

place had the participants understood the lack of integrity in this 

rate-setting process. 

Mr. GEITHNER. Well, I think that is one reason why it was so important that we did what we did, which is to try to set in motion 

reforms—not just reforms to the process, but make sure that the 

authorities responsible for abuse and manipulation had the ability 

to act on those concerns. 

Chairman JOHNSON. Senator Bennet. 

Senator BENNET. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary, for your testimony. 

Just on the LIBOR point, when the Chairman of the Fed was 

here the other day, he talked about the possibility of moving toward a more market-based alternative to LIBOR, and you had 

mentioned to Senator Menendez maybe we should be thinking 

about that. What would those alternatives look like? And I think 

the point he was making was that rather than having a rate that 

is sort of voluntarily reported by a small set of banks, security 

might actually find yourself in a place where you could have rates 

that were stress-tested by the market so that we could really have 

confidence in what we were getting. Could you tell us a little more? 

Mr. GEITHNER. You are absolutely right, and I think one of the 

dominant questions before the Council and the people looking at 

this question is exactly what would be a better alternative and 

what transaction-based rate would better serve the broader interests of the market. 

There are other parts of the financial markets where they rely 

on survey-based estimates, and they do that for very practical reasons. And doing that does not necessarily make it vulnerable to the 

types of incentives to misreport that you saw in this case. But you 

have to design the safeguards around that very, very carefully so 

it is not vulnerable to that. But, of course, we will look at all those 

options, and we will be happy to brief this Committee as the thinking evolves on that. 

Senator BENNET. I think we would like to hear about that. I 

think there are probably some situations where the market is lagging or transactions are not actually happening, and you can see 

why in that circumstance you might not have a market rate that 

would work. But it would seem that there ought to be one that 

could replace LIBOR. That would be very interesting to me. 

Robert Samuelson had a piece in the Washington Post this week 

called ‘‘The $12 Trillion Misunderstanding’’, and in this piece he accounts for how we got from a projected budget surplus of $5.6 trillion that was made in 2001 to where we are, which is $6.1 trilVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
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lion—an $11.7 trillion swing, he says. And he goes through and he 

says this is how we got here: The biggest cause of it was the recession itself, which was about 27 percent. If you add up the recession 

and the tax cuts from the early 2000s, you are at 40 percent. If you 

add up the Iraq and Afghanistan war, you are at 10 percent. That 

is 50 percent of where we are. Increases in defense spending, 5 percent; the Obama stimulus, 6 percent; and so on and so forth until 

he gets to 100 percent. And his conclusion is: ‘‘So, most theories 

(often partisan) of the $11.7 trillion shift turn out to be wrong, exaggerated or misleading. There were lots of causes; no single cause 

dominates.’’ 

And I think I would like to enter that article in the record, Mr. 

Chairman, with your permission. 

Chairman JOHNSON. Without objection. 

Senator BENNET. I think he very clearly lays out the comprehensive nature of how we created this problem and the reason why we 

are going to need, as you have testified, a comprehensive solution 

to get out of this problem. 

So as we think about coming to the end of the year here, it seems 

to me maybe there are four alternatives to what we face. 

We could go over the cliff—and when I say we are going over the 

cliff, it is not the U.S. Congress. We are driving the American people over the cliff if we do not do something. That is one option, so 

we could let the sequester go into effect, the tax cuts expire. 

We could do as we have done for a long time and continue to kick 

the can down the road and just say, well, we did not really mean 

it. When we put this tough sequester in place, we did not really 

mean it, so we are going to turn around and just lift it or extend 

the tax cuts. 

We could solve the problem in a comprehensive way during the 

lame-duck session. 

Or we could put some process in place to try to get us to a solution in the new year. 

I wonder if you could talk a little bit about, first of all, are those 

the only alternatives? Maybe there is something I have not thought 

about. And, second, how the financial markets would respond to 

those, or maybe what would be the most reassuring thing we could 

do for the American people at the end of the day not to repeat the 

travesty of the debt ceiling discussion last summer. 

Mr. GEITHNER. Well, I agree that if Congress were to choose to 

try to defer everything—tax cuts, tax expiry, and sequester—and 

do nothing about the long-term fiscal position and nothing to help 

growth in the short term, that would be very damaging to the interests of the country. And I think to say that as a Nation we have 

no capacity to come together on a set of reforms to address these 

problems and have to go, as you used the phrase, off the cliff seems 

deeply irresponsible. 

So I think the solution to this problem has to lie in—and there 

has been a lot of foundation laying by you and others and your colleagues in this direction over the last year in particular. The solution has to lie in replacing those expiring tax cuts for middle-class 

Americans and the sequester with a balanced mix of reforms that 

will raise a modest amount of revenue and lock in some carefully 

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able over time and still preserve some room to invest in things necessary for us to grow. 

That is the way this has to be resolved, and if were to do that 

as a country, that would be good for confidence and good for the 

economy, good for certainty, and it would demonstrate again what 

the world has always believed about this country, which is ultimately we come together and do the necessary thing. We do not 

wait until it is too late. 

Senator BENNET. I think—and, Mr. Chairman, I apologize, because I know that my light is red, but I have been here for the 

whole hearing, so I will just ask one follow-up question. 

[Laughter.] 

Senator BENNET. And I have learned so much, so it has been 

good. One follow-up question to that is—and I do not believe there 

is enough of this around this place, but at home, people do have 

a sense that we are all in this together, that we have to come together and fix this together. And at least in Colorado they really 

are sick of the partisanship in this place on this topic. 

Could you give us, in that spirit, a sense of what the scale we 

would be asking ourselves to commit to versus what they have to 

do in Europe, for example, and what we would be asking our generation to do to secure the future for the next generation, as a relative matter, and what the people in these other countries are 

going to have to face? 

Mr. GEITHNER. Excellent question. Let me just try and do it very 

briefly. To get our deficits down to level where the debt stops growing as a share of the economy, we need to do—on top of the trillion 

dollars of savings Congress enacted last, we have to agree on 

roughly $3 trillion, at least $3 trillion of additional savings. That 

seems like a lot to people, but it only about 2 percent of the national output income this economy creates. It is roughly 2 percent 

of GDP. And that is a very manageable challenge for a country like 

us. And if you do it carefully, with sensible reforms on the tax side 

and carefully designed savings on the spending side, you can do it 

without causing any damage to the growth prospects of the U.S. 

economy and to the basic confidence and security retirees have or 

what people have for health care, even the basic safety net for lowincome Americans. 

The challenges faced by every other major industrial economy in 

the world, from Japan to Europe, are vastly greater because their 

growth potential is weaker, their populations are much older, the 

size of their Governments are dramatically larger, the generosity of 

their commitments are much higher. So our challenges, although 

they feel daunting to us and cannot be deferred forever, are completely within our capacity to act again without asking Americans 

or the business community or the retirees to accept an unacceptable basic burden in that context. And that is why this should be 

within our capacity to solve. 

You know, we cannot control what Europe does. It has big effects 

on us, but they are not within our capacity to control. These things 

are completely within our capacity to control, and they are completely within the ability of this body to come together and agree 

on some sensible reforms. 

Senator BENNET. Thank you, Mr. Chairman. 

32 

Chairman JOHNSON. Senator Wicker. 

Senator WICKER. Mr. Secretary, I sure appreciate Senator Bennet being here the whole time. I can assure you I have been watching on television, and I have learned a lot, too. I admire Senator 

Bennet for being here the whole time. I have got some prepared 

questions, but let me just follow up on what he says. Two things. 

These carefully structured savings, let us not talk about the revenue stuff, but the carefully structured savings, they have to include savings in the entitlement programs like Medicaid and Medicare. That is correct, right? 

[Secretary Geithner nodding head.] 

Senator WICKER. The witness is nodding his head. 

Mr. GEITHNER. That is correct, and the President has proposed 

hundreds of billions of dollars of savings in that area because, as 

you know, the long-term deficits are driven by mostly the aging of 

America and the rising health care costs. 

Senator WICKER. Right. And, for example, the Medicare program, 

I think we all concede—Senator Bennet has been outspoken on 

this—a program that grows at 3 times the rate of inflation just 

simply cannot be sustained, and that is Medicare at the present 

time. 

Mr. GEITHNER. That is right. I think that even with the longterm savings in the Affordable Care Act and even with what you 

might call promising slower growth in health care costs, long-term 

projections still show unsustainably rapid growth, again, mostly because more Americans are retiring and because the cost of health 

care is still rising. 

Senator WICKER. And I think also most of us, while appreciating 

the importance of the savings in the Budget Control Act, I think 

we agree with Secretary Panetta and other members of the Administration that the meat axe approach of the sequester by the end 

of this year is not helpful to the economy. Is that your view also? 

Mr. GEITHNER. Well, again, the sequester was designed by the 

Republican and Democratic leadership not because it was good policy. It was designed to force this body to make some compromises 

on a set of long-term reforms. That was its purpose. 

Senator WICKER. And yet, Mr. Secretary, now it is the law of the 

land, and we did not get the result out of the super committee that 

we wanted. And so back to my question: You agree that it is unsettling for the economy to be facing this meat axe approach, particularly in the defense and other important discretionary programs between now and the end of the year. 

Mr. GEITHNER. I would say it a little differently. I think what is 

damaging to the economy now is the combination of inability of 

Congress to find legislative majorities to do things that would help 

growth, short term and long run, as well as an inability to come 

together and agree on a balanced package of long-term fiscal reforms to replace the sequester. I think both those concerns are 

weighing on the economy. I do not think they are as big now as 

the direct effects of Europe or the fact that spending is actually 

falling across the Government. But it is a risk, and it is referred 

to in this Council report, and I think we all have a responsibility 

to try to demonstrate to the American people and the private sector 

that, again, this body is going to be able to come together and 

33 

make some tough choices on a balanced package of reforms. And 

then what the sequester is designed to do is to force that, and if 

Congress in the face of concerns about the impact of the spending 

cuts were to simply defer them—you are not advocating that, but 

simply defer them—that would not be good for confidence because 

it would leave the world and the markets concerned that it is another symptom of inability of Democrats and Republicans to compromise on things that are in the interest of the country. 

Senator WICKER. My clock is ticking too fast for us to go on with 

this, but let me just say that I think the looming sequester is hurting economic confidence, even as we speak. It is going to make the 

economy worse between today and the end of the year, and I do not 

think I want that, I do not think you want that, and I do not think 

the President wants that. 

Let me just ask one other question. I have in my hand here a 

report from SIGTARP, Office of the Special Inspector General for 

the Troubled Asset Relief Program. It is dated yesterday, but it has 

been out for a while. Have you had a chance to look at it? 

Mr. GEITHNER. I have not read the report, but I have read a 

summary of it. 

Senator WICKER. OK. Well, in your testimony you state, ‘‘The 

TARP bank investments have already produced a profit for the taxpayer of over $19.5 billion and on current estimates will generate 

an overall profit’’—from TARP—‘‘of approximately $22 billion.’’ 

The SIGTARP report appears to contradict that quite substantially. This is a quarterly report. It states that taxpayers are owed 

$109.1 billion as of June 30, 2012, and the Treasury Department 

has written off or realized losses of $15.6 billion that taxpayers will 

never get back, leaving $93.5 billion in TARP funds outstanding. 

This seems to be a huge inconsistency, and I would like to ask 

you to explain why there is such a different take from your testimony and the Inspector General’s report. 

Mr. GEITHNER. Thank you for raising that. The $20 billion estimate refers to the investments in banks made with the authority 

the Congress gave us at the peak of the crisis, and we have already 

realized $20 billion in returns. And if you look at estimates of the 

remaining exposure, we will earn a bit more for the taxpayer. 

Now, if you look at the full complement of exposure that the 

Treasury and the Fed took to AIG, again, to protect the economy 

from a failing AIG, on current estimates the taxpayer in that case, 

too, is likely to realize a modest return, looking at the full complement of exposure and risk the Government took, not just the 

Fed but the Treasury as a whole. 

Now, we still own some common equity in AIG which we have 

begun to sell and we expect to sell down significantly over time. We 

are moving to do that as quickly as we can. And as important as 

the results on how carefully we have managed the taxpayers’ exposure, I think it is important to recognize that the Fed and the 

Treasury move very aggressively to note just replace the management and board of the institution but to bring down the risk and 

the risky parts of the entity that put it in jeopardy very dramatically. So alongside what the State insurance companies have been 

doing to make sure the insurance business of AIG is carefully suVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
34 

pervised and monitored, we have been very aggressive in bringing 

down the risk. I will just give you one example. 

The notional derivative exposure of AIG which so famously was 

at the center of their vulnerability has been reduced by roughly 90 

percent. So AIG is in a less risky position today, a very different 

firm, and most estimates look all into the Government’s exposure— 

and this is a remarkable thing—are likely to show that the taxpayer earned a modest return. Of course, life is uncertain, the 

world is uncertain. We still have substantial exposure in the equity 

stake we placed, but that is a remarkable outcome foreseen by no 

one at the time. 

Senator WICKER. So you disagree with the conclusion of the Inspector General that says—— 

Mr. GEITHNER. I do no think—— 

Senator WICKER. ——we are unlikely to get some of these funds 

back ever? 

Mr. GEITHNER. Well, again, we cannot—all we can know is what 

our remaining exposure is and what the market value is of that exposure today. But what I just said is not a matter of dispute. It 

is a matter of fact. 

Now, people might take different views of what happens to the 

taxpayers’ remaining exposure in the common equity of AIG as the 

world evolve going forward, and that is something we do not have 

any certainty over. And, of course, there are some places in the 

world where that may not turn out as well, but on current estimates, it looks pretty favorable, and most of the exposure has already been recovered for the Fed and the Treasury. 

Senator WICKER. Thank you. 

Chairman JOHNSON. Senator Hagan. 

Senator HAGAN. Thank you, Mr. Chairman. I appreciate, Secretary Geithner, you being here today and your testimony. 

The FSOC recently exercised one of its key authorities when it 

designated eight firms as financial market utilities. As I understand it, these companies, which are often referred to as the 

plumbing of the financial system, have not challenged those determinations. The timing of these mid-July determinations made it 

impossible for the FSOC to include a discussion of the selection 

process in its most recent annual report. Can you talk about the 

determination process? Why were those eight firms selected? Will 

there be other firms selected for designation? What does that designation mean for these firms going forward? 

Mr. GEITHNER. There are two types of what is called ‘‘designation 

authority’’ provided in the financial reforms Congress enacted. The 

ones you are referring to specifically involve key parts of the financial market infrastructure, and we designated eight firms. And 

what that means is we have the authority—and this is very important, it did not exist before—to make sure that they are run with 

conservative cushions against risk so we are protecting the system 

from systemic risk. 

We went through a very, very careful process within the Council 

to identify the criteria we should use to decide where we needed 

to extend that authority, and we went through a very carefully designed process to make sure we gave the firms the opportunity to 

provide better information for our judgments and to contest it. And 

35 

as you said, they seemed broadly comfortable with the outcome in 

that context. 

We have remaining authority that we have not yet executed, but 

we will, to designate large nonbank financial institutions—AIG is 

one potential example of this, but we have not made that judgment 

yet—who, as we saw in a way could pose risk to the broader economy and the taxpayer. And the reason why that is so important, 

again, is that if all you do is limit leverage and capital for the core 

of the banking system—and there is some risk over time, as we 

saw over the last few decades—you have a huge parallel banking 

system emerge with a lot of risk in it, and so it is very important 

to protect the system to make sure you have the authority to extend those prudential safeguards, leverage limitations, for example, 

to firms that are in the business of things like banks do that might 

threaten the system. That is what we are examining now. 

But, again, in each of these cases, we have to move very, very 

carefully because we want to do so in a way that is fair and gives 

the firms a fair opportunity to contest those judgments and that we 

can sustain them legally. 

Senator HAGAN. Thank you. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Warner. 

Senator WARNER. Thank you, Mr. Chairman, and thank you, 

Senator Hagan. 

Let me, first of all, start with just following up on what Senator 

Wicker said. I would concur with him that, you know, we want to 

try to avoid the sequester at all costs. My State is very contingent 

upon defense costs, but I would find it just stunning to me that if 

all we did was simply buy off $55 billion in 1-year defense sequester costs and say that is the extent of our responsibility. I mean, 

we need a minimum of $4 trillion, as you and everyone else from 

left to right have said. We all care about our country’s security and 

national defense, but I wholeheartedly believe the former Chairman of the Joint Chief, Admiral Mullen, when he said the greatest 

single threat to our country is not the threat of terrorism but the 

threat of our debt and deficit. And those who say, well, all we have 

to deal with is sequester or even a subset of sequester, just the defense half of the house, to me—and I do not think Senator Wicker 

said this, but, I mean, there are others who say that should be our 

only top priority—is stunning to me and I do not think addresses 

the concern that we face. And I would hope that we could perhaps, 

with your assistance or others’, size, as you mentioned, the challenge of $4 to $5 trillion over a 10-year frame that would both 

move revenues closer to historic numbers, bring spending down, 

start to reform our entitlement programs. The relative ask of the 

American people is so much smaller than what is being asked of 

people all across the world. Senator Bennet pointed out Europe, 

but, you know, slowing circumstances in India and China and elsewhere. And the more we could frame that I think would be helpful. 

I want to come back to LIBOR for a moment, but I listened with 

some irony, and as somebody who has kind of not fully followed as 

closely as you and others, but, you know, here was a circumstance 

that was reported in the press, in the Wall Street and other papers 

at the time. We had regulators in Britain. We had a host of reguVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
36 

lators in the United States. We had Treasury officials in the United 

States. And to my knowledge, the only guy that actually sounded 

the alarm and said we ought to be looking at this was the thenNew York Fed President, and yet you seem to be getting perhaps 

a disproportionate share of ‘‘Why not more?’’ when there were a 

host of other folks who would at least have equal or greater responsibility in acting on this matter. 

There is going to be a question here. 

You know, one of the things that I think one of my other colleagues pointed out—and I think we all kind of scratch our head. 

You pointed this out. We moved to the CFTC to start an enforcement action. I think we all kind of scratch our heads saying, ‘‘Gosh, 

does it really take 4 years to get an enforcement action through?’’ 

One of the things that concerns me is the nature of these enforcement actions, because of their confidentiality, what would happen 

if an enforcement entity feels they have got to do this in a confidential basis, and yet the actions may end up posing a systemic risk, 

how do we get that right so that under the guise of confidentiality 

a regulator is free to at least reveal to the FSOC, hey, this is not 

only potentially criminal or otherwise, but the action in itself may 

be systemically risky, and we cannot wait for 3 or 4 years for the 

investigation to finish before we kind of bring it forward? 

Mr. GEITHNER. Well, I think it is a very good question, and I 

thank you for raising it. I think that this is a solvable problem, but 

what it requires is that the enforcement agencies have in place 

safeguards so that if they find it necessary to bring to the attention 

behavior that has systemic implications to other agencies, like, for 

example, the Fed, they are able to do that without jeopardizing the 

investigation. There is lots of precedent for doing this, but we do 

not yet have in place the types of MOUs and other types of agreements that would give them that satisfaction. And we are on that 

and trying to fix that quickly. 

Senator WARNER. And, Mr. Chairman and Ranking Member, this 

would be something I think we ought to look into a bit more to 

make sure that I could just see some systemically risky action 

being caught up inside an investigation, and we sure as heck—we 

created an FSOC to try to make sure we have got that broad overview. We ought to urge the Treasury and others to get these MOUs 

in place. 

Let me follow up with a second question. A lot of concern, again, 

raised by both sides of the aisle about the kind of voluntary actions 

of the financial institutions to contribute to LIBOR and then maybe 

the sense that some of the incentives may not have been right to 

make sure folks were coming clean. You know, aren’t there across 

the whole financial system a whole series of other voluntary actions 

where financial institutions are asked to contribute information 

that could also be subject to manipulation, and we have whole 

swaths, I think, about—again, with the Chairman and the Ranking 

Member, as we sorted through after the financial crisis, organizations like FINRA and others that are more kind of self-policing; you 

know, not that we want to create massive new amounts of rules 

and regulations, but how do we make sure that if it is LIBOR this 

month that there is not one of these other voluntary industry-generated self-regulatory bodies? How do we put a warning out that, 

37 

hey, guys, everybody needs to be coming forward with clean, nonmanipulated information? 

Mr. GEITHNER. A very good question, and this is something the 

Council is looking at right now. Again, there are two different sets 

of examples we have had recently that create this vulnerability. 

One is what you saw with the British Bankers’ Association and 

LIBOR, and as I said earlier, we are looking carefully at other survey-based measures of financial prices that are set by industry bodies to make sure they are not vulnerable to this, and we will do 

that very carefully. 

But there is a different example we had recently in the failure 

of Peregrine, for example, which points out—and this is true in a 

variety of areas—that the market regulators rely on so-called selfregulatory bodies to carry some of the burden for examination and 

audit. And as you saw in that case, and as the report refers to in 

a different context, that puts us in a position where you might have 

customer funds more vulnerable to fraud than would otherwise be 

the case. 

So the Council is going to take a careful look at all those things, 

too. I do not know where that is going to take us yet, but we want 

to address both of them, not just the first question. 

Senator WARNER. Well, Mr. Chairman, one of the things may be 

that many of these entities I think works, do self-police. Rather 

than trying to create some huge new governmental structure, we 

may want to look at how, again, we can look at the penalty side 

if there is bad behavior within these voluntary organizations, what 

we might—to make sure we do not have to create a whole new artifice. And I was hoping I was going to—you know, that maybe being 

the last Member I had one more question, but I see my colleague 

is coming—no, no. Hey, listen, I am 3 minutes over. 

Senator SCHUMER. I need to get settled. 

[Laughter.] 

Senator SCHUMER. Ask a nice long one. 

Senator WARNER. Can I get one more little brief one in? 

Senator SCHUMER. With the Chairman’s permission, of course. 

Chairman JOHNSON. Permission granted. 

Senator WARNER. Although, you know, I am falling into the hypocrisy category as well. I was going to suggest maybe we ought 

to go to 4-minute rounds to make us all do 5 minutes, but I have 

just violated it as well. 

The only last quick comment I would like to have is a very interesting comment by one of the architects of the collapse of GlassSteagall yesterday to say let us put Glass-Steagall back in case. 

You know, interesting transformation there. 

I think one of the things, you know, as we were trying to sort 

through how you kind of get the right balance, was the ability of 

these liquidation plans or funeral plans to help try to regulate size. 

You are seeing a lot of the banks trade below book value. Maybe 

the market is saying size may not be this big of asset in terms of 

how the market views it. Are you starting to see any of these tools 

change any behavior? And thank you, Mr. Chairman. 

Mr. GEITHNER. You know, Congress thought about this question 

long and hard in considering financial system, and it put in place, 

I think to its credit, a set of, again, pretty tough new safeguards 

38 

in the system. And among those are, again, higher capital requirements or authority on the largest institutions. So it means if you 

are among the largest in the world, you have to hold more capital 

against the risk you take than is true for a typical bank. That is 

one. 

Two, it is not just living wills, but there is broad authority in the 

law to limit the ability of the Government in the future to come in 

and save these firms from their mistakes, cannot protect them from 

that. That is very consequential. 

There is authority in the law for regulators to break up or limit 

the size and scope of those institutions in advance of a crisis if they 

believe they pose too much risk to the system. And my own sense 

is what is happening right now is the full effect and impact of 

those reforms as they get traction are starting to have people reassess what is the right mix of scale and scope and size that is appropriate for investors in this kind of thing. That is what is forcing 

this examination. 

What we are going to do is continue to look at any idea that 

helps satisfy this basic obligation we have to create a system that 

is more stable, more resilient, and less vulnerable to what we saw 

in 2008. But we have a much tougher framework in place today 

than we had before the crisis, and we want to make sure that we 

do not see that weakened by all the pressure we are facing to 

weaken those reforms. 

Chairman JOHNSON. Senator Schumer. 

Senator SCHUMER. Thank you, Mr. Chairman. I appreciate your 

being here and waiting, and I appreciate the Secretary. 

First, you know, Mr. Secretary, there has been a lot of discussion 

about LIBOR in recent weeks, about who knew what and when and 

whether various regulators should have done more to crack down 

on alleged manipulation of LIBOR. Obviously this is a serious 

issue. The potential impact is vast, although it goes in different directions. If people wanted a low LIBOR, they would lower mortgage 

rates and lower credit card rates and things like that. So it is hardly as clear-cut as some are making it. 

But I am puzzled by repeated claims that you and other regulators stood by and did nothing and that somehow we are just 

learning about this 4 years later. You and the New York Fed were 

proactive, not only by raising concerns but also proposing structural solutions. Moreover, Barclays just reached a large settlement 

with—guess who?—the U.S. regulators—not the U.K. regulators or 

anybody else—and it was the Fed, DOJ, CFTC working on this investigation. And those did not just startup 2 weeks ago. They have 

been going on for a long time. 

So I think the idea that we did nothing for 4 years is obviously 

false, and I think some are taking unfair shots at you. Obviously 

you have to answer every question and every criticism, and overall 

I would say this, since I heard one or two comments were talked 

about even here today and a lot in the House yesterday: I think 

you have been just a very, very fine public servant. From the days 

when we first met when we were dealing with the TARP and the 

stimulus, both of which saved our country from what I think would 

have the Great Depression, and you have been smart on the merits, down the middle, you have stood up to the financial services 

39 

industry when you thought they were wrong—the Volcker Rule as 

an example—but you also did not just bash them needlessly. And 

so I give you kudos for that, and I think somebody should say it, 

so I did. 

I have a question for you on our favorite subject where we disagree: some big country over there at the other side of the Pacific 

Ocean. Under Secretary Brainard recently gave a speech which reminds us that China’s economy is now too large for it to pick and 

choose which rules it follows, which is what the Chinese have done 

constantly. President Hu, at the fourth meeting of the U.S.–China 

Strategic Economic Dialogue, made significant commitments to create opportunities for Americans to export and sell to China by increasing market access and leveling the playing field by eliminating several barriers to trade from foreign firms. These reforms, 

if implemented, would significantly bolster U.S. investment in 

China, but you know what? I do not put much credence in them 

because we have heard commitments like this over and over and 

over again with very little result. 

What progress, if any, has China made to live up to the commitments they made this spring to increase foreign market access? 

What concretely have they done since that speech by President Hu, 

particularly in light of the proposed acquisition of Nexon by the 

China National Offshore Oil Corporation, which obviously provides 

increased Chinese access to the U.S. market? 

Mr. GEITHNER. Senator, I do not actually think you and I disagree on this, although sometimes we disagree a little bit on how 

best to promote our interests in this context. But on the basic problem, I agree with you and you are right to continue to give it a lot 

of attention in this context. I would be happy my staff, or do it directly, lay out to you exactly where they are on that specific piece, 

which is opening up the broader investment opportunities to U.S. 

firms. But our interests go much broader than that. I mean, they 

are not just about making sure the exchange rate appreciates over 

time, that it is more market determined, their trade surplus comes 

down, it has dramatically. But we need to provide much stronger 

protection for intellectual property rights for U.S. innovators. 

There is a whole range of other disadvantages U.S. firms that 

compete in China face today that we need to address over time, 

and it is not tenable for China, which now has a world-class manufacturing sector, to continue to sustain and maintain this range of 

protections for its own basic firms. 

Senator SCHUMER. OK. Well, I would like some specifics on anything that has happened specifically since President Hu gave his 

speech. I would say that the Chinese trade deficit has come down 

significantly, but not with the U.S. Not with the U.S. It has come 

down worldwide and with Europe a lot, but not with us, as I read 

the numbers. 

Mr. GEITHNER. True, but U.S. exports, just to take the other side 

of it, are growing very rapidly to China, and that is a very good 

thing, a sign of our strength and competitiveness, too. 

Senator SCHUMER. OK. One final question, if I might, Mr. Chairman? 

Chairman JOHNSON. Yes. 

40 

Senator SCHUMER. This is about the fiscal cliff and the middleclass tax cut bill the Senate passed yesterday. As you noted in your 

opening statement, the slowdown in U.S. growth could be exacerbated by concerns about approaching tax increases and spending 

cuts. And yesterday the Senate took significant action to eliminate 

a major piece of that certainty, so let me just ask a few questions 

to highlight that. 

What percentage of the fiscal cliff does the extension of middleclass tax cuts take care of? 

Mr. GEITHNER. The extension of the rate itself avoids $100 billion 

tax increase on 98 percent of Americans. So that is a very substantial piece of what you called the full complement of fiscal measures. 

Senator SCHUMER. The numbers I have are it takes $130 billion 

out of $607 billion, or about 21 percent. That is a lot, right? 

Mr. GEITHNER. That is a lot, absolutely. And it has a big effect 

because, again, it goes to the tax rates that 98 percent of American 

pay. 

Senator SCHUMER. How about the 1-year AMT patch? 

Mr. GEITHNER. That is also about $100 billion. 

Senator SCHUMER. Right, so that is another—I have 92 out of 

607, so that is 15 percent. If you add those two things up, 36 percent, that is a lot. And all together, how much protection from the 

anticipated GDP hit would the House’s passage of our tax bill afford the country? My numbers are 41 percent. 

Mr. GEITHNER. I would say a very substantial part of it, but I 

think that 40-percent number slightly understates it, because what 

people count in the overall number to some extent is already expected and planned for. The thing that would be most damaging to 

confidence and economic activity would be the tax of middle-class 

Americans to go up in this context. And as you know, if you let 

them expire, it is a very substantial tax increase on middle-class 

Americans. And, remember, it is not just—you all recognized this 

in the Senate. You do not need just to extend the rates and AMT, 

but you need to make sure you extend the expanded tax credits 

that we put in place in 2009 that go to 25 million Americans. If 

you do not extend those tax credits, then taxes go up for 25 million 

Americans as well. So you need to do that full mix of things. And 

if the Congress were to enact that, the House were to enact that, 

that would take care of the most damaging piece of the end-of-theyear uncertainty for—— 

Senator SCHUMER. So, clearly, I mean, there are other issues 

here, who should pay what, what percentage the Government 

should pay in taxes. But if you are caring about uncertainty, which 

we hear from our Republican colleagues all the time, the number 

one thing they could do is pass our tax cut, which we all agree on. 

We may not agree on what to do with people above 250, but we 

all agree it should be below 250. So you could take a huge amount 

of the uncertainty off the table. So my view—I do not know if you 

agree with this. If they do not pass our tax cut, they should stop 

talking about uncertainty. 

Mr. GEITHNER. I think it is necessary to do but it needs to go beyond that, and there are other things you can do for the economy 

now that would make growth stronger and infrastructure, involving 

teachers or incentives to hire. And, of course, we all want to see 

41 

Congress come together on some set of reforms to help reduce the 

long-term deficits. 

Senator SCHUMER. Thank you, Mr. Chairman. I appreciate your 

indulgence. 

Chairman JOHNSON. Thank you again, Secretary Geithner, for 

being here today. Your work and the work of the Council is greatly 

appreciated. 

Thanks again to my colleagues and our panelist for being here 

today. This hearing is adjourned. 

[Whereupon, at 12:15 p.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 

42 

PREPARED STATEMENT OF TIMOTHY F. GEITHNER 

SECRETARY, DEPARTMENT OF THE TREASURY

JULY 26, 2012 

Chairman Johnson, Ranking Member Shelby, and Members of the Committee, 

thank you for the opportunity to testify today regarding the Financial Stability 

Oversight Council’s (the ‘‘Council’’) annual report. 

Each year, the Council is required to prepare a public report reviewing financial 

market and regulatory developments, potential threats to financial stability, and 

recommendations to strengthen the financial system. My testimony today reviews 

the conclusions and recommendations made by the Council in its second annual report, which is being submitted in full alongside this testimony. 

Measures of Strength in the Financial System 

The strategy adopted by the United States to repair and reform the financial system after the crisis has helped produce a stronger and more resilient system. 

• We have forced banks to substantially increase the amount of capital they hold, 

so that they are able to provide credit to the economy and absorb losses in the 

future. Tier 1 common capital levels at our country’s banks are up by $420 billion, or 70 percent, from 3 years ago. The ratio of tier 1 common equity to riskweighted assets at these institutions increased from 6 percent to over 11 percent during this period. 

• We have forced a significant reduction in overall leverage in the financial system. Financial sector debt has dropped by more than $3 trillion since the crisis, 

and household debt is down $900 billion. 

• Banks are funding themselves more conservatively, relying less on riskier shortterm funding. 

• The size of the ‘‘shadow banking system’’—which had been a key source of financial stress during the crisis—has fallen substantially, by several trillion dollars. 

• The Government has closed most of the emergency programs put in place during the crisis and recovered most of the investments made into the financial 

system, which were originally expected to result in a loss to taxpayers of several 

hundred billion dollars. The TARP bank investments have already produced a 

profit for the taxpayer of over $19.5 billion, and on current estimates will generate an overall profit of approximately $22 billion. 

• Credit is expanding, and the cost of credit has fallen significantly from the 

peaks of the crisis. Commercial and industrial lending at commercial banks increased 10 percent in 2011 and increased at an annual rate of 11 percent in 

the first 5 months of 2012. 

The overall impact of these changes is very important. They have made the financial system safer, less vulnerable to future economic and financial stress, more likely to help rather than hurt future economic growth, and better able to absorb the 

impact of failures of individual financial institutions. 

Threats to Financial Stability 

The Council’s report identifies a number of potential threats to the stability of the 

financial system. Among the most important of these is the fact that the financial 

system still confronts a challenging and uncertain overall economic environment. 

The ongoing European crisis presents the biggest risk to our economy. The economic recession in Europe is hurting economic growth around the world, and the 

ongoing financial stress is causing a general tightening of financial conditions, exacerbating the global slowdown. 

Over the past 2 years, U.S. financial institutions have significantly reduced their 

exposure to the most vulnerable economies of Europe, and they hold substantial levels of capital against the remaining exposures. The combined economies of the euro 

area constitute the second largest economy in the world and are home to many of 

the world’s largest and most interconnected financial institutions. As a result, a severe crisis in Europe would necessarily have very substantial, adverse effects on the 

United States. 

Europe’s leaders are putting in place a package of long-term reforms—economic 

reforms to restore competitiveness, improve fiscal sustainability, and restructure 

their financial systems, and governance changes to transfer more responsibility to 

European institutions for oversight of national financial systems and how much Nations can borrow. For these reforms to work, they need to be complemented by actions in the near term to restore financial stability and support economic growth, 

43 

including strengthening the stability of the banking systems and bringing sovereign 

borrowing rates down in the countries implementing reforms. 

Global economic growth has slowed and forecasts for future economic growth have 

been reduced. Europe is responsible for much of this, but not all of it. Growth in 

China, India, Brazil, and other large emerging economies has slowed for a variety 

of reasons unique to those countries. 

In the United States, the economy is still expanding, but the pace of economic 

growth has slowed during the last two quarters. In addition to pressures from Europe and the global economic slowdown, U.S. growth has been hurt by the rise in 

oil prices earlier this year, the ongoing reduction in spending at all levels of Government, and slow rates of growth in income. 

The slowdown in U.S. growth could be exacerbated by concerns about approaching 

tax increases and spending cuts, and by uncertainty about the shape of the reforms 

to tax policy and spending that are necessary to restore fiscal responsibility. As the 

Council’s report discusses, the United States faces fiscal deficits that are 

unsustainable over the long run. The failure of policy makers to enact reforms in 

a timely and credible manner will be damaging to future economic growth. 

These potential threats underscore the need for continued progress in repairing 

the remaining damage from the financial crisis and enacting reforms to make the 

system stronger for the long run. 

Progress Implementing Financial Reform 

Regulators have made important progress over the past 2 years designing and implementing the regulations necessary to implement financial reform. Nine out of 10 

rules with deadlines before July 2, 2012, have been proposed or finalized. The key 

elements of the law will largely be in place by the end of the year. The financial 

system is already in the process of adapting to these reforms. 

• We have taken important steps to limit risk-taking at the largest financial institutions. The Federal Reserve and other supervisors have negotiated new, 

stronger global capital and liquidity requirements. As part of this effort, Federal 

banking regulators will impose even higher requirements on the largest banks. 

• We now have the ability to put the largest financial companies under enhanced 

supervision and prudential standards, whether they are banks or nonbanks, 

and the ability to subject key market infrastructure firms to heightened riskmanagement standards. 

• We are implementing the provisions of the law designed to protect taxpayers 

and the financial system from the failure of a large financial firm. Regulators, 

led by the FDIC, have established the new ‘‘orderly liquidation authority,’’ a 

mechanism to unwind responsibly large, complex financial companies. This authority will help make sure that culpable management is fired and that investors pay for the failure of a firm, not taxpayers. Nine of the largest banks have 

now submitted ‘‘living wills,’’ providing contingency plans for an orderly bankruptcy. 

• The SEC and CFTC are putting in place a new framework for derivatives oversight, providing new tools for combatting market abuse and bringing the derivatives markets out of the shadows. Their recent joint adoption of a swaps definition will trigger the effectiveness of more than 20 key rulemakings and marks 

a major milestone in the implementation of derivatives reforms. 

• Regulators are working to strengthen protections for investors and consumers. 

The CFPB has worked to simplify and improve disclosure of mortgage and credit card loans to help consumers make more informed financial decisions. The 

CFPB has also launched its supervisory program for very large depository institutions (in coordination with prudential regulators) and for certain nonbanks. 

• As we put in place these reforms in the United States, we are working with 

supervisors and regulators in Europe, Japan, and around the world to provide 

a more level playing field. In addition to the new global standards for capital 

and liquidity requirements, we are negotiating global margin requirements for 

derivatives. On these and a range of other issues, we are trying to improve the 

prospect of tougher and broadly equivalent global standards and requirements, 

so that financial risk cannot simply move to where it cannot be seen or effectively constrained. 

These are complicated reforms. This process is challenging because our financial 

system is complex, because we want to target damaging behavior without damaging 

access to capital and credit, because we want the reforms to endure as the market 

evolves, and because we need to coordinate the work of multiple agencies in the 

United States and many others around the world. 

44 

Recommendations To Improve Financial Stability 

In addition to these important reforms, the Council has put forward recommendations in a variety of other areas to help strengthen our financial system. 

Risks in Wholesale Short-Term Funding Markets 

The Council recommends a set of reforms to address structural vulnerabilities, 

particularly in wholesale short-term funding markets such as money market funds 

(MMFs) and the tri-party repo market. As we saw during the crisis, these sources 

of funding were particularly vulnerable to disruption that can quickly spread 

through the markets. 

The SEC adopted a number of reforms to money market funds in 2010, but they 

remain vulnerable to runs. The Council supports SEC Chairman Schapiro’s efforts 

to address certain weaknesses, including (1) the lack of a mechanism to absorb a 

sudden loss in value of a portfolio security and (2) the incentive for investors to redeem at the first indication of any perceived threat to the value or liquidity of the 

MMF. The Council recommends that the SEC publish structural reform options for 

public comment and ultimately adopt reforms that address money market funds’ 

susceptibility to runs. The Council further recommends that, where applicable, its 

members align regulation of cash management vehicles similar to MMFs within 

their regulatory jurisdiction to limit the susceptibility of these vehicles to run risk. 

In tri-party repo markets, the Council supports additional steps toward reducing 

intraday credit exposure within the next 6 to 12 months. In addition, the Council 

recommends that regulators and industry participants work together to define 

standards for collateral management in the tri-party repo market, particularly for 

lenders (such as MMFs) that have certain restrictions on the instruments that they 

can hold. 

Customer Fund Protection 

The Council highlights the importance of establishing and enforcing strong standards for protecting customer funds deposited for trading. For example, the Council 

recommends that regulators consider strengthening regulations governing the holding and protection of customer funds deposited for trading on foreign futures markets. The Council also recommends that regulators seek ways to strengthen riskmanagement standards for clearinghouses and to develop and monitor best practices 

across their respective jurisdictions. 

Risk Management and Supervisory Attention 

The Council recommends continued work to improve risk-management practices, 

highlighting a number of specific challenges facing firms and their supervisors. The 

Council supports continued attention to strengthening capital buffers and stress 

testing. Firms also need to continue to guard against potential disruptions in wholesale short-term funding markets and bolster their resilience to interest rate shifts. 

Firms need to continue to strengthen internal disciplines and safeguards in underwriting standards, the development of new financial products, and complex trading strategies. The report also notes that high-speed trading is an area where increased speed and automation of trade execution may require a parallel increase in 

trading risk management and controls. 

Housing Finance Reform 

The Council continues to support progress toward comprehensive housing finance 

reform. The U.S. housing finance system has required extraordinary Government 

support since the financial crisis, and the market continues to lack sufficient private 

capital. As recognized in the framework for housing finance reform developed by certain member agencies of the Council, the return of private capital is crucial to reestablishing confidence in the integrity of the market and better aligning incentives. 

However, in order for private capital to come back into the market, there needs 

to be greater clarity from regulators and Congress on new rules for all participants 

in the market. Challenges include the lack of broadly agreed upon standards for 

mortgage underwriting (which are necessary to support the valuation and liquidity 

of mortgage-backed instruments), nonuniform foreclosure practices across different 

States, and uncertainty surrounding the potential liability of mortgage loan 

securitizers. 

In addition, reform should address servicer compensation models and the need for 

national mortgage servicing standards, and it should strengthen protections for borrowers. Members of the Council are addressing many of these challenges through 

existing authority and the implementation of Wall Street Reform, yet comprehensive 

reform will require significant legislation, and the leadership of this Committee will 

be central to the effort. As we move forward, we must take care not to undermine 

45 

the housing market, which is showing signs of recovery but is still weak in many 

areas. 

Improving Transparency and Financial Data 

One of the weaknesses in our old system of regulation was a lack of information— 

information that could be used to help identify threats and more effectively understand the financial system. Gaps in data and analysis remain a threat to financial 

stability, and an important part of reform efforts will continue to be the improvement and availability of financial data and information. 

This project is being spearheaded by the Office of Financial Research (OFR), 

which was established by Wall Street Reform. The OFR’s work is crucial to improving transparency, our understanding of how the financial system supports the economy, and our capacity to identify threats to financial stability. The OFR has done 

tremendous work over the past year, undertaking a number of initiatives, including 

steps to create a ‘‘legal entity identifier’’ for financial contracts, which will help us 

understand exposures in the market. Last week, the OFR released its first annual 

report, which analyzes threats to financial stability along with ways to address data 

gaps and promote data standards. 

Conclusion 

The member agencies of the Council have made considerable progress over the 

past few years in making our financial system safer and stronger—more resilient 

and less vulnerable to crisis, with better protections for investors and consumers. 

We still have a lot of work ahead of us, however. We need your support to make 

these rules strong and effective. And we need your support to make sure the enforcement agencies have the resources they need to prevent fraud, manipulation, 

and abuse. 

I want to thank the other members of the Financial Stability Oversight Council, 

as well as the staff of the members and their agencies, for the work they have done 

over the past year and their efforts to produce this annual report. 

We look forward to working with this Committee, and with Congress as a whole, 

to build on the substantial progress we have made to create a stronger financial system. 

46 

RESPONSES TO WRITTEN QUESTIONS OF 

CHAIRMAN JOHNSON FROM TIMOTHY F. GEITHNER 

Q.1. One of the purposes of FSOC was to increase coordination 

among the agencies to better spot risks to the financial system. 

Can you offer specific examples of how FSOC coordination has benefited the financial system? If Congress were to repeal or undermine Wall Street Reform, as some have suggested, what would be 

the impact on financial stability? 

A.1. The FSOC has benefited the financial system through increased, ongoing information-sharing among its members and their 

staffs, and through new joint accountability for the monitoring and 

identification of threats to financial stability pursuant to the DoddFrank Act. 

While statutorily required to meet quarterly, the FSOC has met 

over 25 times since its formation. For example, the FSOC’s principals have come together to share information on a range of important financial developments, such as the situation in Europe, 

housing markets, the interaction of the economy and energy markets, the tri-party repo market, and lessons to be drawn from recent errors in risk management at several major financial institutions, including the failure of MF Global and trading losses at 

JPMorgan Chase. More recently, the FSOC met to discuss the impact of Hurricane Sandy on the functioning of our markets and has 

proposed for public comment recommendations to the SEC regarding reforms of money market funds. Staffs of FSOC members and 

member agencies continue to work on these issues. 

Under the Dodd-Frank Act, the FSOC is required to report on its 

view of potential emerging threats to financial stability and significant financial market and regulatory developments. This requirement informs the FSOC’s work throughout the year, and allows the 

public to be informed of the FSOC’s views on important matters regarding financial stability and the financial services marketplace. 

Q.2. As Wall Street Reform and Basel III rulemakings on SIFIs 

progress, what steps did FSOC take to analyze the differences between banks and nonbank SIFIs and to incorporate those findings 

into the rulemakings? Do you think that the actions and 

rulemakings to date recognize the differences between banks and 

nonbank SIFIs? How do you plan to synchronize designation of 

nonbank SIFIs with regulations that would govern the different 

types of nonbank SIFIs? What role did FIO and the Independent 

Insurance member of FSOC play in the rulemakings? 

A.2. The Dodd-Frank Act and subsequent work of the Financial 

Stability Oversight Council recognize the various distinctions between bank holding companies and nonbank financial companies as 

well as between different types of nonbank financial companies. 

Unlike bank holding companies, for which the statute provides a 

specific threshold for the application of enhanced prudential standards, nonbank financial companies must be considered by the 

Council based on specific statutory criteria and the Council’s determination that a particular firm could pose a threat to U.S. financial stability. The designation of nonbank financial companies also 

differs from that of systemically important financial market utiliVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00050 Fmt 6602 Sfmt 6602 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
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ties, which are considered under another designation process set 

forth in Title VIII of the Dodd-Frank Act. 

In general, before being designated by the Council, a nonbank financial company will be evaluated in a three-stage process which 

goes well beyond the consideration of a firm’s size (as measured 

through total consolidated assets) that occurs under the DoddFrank Act for a bank holding company. The Council’s six-category 

framework for evaluating nonbank financial companies focuses on 

a firm’s size, interconnectedness, substitutability, leverage, liquidity risk and maturity mismatch, and existing regulatory scrutiny. 

Furthermore, the Council has consulted with the Federal Reserve 

Board on the potential differences between the supervision of and 

enhanced prudential standards for nonbank financial companies 

and for bank holding companies. 

The Federal Insurance Office and the Council’s independent 

member with insurance expertise were instrumental in developing 

the rulemaking and processes for designating nonbank financial 

companies which allow for more effective and fully informed evaluations of insurers for potential designation. 

Regarding Basel III rules, Treasury is not a rule writer. Nevertheless, the banking agencies have consulted with the Federal Insurance Office as they consider public comments received on their 

proposed capital rules and work toward final rules to implement 

Basel III. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM TIMOTHY F. GEITHNER 

Q.1. While you were President of the Federal Reserve Bank of New 

York (the ‘‘New York Fed’’), did you: 

A. Take any action to further investigate allegations of LIBOR 

manipulations before or after the President’s Working Group 

on Financial Markets met in May of 2008? 

B. Instruct your staff to request information about allegations 

of LIBOR manipulation from any LIBOR-reporting bank supervised or regulated by the New York Fed? 

C. Instruct your staff to send inspectors or examiners to LIBORreporting banks supervised or regulated by the New York Fed 

to investigate allegations of LIBOR manipulation? 

D. Recommend to the Board of Governors of the Federal Reserve System to exercise its statutory authority and commence formal enforcement action (including imposing fines or 

penalties) against LIBOR-reporting banks supervised or regulated by the New York Fed for manipulations of LIBOR? 

If you answer ‘‘yes’’ to any of the above questions, provide a full 

explanation, including the dates of any actions taken. 

A.1. During the financial crisis, market participants began to raise 

concerns about the reliability of the LIBOR and the possibility that 

banks were not reporting their actual cost of borrowing. Some of 

these concerns were reported in articles in the the Wall Street 

Journal and the Financial Times in 2008. 

The New York Fed took a number of actions in response to these 

concerns. The New York Fed informed U.S. regulators and other 

48 

Government officials, including the key agencies with responsibility 

and authority for market manipulation and abuse. As you noted, 

I raised the issue personally with the President’s Working Group 

on Financial Markets in May of 2008. This meeting included the 

leaders of the CFTC, SEC, OCC, FDIC, the Federal Reserve Board 

of Governors, and Treasury. 

The New York Fed also raised concerns with the Bank of England and pushed for reforms to the LIBOR process that would 

make the rate less vulnerable to misreporting. I raised concerns in 

person with Bank of England Governor Mervyn King in May of 

2008. Shortly thereafter, I sent Governor King a memorandum 

with six specific recommendations for ways to address this problem. The Bank of England responded favorably to our recommendations and indicated that they would act on them. New York Fed 

staff continued to communicate with British authorities in followup. 

At roughly the same time, the CFTC began a 4-year long, farreaching, confidential investigation, which ultimately involved the 

SEC, the DOJ, and a number of foreign regulators. The CFTC’s investigation resulted in the very substantial fines and other measures related to Barclays and other firms. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED 

FROM TIMOTHY F. GEITHNER 

Q.1. It is my understanding that despite serious questions about 

LIBOR’s accuracy and relevance raised throughout the spring and 

summer of 2008, the Federal Reserve and the Treasury Department continued to use LIBOR as a benchmark in connection with 

the emergency liquidity and credit facilities created during the financial crisis. For example, this measure was used to set the interest rate for the Term Asset-Backed Securities Loan Facility 

(TALF), which was established by the Federal Reserve Bank of 

New York and the Treasury Department in March 2009. Why did 

the Federal Reserve use this measure to set the loan rates in the 

TALF? Did the Federal Reserve use this measure to set the rates 

used in the other credit and liquidity programs established during 

the financial crisis? If so, which programs? Did the Federal Reserve 

consider using other rates? Why or why not? 

A.1. As you noted, Treasury worked with the Federal Reserve to 

establish the Term Asset-Backed Securities Loan Facility (TALF) 

to increase the availability of credit for U.S. households and small 

businesses. Because of Treasury’s involvement in the program, we 

are happy to address your question as it relates to the TALF. 

Under the TALF, the Federal Reserve Bank of New York extended loans to finance purchases of certain highly rated assetbacked securities that were in turn backed by loans to businesses 

and households. TALF loans with both fixed and floating interest 

rates were extended, and the floating-rate loans were based on several base rates, including LIBOR, prime, and the FOMC’s target 

Federal funds rate. Each TALF borrower was required to choose a 

TALF loan rate that corresponds to the interest payments on the 

securities financed by and collateralizing the TALF loan. If the inVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00052 Fmt 6602 Sfmt 6602 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
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terest rate on the securities is based on LIBOR, the TALF loan rate 

is also based on LIBOR. 

The TALF is now being wound down. Whereas approximately $70 billion in loans were extended, there were approximately $850 

million in loans outstanding as of December 2012. We do not expect 

to have any losses from the program. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORKER 

FROM TIMOTHY F. GEITHNER 

Q.1. Yesterday you said at the House hearing that regulation is not 

meant to protect institutions from their own mistakes but to prevent the system from the consequences of these mistakes. I wholeheartedly agree and, in fact, I think we have taken too much of a 

focus on protection institutions as a regulatory paradigm. Would 

you elaborate on what you meant by this, and tell us if you think 

regulators or policy makers are too focused on protecting institutions, not protecting the system? 

A.1. Previously, I testified that the Dodd-Frank Act prohibits regulators from bailing out financial firms from their own mistakes. 

Further, the Dodd-Frank Act is designed to make sure that when 

financial firms do make mistakes, the broader economy and the 

U.S. financial system are not imperiled. 

Reforms include provisions designed to make sure that firms are 

able to absorb the costs of their own mistakes. Higher capital requirements, better quality capital, and mandatory stress testing 

are important parts of these reforms along with enhanced prudential standards for nonbank financial companies that are designated 

as systemically significant. Mandatory clearing reduces the interconnection risks that can come with complex derivatives contracts 

by creating a central counterparty. Additionally single counterparty 

exposure ceilings further constrain the size of risks that individual 

firms can assume to each other. 

In addition, the Dodd-Frank Act creates an orderly liquidation 

authority so that when a complex financial company does fail, it 

can be wound down in a way that mitigates potential adverse effects on the U.S. financial system and the economy at large. 

Q.2. Some people have talked about various ‘‘silver bullet’’ fixes to 

systemic risk. A few ideas include making banks smaller or separating types of activities that one firm can engage in. As the Chairman of the FSOC, have you given thought to these approaches? 

Why hasn’t the FSOC advocated for a more aggressive approach to 

dealing with risk? 

A.2. The ideas that you mention have been the subject of discussions of the Council and within its member agencies. While different policies have the potential to reduce risk in different ways, 

I do not agree that there is a single ‘‘silver bullet’’ fix. 

With regard to making big banks smaller, the Dodd-Frank Act 

reduced the probability of failure of large institutions and helped 

ensure that the rest of the financial system can absorb or contain 

losses. Reforms included new liquidity requirements for large financial institutions, limits on leverage, concentration limits on relative size of financial institutions, activity restrictions, margin 

50 

rules for derivatives, and stronger financial cushions for central 

counterparties. The FSOC has also been active, pursuing reforms 

with its members on money market funds and the tri-party repo 

market. 

It is important to remember that the U.S. banking system is less 

concentrated than that of any other major developed economy. The 

three largest U.S. banks account for 32 percent of total banking assets in the United States, compared to 46 percent for the three 

largest in Japan, 58 percent in Canada, 63 percent in the U.K., 65 

percent in France, 70 percent in Germany, 71 percent in Italy, and 

76 percent in Switzerland. 

With regard to separating types of activities that one firm can 

engage in, this is being addressed most importantly by the Volcker 

Rule. In Treasury’s role as a coordinator of the rulemaking, we are 

working with the Council’s relevant member agencies to implement 

the Volcker Rule in a manner that will prohibit banking entities 

from engaging in proprietary trading and restrict their ability to 

invest in or sponsor hedge or private equity funds, while protecting 

statutorily permitted activities. This is, however, a complex process 

that involves coordination of rulemakings by five different agencies 

that have received thousands of comment letters from the public. 

Q.3. Has BASEL effectively killed LIBOR because the capital requirements of BASEL make interbank lending prohibitively expensive? This is what some banks are telling us. Do you agree with 

this assessment? 

A.3. The Basel Committee on Banking Supervision’s Basel II agreements introduced harmonized global liquidity standards for banks 

known as the Liquidity Coverage Ratio (LCR). An important provision to promote financial stability, the LCR would reduce a bank’s 

liquidity risk by requiring that a bank have sufficient resources to 

survive an acute short-term stress scenario: banks would be required to have a sufficient amount of unencumbered, high quality 

and liquid assets to offset net cash flows the bank could experience 

under an acute short-term stress scenario over a 30-day horizon. 

Unsecured lending from financial institutions is assumed to completely run-off under the proposed LCR stress scenario suggesting 

that a bank’s funding through the interbank market is not a stable 

source of financing. While the U.S. banking regulators have yet to 

propose a rule to implement the LCR and it is anticipated that 

there could be an impact on interbank funding rates, the markets 

do not show evidence of a correlation between the advent of such 

rules and cost of interbank lending at this time. 

Q.4. We now have an unlimited guarantee on ‘‘transaction account.’’ This guarantee provides insurance to accounts greater than 

$250,000. Since this guarantee was put into place, $1.3 trillion 

have come into TAG accounts. Many of these have of course come 

from money market funds. Is this a systemic risk in your view? 

A.4. The Non-interest Bearing Transaction Account program extended in 2010 by the Dodd-Frank Act expired on December 31, 

2012. It is estimated that at the time of expiration, $1.4 trillion 

was deposited in such accounts at small and large banks. The 

expiry may cause some larger depositors to withdraw their deposits 

from the banking system because these deposits are no longer inVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00054 Fmt 6602 Sfmt 6602 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
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sured, while other depositors may elect to keep their deposits in 

uninsured accounts. Those depositors that leave the banking system may invest previously deposited funds into cash-like vehicles 

such as money market mutual funds, short-term securities, or offshore investment vehicles, or short-term securities. To date, we 

have seen no evidence of disorderly flows of funds and will continue 

to monitor these flows over the coming weeks and months. 

Q.5. The Treasury Department is responsible for managing the 

term structure of U.S. debt issuance. According to the Office of 

Debt Management the weighted average maturity of outstanding 

U.S. debt has increased from about 73 months to roughly 77 

months. Could we be lengthening it more as a way to lock in today’s low long-term rates? 

A.5. In 2008, the weighted average maturity of the Treasury’s portfolio was approximately 48 months. Since that time, through prudent debt management, we have increased the portfolio’s weighted 

average maturity to approximately 64 months, which is above both 

precrisis levels and the long-term average of 58 months. 

On numerous occasions, I have stated our intention to continue 

the extension of the average maturity of our debt outstanding. 

However, while we remain steadfast in this goal, Treasury must 

also adhere to the same principles that have made the Treasury 

market the deepest and most liquid in the world. One of these principles is that we do not act opportunistically and try to ‘‘time’’ our 

issuance with the overall level of interest rates. Another is that we 

strive for our auctions to be regular and predictable. While these 

principles may limit how quickly we can extend the weighted average maturity of the debt, they also help Treasury to attain the lowest cost of funding over time. 

Q.6. Looking at various possible structures on MBS, if we had had 

just a 7 percent first loss tranche in front of the taxpayer on GSE 

MBS, the taxpayer would have been insulated from loss during this 

latest crisis. In fact Fannie and Freddie’s multifamily models show 

that this can be done. Should the private sector be in a first loss 

position in mortgage-backed securities? 

A.6. The Treasury’s white paper on housing finance reform released in February 2011 (Reforming America’s Housing Finance 

Market) presents three options for long-term, structural change— 

all three of which are conditioned upon placing private investors 

and lenders in a first-loss position on mortgage-backed securities. 

Treasury staff continues to explore these options by engaging with 

stakeholders on alternatives that would best facilitate a more robust return of private capital to mortgage lending. 

Q.7. If you have had a chance to review the proposals from the 

FDIC on Title 2, do you still agree that liquidation is the way the 

FDIC is viewing their authority? Is a better way to do this to make 

Title 2 more of a temporary ‘‘holding bin’’ where we would take a 

firm ‘‘off the grid’’ during a time of financial stress then put that 

firm into bankruptcy once the systemic risk has passed? 

A.7. Title II is meant to take the place of bankruptcy under limited 

circumstances; specifically, where the resolution of the failed financial company under the Bankruptcy Code would have serious adVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00055 Fmt 6602 Sfmt 6602 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
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verse effects on U.S. financial stability. The purpose of Title II is 

to provide the FDIC with the necessary authority to resolve failing 

financial companies that pose a significant risk to U.S. financial 

stability. As receiver under Title II, the FDIC is prohibited from 

using taxpayer funds to prevent the liquidation of the failed financial company. Equity holders in the failed financial company are 

expected to be wiped out. 

The notion of placing a large financial company into a temporary 

‘‘holding bin’’ and taking it ‘‘off the grid’’ assumes that it could be 

accomplished in a seamless manner. However, a firm that is placed 

into a Title II receivership is expected to be highly interconnected. 

In addition, placing a large, interconnected financial firm into a 

‘‘holding bin’’ is analogous to conservatorship, which Congress rejected. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR KOHL 

FROM TIMOTHY F. GEITHNER 

Q.1. On the second anniversary of the signing of the Dodd-Frank 

legislation the SEC was scheduled to provide a report on the current credit rating agency industry. 

What actions have you and Financial Stability Oversight Council 

taken to insure that rating agencies will not repeat the same error 

of over rating issues? Has the FSOC and the SEC evaluated what 

types of reforms to the current structure would mitigate conflict of 

interest and avoid inaccuracies in the future? 

A.1. The FSOC has highlighted the role that credit rating agencies 

played in the lead-up to the financial crisis, and continues to consider the role of credit ratings in specific markets and more generally. 

In its 2011 annual report, the FSOC noted the role that credit 

rating agencies played in the structuring and sale of residential 

mortgage backed securities and collateralized debt obligations. 

Moreover, the annual report stated that credit rating agencies did 

not understand well the complex ways that these products allocated credit risk, and that these products contributed to the buildup of the housing boom, the severity of the subsequent bust, and 

the broadening of the financial crisis beyond its origins in the 

subprime mortgage market. 

Further, in its 2012 annual report, the FSOC noted that credit 

ratings are critical for institutions that rely on short-term funding, 

and that the continued reliance on short-term funding for illiquid 

assets can be a source of instability for the financial system. The 

FSOC recommended reforms to mitigate the risk of instability in 

these short-term wholesale funding markets in its 2011 and 2012 

annual reports. 

Additionally, the SEC has proposed rules designed to improve 

the integrity of credit ratings and increase transparency in the ratings process. These proposed rules would require Nationally Recognized Statistical Rating Organizations to disclose information on 

internal controls, the methodology used to determine ratings, and 

the performance of past ratings. The proposed rules would also establish strengthened protections against conflicts of interest. 

53 

The FSOC will continue to monitor the role of credit ratings in 

the wholesale short-term funding markets and in the financial 

services marketplace more generally. The FSOC will also discuss 

the SEC’s work to reform the oversight of credit rating agencies, 

as appropriate and consistent with the FSOC’s duties. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY 

FROM TIMOTHY F. GEITHNER 

Q.1. Are you or do you plan to consult with State insurance regulators in the evaluation of any insurance companies for possible 

designation as systemically important financial institutions? If so, 

when and with whom? If not, why? 

A.1. As required by the Dodd-Frank Act and as set out in the 

Council’s rule and interpretive guidance on nonbank financial company designations, the Council will consult with the primary financial regulatory agency, if any, for each nonbank financial company 

or subsidiary of a nonbank financial company that is being considered for designation before the Council makes a final designation 

of such nonbank financial company. We have been actively consulting with appropriate State insurance regulators and will continue to benefit from their expertise and perspective throughout 

the Council’s analysis of any insurance company being considered 

for designation. 

Q.2. Please explain how SIFI determination criteria for nonbanks 

such as interconnectedness and substitutability will be measured 

as part of the evaluation process. For example, how will FSOC determine how much interconnectedness is enough to lead to a firm 

being designated as a SIFI? Do all the factors weigh equally or are 

particular factors more (or less) important? When does the combination of factors lead to SIFI designation? Please share any 

metrics that will be used in this regard. 

A.2. The Council generally uses a broad range of company-specific 

and industry-specific quantitative and qualitative information to 

evaluate nonbank financial companies. The Council’s rule and interpretive guidance on the designation of nonbank financial companies extensively describes the Council’s analytic framework and the 

types of analysis that the Council intends to carry out. 

During Stage 1 of the analysis, the interpretive guidance sets 

forth specific quantitative thresholds that the Council use to identify nonbank financial companies for further evaluation. With regard to interconnectedness, the thresholds of $30 billion in outstanding credit-default swaps for which the company is the reference entity, $3.5 billion of derivative liabilities, and $20 billion in 

total debt outstanding are all relevant. In addition to these Stage 

1 thresholds, the interpretive guidance provides numerous examples of quantitative metrics that the Council can use in its Stage 

2 and Stage 3 analyses. 

Substitutability, however, is not as easily measured quantitatively and is one reason that the Council does not believe that 

a determination decision can be reduced to a formula. Because each 

company considered for designation may present unique risks to financial stability, the Council must approach each decision based on 

54 

the particular facts relevant to that company, which will include a 

mix of quantitative and qualitative factors not weighted according 

to a formula but evaluated in a manner that holistically considers 

whether the company could pose a threat to U.S. financial stability. 

Additionally, the Council will provide any nonbank financial company subject to a proposed designation with a written explanation 

of the basis for the Council’s proposed designation. This explanation provides companies with clarity with respect to the Council’s 

reasoning in arriving at proposed designations. 

Q.3. What is the current timing for designations? Roughly how 

many designations do you anticipate in first round? Roughly how 

many designations do you anticipate overall? 

A.3. In accordance with the Council’s interpretive guidance on 

nonbank financial company designations, the Council has been applying the Stage 1 thresholds to nonbank financial companies on 

a quarterly basis, and those companies that exceed the Stage 1 

thresholds are reviewed in Stage 2. 

Each analysis is company-specific, and the timing of designations 

depends on the amount of existing public and regulatory information as well as the amount of information sought from the companies directly. The Council continues to work expeditiously on this 

front. At the Council’s September 28 and October 18, 2012, meetings the Council voted to advance an initial set of companies to 

Stage 3 of its designations process, which is the final stage before 

a proposed designation. 

The Council’s rulemaking notes that, based on data currently 

available to the Council through existing public and regulatory 

sources, the Council has estimated that fewer than 50 nonbank financial companies meet the Stage 1 thresholds. It is not possible 

to predict the number of companies likely to be designated, due to 

the company-specific analysis that is required for each designation. 

Q.4. Given that the Treasury is a member of the Financial Stability Board (FSB), which will make G–SIFI determinations, can 

you clarify how a company that is designated a G–SIFI but not designated a SIFI in the U.S. will be regulated? 

For instance, how would an insurance company that is currently 

regulated at the State level be regulated as a G–SIFI? 

A.4. Council members are working closely with their international 

counterparts on a number of initiatives, including the process for 

identifying globally systemically important financial institutions 

(G–SIFIs). This international coordination is being undertaken 

with the goal of creating international standards that are as consistent as possible with domestic standards to create a level playing field and minimize the risk of regulatory arbitrage. In particular, FIO is a member of the International Association of Insurance Supervisors (IAIS) and serves on its Financial Stability Committee and Executive Committee. In this role, FIO has worked to 

align the IAIS methodology, criteria, and timing with the Council’s 

designation process in order to minimize the possibility that a U.S. 

insurance firm could be recommended by the IAIS for designation 

but not designated by the Council under section 113 of the DoddFrank Act. 

55 

The aforementioned efforts should minimize the likelihood that a 

company would be designated as a G–SIFI without being designated by the Council. However, if such a situation arose, the 

Council would make a determination as to the appropriate course 

of action at that time. In relation to an insurer, until the IAIS finalizes prescribed policy measures to be applied to a G–SIFI, it 

would be inappropriate to speculate about the enforcement mechanism. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR KIRK 

FROM TIMOTHY F. GEITHNER 

Q.1. As implied in Secretary Geithner’s testimony and reinforced 

by recent Ford Motor 2012 earnings projection, the eurozone recession will impact U.S. firms (http://www.chicagotribune.com/classified/automotive/sns-rt-us-ford-resultsbre86o0ky20120725,0,6348895.story). 

• How will FSOC monitor and measure the systemic risk of a 

eurozone recession on the U.S. economy? 

• Is there a possibility that FSOC would recommend delay of 

regulatory rules that are shown to carry high costs until the 

eurozone crisis subsides, if such delay might minimize the risk 

of U.S. recession? 

A.1. The prospect of a eurozone recession or credit market disruption is a principal risk to the stability of U.S. financial markets 

today. As such, the FSOC and its members will continue to monitor 

exposures of U.S. financial institutions to euro-area risks. It will 

also continue to monitor potential asset price declines that could 

arise from euro-area shocks, which could in turn translate into 

stresses on balance sheets within the U.S. financial system. Decreased market confidence resulting from euro-area struggles could 

lead to greater risk aversion in U.S. financial markets. The FSOC 

will remain alert to indications of such behavior and any potential 

consequences that it may have on the stability of the financial system. 

The FSOC’s member agencies are implementing regulations in a 

thoughtful manner that is effective and supports the financial system’s ability to grow, innovate, and better serve our economy. 

Delays in rulemaking could increase uncertainty, since clear rules 

are most necessary when markets are under stress. The United 

States has taken a leading role in an extensive international effort 

to improve financial regulation around the globe. The FSOC’s member agencies are playing an important part in coordinating this effort globally to enhance the safety and soundness of the financial 

system and to close gaps in financial regulation. 

Q.2. Weaker eurozone countries are struggling to issue the debt 

that they need to fund current deficits. Spain currently pays an interest rate over 7 percent for debt with a 2-year maturity. 

• Do all sovereign borrowers need to learn that credit may not 

be available to them in public markets? 

• If so, what are credible funding alternatives? 

56 

A.2. The eurozone is undergoing a difficult, but necessary adjustment of the large economic imbalances that developed in the decade before the global economic crisis. Countries that are reforming 

deserve strong support from their European partners. European 

fiscal and monetary authorities have committed to stabilize markets with a credible firewall to limit market contagion and reinforce access to market financing at sustainable rates for countries 

undertaking difficult long-term reforms to stabilize public finances, 

restore competiveness, and repair banking systems. 

While much work remains to be done, progress toward putting 

in place Europe’s permanent crisis response facility, the European 

Stability Mechanism, and the introduction of the ECB’s new instrument aimed at restoring order and ‘‘remov[ing] tail risks for the 

euro area,’’ are welcome. 

Q.3. This year’s FSOC annual report notes a shift toward 

deleveraging across the U.S. economy. 

• Is this shift a factor in the slower-than-expected economic 

growth seen in the past year? 

• What is its long-term impact on the financial sector? 

A.3. The shift toward deleveraging by both households and firms 

has been a contributing factor to the pace of economic activity over 

the past year. Increased uncertainty stemming from domestic economic growth and eurozone concerns has led to greater risk reduction by consumers and institutions. Debts are being paid down and 

credit flows remain substantially below the levels observed prior to 

the recent financial crisis. These trends have led to higher savings 

rates and stronger balance sheets, but have also acted to reduce 

overall consumption in the economy. 

The longer-term effects of deleveraging will depend on the extent 

to which this trend continues or is reversed. The FSOC will continue to closely monitor the use of leverage in the financial sector 

to identify and respond to possible risks to financial stability. 

Q.4. A recent study published by the Federal Reserve Bank of New 

York finds that more than 80 percent of equity premiums earned 

since 1994 occurred in the 24 hours preceding an announcement by 

the Federal Open Market Committee (http:// 

libertystreeteconomics.newyorkfed.org/2012/07/the-puzzling-prefomc-announcement-drift.html). Does this concentration of return 

present a systemic threat? 

A.4. I appreciate you bringing this report to my attention. The 

FSOC has established an ongoing interagency process, in collaboration with the OFR, to analyze trends in financial markets and to 

identify and monitor threats to the financial system. The FSOC 

makes an annual report to Congress on identified emerging threats 

and recommendations to promote financial stability. 

Q.5. In January 2009, U.S. banks started closing Governmentguaranteed SBA loans using a new LIBOR-based index set by the 

Small Business Administration, shifting from Prime Rate-based 

loans to LIBOR. 

• Considering the concerns that the Federal Reserve Bank of 

New York had expressed about the efficacy of LIBOR in 2008, 

57 

1Procedural Notice 5000-1081, http://www.sba.gov/sites/default/files/bankl5000-1081.pdf. 

See also, 73 Fed. Reg. 67101 (2008). 

why did the Treasury Department not recommend that SBA 

programs return to a Prime Rate base before expanding SBA 

lending as part of the stimulus plan? 

• Is there are possibility that the SBA’s LIBOR index set artificially low rates that may have discouraged banks from participating in the SBA programs while the economy was still in recession? 

A.5. As you know, there is a broad, global effort currently underway to analyze and seek reform to LIBOR and explore alternatives. 

Your specific question refers to a decision announced by the Small 

Business Administration in 2008 pursuant to its authority under 

Section 7(a) of the Small Business Act. The Treasury Department 

does not have authority over the 7(a) program. 

In an SBA Procedural Notice, dated November 14, 2008, which 

can be found on the SBA’s Web site, the SBA observed that ‘‘[d]ue 

to the globalization of the financial markets, many SBA lenders’ 

source and cost of funds (and/or internal yield model) is partially 

or completely based on the London Interbank Offered Rate 

(LIBOR) rather than the Prime Rate, which traditionally has been 

SBA’s base interest rate for establishing the maximum interest 

rate lenders can charge for SBA-guaranteed loans.’’ 1 According to 

the SBA, due to market turmoil, spreads between the Prime Rate 

and LIBOR narrowed such that lenders were unable to profitably 

make SBA loans based on the Prime Rate. As a result, lenders 

‘‘substantially reduced or eliminated their SBA lending.’’ Following 

discussions with lenders, the SBA ‘‘concluded that allowing lenders 

to use an adjusted thirty day (one month) LIBOR rate as a base 

rate for pricing SBA loans [would] ameliorate several of the factors 

impeding small businesses’ access to capital through SBA’s guaranteed loan programs.’’ Allowing an adjustment of three percentage 

points to the thirty day (one month) LIBOR rate ‘‘reflect[s] the historical 3 percentage point spread between the LIBOR and the 

Prime Rate and [helps] reduce the uncertainty and the financial 

risk to lenders and to secondary market participants.’’ 

Q.6. Currently, various financial regulators, including the Treasury, are finalizing rules for Qualified Residential Mortgages 

(QRMs), intended to assure a liquid secondary market for mortgage 

securities. Should a final rule include criteria for the borrowing 

index used to set secondary market securities and/or the underlying mortgages in a QRM? 

A.6. While the Secretary of the Treasury, as Chairperson of the 

FSOC, is a coordinator of the credit risk retention rule for assetbacked securities, Treasury is not a rule writer. The Dodd-Frank 

Act directs the Board of Governors of the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the 

Federal Housing Finance Agency, and the Department of Housing 

and Urban Development to define QRM based on characteristics 

that indicate a ‘‘lower risk of default.’’ In adopting the final QRM 

definition, the Dodd-Frank Act provision directs agencies to conVerDate Nov 24 2008 10:33 Apr 29, 2013 Jkt 048080 PO 00000 Frm 00061 Fmt 6602 Sfmt 6602 L:\HEARINGS 2012\07-26 THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL RE
58 

sider, among other standards, underwriting and product features 

that historical data indicate reduce the risk of default, such as documentation and verification of the financial resources relied upon 

for qualification, residual income and debt-to-income standards, 

mitigation of the potential for payment shock on adjustable rate 

mortgages, mortgage guarantee insurance or other credit insurance, and restriction the use of balloon payments, negative amortization, prepayment penalties, interest only payments, and other 

features where data show a higher risk of default. 

59 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

‘‘WASHINGTON POST’’ ARTICLE SUBMITTED BY SENATOR BENNET 

THE $12 TRILLION MISUNDERSTANDING: WHOSE BUDGET BLUNDER? 

The Washington Post, July 24, 2012 

By Robert J. Samuelson, Washington Post Columnist 

Call it the $12 trillion misunderstanding. 

It ranks among the biggest forecasting errors ever. Back in 2001, the Congressional Budget Office projected Federal budget surpluses of $5.6 trillion for 2002– 

2011. Instead we got $6.1 trillion of deficits—a swing of $11.7 trillion. Naturally, 

political recriminations followed. Who or what caused the change? President Bush’s 

tax cuts for ‘‘the rich’’? The Iraq and Afghanistan wars? The Medicare drug benefit? 

The financial crisis? President Obama’s ‘‘stimulus’’? 

Doubtlessly, the question will emerge as a campaign issue. But any intellectually 

honest answer—perhaps futile in today’s politically charged climate—will admit 

that no single cause explains the change. We now have evaluations from the CBO 

and two nonpartisan groups: the Committee for a Responsible Federal Budget 

(CRFB) and the Pew Fiscal Analysis Initiative. They all point in the same direction. 

For starters, a weak economy was the largest cause. The CBO attributes $3.2 trillion of the $11.7 trillion shift (about 27 percent) to ‘‘economic and technical 

changes.’’ ‘‘We overestimated how good the economy would be, even before the Great 

Recession,’’ says Marc Goldwein of the CRFB. 

Consider. In 2001, the CBO projected that the economy would grow about 3 percent a year over the 2002–2011 period. Actual growth from 2002 to 2007 averaged 

only 2.6 percent. From 2008 through 2011—the Great Recession started in late 

2007—growth averaged only about 0.2 percent annually. Slow economic growth reduces tax revenues and increases spending for jobless benefits and other assistance. 

After the CBO issued its report, Sen. Rob Portman (R-Ohio), a former director of 

the Office of Management and Budget who is often mentioned as a vice presidential 

possibility, put out a press release claiming that Bush tax cuts for wealthier Americans (generally $250,000 or more for couples and $200,000 for singles) explained 

only 4 percent of the debt shift. The CRFB checked his math and concluded he was 

right. But all of Bush’s 2001 and 2003 tax cuts—which, except for benefits for the 

rich, are now supported by Obama—had a bigger effect, accounting for about 13 percent of the debt swing. 

Together, the weaker economy and 2001–2003 tax cuts explain 40 percent of the 

debt shift. Here’s how Pew allocates the rest. Its estimates parallel the CBO’s and 

the CRFB’s, which either cover slightly different time periods or use slightly different budget categories. 

Iraq and Afghanistan wars: 10 percent 

Increases in discretionary domestic spending: 10 percent 

Other increases in defense spending: 5 percent 

Obama stimulus: 6 percent 

2010 tax cuts: 3 percent 

Medicare drug benefit: 2 percent 

Other tax cuts and means of financing: 12 percent 

Higher interest costs on larger Federal debt: 11 percent 

So, most theories (often partisan) of the $11.7 trillion shift turn out to be wrong, 

exaggerated or misleading. There were lots of causes; no single cause dominates. 

One other thing: Even projecting surpluses from 2002 to 2011, the CBO cautioned 

then that large deficits would ultimately return. 

‘‘Over the longer term,’’ then-deputy CBO director Barry Anderson testified before 

the Senate Budget Committee in January 2001, ‘‘budgetary pressures linked to the 

aging and retirement of the baby boom generation threaten to produce record deficits and unsustainable levels of Federal debt.’’ 

Unfortunately, that hasn’t changed. 

60 


F S 0 G NANCIAl STABILITY OVERSIGHT COUNCIL 

ANNUAL 

REPORT 
61 


Financial Stability Oversight Council 

Th< Financial Stabilitr~ Couodl(Coufl(il) .~, .... blilh<d bf tho Doddfrtlllll.U SIr<e. R.of",",.nd C".num« l'wI«tioo Act (lJodd.fn"' "'~ and;' 

'~with .h .... p"mat)' 1""1'''',1: 

l. To ido:ntif~riII:" .. tht ntwrillll>bililyoltht t:nit«I ScaIo lhaO>uld 

..... I,,,,,, tht OIl"'''' !inano:iald' ....... Of &.ilutt, "'''''''''''I 1<IiriIin, 

of W,", in1«<O<loe<tt<! b>ok hoIdi", rompania ..- DOll ..... ' filWrial 

"""'1"" .... 01 ""'could oris< _ tht filWrial..m:r. nwtc<pIa< •. 

t. To pr<ImOI< uwI;n di>ripbn<, .".elimlnati.,. .. pt<Ulions on .... porto( 

""' .............. , ..... "" •• "" <ooo"'1"'rn..of ""h _'"' <Iw 1M 

U.s. """"'''''''It willlhicld !hmI from .,.,., in Ih< ...". d b'hut. 

:I. To ropond ",. ... ,fPS Ill..." .. tht ....tiJilyofoht U,s. 

filWocialoyso .... 

""""anI to ,ht D"dcH"n' "'~ Ih< Council con~Il' of 10.00",...,..,.,. 

.. d 5 """,olin! lilt .. ",," and bnnp 1<I!:,1htT tht np<ftis< rJr.d<t>1 fin>n<w 

"f\'laton. ... " "Subun:u><l 11\ '''''''''0« "pot, .ppo>nltd bylh< Pmidtnc 

'M s«m.oryof tht T" .. "'I" _1>0 """' .. tho ClWrp<'"<ll' of 

thtCouncil, 

.he O\>,rman cftho Board olGo<tmonoftht ,tdrnl R......... Systrm, 

lIM: Co.rnptrolltr of Ill< Curnncy; 

the Di«<!Of ofth< au...., dC'"" ..... Financial hoIt<! .... ; 

tht a..irm>.n of til< So<Ulru.. _n<! u.;IwtS' Commnlion; 

!he a.."person oltht fede,,1 o.pooiI 1"'""'0« Cotpon'ion; 

1M 01>1..,...,.,., oflh< Commodity Futu,., TIMi,,! Cccnm;";o,,, 

the Ili .... "" of tht fedcnlll""w"ll rw. ... """'~ 

oM Ch>innan ohM S"iooW Cr..t~ Un ... Mminilt,..,""; and 

.. inckpmdmlll>01llb<r wiIh iruur>n<. <xprni>< who;' oppoi!U<d by I'" I'r<oid<n. and conf,rmtd "" tht Sen ... for. "'1"lI" I<Im. 

Ii>< Dilutor of til< Offitt of r IIWIci>llkttmb; 

tho Oi'tctorof,h< FtdmJ 1""'''00" Ofli«~ 

• "", ' .... '""'.commission'" dniS .. l«! bf 1lI< ... t< ,nsu,""", 

rommiKionrn; 

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.... '" l«'IIriIi<>"""'m"'"",," (or offim p<tforming lit. run<\ion'J 

The ... 10 

d<1ignal<d 

insunn« """'miloioner, 

bf Ill< "'" >«un.;.. 

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62 


Stalulory Reqij'emel'lls for IhI! ArnlaIIIeport 

Section lU(')(2)(N) or tho Dodd·F",n' Aa rcquirn lhlI. tho Annw ,",pon 

;odd"", tho 101..,..,"1' 

L tho"",,;'iaofthoC<M.Ioril; 

ii liv>ilic>n\6n>ncio.i nwkt,.ocI "gull.'OfJ"dncloprn<n,,- in<luoli"l 

in,uron« >lid >ecounlitl{ r.guwioru >nd •• md>rd~ aIon8 with 'n 

.......... "1 ... """" drnk>pm<ntl 0" tho ""bit.,. orlhe fi .. n<w IJ>I<m; 

iii """n'w "'''''I'''' ,hr<'~ ",!he fi".",w ~.till.T "'Ihe 

Un,t«Is..~ 

;.. >ll d<tnmin.>lioru m>d< under s...ion 1l3 .. Tot. VIll. >lid tho 

booio fur ""h dtlmnin'!io<u; 

•. . 11 !t<OIllmtnd"ionl m>d< undrr S«tion 119 loci ,he....,h or,uch 

"'OOInI<l\dollOru; >lid 

rio f«Ommtnda,ionoI. w<nh>Ix< Ill< "'1<JI11)'. cll\cIn~ <OIIIpt~1IYe .............. bIlll)' 

oCUnit«! Swe:t financi>l ",>rUts; 

II. II> p_ muk<; diI<ip!in<; >nd 

1lI. II>oWnlOinin ...... """nd<oo: . 

.4wowI« 1he.I.rn:W IIepoI"t 

Thil Aoouol Repon ..... pp«W<d "",""no,1S!y- by .... "",nK m<mbm of tho 

C<M.In<i1 on Jul)- 18.lOl!. w<pI" <lIh<fwd< mdiclt<d. d ... ,it«! ,n Ihl! fC'!'O<' 

~ .. oCJ"'r6.2012 . 

.I.btnviaOOns for federal MemtNf AgmciDs of Ihe Coord 

Ikpar.".", of tho T""ulJ' (Trn,ury) 

- O!Ii«ol"IWIri.JIReo=;b(On) 

- Fedmll"",,,,ncc Office (flO) 

_ or Go<=«If> ortho f«l ... l Res.".. s,... .. (Fedmlllc1<no<) 

ConIptroIlorol tho Cum""" (ace) 

au""" olConou""" "n,,,,iol ProttcllOtl (CFP8) 

s.curilia aM Exd","V Commwiorl (SlC) 

Fcdml D<pooill"",ron« Corporal;"" (FDIC) 

ConImodity fUlL!!" Tr><!i" Cornmiooioo (CITe) 

f<dtnl Howi"8 Fin>ncc.'.g<n<y (fHfA) 

1'>.tionaJ Cm!iJ Union Ad",inisl1>,ion (SC\lA) 

_ """,Ot,, __ 
63 


Contents 

1 Member Statement .... " ............ " .................................. 1 

2 Executive Summary ............... "" .................................. 3 

3 Annual Report Recommendations .............................. l1 

3.1 ReIorrnsloMtessS1ndl.nlIi.Ontities ... __ .. " .. "",, .......... _ .11 

3.2~RisII~arxI~AItmti'1I .................... 13 

3.3 Ho.JsiJl fRn:E Rekrms_ ............... ,', ......................... 16 

3 .• PnvessO'l~hI~oIFilartialRekrm ..... .19 

4 Macroeconomic Enviranment .................................... 23 

4.1 u.s. Eo:n:ri: ActMt/ .... . ........ , .. ,,,.,,,,,23 

41 Prmte Na'IfRn:iaj Bam:e Slee!sa» Q'PJil; flJws ". . ..• _ .... _.",,,.27 

4.3 Go¥emnen1 Sec1r:n .... ",." .................... "." .. '",." ........ "." ... " .. "",,33 

4.4 External Enm:nnent ... ,"""", ........................ ,""", ........................ ".,.37 

5 Financial Developments ............................................. 45 

5.1 Mi¥:rFflar(ialMarke!s"". . ...... , ,,45 

BOXA: lI'I\lactSoIOi:IwrI;JldeolU.i Tte3SU'Y~ . _______ .,,46 

SOXC: IleanlfistallRI~~i1Spail. ______ .• 50 

5.2 Ban<.1Wlg Coo.,.nes and 0ep00I\I:q mritutkm ......................... 64 

5.3 Ottler FfWDaIInsIitIJtk:Jr$. ••••••.•.•......•............•...........................•••.•• 73 

SOX[): WGl:tlal~ ." ... _ .. __ ... ___ . ____ .... _._ .... 18 

SOX!:: CimnlSI.Jtus It fIemai:i'I;J S1dmD1 fdties ~ 

0\riIg the Cri!is ...... _ •.. __ ..... _._ ....•...•.•. _ .. .. _._ ... __ ._._ ..•..•. 84 

............. .. ...................... S6 

_ .• 
64 


6 Regulatory Developments; Council Activities ........... 97 

5,1 Sa!etynlSo.n:nlss ............ ",." ..... _ .. _ .......... "." "" 97 

6,2 FilaocIaII1fras1nI:tlre, Mme1s,!Wld~ ..................... """ .... 1(l6 

6J C\'I$.m{!HI mstlJ Protectin .... "."" ................ ", .. ""."."" ...... 113 

6.4 Crud,ldM1ies ... _ "" ........................ "" .......................... "",, ......... 118 

7 Potential Emerging Threats ..................................... 123 

7.1 ~ Tlreats as a cartIi'Iaticn 01 SbJOO nl 'I'Iftratities_.123 

7.2 Areas oj Hei1rIened IM1ai1ty ... " .. " .. , ....................... , ................. 124 

7.3 ~ 01 FmrdaI mti1utklns inl ~ ._ .. _ .......... _ .... _. 127 

7.4 Cootn:.tQ VI.tertities illtf FilardaI System. ...... "",, ................. lM 

BOX G: 0n0;I:*Ig ~ ~ ~ Trl-Pa'\y Rep:I Ma.1ieI. __ .... ____ .. 133 

BOX It I.kney Matt! fI.nd Respcnses 10 EIR,Im lb;ertaRy ____ ._._134 

Appendix A ................................................................... 145 

Glossary ........................................................................ 189 

Abbreviations ................................................................ 199 

Notes on the Data ......................................................... 201 

Ust of Charts ................................................................ 209 

Endnotes ....................................................................... 215 

_ " " FSOc /I _ ... ..,... 

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66 


Executive Summary 

In ,he o<>rIy I'MJOID>inc.1he ini,;,,1 "raj .. dill< 1IIh,:oi1'l'l<";';' , ... rgtd. 

<he U,s. filland.oIl!>I<m hu ,,,,,,ltd from oh< brink "col ...... in .... fOOl! 

.nd .. rty!009 ... ""'" "";!im, 'l""" Wllh IIf<InV' <>pit>l. ..... Iiqllod",., 

imJll'O'<d ruodinJ. and ... """"" 1""« .... "" rtfonn. [,,"";111 t/u. F'''!''''-

00. ..... or.. H....o.I S<abili'l' o..rs;p. Cou",i! jCouncilJ bdio> .. !hat tho 

fuIancial O)'It'Ol '" !he Unitt<! SulCI and pobaDyllill fa<eo >is;nifieanl ,b;lllmp 

ImntOrtonMrnr. Iw 001 ..... mI!«d to po<-<risill<wls. Thtcrisio in Ihe 

<U1O .... tnd "'...-.I ........... in pohal e<onomic """'" p«><nI id<nlliUlJlo 

thrnUIO fin>.!lCial otlb!tity. Thtn: iollill_ .. '" "-.. odd .... ~1UCtIII"a! 

.. 1 ........ 1;';""""",, !he fin...,w ')" .... , ... Jr. 

A ky fnt"", oflh< CUIT<flt rnnl'\l," ... nt it <h< ...... in the <U1O ...... which has 

d~..,....qn debe ow\:.tu and "'" <oolidmbio PC"""'" on <UfO am 

b>nk. EuroptaI1Ieadtn r«Ogni .. <lit n«d II>~ .......... m ~rain' and 

"'" <00"""" to eh/lor>I< 'I",h "*Ud !"''''' fi.al and fi""",..! union ,1.11 

""'"",.,. .... both poIitic>I and ......... wpport ll«>u>t Ih< combin<d_in 

oftht .. ",lrn «MUIitUI< Ill< I<'<ond Ilrl'" roonomyin ,he ~ >nd ... hoDIo ",.....,.0("'" -01', ~:uIC! _,ntrnonnmcd fillUlClOl ""'~"'_ 

probItou in Eulop< « .. dd h»e Itf)' rn1 ~ for finand.l .... bili!rin Ihe 

UniltdSut... 

Tho poIOn .... 1 Ihm'" from <he <risi> in Europo at1d _.inot<! «OIIOfIIic d .... 

in ,be Unil<d SlateS.nd globally undtnco.. tht nttd for ","laton '" rorui.", 

IU1:n,lhrni"l th< Wuncw 'l" .... aM addf<ilillc """,onI w1 .. nbiliIh 5u<b 

"'["""' ....... nIW "' ....... lh>, fin>.nei>J .. uk"""",","", to ....... ,be rn1 

~...,., durin! pmodI 01. "rd<. Red"",,! >mpIifa'ion ... d ... "'IIII:u>d 

IU1:.glhrninS """Wboorb'.nf<>p><ilr.w.th< fiO>ll<WI)'It'" more .. sil ....... 

whet ..... ll>o<lI oris ..... from inside o< .... sick ,II< .,... .... Th~ in<rn><d 

mil;. ... in '"Ill rnl m!u«, though no< <limin.ot<, th< imi"" ' ..... Ihocll 

dtrn'<T '" «ODO<1!~ oetirity and 'mpiorment- ),1= brood!)" .>ouod fin'n<iaI 

'Y"em ~. ne«s»'l'fooJno.,.,.1o< ,"".in«! ~"""h, 

80<11 our firuocW h<1hh and W' rtIorm dfuru.rt ine'ltricablylinkt<l '" 

"" •• ",ot "" -W- The "'l',_pl .. .,.ot,~ (Iobal firuocial If>'<nl m.lts 

dtsogning and impltm<l\\ing nr.c.;,.. monn.>n inh<m'ltly mallmJins """"' 

<11"" lim<> onam IDOl< >Iow!r tIun """Id b< "" w< ,f .... oe,.,..Ion<. 

In""",ional '-"ina"'" ;. -....ry.~, .. ,lit ....... !:.<y ...... ...-httt th< 

,Ike".."... ot"" U.S. rtIonnI",U dtpcnd on. Ind pIari"l &Id wi<1l IlmrlJ 

and «Ii"""''' "!,,WOfJ'~ .... in1=l>00naI!),. 

--

Th .... )'<'''' of .... "" end of"" d«pnI and k>og<>t rr<ruioo ~""" ,II< C .. " 

o.pm ...... ,II< U,s. ro>nonI)' I>"pan<linS'" 1!IC>(\o:r;at< p><t, l>,t, g'o .... h ""' 

no< K"lmltd '" "" "". rrq"''''' '" nukt r>pid ~ ..... ttpb<inglosojobl 
67 


·nd n>ttU"f <II< <mploym<n1--ao," Krowin! worI:.r ..... , Constqumtly. _hile 

Ull<lllplormont h .. If<n<\ed dow .. it rtmai!Io II U""c<pl>b/f hip """I" 

I,......,.,... spmdint in II>< fin< h>lf onOI~app<an" bt ~"" rNnm<d 

pIC" likrlf 1<11«"", COfIIiOU<d ,ubdued cunh&ntt and , .......... un=\alnly. 

Corpon .. balanC< shttull. ~Iy"""", and IuJt buY ...... iI>vt>«nllO 

.mpIr fi""'int in II>< aptaIlIlMkru. Sm>11c< buIi""",<>. in <un""" ccntillll< to 

II« • mor< dWl<np;"'f op<nU'-I ""iron ""'" Ih>l hu <onItJ2intd Ih<Ir roc()I<ry, 

CortIuIOJIIioo ron';""" l(l <xp:m:\, bu1 U_S, hcw.hcld .. ,iII ... CflIyOlCddl 

Kroooh in i""""",Ii""';ng,."..Uu. drag Cfl hGu .. hoid bow.:. ohc-<-tI 

and -..igIuon brilOd<r <<<1<l0III0: xtMty, .. howi"l wnJth h" <ic-<Iined '" 

5Optr<<IIIor$6,8trillion r""" iu pe>kin ~1 1O!012::Q],Apr.,,". 

IIousc-hokI debt is dC'dining VOdUllIy, b.1I I<1!Illi!' ~II ~ hlllOriraJ i<IoII 

.. ,!""" .. ,.,.clr.np """,'n ....... r.--l. "~;'I«w>~ .. ;""""",,"I' 

I>ow<holds. ~mili"f II>< """'10 whith Ih<J' tan _Ii, from "'" i"1m>! 

.. , ... OI.-..lL <II< IDOf1pg< m>tkt ,."..i., d<pondtn."" tl>< F<dmlllO<llilljl 

Admin", .. ,"", and ,I>< I!""'""""n,.spcmcrc-d C'ltt<rprltn (Csts). Howi"l 

"'''';IY rtmlin, .... t. but !her< .rt 10<0< posi~ IIgt'II """'1ing in "',," d> .... 

1'iKaI policy II no iongo' ptOI'idifll "'PP"" 10 """,h ,,~did in 2009-!olO •• nd 

II>< "ok",1 dtfiril" dt<linin, ... 1bm 0/ C[}P. In addition,."'" and lonIitits 

.... d"" OIl dnnand and rmPlo!-" " 1h<J' IIfIIg"lO rtpair """" fi"""". ~, II>< Us,l<"'TI'''''''' hu _fil«l r""" w:rylco< inkr<>l",...,. foetor 

",,,win..,.,,. am II ..... """"'''1 poIicy-....tim, 

In II>< len! ",n, U.s. b\ldg<Wylml<h.rt u"""""nabio 1IKi mwt II< oQd, .... d 

in • ""n .... ,h .. i, consiI .. n. with 'upporti", II>< .II! """""'Y, Th< >gill,R 01 

II>< p<>fKIbtion 1IKi <II< risi", """ fur h<.Jth rn-< will >old to lonf'l<nn d<1\ciu. 

sw.. HId lonIi,ieI rtmlIn ,h.ll<ngtd '" un/un<lc-<l PO"'"'" obiir"""'" 

,\broa<i, ,,,,,,,h in [u,op< h" Ilow<d "'''ply'' GOP h" d«h .. d in • 

"" .. btrof",io.~ C""'''' in _, """,in! ""rJ.""",oomi., lEllul 

..... i •• high .. toli,. to th. indu",;'li ... 1 world, bu, h .. bt<n oIow<r 011 .... 

with mor. """,len in p<rfO<m.",._ [.\1[0, particubrly Chin., hll't ",un .n 

in" .. ,ingly impolI.n, fOi< in , .. KioNl «enomy, II"" ..... , d'p<nd."" on 

"port .nd in","m,n,·kd """'" k .... """Y of ,h< .. «onomit, npot-td ,. wt.,,, I""'PO'" in ," d ... lop«! world. II"', llobol !,,,,,.h limn, Ih, .. If· 

hnling <>pacil1 of fin .. e .. 1 in .. "utiol" .nd "" pilI ""IS'" p"u of tho 

fin.",i.I.)",,", 

--

Mm.. rnlltility u.r....ro oIt1rplrin <II< .um"'" ",d f.11 of toll .round 'Il< 

V.S. d<b1 «ilint dtbo .. , ODd int",,';l\rd It "', end oIto1l1lKi in Ill<"'-;", 

.nd .. ", ,.mm", oftol! .mid ronc"n "'''' [u"'I"_ Th< d .... limi, <kb>« . nd 

quoslicm obcul .ht poIilic.1 will 10 ........ l:,s' fi.,,1 ,hal"nee' I<d Sundard 

.nd 1'00<', .. downgrad. ,hc-lenr«.--m ...... rtign endit ""'" oi 'h< Unitt< 

St. ... from AAA t<>AA. in AlIIu," :!OU. 11-=. <k ... n<I fur V.s' "",.,,;gn 

_ ..... ,n. "ronK- A. ~n bond ri<1d. in Ih< ,UfO"''' p<riph<ry 

. .. "rsoc,, __ 
68 


incrmod, ",,~,..;p "..Id, in ,he Unittd S", ... J ....... lit< Uni,ed KinJdom 

.nd C.,m.nydtdined f""1In IUld 1!< now" h;"ornlly .... l<wh. n.... .... )'itld' ,dIN! bo<b I1fc.hav<n inn.,.., ..... u .. "p«tatiOlll Ih" p,bal 

«O<>Orni< >«Un"" ",.,."",,,,nl prolonged """""''1 poii<)' ><"""rnod"ion. 

Exl.-.ordin.nly .... ;n<tmt "'1tI JII"I"id< .... n"'l wppor".,_th .nd 

job<. but •• i, .... t"""lh .......... " ,nriron .... , ropmenu, <hallon&<, for M. 

in'"""'. p'nllOll f"""" -"'l' rn,,,,,, fund, (MMf», and """" banks and 

<~it "nlOll~ ... 1>". in_ oht .. ,inpol""'r Amrr'oc>n~ 

rUIin<W IlmI in lurap< and C<I<\,...,....., ... 1 .... " "' Ih< Uni<n! s..... hOI 

b«n mitigatnl "' so"", ~rtt" u.. "U,..,.., pr<WUIO<IoIliquid.,.""", • 

• he eo", 1m. In tht iniIW II>gtI oithe mill. tht £o"'pta. C<ntr.r.i BIlIll 

(EClI) I"'"h"'" p<riphmi ""tmc" <kill di,«!!y. U.S. doIIa' ..... p lin ....... 

.. ""dnI."d ,hei, f ... rnlu<td,.nd u.. [CB.."..;I""",, "'0 bltt Ionl<"~trm 

n'"fin • ..-i",,,,,,",,,.,.,.n<! "" ..... ...,1 f,,"htt 6.",,;"" undn-Ih< E ... ,S"""!' 

Liquid;,r Aui ... O<t proms for bonk, in .he hardtsl-hlt <OWl''';'' 

U.S. finm:i>1 iMi,uDora h~ 1U't<'1lh<ntd .00, bolun oht<u "r ous:""",i", 

u..ir<>pi<a11Mll and" O<rlImub.tin, mort liqu>:I ....... They ilio h~ m<Ift 

.oubk fuudin, proIilel ,han;" =1 ~an, with I,nl<rll" 01 d<pooiU and lei> 

rtliar.« on """'-«rm ~td.saI< f\Ullini- Th< numbtr <>Ibonl failum"" ...... 

d<c"";"1 ~"" 2(110, and ,he )"!lIC',lill <>I po>bIorn bonks i, ", .... lin," 

1\-""in ,I>< <11<0 '''',' nu.oo.. ",bankin, IY>"m, "mOl" uode, "' .... 

k<,ntly. 1he Spanish (O'I ... nm ... ,.nnouoe«l pbn'lO ""nl,hen ;" bank 

"upitiliLllion fund wilo EU ,upport. In lilt June flJlt '"<0 .... htads '" 

go'I'C'In"",nl propo"d 10 0.1100- ,110 £o"'P"n Scabilitr M«h'nism (ISM) 10 

""pi"li" bonk. di,"'Iy. ,.u.., <b •• ",roup natoonal l""",n""'n", and "' 

.1I>t.lish. ~n'" f.u"'P''" bankinc'up<"';""'. A,. ~ .. n, ..... i"l on July 

9. ouro ..... fin""" "'in; .......... Ie ..... d ,II< f.ur.p .. n Com",i,"",,', i"",nl;"" 

'0 p ....... , JlnlP"»I' in .. rly S<pt<mh<f fo" ~ngl< 'op<ni....,. .... ""n'''" 

inmhi"l u.. ECII. wi<b Ih< [uropnn Cou""il"p«ltd !O conlld" ,he .. 

proposab by Ih<.nd <>IflJl~ . 

• 1t ..... toilo.lu"'PO.n 6nuocia1 institUDorU ,rt tt<lucinJ Ih<irihar< "'l<ndin! 

lktMty-indudin, """mgn <kill I"'rth:un-in "'htt <Uro ....... , .... ero... 

border 6~ <>I currtnl """"" dol\d" "r prM." IO<IOf fin>n<oaI ;"oUnrDorU 

in CO« E""'PO h .. dodinnI. Offi<ial ... "" fundin!. ootabIyin ,he form olEO 

10>", .. bank> in p<ripI><r>.l [""'PO, i, mai;i"l "I' for th~ d<chno. 

Period, ol ruI.....,..", ,. """'Htrnt fWldin! noan..u. p>nir:ulIrly ,n u.. f>11 ol 

!tlll, n...~ only rtinlor<<d ,n. n«<I "' I'rompllpddr= "."c<. <>I'''ln<r>bility 

,n lhe>< ,.,,,t ... , weh .. ~..."..,.. in Ih< tri-pmf "f'O ,nl,.,,,,.,,u,,.nd 

amon, ~ rrwtn fWld •. o...r tho p>~ ~"'.Ih< U.s. ui-pat1f r<pO mad<! 

coruinntd "' ",if, >n)" from ...,~ra.lition>l. ""'itt colbtml "","IU"dS Trt.IU'1 

and acrncrobliplioOl. H.......,., Iimi<n! pros=slw h<on made in.ubII>ruiaIIy 

tt<ludnJ: tho rtli>nc< ol thb narUI on intr>d>r <rtdit 0< improri", risk-

<lWI>I<mo," and c«bttral pllkl.ir:co .. »Oid fit< '*' in Ih< .,..",0(. bltt 

dt>lerdof>llh. Mon<y .... st.. fund, con';nut 10 ... in,.;" lhort wtight«l ... ,. 

E_S ........ . 
69 


m .. un,;.,.!tIl h"", "'if ltd ,btir ponfoIio rompo<ition more ...... 0:1 P'<,MI.1It 

dtbo .!tIl ..... rdwt og,rnnmt>, .Ithough lhey .... in 10m< "f"I'UI< to rir.l.ier 

....... As ~"'lishltd 10" ym • .......,. mOM ful>lb rernlin IU$C<ptibIe to 

<I<Il>brlwnK ntn. ben ... the rommilm<t!1 to' ""bit ""' ...... value. witbout 

Ihe «quiW buIfen to ob>ortI .,.,." f"'<' in ... <o<>. paroorlarly i""ilutionol 

i-., on """",I;'" to be Ihe fim """'" in rtdttmi",1hu<L 

:.t ..... hilt. OiIV11'I(" i. tr<hnolosrcoou""" to ",.oform Ihe bwi ..... al 

ltodins.l'f"">di", r.na",ill....w wi1JI •• Iunmj >p«d and ,llid"IKl'''''ilr 

po".tilIly.noblin, i!l<moed tl'>l\'I"-"II<)', Tho ""t\tt infr>IDuc! ... Iu.. 

vnonlly fu~ wdI 0"" lho past)'nt. Stu1.1he trend l<lW>r<b ~~ 

oIgorithmo: ,todinK •• !tIl lho "'.u~ins inc, ...... in man..; rompleori'Y, 1II>'f'" ... YUlnmbilitielilo ~";1l'I<U<d in tho"fl;uh .mh" al!OlQ, 

IlofItI.FraM ~ '''''.letiYiIIes ()f ~ I1MneiaI Sbllity DomigIrt I'.ImciI 

o..-r tho jWlym. "n>n(i>! "1"10"", hrn: focuoed 01\ """gthnli"K Ir.. 

financi>ll)m'" ".i"" p<W'IIi>! ",,,.t> and eiiminatinK inccnti>n to taU 

........ '" ri>l. The<.!furu.I< ""'" noubIe in "'I" to Implemrnt the Dodd-

'h"kA<t. Tho fm>n(i>! r<furtIa in Ill< DockI-F"'uk,\cl .... deli«n«I to , ...... 

mort "",Iitnl finlrKi>I'I,"m lhot" betl .. able 10 "'-II • ....tr r1rlg<: al "'0<1. .. 

>ohcth<, theyor~IIU." wi1JIin tho financi>llj1!.m ( .. WI'" Ihe.ubprimt ,lUi> al 

2007). O\Ito>dt ~ (for ;.".!'oCt in tho ,,~",al In oil pnc. ohockj .... <_nllion 

altho IWO (&< i> tilt moo wilh tht pr-obItnI> in tht '""' arn~ Rtgu1lton.re 

mau"Il pros .... in i"'plem""i", Ihe Dodd-F ronk Ac, in • «1<I,;",nl and 

COOf<!inat«l rnann", Tho rtform off ... Iw proc«<Ied ,Ior\j! fuut brood 

di""",,1ons: K"",lhtnillllhe >af<'I'and "",!tIl"",al cere &nanriol mKitwiora; 

.... 1111 fina",i>! "",lou --.: mil;"', and ''''.'paron<; ilnptr.onning I1<W 

",Ihoritln I(lmoi>r:!orJ •• ""'"'"" fino",ial inlliMi<Im: and .. Iunclna ino<sIor 

and <ortll.l .... pro«<!ionl. 

As. mull al thl> <ffun, leder>l booking ",uI",," Im~ ilnpoood """"" 

,,"""""''''' the Iorp. moo, """Pie< financial in"""oioou. Tho feclml 

R<strw h .. 1""J'Il'<d ." .. ",«1 J'<Ud<nliallWldlnl.ro. b.ri< bonk hoIdins 

comp.", ....... "ndud' thot will."" apply Ie noo,'oo!Lk """";'1 comp>l, .... 

dtsigtaltd "" ,ho CowI<il for F<dtr>l R< ........ <LLpm'isioo, n"""", tho 

Com"""",,';'" C>piLli A .. 1»iI and IlM<w (tCAR) p""w. ~ ev>hw<rI bank 

holding compon ... • <>p0Lll pionoifll P'O' ..... l0 .. "''' tho, ,hey_lei "rnlin 

wn <>piLlliud in , ..... 1«1 «OrIOlIIi< I<tnan..ln ><kIi..,.. tho FecIml Rncrvt, 

FDIC. ace. SOC, a!tll CfTe propooed oubswrtiorly idmtic:oI proposal> to 

implemrnt tho \'oI<ker hI<. ""ich pn>hibds bonks from rnpging in propr><Ur)' 

u>din" "'" ('ubjta Ie<main .. ..,"'i .. ") f""" ""nins, 'p<V\wing. or Imin, 

<main rrbhonohil" 'o'ith •• hodv ["!tIlo< pmot. ~Wtyruod l" Ju"" tol!, 

Itdm.I bonkin£ ","10"", firWiztd clwtp to Ihe m"",,' rW.<>pitaI rult to 

be,,,, "f!t<1 Ihe ,iw faced bl'll) iflltlllllioo "'" Ie help """" the 1Idtq"'Cf 

<L "poLIi ",10,,,,, Ie on in,",u!"'" u>din, pooobon>. C<in<umntlo', they im-n«! 

rom""n, "" 'h"" join' P""J""'d rul<> to irnple""'" IW<i III mI tht DoddF",nk Acl"" will in< ..... ,ho _n, alhiKh-q .. lioy<>pi!a1 banu .... «qUift<! 

,. hold rrb,;" to thri, risk "POW"" 

_ .. "noel/ ..... _ 
70 


Rt&uI>Kln ..... br tho FDIC 11m allO!>Un import.nt "'P' to build .lr:ur>eWOd 

und<r tho 0ordorty liquidatioo .. tbotity0 (QU) lh>t , ... Id b< U>td to '"""~ • 

Inv W1in~ fin.>.n<i.al 'OI'!IJIOlI1io cr. ............ _mal bankl'llJ'lCY-.1d n... 

I<rious.a..... ,Ike .. "" fin>nrW "abililyin III< rnilro SU .... n.. ptI'f'O"''' 

OU io 10""""" lh>t in tilt ........ bir finanrill~. &il.IO tho: <OIl ~ 

""' ... br iIl,I,."hoOkn and <~""".nd no< ,II< U,S. w.poyn-. Elabli>hing 

tilt /r:ur>eWOd Wld<r OU.nd I""«n:ssr.~ly -""'I thrwgh til< mall}' pn<lnI 

iorun """irt<l1O implo .... nllhis ,uthorirr ~ ~lIIIto end III< pelt<'plion 

,,, .. """" financial """pan"" at< "!DO bif to loi1' and to ......... ..-In--.I 

IwmI probI<mI. n.. DodcHnnk .... t.110 rtqUi'" til< b'V" bank holding 

wrnp"'''' to plOd..:. """"'ion pia", or o"'in~ ~ilI," to .. platn '-th<j'<O\!kI 

b< ~ in '" ordtrIy mannn-if th<y fai.,d. In July I'Ill~ tho fi", II.I<h pWu 

__ "",,"ill«! to til< f«l<nl Rosen<.nd tho FDIC 

A ",hit fi",triol 'r"" 'M ""1'''"' ...it ..... . M """'1"_ "'If)'" To ,I", 

<tid. til< CFTC .nd S£C hM pr-opoI<d and lqun to finali .. rul<l tlw will 

prorid<. for til< firsl limo •• wrnpr<h<tllioo '«IIbt"'l'I"~ for III< ...... 

I"",""",,,, .. derim ....... otn, n.. crrc.nd SLC "" .. iI<Ioptrd final runt"" 

pr<trid< p«ri« <ltfinilioooolthc irutrum<nlI >nd .. til ... lO bt~. Tf>:o 

CfTC has adopl<d ,uloo tlw inc ..... ""M tn."II""1ICY for ","h tht public 

.nd "tUbto<>; prorid< Fotcrntnliud rtpOrlm~ oftndn; """if<,"'I' <1< ... " 

lO..w.mhrili~nlpoli<i<>;and~".'p<l<alrntoin"n<l&irly 

.nth '"""""'" in tbri, ..... pn<ti< ... In oddiIion, the crrc Iwwrnpklrd 

, ..... "bud toqnattd "'"""" man..... """" will b<.'olo to list and ,rod< 

.....,.. .nd posibon rtportin~ ruin for physical ,.""nod.,. ... ..".. RtcUblOr1 

at< ,110 -ti", lOJ<1h<f to ."""thMt filll!lcial mWt utili';" 1f!lIU.) ...... "" 

inln.t""",,", lhIttnnmr. ,., .. , and ...... fiOWl(ilI ~ rnlw>« th<ir 

abilily 10 withlUnd III< 1.;Ill" of ""Iiclp";'" firm~ To this <1>(\, tho T«I<nl 

RcK"" aM tilt st:C Ill", propoo«I, and til< CFTC Iw finali«d, rul<> for rMU~ 

induding rui<l ""obI"llIn! risk-mon>z< .... nt «qUI' ..... n .. for tht>< ",'m,,_ In 

odd;';"', tht Coor><illw m><k ia ioi".1 ~n .. ;"', ofi}1l<mic.llyimpor"", 

BIU~ n.. Offi<t offLO>ntW ko:1carrh (Ofk) ~ m .... "CIUbol>nlilll""l"" to 

improI. lh< quality ..... mi!.Jbilityof fitunciol marko! d>u. 

Rt&ublon_lin ... lO brine ("<.,,' ........ ""'1lO til< fio,,,,W m,!tel$. n .. stCIIa, implnnool«! til< Dodd-fl1n' Ad. "'lui ....... ", that od>'il<n to most 

h<dct fundo.nd «TWn «lin- p<M." lund<..pot ... with til< src ..... of Mllr<h 

~l, :!OI!. pttbli< rq><>rtin! rl ,II< identilie> of the>< "" .... " ~ "'loire<! ... .-.11 .. 

iolorm>bon""" tho P""'Ol< fundo'~ ... nd I.ty otrYict pnwidtn. In odd;..",. 

,. <ktob.r I'Illl til< SIC ond CfTCiI<Iopt«l' pn' fIIlr lh>t "",,'m """1"'bIi< 

.. portin~ b,'wuin acMKnlO bodS' luoch ..... otht, pm~" f\1nd' to Iociliutt 

lho ......... nt of.y"emic risk. Th~ non--publOc "porti"C i.dude. inforrno..", 

.bout til< opmtiooo.nd rill; pmfil<> ofth<ot prim< '",>do. -.tl~h will mobIr 

"tUbton to InYw riIi trend, tim' 0 .... 

~ur.ton.,. -"ing In """1'''''' prot«tiooo for "", .. """.nd ;mtIlOI1. 

"OlOb/v. Ill< Cil'II has odopt«l .nd pntpCH<d. >arinyof rul<> "'I"i...t 

urd<r til< [)nd,d.r",nk kI, lncludi", til< odoptiorI of ..... ruin to pnwidt 

prot«lIOM lO ""',"1!I<f1 who m'" ,...,itWlC< ,111l>krs ..... ,II< I'f<'PO"l of 

'''''" ... _' . 
71 


rul<> to <oruoIid,,, ..... 'IIagt loon d,odoso ... """" to make loon informoliotl 

..... uodulto con ....... and I. mIuc. buro.nH,n Ionden. In addi,ion, tht 

errs bu",h<d ru "'I"rvisioo prognm fur "<'l' bfIO depolitorr in";'Ulionl 

fm roonIinallOll with prudenUli ~~blOtl) and furcn ... in oonhanb. I, 

hal •• t:lblWted iu """"""" n:sporut fun"ion. and :uswned rulemili"l 

~Iiqr kif fedcrtI "",,"mer filUllcioJ!no. 

s.n... 6".II .. >I!ll>lkt ...... pobaI. U.s. >uthorili<i .... d".drrnpc«l 

in in""">liMal "tub,"'Y n<pinion> .. they ,on';""" to impl<<n<rU ,ho 

Dodd-F""l Act The ~ .... cI reform .. horne "",Ie! be undermintd 

if ,it.l ~.bIe to mig ..... '" jurisdictions ~'i,h .... w IWIdardJ.. The«fore." u 

tutntiaI '" 11M in"",,,Iionallr <011';"'nl "I"bIlortson up">I.nclliqu",,y, 

moIuIion "'Ii ..... de""",,,, !ll>lkt .. and ",!ublion ofto.rv, rompitx filWlCiaI 

i""""",,~ ~~,k acl~gin~ til" indi>ldu.al COIIntrio> mo:y ""1"'''' diff<,mt 

"i'i'<""<"" )"V<! .... 't"~III",1 di!&n." .. in ,n.;,. fin .... ;,,' '1""'"' n,.. "d .,r 

achi<vinl II""'!.nd <OII~I"'" g\<>baI sundu<Is iI .... n'ial b«au .. th< ulti ... " 

"""""'" clU.S. and illt<nutiona! reform dfuru..-. intim:r.l<iyconn«trd. 

While much P"'C'''' tw bet<t made, U.S . ...,ualOn art <>pmti", ",til 

limit«! resourm to irnplemenl reform> tha,.ppIy '" "<'l' rompitx ......... and 

i""" .. "" •• nd.1t .....,';"1 for tht na,ional «OnOII\ic in" ...... Ultimmly, 10, 

, ..... .--to be 1U<Uld:u1. "Iuw"" mull 11M th< 1'IO<tuary resoun:n to 

undtnake lhei, poIicym>ki'IJI. .. """Wyand .nfore ..... ' rnpomibihtin. 

The CouTl{il-whKh bring> lOf"'her ow- ""nr di!fn-.nl ,qub,ory >t<TI{tnlID «I<I'"<IIrd I! tiIIIn Ii"", IiII ro ... ·, '<pan to shalt infor"",ion 011 key 

fin.nci>l .......... <n<rU~ roonIi .... "" I<!"!au:o-yimp!<rn<nt>"". and """,ia 

prov<"II on rtComJllC1>Ci.Uo,u from lho fi,,, annu.al "'p<JfL The Council ~n>I;ztd 

• mit ouIlinill~ ~I< pro<"" i! "']) II>< rorde«,mm,,,twhich """ban' fin""'W 

"""P"""" ",U be IIlp<'I"isrd bytht Frder>I ~ and .ut;e<I totnh.n<td 

prudential ","d>RI~ indudinl raoIution planntlll r<qui ......... As pt<'iousIy 

d~ the CoII",il hal."" desigrt>1rd >II initi>l ... cI""",,'ouilyimporunl 

filWlCial on.uktI utilit"" """ ",U ... '"'*", '" enlwxrd ~, 

lUr>danb. I, rem1iM foelUdl on boIh idtotir,,~ ... ~1mII th ....... nd 

add""",,!rtr\>{"'nol ",lnenbil;';" ill the filWlCw 'J'Irnl. 

PmentiaI Emer;in\J Ttreats 10 U.S. fiIarDaI Siabiity 

Th ...... to financlOl ~abolily, like til, .... "' naliorull«urit,. art.1w>p prnrnl • 

..... if they." nor 1.Iwoys our to dis«rn in ""'~""' . The ... ", am p""" on 

o!:moou rir.k '" U.S. ~1WI<iI.1 iUbilitr. T" thl<. <II'" ..... ""'mic' .... bettt 

..... '" P'<'~nu major dtSloution byprt>ridillC I>rJ< q .. nuoo ofliquidilr '" 

the" banlirlJlJ)1kllU, ond bj-proo"Jdinl oIlir.i>J """" rundi", OIl' <....q- "'" Iwi>, <rodit""",1 <Xl IU<al and """,,,,nol .. fornu, rot nalion, ,hat ""~ 

100< marktt >e<eY. The nat;OIll unde'r II, ... hat~ ,1l.tn painrulll<p '" rtd ... 

",,,,,..-.I fio:oJ defi< .... and hat. undert.ktn _ cronom" lib<nIl:i.-.tIOII 

in .n cffon to boost C"""b and <OIIIpetitiI~"""" [UIO 'm! ...... rr 11M..., 

tl.~n K ...... , ... «1, tt<>piuii,i", ,f<JIIbIrd banb. H~'. ,It< "",m,;nl, 

sum>llll<llng •• "" .... IkwIopntn .. ttm,;n, high. 

_ ""FSOCII __ 
72 


.11011)' >IJIlO ,II>< <he .. ro .... nttd>. """"..,......,...;. >OIuoiM Ill" ~ 

Ii .. ",ial .00 fis<oI i"'~ and <Ompi<'<><ronomir and -I>r)' unOon, 

Such '1<Wo00n mighl indud •• road""" <II ..... ,,""" .... in,liIotionaI 

foood>,,,,,,, "' .... "uro, w"h .ppropt .... pt'm."", .nd in<tn''''', os...n ... 

,rtdiblo <risiHij:hlin~ bOdV <II ilia, ru,u ...... '" urmV ... n ... 

• '>1.,....".... ,he ,hallengn ... t","ndin~ Gf«« !u.~ focw:d mann >!!<Il,ion 

on ........... inilbilityof cwn.n..· eu ... ",,",_ipand .... «>III of a pot,nUll 

eu ... btu,",," The mabli ...... n' of ,he lingle cutmoqr ..... t .... tbblo lIop 

~ ",.Itr wropnn "n~ , ,00 diltCllution oflll< am> _ld <on>< " 

~rnt roll. Spocilirally, nwi<t ~ipanu hitb1itb' ,rtdi',i~ Iqol nsk....t 

!'td<,-iruoiM ritk-<he riok '''"obIig'';'''' d ... '" .."" win be rtp"id in an 

0I!<'1'1I>.tiv<. leu l'1Iuobk. cu<mlC)'. 

The dir«< ... "P'>'""" of!>,!!" U.S h>"h '" ,I>< ""'" ~ ........... m .... 

~ ...... ..,.,.-n rdnM '" <>pitlL~, I.,..."ir <ritis in wrnp!', 

in which "",..po. and tpiliO'> .. df .. "fP!<ad w'odeIy "-'! 'ufO ..... oountne. 

.00 ""rkb. .. pmcn ... ~gnil\cam.iIk for U,s. i.llint,ioroo. In ><klitioo, ..... 

pritt decli"""'" to .hod .. ori&<nating in ,he CUI'O ..... would lik~ h .... n 

I<hnK i .. poet on .... bola""' ....... of U.S. in>titUlion~ >I ..... 1d .!""",,~mi 

det,rior.<oiM,n ... <h< srnu ..... , d ... '" i",rnt<d Eoropeon ",a.tili'l'. 

While tu""" ~ <II< frin<ipl.1 fi"""ial.ubiI~, riok !>dn' .... U.S. fuanciol 

')'1'""' ooda,. it it toOl ,he onlysourt< '" JXII<ntioi oh,,", The U,S. «<0'>"«)' .... 

toOl I'" <r1n>ilioo«I froro mode .... to ,.If''''''';n>bIe rr-IlI' The "fiscal d,ff" 

:oround JOI' tnd_ i",luding .. pi .. oiM of the W C\IlJ originallyrooct<d in 

~I >nd !OO3,!be n~ of payroil u.cu".nd .. 1<Ilded unnnpi<lrt'tl<tlt 

benefi", and !ho Bud!" Conlnll Aonund .. <d>eqUet<er--«"P' .... ". ohm" '" 

<II< frttOO<ry ond fifWl(ial tIObility If toOl :lddmoKd. 

5<n>:lUru and <1<1ic:r.1 .... t.ntw:t,..,..;" in .... housing "'''''. indudin~!be 

!arg< ""mbot oIloouseldd, """ law or ntg>ti>'t <quity in ,heir hornet. k. 

~h. Ill< housing ... rkI ,ould r .... i", .. >Ied pr<MU"' ...... 1d Ihort be. 

~n in oconomir (fOWlh. M .. nwhile, <fb<nt<uritr ..... in •• ",n$U."'" 

of cone ... ond por""ioI I'IIlnmb<l'cy. 

RiWn>u1d also on .. from \ilICffi2inl)' about !ho vigorof global (fO'WIh""";'\< 

Europ<, ilKludi"l in ,lit nntrging aurkt~ ..... ohoriti<t;n Chino ond. "umbo, 

of ",he, [.ItEo fou .... <haJl<Ilgt d IUfIPO<ling de"",nd 1nd ""pio!omml'" 

"me oI ..... 1.ncos In !ho indus<riaJiuod _ ""io, ."'mpti ~ '" avoid f""II;"II 

domaci< rnl .... " bubbles. ChI .. ', """'on,ial rontrillution to global ~rowth 

>nd i!> purrlw<> of """nttd «OIlOI'II)'debo. me.n ,lui. har<! IInd",S ,bert 

""",ld """ iroporum iropli<>tion> Iotthe U,s. <<01l0I'II)'. 

I,;, < .... ,,;01 to ",han« ,he rni!ien<e of .... fuund.l.,..... "'''"'' both the 

ohffitt ,1uI.~ GIll identifytocloyand "" ..... e>n00l. rulnn>bili .... in !be 

fuan<i>I 0)'1'''' GIll be J""'I'<d into ohrtt brood ,Woes or I)'P'" inllt, ... 

"'In .... bililieo 1f<""mof.,.,,. finIDc:ia1 'l""m that will oiwt). nul.< fi",,,,ial 

nu<ttu and I!",i,UIion. fragile), potellliol ronlnll ..... ""'" (hilLL, .. ,. 

l

,. 1[-, , __ or 2 "I _g .. !i .. , E: • 

.. 111.111 Illo.lt'·'llrl. , 

-g •• ,} 'j i! "", [ 

i i,"I'I""'[ 'l .. '<{'r<.· .. r-·I , j-' .'"1 , , ·1'] • "p 'I' !l" _ 5 P'i[ ,! <£E" j. ,,-1 ! 

• '. '.I. r 
74 


Annual Report Recommendations 

The Dodd-frankA<1 ,<qUi", ,he Council .. mal.t annual ~tion, 

10: II) ,nh.nce the ;ntcr;rity. cifKirncy. OOIIlp<titi>roc», and >1obilirrolU.5. 

r.naoo.J mm.:1s; (!) promot< awte< diociplin<; . .. d I') ... i,,1>ln un'nlOl 

ronfid<ncr. I. thi< ""', .... "" d"' .... II>< ""POI _k ol ,he r.ouncil. j" 

""","""" >nd the prMIo ItCIOf LO >dd, ... , ..... i .. piX""' """"" ... and loy ..... 

cone,.... fttOm ... ndation~ 

3.1 RefQfl11s to Address struct\Jral VUmeralliltlies 

!II!IMrtlr.gStoo::bnl~~"~~·I""'R-.g"""_ 

Stohl< ~ """' ...... fundine Ol1rUu Ilr< I crili<ll romponrnlol. ""I~ 

functioning fiNocilI.),,,,,,,. buo lfohcy.ufferdilnlpuo'u,1hoI< marttu "'" 

rapidly op<ud >hocb iC"'" o,and.J "",i",,""'. Tho c...",il <CIIIinur< '" t.o 

pn",ubrly ro.:u .... on """"urn .uln<r>bil .... in """"Y=rI.<t fundi (M)'!F.) 

>nd <h< tri-partJr<p<> mark<, as fellows. 

---

Tho CwlKil rontin .... LO .. ppM the iropltmtn,,"ion of lU'IICluni ........... 

'" mi!\l.,. the I\UI ruk itt MMF~ Sp..;&.1Iy, IhM< rrl<inDs Of< il'Ittndtd "' 

>ddrtSllhe ~tu<1",,1 1<,," ... of ),l)'lF> lh:o. (lLn«i. run OIl pn ... MMF •• nd 

tho (, ... ;", o(w Ihon<tnn <rtdit lIllrl.ru.fltr <ht ~ Pnmll)' fund ..... 

"nab&. to m>intain amble ...,...., raIue (NAI') ;n S<pI<mb<r!008. In l!0I0. 

the SECodopt«l MM. mOnt" dtsignt<IlO make MM. """Wlko ...,.. milim( 

byimp<l1l;", ~iI q .. lilylUD<brd>, ",<Iuci"g"'lIlriti<>, .. d-totlM fim 

tim<-in>titutinJ I;quOd.,. rtqUi,..",.,,1I. Tht t(lIO rtfufm, >PP<" to he """';lIg 

as dcOIgoed and .... unl the iDlm<kd pls. -.... the SEC', !OIO t<Ionn5 

did 001 addrno-and ..... OO! ,nlm<kd to add,,_ «R ch>n<ttri!ti<> of 

1Il.1f> thaI oontin ... to «II'I<ribu« to Wit """tptibili'l' to dt!Iabiliri"~ run> 

r"". M!>If, .... no _han;"" to.booIb, wddtn .". in ohe nIu< of.. p"nfulio 

I«Urity, without ,h,,"minl ohe _ $!.OO N.~V. Stcond. ohert con,in ... to be 

• '(i", """'" """""'-\I'" in ~Mr., which nIl hd """""" to mkom " ohe fi", iod""t»n <I. &IIJ'~ ,h ... , to ohe nIu< or liquid'" oflh< ~l).!r. 

SEC Ow"""" Sch:opil'O fKI>m ... od<d , ... ah<mat"" rtfo<rno toodd, ... ,ho>< 

rnnar"in.! .tr"",ural fr>ril;'iel. Thty:u< (II. rnmd.ItO<J' fIoa,,"I M\~ .ndl 

or (lI. capital bufh to 1bso!b losses. pouibly «tmhoood with. ,tdompoon 

_rictiort to redo« rho i",rn';" to nir ohe f.od. 11'1< CoooollU]lpO<U oh~ 

&on >nd '«OIt""'ooI>"", tho SlC pIIbIUh """toral ..ron" "",;o,n"" pIIbIic 

<mIlD<llt ond urullWtly>6opr refor"" lh>,>dd, ... IIMr .. _optibilit]' to ",",. 

In odditiorl. ohe OCC"-<l. J'f<'P'I"d ru ...... lin. in April ~)2 th>l_", 

p>ni>11y align <h< requ.mnrnu for >hon-<erm ball. C\HDIDOII >DC! «>11ft';'" 

;"~, fund, (STml wi,h ohe SEC', te<ioioru to Rulo 1'>-7 undo, ohe 

Imn!mm' Corn»>,,!, A<I. In an .fro" to imp"'" cornp' ...... ound ... d. on 

...... ...."~. '.,, .......... . 
75 


«Ialpanbk financial 0CIhlI .... lho Council fu"h<r r<ron\rncnd, WI. _'h<r< 

>ppIkobl<. iu mtmbm>lifn ~tiott d ...... ~I .... i< .... Ii .. ilar 

10 ).!).!f, within !hrir "!I'la""l'jllli>dklioo to li .. ~ th< .... '''p.ibolnydlhnt 

..tIk1n to run riok. 

!li-P.I.r1yRepolblkl/ 

111< .Iim,""ion d_ "nr>d>r ,ttdi, ...... "".1Id ,ho r<furm d colla,ml 

pncUca in ,ho "i-""rty "l"' .... "'" ""IIIn .... to b< . n mo d," • ....., Wcu< r0.-

th< Coofl<il Tho T,i.!'lrty Rtpo Inf,..",,,,,,",, Roforno TuI: Tort ...... form«! 

in Sop!<mbc<!009 in "IJ>C'IIC to tho 6"'nciJj ,nm. Ikfurt b<uoz d,~ in 

Febnoarj' :/!lIt tilt TuI: r"", >«ompIi!h<d. numb<r d <hong .. ;n P""'" ,nd 

1"*'''''' "'" laid. found:o'ioon for lUI"" riok ttd""ioon. indud,nf (I) IIIOIinl 

tho d>ilyunwind d .............. ""'" 8:$0 Lid. to S:3O I'm., whith """"'" the 

ptriod ol <rtdi, "'I"""'" (2l introduciJos.""""""" coIla,ml.~itution;.tId 

) mtroduci"S th __ ..... , _~ •• ,.,Oon r""' .... wy. "0;10 u..po.un. 

m... clwll"" do not mnn'n~ully ttdLIC, mw.:. on in'...:I>ycrt<lu I""" ,ho 

'I<aring bon4 

111< induwy lou indkot<d ,Iu, <Iiminatioo d inlr>d>y crt<iit """"".<1 with 

lri-pmy ... ,lcmtn. _ill tot , muk;.,n. effort. 111< Cooneil ""-' thill""f"""'l 

timtli ..... un>«<ptabk to ilCh~ ti",lyl'Jbstono.. r«!LlCUom in ri>k, Tho 

Council r«omlll<f>li' tho. the industryimpl<lD<nl """..,rm ... P' to reduct 

in,r>d>y<ttdh""8' with", ,ho .... 6 to It """,'M ,nd ,n ;,m,,,, ~""'Il''''' 

~. ..... th incrflDtn" torontin .. bWI to rtd",. inlt>day<rtd~JUbsun"""ly 

>Nl to '''p'''mon' ,ml""""""''' in rUl, ......... """, pnc'lCeI "'''''' ,II "".tel 

participant>. !n >ddi""'. the Council """",m<n<b th" "!I'b'"" >Nl ,nd...". 

panicip>n" ""'" ~.thr-r ,,, d.n .. ",""uds for collal<t>! ""nagom<n<;n 

.ri-party rq>O moruu. particoJarlyIOr Iond<n, ""h .. }]).!!\, tIw 11M kpl or 

opmIiona! ""ric.Ion."" the i""",,,,,,, .. tho, <il<yan Ooid. 

Cus:Dmet- Protecooo Sl.irdards alii SegregatO:\ III C!Is\OIIIeI.1.sse!5 

Finanei>! inttrm«li>rieo hold <""0 ... '..... ' for. vuie<yd f'I"l'O'OI, 'LlCh .. 

m.in .. in;nl ...... bola", .. prior '" ill\'tlt""'" ,nd .. ""'lin, In.....-..di>rieo 

.... obi< '" i"' ...... rffici<ncioo rnd lower rom lOr Ih<U ,"""""" "r , .... .un!-

.1Id .,minK a ",u,n on. m... (II.' ..... ' ....... 11 ....... ""I'I""f"'o>,, lim .. 

OIl ,ho _"»1 in wh~h inttl"ll'l<di>rits<>ll ... m.......,., i",ludi,,! CIIItOIh<r 

"l"P""" ruin ..... , "" .... '1' ""n d >trollS ,""""", pro«<Uoo .und.I!d. 

tho, "",,,.;wI< '" mw, i."IrlIy>nci confid«>c •. 0..."""", proot<tion 

... nd:o,d, aIIo hdp <ru,,,,, Ill< """"pc "'urn d....,. "''"'''''''''';~ tho ... .,-" 

of, firw><ia1 in''''" ... ...,... ,~, Ro«n1 dndoprnrnu h'shliSh' the 

imporll"" d""h ... ncbnh, ""Iud'"! pnx«tion ... ndud. for ondinK in 

f<rnKn "".teu. that ....... Jl-uncl"",ood by marn. panq:.anl! and ... ""' ... 

by..p.ton_ 

Tho cnc and SEC ' .... Illy tool:. a numbot d ",Iioo ... rnain";n " IW\I 

... ndanls for "''''''''''' prottcti<M>. $p«iklilr. in Drttmbot :/!lli. tl>< mc ""rnded it< ruin .. odd odditioo>l..tq:tIUIb .. tho pro«"<><I wh<rd:or 

,..........-Iund • ...,. tot in • .,...! by ... ,;",,; .... d •• rinSOfJ""'''''''''' and fu,u", 

"""",,,.;on ... ,d,.n ... In oddltion, in FeI>ruary :/!lIt the CITC>cIop<ed new 

• " " >t oe /I ... 001_ 
76 


,<>nd>rd> .. pro!«' ,lit ","lal<ral ""', ... b)'''''''''''''n cle>ri"lllwap< Ih"""" Murn commiloioa "'rn:IwI~ on <I<rinI .... cle>ring ooganit>'"""- r unh<r, "'" 

SIC "".oily ""fMed ,lit com ..... , period on . !OO'; J'rI'Il"IaIIO 'm<rw;! ,""". 

<tilton>« pn>«<1ion ,.ito. 

The CoulKil """"mend, ,h>" "Iula .... "",linll< 10 .... "'PI" mbt. 

<Xi>ting , .. 1Om<r !""'«'"", ... nd.nh and IOmh."" ''''h ... ndrnh suiog 

r"""",,, p.,ti<ubrfy in light ofw rrilrm, '" "'" ''''I'' markn ,.trodo<td b)' 

lilt Dodd-F"nk An The ColI"," funh<r rt<Om~ ,Iw ltiuWon<Ol1lickr 

'\mlflohening ft8UIatio<u pominC ,IK hoIdi,,! ond prOI"'bon of """""" 

I."ch d<pooi'''' for ,""ing .. fw<icn fu,urn marhu_ 

~IIisk Ma~ 

The DOOd·Fr.lnk Act mond.a, .. c.".,..1 clearifIII of lWId.rdiud ..... pI .. m"«01< 

,.,.. C<l(Jn<t'p>'ry rm. in""",", in biI ...... I, .,...,..h<--<o.in,,,, IOTC) 'nn ... '''''~ 

AI,1-oogI\ "nln! elwinS do< ...... <oonlOrpo.n)' risk, it abo ilK ...... ,lit 

a>n«nU">bon ,rw;! opmoional nw 1"" ........ t" cln, .. gbous< lI1tIdi", 

bnwm "'" "'" w.. of nu_, 'rill""_. 

The Dodd-f .. n); .... ' pro<idn ~'oow oooIs ,hal.." I>< ..... ,. odd, ... ,hi> 

i""" ..... ror>C<nu.1ion rilL fO< ", ... pIt, "'" CouIKil is ,,"hc<ittd 10 dtJignm 

fin"",W ma:it1 utihun" ')"t<mically i .. pomn~ which .tIbj<<I> ,uch utilitin 

'" htigIIltII<d risI:.-tna/I1g!" ..... , ... ndmh. ludioc ...... in more <icu1l in s..:.1on 

6, ,bo Couocil =rnlly dnifnat<d • nwnba ,,(6 ... 1Kii1 markn utili,"" Tht 

cm >lIC! SEC .... <001:. ><tioru 10 fun/l<r >tIm" ..... cle>rinp:x... riIi.. 

~'IWIdmh. Fo< "'""'!*, in ~ !Illl, II>< CITC adopted 

.... risI:...,..",." ..... , "o.ndord, for dtrivo, .... ,learing "'P"1Z'1lOII' and 

"'" SEC<OIm,"",., ""'" to fill1li .. ruin .. risl:.-man>t<"""""' ... ndardl for 

,lnringagc-ncies. 

The Council r<romm<nds """ "Iub ..... <OI1un .. .. ltd. ""I' "''' .... gwn ,lit 

'isr.""'nagcm<!1' IUnd,nh for ,ir>rin!f>oo>a >lIC! •• ""'" togtIbor IO-.itor 

<1...-,nghoo.oJt pnnice> >CfOU Ihcit ftOP«tn~ jIIrhdictiora .. de,mnOn< indu...., 

..... p<X1"" ,h"<oo1d I>< fui"-<l ...... broadly. 

3.2 Heightel1ed Risk Management and SUpervisory Altentill'l 

Robust !'.ap:1lII mllJQIidoty I'Ilr1itI; 

c.pit>I ond ~u.idity buIf<n Ionn ,bo ..,.. fu_ntal prok<1ioII for ,II< 

broadtr fina,,,"1 'l".m >nd "" """"""Yop.in~ tlD<,pt<1<d rub or lailu .... 

of rili.llWlIgrn><r\I" fi..",;,J in .. i,utionI, C«uisoon, with ,I>< Cou<>cil', 

~Il ",por"~ prngrmlwb«n rtIOIk....,.' ... p>SII2""""h' .. 

robuII<>f"UI ..... I'quidiry pianlll"f .. I).S. fi......w m,,;,",",,,,. In >ddition 

., at,),!n, "'" "" !OI ~ Coft>p«h<n'" CapialAn>lysio >nd Rn1<w (CCA R) 

antiIt, oht rt<iml 1« ....... ~ .nhaoct<l prOOonlial ....,j.,rd!, ,nclud'''Il 

upiul and Dquid~ pbnninB ""'lui .......... ." , ... b."", ""., hoIdi"l 

"""fW'''' >nd for _nk filUlKiil ''''''pan;'' donign ..... by "'" Council. 

Joontlrwith "" rmc ",d OCC. tho F .... "IIlo><n~.-.luI<d superwc.y 

Suid"" ............. Ii"ll for.1I ""nking o<pniza'ion. with ",... "",ooIio;bt ... 

--, .... --. 

•• 

<: n? [11] II ]·i-;r 

,;'" , -{ < .. . 

! -l- '."r·.fj" Ill: 

pi" -., ,." .,., 

.. .. t .... ! I' •• ,-$0'1 j' H![>!"" .. I 

<- .. II S "" " lr. I<. -

-. J 

p!,"q·'···'n!" 1: 

•• " •• ]<, '·""1 .P <! hU "1" !" < 

' <0''"'" .• , Hi --J!: 15.!J S j 

"1· Pjd. r t, . • ] I' ••• , I[kP'" Pi .. ni! 

, .. _R Ii, 

Il 

·1' t""'" - /! 

'." L •• ·• ,·.··11. II! 0'" ,i-. I, a. if 15:_ 

, - • < " !_-6" 

ij a r !i '" P[i Hd 

, !,P t , .. 

Up 

i , , \. E:g.;;, 

9 It ;I 

·h! 

1",0; i-iftl" ",,, s 0' 

,.,. " • 0 " a. !i '" !!- !'! . .$" i i ;;-

'l h 'I" 

5" • !. 

, . , " 

- it. 

, i<"1!.i:. ,. . 

-

15 _" • 
78 


NrattpeS in ott dfon., o""h f9<)'I<kI: Of"", "". IIl>t~ OIlIyot- tOe" 

rqltM """"'Ioencn .'Oe •• shiltOctun in intemt "'"'ot <min <0IIdi6Qru. 

"".I.ing ..... Won and th< NClJA, working.ith tOe f<d<nl f'1lIIn<iaI 

I"It~",i0n5 wmination Council (mEq. ftl<a.<d lUI ~ OIl Inte .... 

Rat< RIS!: ).bn~, inJ"""rytolOond pr<Md<d >ddilion,1 <larilhtion 

OIl ,hi. >d>iIory th"""'" th< !$I .. ne< of lUI fAQ inp!IIW'J toJ!. Thu I"id .... 

rroJIllm,um It .... teIli,'1 for. (I) ,"".n", ...... and oitnifi<>ott ehm", in tlK 

~~I of,"""", ntn; (2) ,obstantill 'hangn in ro,",,,,.., Ii .... , III <hanK<> in 

tl>< rrlatiomi1ipo ''''''''I tor mOlt<! rotes; ond (4) <h'nS" in th< oIop< and tr.. 

""fo< of "'" yield ""' ... TIlt NC\!,. abo Wu<d ,finol rul< inJ ..... ry20l! aimed 

II rniotiptins intemt .... ri<I; in emln union>. 

Tht C<ounril I«ommend> !h:01 .... ulo''''Y'I''nnn >.tid pffl>t< ItCtor risk 

m'''''!tI1 "",tinllt thtit ocrutinyofbaw potrntiol chongto in Intem! "',",<OIlki 

""""'Iy off"'l th< n.k proIik< at fi.....w Ik ... "'" O"«OOIIMM<Io"';"C .. _ 

buI piauliblo intemt rate «tr\1rioo in itr<III telling. 

MIIIIWn 1li1dpirlt! In Cctn~ ~irIg !r3'.e ~, 1.InderWIl~ iIld Hew 

.... """ E"'n~ in tht po>!)'O". ir>cludmS lhe puliicly ",,,,,,,netd trod'"1 loss II 

jP)'!a<p" 0.. ... dtmonlt"t< tht I .. portone< of rohnt ilil ma"~ 

.hen >ddl"';n! rompIn trodi", Ilnt.p.. n ..... .r poWon" '" <OIIC<'Ittmtd 

""""''''' ., ...... of hcight<'tltd <i.l Su<h ,,,k-ma,,,,,,,,,,..,1 pncticn ind..do: 

"""' ~ , rid eln, lionel 'olm,. "J'O<ting. ,rid <Mnight; ngorOOl.rId 

.'" rolidlboo of n>t><Idl """ to d<liJn,....,.,., and ronlroilrod,"I 

IIl>t<&i<'; I t:.nnar p<'OC<» ro, ,hang"' to IjlpIlMd _1>; 'JI!If"I"W' rut 

lim .. ,nd metrico; >.tid """" <>piuJ bolfm. Tht C<K>n<il Tt<Omnw"'" tlul 

r. .. neill h"Iitu';.,.,'· ... ior m'""Ieme"I wablish. >.tid dit«l<ln"PP"""'. 

'IrOrlg riU;""""'gcm<r".nd l<pOI1ing """Ium 10 h<1p......,. "'" riIU 11< 

...,....d i""'p<n<kn<lyond II ~t<lyltll;';" ........ Tht Coo!Kj) furl'" 

~!h:ol iruUI"''''''' <OUbIOh eltor ,",,"""bil;q.fur lailurt:l of 

lisIt"""'8""",nL 

I"hil. It.... ..... pl<o highlighl tht importar>« of ilil~' in 

tn<!inS lin •• Ii .. ilo, dyn:unia opem. in main!lini"g dlonplintd <...:IiI 

und<-rwri"ne sundard< ,,,01 i" >tiline ..... "'''' fi .. n<iaI p.-oduc .. , In ill 2011 

R<port. tht Cooneil noI<d tht impo<une< ofm"n"mi"l disciplifl( In crtdit 

U""""riunl"'ncbrdo and rnpondln, oppropt'iot<Iywhcn thtrt . re ~!". 

Ihlt",," te1III'...,.ollow bot ........ .,IIkeOll~risIt.Th<toll Ropon 

also hiPligIu<c! 1<vrng<d I.ndl"l" ,. 1m ro,""'Iin<J<d •• )1"100'11, Whil. 

lher< .... pulJ.bock in .... l>£«Ilmdi'" durinl tht <n>ii, """"'"' 1m_ >in« 

inemoed ~hil< unden<riting pncticts """ del<rion.!td. In respon .. .,!heoe 

trtndo. tht ftdml bankillJ ...... in in .It,rt~ tol2 islu«I for com""", rtviotd 

and ilIrnltbmtd '"~Iuidmc, ., I"""m r...nJ«! ttaIWo:""'" fin..nctd 

""bon4 ThtCooneil """"'tD<ndo!h:ot"' ..... hlofollofu....><tivilia 

""'lin,," .,IOfm ,. """"'" focuo of.t!p<" ....... • <ff0fU ,.d tht Cooncil· • 

.-itorine el tho: ~lWl<iol.,-

...... "-'""'_ ..... -

np 

I,d . , 

g 

Hi 

r " it fjf 

• • 1 g' &. ;I 

! 

s=-a:5-iii'J'" " I' .," " " Q t I', ;.Hi'·; ' 

u 't.!fa 

. il - '" 6 ! !!hi, d,} j 

i!: !ptn"1 ld 

'11<' -n.-,l LH','>P '1.3 8. "c · ...... i.; 

,<If. 

" ! , 

}t"'! i.n Hq ,,-' HU'P ;'{f'P 1' 

.. if i! !!. 

"', . Jf_'2 l-'" 1i!:I h d "'f"!fa ··""t""'" §.i.8 ,iI .! H ns;l"l.!q,;:,l' [r; ,ii H H 

, '!'t"· "i-'l' 

t!' "10', fin!' q',! ., P"RiUq •• p'-' 

-

i"" nl-i!!H 11 rl' ", a 

:"-n. •· .. h.l. IJ

".ai 

.. H '1

-': ,tn 'Jp".qi .. ,. i L ,-j., "',,"1'·- PI'""l. ,1' • -!<1 i!1!.;:: Elli· S:f !!.-;o. i" '" ii ;! 11" l<: Ii, 'iii '"' !!t"" $ II I; "'. II !I .. 
80 


''''''''''''''00'1' undtr FIIf A. [,... I<><bj'. nwl)' "'" )'"." b.ttr •• PI"""' ...... Jy 

9(1 ptf<tI'l 01 nowtr ",U«IIIIO<I«>geI WT)' """" furm 01 SO"<"nm<n1 "'1'!""\ 

,.-.:I ,lit ... .tot con""".. .. lIoCk lUfli<iom prTo>« <1piu1 .. ba<k midontW 

mortp!"<r«Iilris!;. 

lhlrin~ ..... ,,",,)'W. «mi ...... bt< ag<1I<ieo 01 ..... Coul>cil .m.d on 

• f"n..-t for housin! tdornI ...... l"acili,. ............. pm~,"""", 

i~~ ..ttti. protKtin~ """"""" f""" ........ 1tId r<d1l<inJl <aX",,", 

<1POSUrn. In <1",WI!. fHFA ",lwtd. Stm<gic PIon lor tht GSU .. --.p 

>pp«>o<""''' '"""At 6""". inf""lIIClurt W.I ,ook! IUpporI "")"poIf"ntial 

p',h """"" broador housin~ tdornI ""'~ Iorward. Tho St"t<S'" Plan i, 

~ .. "d ........ GSU· ris!; pro61< .nd .. "''' .... ;"''''' .... "" tht pr;..... ..." .. \0 aboo<b -.pgt ,r<d" iii!;. Ihl"<lllgh imprvttd pricing am ",han«<! 

nsl; .... n'\!!. AI tht ..... 0"" it 1"= .... _ rok "" tht CSU in ""ip'"" ,r<do 

__ , ... ltpq~'""P"""<'ins_Ioo ,,".k,,,,,,;""ln~ 

In oc\dition, tht ern is NOrti"l toward ImpI<m<nu"l imporunl Jlodd.F ..... 

Act ruin .. IIttp eruure ...... lmd.n ou.kt • rn><rNhi< d<!onnlll>tlOn, b>...t 

00 ""rilKd inf .. lIUlion. lllal' OOI>lWOCf lw "'" 1Wi<y \0 "po)" klan. Such 

"""'''"'''' <1" .. tp protKlcon'"iM1 from mlll)' 01""' ........ ,ha, ltd up .. ,h. 

,,,,,, • .-.:1 <1Il im~ """'P"rn<J" • .-.:I confid<t><. in "'" mort~ nu,ktt>. 

.limber qrnn.,ol"" Coul>cil "'. obo -,-,"1 to pn>o'ICI<t ....... !rlrie", 

m:uiru "" ..-sidonljal onorIpg<-bo<l.<d .:OU;I'" (RMM). In parbcllla,. <lit 

SEC contin ... to «>ruidt1 appropri ... d;';loJu", ",In for RMM. MID"'! pan 

01", Rrgulation AB. whkh will prI7I"i<k pm'''' nurUl parti<ip.lnt! with ....... 

"'.'I""'nt inf<>rm><ion.bOII! ""....-tI ulKl<rlJing R~lllS. Enllan«<! darily 

_..! pddi1\el for....-l-ba<Ud """riI .... ,ncho:li"l...,uritin .... 01 feli<\ontial 

-tcogn. i> also ..... pi olworl bym.: Coun<il",.",ber . gone .... -lone wilh 

"" U.s. D<-pmm<n' olJlOlloi"l 0IId Urim ~, (HUD). on "" Dodd· 

Fr>nk Ad. nlk ...... 'ioo ",10. 

AU d , .... 011 .... !lIt "'"",U., no" ... '" "'1" to """""g<" pm"" <>pOl 

.. w.. 00 todditional """"I'gt <rtdi\ nw.. Nont"" ..... lddiIioIIal wllin'ris 

n""" .. ry.bout til< I"""" 01 housing 6.111C< inl rulrUCturt 0IId rtbtod poliq 

"',.., to f." .... """""" "" mum d pri<l'" <>pOl. In p>rlicular, """ 00 

... )'01""'" broadly agrctd-l<porI "ondnd, '" th.r><trn.. "" qII2lilr and 

«M\';"""Yof """'PI' ulKkntri""g. s..:h ~"""Id,_", rKttU1'1' \O ... pport 

"" ,,1w.tioo 1tId liqudi'l' d~1:.«! ilUlrut1\('Dt!. n..r. ,,,,,,inuo to 

". "0''"'''''''''''' _"'u" pratl;'" ><"'" dilI""n",.ltI. And!her ....... ,n' 

un«ruin'r abou, ,lit Itplli1bililyd.1II<IfIPgt """rilIUf ....... 1d .Ioon I>iJ 

to "",form", rqnItnt"""" and wamn,;" Ih" -.. nudt .oo."'f'<',tic loon <lw>ctffl>lin. 

T"""'Y.1Id HUD. tn tb<ir pn' whi", pap« 00 Ioog<HmtO houOIng 

5""". "!or,,, rdn><d in Fcbnury!Oll. P"t forth. ""f< ol option! r .. Ih< 

C""'mmn'ltJ fOIo in. pm.ti«d '}WIll oihousi,\!! fi""",. Tr=ury "",tin".. .. 

...-.l .. " ""'" optionI • .-.:I ""',; .... '" P""'" ~ wilh Congr ... 00 ""'" 

;"""' .. "'PfO't ... f" • ..! ...,..."""", Iont«rm howl", fi"""tl)"''''" 

...... """"'...,_.,.... . 
81 


n.. Cooncil f«OIIIlII<IId> ('IlIItinued -" "' deo<lop .100£«,," iIou>J"I 

fina"" mo.m fnm..-l: w, ooppon> <II< ttn<nl "* 0{ pr;.at< capiw and 

<he nnpIwi> on con", ...... and ;"..,"'" pro«<tion. in IIlIf lutur" houoinc filW>Ct 

I)'>ltnL It u <rifhI io< tho Council mtmhtn, IIUD. and CooKrr., to <""'inut 

,hoi, -t. IC""'iop ~.r.d>nh.nd best p<>«ices. In ><kI,"';n, ,ho .. iss"", 

Cooncil mmbtnu.:..ld ht mindful O{<II< imporu:u "* o{l>ousing in rho 

_.,..,.. rho tIlIlCt", rroJ'I'<f}'. aM hooo<OoI.l fi,wl«'.,><1 ""'"' b:>.l.I," tho .. 

<On<<nU. AI tilt Council """"bon. HUD. and eons .... conunut ,ho" -t. to 

at>bli>h • now and iuli"l 'l"l<nIioI howi"l f_. iI. ~ <ri1ic>l 1(1 odd ..... ,ho 

~ "' .. btc>OI<...;o.", in ,ho ru:<n, houoi"ll crisis. 

~ ~ Slardanls am Semcer CompensallcJ1 Rekrlm 

n.. Council co'ui ...... "' focus on <he nmI!of .. tiorW mortPl" omi<ing 

IUIIdmb and ItfVictr «Imp<ll»Uon mo.", ICllf<ng,htn confiden« in tho 

"""pv .. ,rI" n..)"'~"""''''''';';''1 ,,,nd.1..t,;~,ho ptri<>d !.>ding "I' 

"' "" Iouing criIU 1«1 "' probI<m> in ...... in' borTowm to _ kaeloour<. 

inappropriart..me"" pnc:lica, and oddilional kwelfer i......,..,. 

In <2rlyiQl!. <he r..krtl pnodmti>IIw1Oi"l '"Iulaton, >long w"lI HUD. flIFA. 

and T"""ury. r",mod on in,....,....,. ~ng I""'P to add .... ,ho n«<l f« 

&.ir, d,.r,.nd un,1i>rm .. ,,,,,,,,I ""'''iIlJ ,..nd:tr<l,. Tbi> folkM<lon .. rlie, 

_by ,ho Ftdtnli Rt.<n~. occ. and FDICO{ ",*"..mc.n thai. molt«! 

in "'I""'is<:qconsm, or<Im thaJ."..".,.. b<ing impltmtn'''' by tho!aT'" 

"""'PI' """'"". Abo in ApriJ iQll, FHfA """"""'" "" Sm;ci"ll Align,"",,1 

Inru.,;,~ fur I1nn", M .. ",d Fr<ddi< II"", ~ttich pn>duc«l. con"",n'''' of 

1""""011 furltrriri"ll """"'S" from "" on,., 01 dolinqu.nq. In Ftbrua'1' 

iQl~, <he!td<11Il C""<"'''''''' (1«1 by rh< D<parta'Itnl 01 J""ioe.lOS'lM.i<h 

T.......,. and HUD) aM 49 ...... """hod. S~ billion ,.,u.m.", wi'" tilt 

""ion', m.. larzesl "'''''PI''..mc.n to addmr ""Igor< loan ~.nd 

kaeJoou" abo .... Tho CF1'II join«! "" inrmgm:y....,rung!""'P in July iQll, 

and in Apri1101! pnMt!td • public ",,,Ii,,. 0{ ill plan. f", """'PI' It";';n! 

'"Iubtion~ with fonn>l rulto <>p«rtd 1(1 bt pr<>pOIt<Iferrornllll'n, rbi, 10m",..., 

In addilion. in September 2011, tilt Joinl.llortgogo SorriringComptn .. rion 

I n.inM:, Jaun<htcl by FH FA. rtItued • di>cwMn <locum"" "",ng com ... n" 

on '''''' alr<"rnati><..mciIlJ oornponsarion ~"""'f<> f..-..mtin,,,nt\«.miir 

toortg>gn. Tho CUI"'" """""rr oI"""'PI' """ing comp<1Ul'lion could 

h .... con\rilul<d to ,n "ndtri ... "",.." ,n I<rvit:ing <apa<"rand , ........ 

<On<,n'rarion in <he mortPl" ~ lndullry. On< l""f""I_ld ,sublWr • 

....... ""<OlIn, w"hln "" rUIf .. '<On'IpC1IIII"'" """t ... lho,r;Ould .. uitd to 

in< ..... ..me'''II caporily in ti .... of II1rU. Tho <IChor I""f""I would <rut< a 

...... r. .. £N...m.. rompt'n .. ,;'" ,,,,,,,"rr to ho ...... 1"" ill(.nti~ and rr<i"cr 

,ho capiul in,"";,yof """tgago "",'ici"l....u. 

Mor'PII'I<f"ici"lmndud> can wnlrib.!t< to 100&<"'" ..mtin, unpr_ .... nu 

fer >II borTowm.oo <IChor porticipan" in tilt """'PC< mW" Tho Council 

rocornlll<lld> rb" ,ho FHfA, llUD. CFPB,.nd "" ocher 'limOn,,, ne<tU>1); 

""'~Iop <Ompr'htnsi\~ """'PV ..meing ... nd.nh 'hOI '''11'"' co"',,,,," 

and tr'On>porrn' procnst. for """"' .... ".00 proroor' <ffi<i<m '",nar;''' to 

_ .. " "oc II • __ 
82 


forocbu .. """,.. appropriaI<. In odd~ion. lht CouOOI rt<omOlf,.h {(III"OU«! 

.Ifun> 10 ill'lplem<o, <O<'Ilp<l1'"'ion """'u ... that lligo the i", .. "", of 

-'P!' .. Mcing,.;th """" ofl><lfTowe" and oIher parUcipo!\ll in ,lit 

mortpge market. 

14 Progress 00 Irl1lIemerrtation and Coordinatim of Fmancial Re!orm 

TlI!lIlodi!-FmkAt\ 

In lht _,..".;"" lht Dodd',rml Act bo<11Ilt bw, membtnof lilt Cou",il 

and their .. ","'Iuve JIfOP"'Od and finaJuod • """,,"",i>1 null'lbc1 of rules 

ill'lp\en>tntinJ prom;o..s oflht Al~ and Wyconnn .. '" -' on ><kIitionll rules 

in> "'I<If<!irwt<! m:m ...... Tho rrlonn, i, lho Dodd·Fn.,kAl, "1t"I'Mn ,ho 

"';1""" ohho fi ... "iall):lI"" and prII"i<\< adnt as<ncb I<If "'" ItJUIaIory 

communily .. odd"", vulnmbili"<1 expos«! '" ""' ...... (rurI. III rIe>crib<d 

in .... ,00. 6, tho Dodd. ~ .. " k At, .. ...,.;, ........ proto<tiono for r, ... d.l 

consu ..... ,nd i......,... II in'lJlf"'" "0'00.1 m>rttu through d<Sifn>bon </: 

.nclwh"""d ,at. ..... ""'''''''' rundmlr for~!yimpor':mI fin, no;iaI 

rna ...... ulilities. 1, po:wid<S for pm .... funcl.a.; .... I'<1I'~,..'ion ncI "por"'" 

and i<rlf">'t><OnSIt1i." on risI; .. ...u .. tn.tIlfI"ltn<J' .... irunnt .. for 

",",,,ive:l1IWku, to COIljonction with inl<f"rioml • ...",..,,, on """"' ... 

x\otW prudtmi>1 ... nd>.«! •• lire Dodd-Fl'1nl. .... I,.;1I .... 'It fin>Jl<i>I fi,"" .. cop«><t with b.rgrrapital and liquiditybulkrr and bet'rr riV. contrOls, and iI 

«qUirtl firm ,,""""it ,eoo1ution pIm> '" "'" FDIC. F<donI ~,and "'" 

Couocil. fLll>lIy. ,ho Dodd-,".). .... , pn»-ide:I impotWl, new lUIhoriIf .. ,<10M 

• Luge. rompb nlllnrill inltir:u<iorI ill an ordnfy m,n"". 

r""'lizing II!< ruleIDIkin" und<, th. Dodd-f".k "", Ind impltm<""ng ,ho 

requiml <"'"gel tfft<ti>e!y. iU ft<!Ui .. <100< <ooro,n>t1Qlt 'rnonc !he 1'<11"1>1"'1 

commuoity and opnI d;..q .. -.ith !he po.obIi< and incl ... 'Y. T •• ,," ,ho 

<"'Ilenger</: <!<Si«ning and rntomng <h<1< t\nI rul<1, <he rtIOUrt<l d«Iiatt<! 

.. fi .. ",ral_~h' m"~ ""It ..... R<~,b.u>ry"!' .. itr m ... "' .. ~'fli<irn' 

reoour<<I .... " .. ,and .. !>in talml«l. individual>, ><quirt n<tdtd oh,o, Ge>tIop 

tho requisite anaJrti< <>pODili .... and i ...... In ')WlDl1O morn"" m1rI.<S><t;'ily 

.ncI rnlort< tho ..... rules. The c.,....;il,rrornmmd, rompl<<t ,nd .. p<dibous 

impltmen,."". oflht Dodd-F",,1. A<~.1ong .l,h !he pr<>rition ofllre rtlOum. 

~ .. """"'piish'hil""'Ii>Iwt.. 

trrtema\lOlllll Cool'dinaIion 

In iu:!Oll AlIn .. 1 k<port. tht Council "rwtd til< imporWlC< ofin=,io<ral 

fi,w",ial rqulI""YcoordilUliori. rLlIlnrilIlllirttu lit< (Iobol in >COp<. while 

.-quli""" p«o<e<d> .. !he """"""I krl To promo!<' kot:I JIob>l pb.ying IicId 

or.! 1<0 d,minOsh d .. mt. of IImng "'1"1>1 !low", ,he jllriodi<lion wiIh!he b5l 

rtrtri<_ r,!ub.tory..prnc. ~ is ..... ..t .. h .. ~ in""""ional!y"",,,~ and 

(oo.ntmll'<1lulitiono llw Ionn a <OI\rr<-n, and dft<",. -.bolo. nile allow",! 11\ 

appropri>.te dog ... of .1Ill>nO<of for indiridull <OlIn""" to """"motI>.I< thtir 

""" pankub.r nttd>. I, is pu>ir:ul>-riyimpocl21l' for in«foWoruJ regyhton to 

«In,;"rntlr apply """'C. ",,1k11ibn.tt<! ....-.d>«!, for !he <mini ...... d. apital, 

liquidity, derMtnn, «ruraJ ,leori.(. and I>,tu .. rtSOIutioo. 
83 


Coruid<r:r.bI< I""'!f'" Iw ..... mod< 0Y<f th< po~ y<>r on coord,mti"ll 

~u410<)' principl .. in",.".Iion"Iy. ~ .. ionaI ~,on """,i""" 10 irnpitmto11 

lho III.stlllt suncIml~ and injun< 2012. th< Ftd<nI ~""". OCC. an<! rolC 

joinIIr iio .. d lho: finalized IOU«I risk ~ ruo ... ...u .. thm ootK<>ol 

p<OpOOOCI ,oJ"",ui"l (1\PR). thaI _lei rtplac. th< agonco' C"fftnlcapiul 

'"'l"i ......... ~ ill .-.qui,..",..,.. roruisIcn, with >sp<ruol 8asd II. & .. 1 B 

HId Ra>dIIL Tho ,~tion ol thtso iDtrmation>! og, .. mmtl to"""'."" 

"Iu4,ion iI • ..,. "'P iD tho rqu4l«)''''''''''' effortl .. d;' <rital for 

mMncinc the mili<nq" or ",,,,lttted r""",ia1 iDMit""""' .~ th< ~n>Ma1 

.) ....... ..,.. K<"<t>lIy. 

furtlttnnoro, tho Bastl c-mittr< .... bI;,t,.d tho ,.....",.n, ""'l>oo:IoIoarand 

• copil" "''''harz< [""ncwort forJkt!tll!y S)1Imti<>11y ildpon>nI bank> (GoStS!) 

itt Nomnbc, 2011 IOmltanct thoir lou ,b>orbo..." capo<i!y,oo;I mlLK' tho 

1""">101.,.,-1" ..... r.i~,,,, ",~ ""'hOtIOIOrJ' rtwnpr;.... m~ brood """""'" 

of ~"" iDtrttonn«tcd ..... Itt<k 0/ ... ,!tly .. 2ibble oub<ulU1<I for th< _i<n 

pt<WicIc-d. p:.bal (~ictionalJ ",,.,"it)'. and _plnity. In tho ..... 

..... th. tho r,.,.n<i» SI>'oolily Bo>rd (fSII) iow<d th< Kry A,tribu, .. ofE.ffffiive 

Rcoo/u..,., Rtgi .... for ruun<illinstitution •. ~hich ..... ndon<d bf th< G.20 

~ ,001 i< intmdtd to prooido i""""tion>! >WId>rdI for ".,ion .. fUO'I"O'J' 

and ..,.;tIutton pIonninc "Jnnes. Spocifk>lly. ~ odd ....... tho "_btg.to-fail" 

JI«Ii>k", bf rnaiinc it pouihI< to ~ • .,. fi ........ ;n,,"1lIlOn m 1ft ookrlr 

monner witMut n;P"'inc tho 1llP'l'" to th< risk o/Iou. 

In >ddition. th< fi .. l """"" ol the I'rincipk' for I1rwo:w :.!nkt 

Inf""""'IUI" (ff:.!I), iow<d b)' ,ho c-mi'tr< on i'a)""'" I.r1d SO'd ..... ' 

Sy>t .... (CPSS) "'" tho Intrmational Orpn,u,ion ofSo<urili<l C-mi>liont 

(IOSCO). _ publiohtd in j\pri.I20lt. Tho I'f)tl coo..... poymontl »"""~ 

<e,,, ... 1 <OItnterp>rto, ><tumin .. !tk: .... n'~ and other firw>cial 

IIIlIiIIts. a"" pr<l'I"iGo> 1ft up<htcd ... 0/ in""",tion>! Mandards on issun ""'h 

ufI""'nwK<, risk ~"""'. filUllCw mourr ... hq""hty. and op<ntion.ll 

""""'0 .... n.... principl<> art <tp<ciall)' ""port,n' u til< i"""",,.ion>l 

""""'" nity ....... to iDtpkmtn' til< G-2O """ .. iunto, to Ufttn.1 dearin! and 

rcporu"ll ofOTC derintion. I" i"""" .... lho lotenution1l AiIOCIOIlon 0/ 

1n>UI>n« Suptr<i>on updated tho low,.",. eo.. P,incipl<> In Oct""'" 0/ 

!all )"Cl'. n.... prin<rpk1 pro<id<.(IoI:t>I fnmnoorl. fo< ,II< wport;1ion an<! 

"l"ia,"", olth< iD,""'n<'l«tor. 

Tho Coun<i.l r<rornrnmd. continuo<! int<rn • ..,.,>1 coordi."ion d 1II.st11l1 

........ """. with an aim """""'<UfUi<l<1It ,,01 ... _d<r,mliotu "-

npi .. I."" riol.....;p~ "roM countn... Tht Coun<il abo r«Om"""'" ,ho 

",'nin....! <l<v<lop'ntn' ol in""""ionolll,rub,d> ."" n.""",) i",plm>m"'ion 

for 0I>.!Jin, «1ttnl d..,.in!- ''''' .. porti0l <i. OTC d<ri>_ ' '''' ,hor. 

wpmilion ond 'qulaboo. 0/ ~nancial model tttdilk> lfM Uo) mtbody th< 

prinop)., onicub.t«I in ,ho ff~l.!n >dditioo. tho Coun<i.l rocomrnmdo 

<OIltin....! .&ru 10 d<>odop '''''''g and int<rnotiom.t!y COIl';'''''' pro«<tu .... 

for til< wporrioion and rqul;tion d JIoIiaI S)1Imtic>lly inrporun, financial 

irutit",ion~ includiDl ~ <>pit>! and liquidi', roqui'.""",~ and 

int<rn.tion>lly>«q>t«! """"""" ~ for""h in"ilt"ion~ Tho Coun<il 

• "" >JOt " ...... ..,... 
84 


>trnns'Y rnrou...,.. inttrnational irnpkmml>1'" .ocI rnh_<d in_bonal 

<OO<di .. 1ion ''''''''l ~ ond hoI<juri>d~'"" '"l,," i"1 rm>I'C'r}' ond 

moIution pb.oning. 

Oaa R~ otJd Anatybcs 

The Cou""il tw>mmon4> 'h>' im,...,......., in datalUr<brd> It>ooJId 11<, 

hiJh priorityfor fi"",ocial fi"", .. p;lf1 of ,h.", ri.t:-m.n.....," pn><<>1 >tool 

for the "1"1>.<0<)' """munity-not jwt in ,II< Unll<d SUM. but p,b;oll)'. Tht 

"""lopm<"n' oi the [.<pl f.n1itr itkntu .. , ~. nlwhI< f,n< 1Irp. on< ,11:0, will 

belp to idrnufy p=;,.q the port;" "' [IOJoo.lu "n.""ilI 'r>nSa<Iion~ II 

"ill al", <"rI>lok • ....,.. >Cal ..... and """""'" "_:tndin~ ofl<g>t mtity 

hi<f1lrtllin. wh~h iI .... ntial for tffe<",~ ccunttfJ"'\l' rill: ID2ll.I("D<nl 'Ill< 

Cou,d rt«OmlII<DIb lbo, the Offi« ofrrn.>n<il.1 Rnn",b (OFR) conlinu< to 

-' with ,he omnbtr "I"ncios to promo«.ocI .,ublM, .. lIn'< rK<nW'j'. do" 

~,nib m. forW!.ruifO" ...... oi'o-t:al ....;, .... filWl<i>l prndu<l>. and InD1a<Iioro. 

and to im"""" ,lit >e<<>Ito and .W<p, .... of dota bp""' ..... Iaton. fi.atty, 

the Council r<rommtndl lbo, ,rOSH>O<dC1 eu!t>ng< of ~ dab """'" 

1lI[><f'i>on""d "Iub,"" ,,,,,On,,, to bt fa<tlitattd in. m""ne, ,ltal..r<Jl""b 

the ronflIko'iality >nd prmlc!< of "",h infomu.""". In orot, ,. bdp prooidc 

"",,~Ioen"'" _,,;pt of fin.II<i.1 .. ~in"ioru with . Kki>al Inrh ond i~ 

{.ordination "" fin>t>ci>.llUbolily. 
85 


II Macroeconomic Environment 

4.1 u.s. EOOIlOOlic Activity 

11<_ -., /l4j!.po,. IOt-.l 

1!#Jf<lZfXJ9_0MI '" 2011 """am, 2012. 

/I\oorl.k/m,14<~""IMI7',.j~ ,-_.,.......ot>I-J-d .... ~ 

_..-. .......... "J-nklo- """"""",....p .. ,-"".,...,""" ,..._ n.,.fo<»n-.~.wu.., 

--... ... <J'iII-r</lt«' <JllwfoalooJ ~ 

~",Eo""''"'''''''"J-I-'­

"IIOII oM 1«01 p""-""""". u-I 

St.>ttt."""""""'_lAtjtMol ...... """ 

..w..I~.OO/""<rnIiI~,., .. ., 

......... """.-11_ ......... ".. 

4.1.1 !leal Gross Domesli:!'roduct 

i".<on<oni< l"""h _"nued ... ".,.....lO 

roodtn." po.« in :!Gll allI1nrlytol! Reil 

GDP in<......d I«< <han 1 ptl'tOn, "on onmW 

no, in lbefi",h>lfcl20ll ... _i< 

>Cti>iIy .... beld ....... bf I<"p""'rylll<lOn, 

~~,upp/f chain dWptiom .......... , 

from. "'*" W\hquU<.1Id osunami in J.ofW' :ond til< """ping <fft<, or. slu.rp rurM!p in 

''''11' and "",,_~y prices on _"' ..... 

oprndiO!l (CIw14.l.1). Grow<h pi<l.td "P in 

!he 1O«IftII!Wf of""~" to an onn"a! rat< 

.c. .. rtyn pc=nt ... wrikruof ...... 

lemponrj' b<ton ... !Itd. &.>1 CDP <>pond<d 

"on ann",i",,,, 0(1.9 p<r<rnt in tho fi", 

quanrro120lhod .. ~lobl< indO<atOn"'&(tSl 

• <oow,uocI modtrat<]»C. or ~th in th< 

IC'W<>d q">f1tr. A"""'I u.. ! .. ton 'hat art 

",,,pori,,, ~""'lh .ft.d<pI=<d """""I 

OW"', lbe .piUoort .n:«" ohllt fi>caI UId 

finaDcial difficuhit> in Europe. """unuod lixal 

mm><hm"11 of~ ... :ond Io<aI p""nmen~ 

willli. the Unit«! Sl2.t ... IUIC..-<aitl'l' about 

U.s. ftd<nI budgtt and policy. and trrdiI 

.... ibbility tIw ;, >iv'ificantly tipttr rd>tiIo< 

to pte'CisiI_ f« m"'l' lIousd>oIds .. d 

..".11 bwineo!e\. 

u ., •. 

, 
86 


... ," a..,io,.. ..... c-..~ 

- ""0.. ... '" -

, 

Tljj , 

• • --_ ...... , .. ,lOll 

-~ 

___ .. GI<)O, ' __ 

a"u,IJ --. ... - ... _at,,,, , -, 

'_=--'_=---:_::--'_=---:_::---r~: 

-~ _ ... _----

_.-

," 

... 

.. 

" 

,=--:o-c=--=c---;=--=, 

-.. ,. -....... 

_ "n ----- 'ICG 11 __ 

--- ... _-

~1I'IIi~.~ 

lnIpn-.I ......... ...,...u-.(1'al 

......,..! 1.6pmd. bl20ll (QtIQIlandU 

,.......~!Wl;., .... lnI ......... 

"'obio,w ICMtIH!) lta!~ 

""-..... """" -...!y, hold down "" "'" ..... 1 bbor .. arUl. Tho ",uk po<.of j"""", 

"""Ill .... toll and •• ", tlllt. ,orobin<d 

w'lh .......... io .............. .......,., \w'ouP .... 

~....u.c_""""&..Upm<lO.;" 

IM<tclIOIOUp<ftcaI .. dIt ............. d. 

:!01!(CoanU.s • 

Inodd ........... ...up.im"'_,. ... _01 ....... ""-..100""",, .... ""pot< 

of lccpromntrllin """" ...... pendinllOl. 

H......t.oId ... >kh (rtb, ..... ;0C0IIIt) talUin, 

well beIow"'" ..... t<d ~ thalpmailtd 

iIIwU!OOOo.""",. _"'I'!""""I by 

...... pm. .... 1rouothoIII....,.~ 

SiIaibttor.-*<wnt. .. _ .......... 

iot......,.~~ 

lor ~ UTdiI. ""~~ .................. 

down booui .......... and m'inanrinc "'......, 

dtspitt h,1IOrin11y loot Hlltft'Il r1I .... In pat~ 

obese 1><I0I'l 11M ~ rtlk<<ed in .. ><Ii"" "" 

"""" ............ 1, whidl ............ 1fIxnot .. _ b<fcft .... finmriII <r'oia, cXspd< 

11»'"1 J<In<Cd...no dlhtdtcliDe <b 

~ .. "" __ <l.!o11 .. oIit6aW:o 

.. r..,...._ .......... ""' .... U..s. 

..... <til.,. btcwo hnmI. 

Tho "'""""t ... ~ ....... n'"l>ll'l«l, In toll. 

_ ..... nd """" "'-Ilk> mnaJn«l 

nnr tht low Ittth "'" II..-. prt'I..;1td, "" 

MnCt. ~_ !IIOI. a..idnIo.aI """""''"'" 

.......,. .. -.. ..... rmwDf<lt<po<I. 

..,....,.-~"'-'.r-­

-.tbr~_lol_~ 

_ ............ pnm 1a..n U.4l~ . 

... .... ~hMborn __ ha' ...... 

~.C- II ..... pric .. h .... i>os"" .. ... boli .. , wioh ...... M<l>IIr" shoorin,.., uptick 

in tot" !Olt In o6:IitiorI, ....ttif.mi~ houNnl 

iWU t-o beoo WDd"'l1ipW>td si ..... rty 

2010. ...... rr-.... Inri>. 
87 


RuI<ness filed !nvestllen! 

1!<1.1 bU'lIIdo Iiud 1ll'<'> ........ IBfI) po,",d 

,S<Nio! in< ...... in !C1l, rioin, U p<r<enlOO 

'QVQlboois.l"",""",g""",h tI>.bwI 

skMr>o farin l!OI2 • ..,d Sf! os •• 1"" ofGDP 

mrWn,,,,,,sid ... blybdowi<s~ 

...... 1, )oI""h of,,", &<dm,ion in 8fl thi> y<ar 

Iw bttn i"tJ.pmdi'u,," on equipm<n' and 

><ftnrt (EkS). which .... '" ,n ,n" .. 1 me of 

jus! 15 p<r< ... III W ~111 qu>rt<r.rt.r ruin, 

9.6 p<r<tnI IQoI/QoI) in 'lOll; th~...,........ 

in US i ..... 1",.,,, ""l' b< ttb!td in pon '" 

~"""tn'''''''''''gbusi ...... obouI 

til< JIobol«"""",icand 6nonri>l.;, .. tion . 

. \l"'nwhi .. ,m..-.,....", in _, .. id<n,;.1 

""""0"" Iw in<......! .. ~tI> .. on .... 

in r«<Il' 'I""1<naf...-. pmod of '"fJ' il«p 

dedi.,.., but «>r>di,ion. i. tho "",or """"in 

dLllJe"h,""""'1 raI<S lor """IlI< ... iallp>lC< "" 

IliU hip, pric .. of .. ,sting ",""U,,".,.. low, 

and 6, .. .,dDP; «>r>d ...... 1or blllld<" _.till 

tight dtIpit • ..".,. siam Ii: ,tun, wing. 

....... Ilnl p""nmen, -tJ.pmduures .. "" l«knl, 

.... tt. and 10<>1 ...... 1 'OII,i ... to o:m<~ll!<1.l 

IW •• nd )" .. 1 p""n ..... pure ..... fdl bJ 

H p<f«II' on. ~ \<Hi> in 'lOll d ... 10 

OIIgoing budg<w'r prtUII .... , """ti"uin, "" 

I"'trrn '«1'';M' tho onJ<I of"" r«<Soion 

and fi ..... i>I "w., Rool &od<r>I p""n ... ,,' 

pur<hls« ftU th"""""", !Clllnd nrty!G12 

IoIlowinc "" wit/io!",orol of Ih< fu<olllimuJw 

pn>Iid«I durin, "" cr,,,,""" 10'1' &<lifIes 

in ftd«ol <I<f<n .. lptDdin, in !GlI:QoI.nd 

!G1t.Q1. 

"'ports 100 Upom 

Rnl .. porUof 1"',,11 and ><rVic ....... H 

ptrttnI Mr !GIl. boosI<d bJ o>otinoe<i S""'lh 

in....rul f<lr<1;n o<on<>ml< ""'ity. Tho 

;n< ...... in .. port dtmond n. 'OII<onl",«I 

,n ,,",~ mortcc«_ito(EM£i). 

whil< "f'O<" '" ,ho .. ", 1m &<Iined IOW>rd 

,ho md of 'ho)"l'. A. U,s. _it "tivior , .... modmlyin !GIl. rnI imporU of p>d. 

and ................. bJ 16 p<r<<nl Aitog<tb<r, Ih< 

o>o'ribuUon of n« •• pons 10 I""",h in rnl 
88 


Cllart4.1.$ 1IeI.~1n~~ _.- ""-.""""1 _.- ~ ~ 

~ 

~ -- -~ 

~ ~ 

~ 4 

G G 

G G 

- - -= --"" "" _ ., .. _<>or"' ___ 

_ 100_"""" _ 

.---,r---',-·~-' '' 

·_!:---"'~:--';.s::---,_=-- _::---,=::! :::. 

_... ... ..... ----. a.!U7 I.JbOrfGrl:O!PIt1icipitioII R'l1e 

- 1oO_ .... lIll/ 

• -• 

" " 

• • 

• • 

" " 

" l"'_ ''''_''_lOOI~~ " 

_... -........ _-- _ "l1fSOCII ...... _ 

COy .... """'illIy mu lay )OU md,n ,"" 

fif1l .....".,ol,hi>)OU. 

U2 The L1bor Marb! 

Tht bbor mariti YrenJ1h<ned "'''" the """"" 

oltoll >nd ,"" 1im.......J """"'" oltoU. 

N ..... hd ... , the impr<l'l<m<'f1' in cmploynlrn. 

aod 0Ih<r bbor mad« inlli<1ton .,,><. the tnd 

ofd .. rte .. ..,., Iw """ rr.odeK. and ,ht tabor 

ourtrt ha., coruidmblt dOsanct "'SO b<f<n 

",,",nll'l'" the «>ndttOOn>!ha. ",<>";1«1 prior 

'" the """.ion ond financial criIio 

Nonbf1D 1"'1""1 <mpIorm<n' inau>cd at.., 

~ "",",hly",,,, of 1~'-OOOjOO< in ",11 

ICiwt 4.1.5). n.. pm"'" 1«1<1< _ an 

......ago ol lTh.OOO job> monthly b>1 )'<21". "'"I. 

pm"..n. I"!"'"u drq>ptd 0\.., ....-.gt 

.... ol7!,OOO p<r IIIOnIh (Inoodya1 ...... od 

k>I~),DurinJlhtfif1l twfol 

!012,prm .. p»'1"OIlI~aboo.rt 19J,OOO 

p<r month.joIt bdow .... Mn£< po« in !Oil. 

wi ,"" pa« 01 job los! at """"'mnItIlw 

lDoder-ned",.".,.-hat. O>tniJlhrwsh.fun< 

!OJ!, 'ht I<..! 0I1"!'1'<IIl mIpIoymtn,,..,,,.,,,, 

_ r... roiUion bdowil> pen '" j&mwy:!OOl 

Thtu"..".,."..." .... Iwdt<lincd 

lipil\cuKly. r""" itt ped: ol iO p<r<rnI '" 

O<ld:>tr!llO!i ",S.I p<runt injun< ton • 

• lthoo."ghit,.,.,.,.""far~I<\dr;Ih>' 

pmo;lHI prior '" the rt<mion (Owt ~.1.5). 

SolD< oflhlldtdin< i<1 the "".",pIoj..,.,.", 

.... is .. uilJuubIt '" rtdu<cd bboriorC<' 

ponidp.""" (ChaI1 un Whil< pol' olthe 

rtduction in panicipation f<fI<ru <1<""""",,1< 

>hili> wo<ia,tcI-.ith.., "kinl babyboorntr 

P"'i"'4tion, the .... k «<>IKIill)' has pb)cd an 

iMportan, "*" diKlXlf2li"l min)'.....un 

froa'1 """i .. i,.. '" oemh lor pooit ..... In 

oddition.lontd.".m jol>Inm<u "",tin ... '" 

."' ... ,," for an <tp«i>I1y larz< >hUt ol the tool. 

In Ju .. !OI!. 5.2 atillion p<nOIl'''''''''' tho!< 

<OUIl1t<l .. ~4!ptf<""'ol 

the ooui--IIad """ ..., 01-'. for".,.. th.., 

'" "","w (Chan .I.I). n.. "","bn ol-"en 

nnpiortd pan-<i ... for _Ie....,.,. has 

Iailoo """""'"'~ the past pro thc>lgh io 

,...,.;", high "hiltorical norm$. 
89 


4.2 Private Noofinancial Balaoc:e SIleets 

and Q'elfrt fklws 

(2,1 NonfinarDalCo:pora1esectr - n.,.,..<{JM .............. ~ .. ~ __ 'OUspiW......, ... 

........... """"'OII! .. MdirIt;" 2C11. CoJiJ 1-• .,_ .... _ .. .......,#IOfI(. 

"""-_ ....................... ,...<{ 

I<Miot,...Nd ........ d,...,. ..... C>oI/il 

f"oIitJ ............... Mit.iLl""~ 

~.,...-

~ «IrJKI<>" balui« ohttu 

~"';licudIydurinJl""'''''''''''' 

wiIh ..... wn OCbalara ...... It\'mg< ...aclun£ 

h~ hip< Corpor>t< tGlan<t shMs 

i1'llpl'O'<d nwhdly in !Ole.n<!. Il0l-. in 

!OIl n......,,, drlM \0 lit! """'" in thil 1«"", 

• ..,..in li .. "ithiu~le\d<Mfth<pa>t 

201'"'" (a.ut ~. t.l).l'roIits >llI(W\fmonrioI 

~,inc.......t oharpIy in tolO and 

mnoin«l hlsh in toll. d~ eqIIitymarkn 

.....,., for ooDfinonclI.l ~ bod \0 

...,. ~ bob oro:! ollowina; II(W\fioanciol 

oorp<ntions to boose apol2l throuCh 

...... ino<I <>TIling>. In pottinobr, IlOIlfuwriol 

"""""'"'" lIlY< lOttUttIUlatOd. wbsuntiol 

buIkr IlO<k OCliquo:l ...... (a.ut 4.t.!j. 

11>" imP'""""""'t in <Or)IOI">" P'<>Ii~ 

ond ,ltd" q .. IUysupported h;gh IoYdI OC 

~"of DClllfiu.",iol corpon" finnl. 

1. bond m:rttu. whkh ''''''pm. .... Iorg<s< 

10.""" ,mil< to ,lit corpon" IO<lOr, '"'" 

isI\WICt"of im<otmrn'pock """fi"""w 6"", 

has bt<n >tty """'! (Chon 4.1 . I) •• !though 

isluinf 6"", """" to h .. ~ m.,nlr w«I thtst 

toor.d> to .. firwK< ""'in( cHK.ls,,,,,,,.,, 

hiPfidd bond,dropp«! in tIIt........t holf 

of!Oll. but tht pac'" issuanc. through May 

201! ........ d _ <lit 2OO1 ·20I! " .... « In noll pac •. Co<pont< bond "",">d, "id<n<d 

duri"1l1i11 or2011 .. i • .....,.. b.arro< more 

.... ,.,." in tllt-o.k or .... U.s. d<bt .. mol 

IIIk>.n AllJWt toll and dt>tIopm<m. 

in Europ<lll mMl.tt> (o..n H.f). ~ or 

lulr6. tol~ <Or)IOI">" sprn<b "III mn.intd 

'*'~ttd. .. Iou.. .. nrty 201I. Th< amount or 

• 

• 

" . 

CharlU.1 

.. -

---.,-~ ... _0..,-"'""", __ 

::-"II-----r-~-.. ~"r.c" c__r--.~ 

• • 

" " lLJJ~c--' LJ,,,_l,~=--,'c--'~ •. : 

-........ ""'" -.... ~--- --

- .... _.,,,'" 

" ...... .-,'- -" 

• '''''- .... ; " " " , 

, 

, " 

, 

, • ----- •• ." -.,-,-- -.. ... ,- -..... ..... ---- "'''''''' .. - w", __ Eaw_ • 

1, .. aE I! ''IF-iHi t ",Ii P 

pnJE IUhl 

hIt 

! ." . . i I I II 

. . ' " I I i I I I • I I 

11 ' .r-= 

i f 

! 

r 

J 

I 

i 

I 

J 

li C I I I I " " •• I I I, • 

HIP !PiPHPH .11 

Ili,ill " 'f[ til 

,.r i p'-' '<1 '-I: '1' 

e!jlIJ!iIJlljiill II 
91 


SLOOS d ... Ihow ,h,,1<ndon h,,~ l.n«.11J 

rtfrainnl from fUrlh .. 'igh .... i"ll ".od.n!> 

OIl CRt loom, A •• h. ~ ,im<, modo",,, 

fraction, 01 ~n .. indic>l<d "ron!", 

dtm.Ind for CRE 10>., in '<Ctn, qua ........ 

Conrincnl wi\h t/><1o ",ulu, 1h< dt<li .. 

in eRE 10> .. OIl boob' b>w.c. "' .... h .. 

olaw<tI ",." ,ho 1'""1'''' N"""th<Im. ,rtd~ 

condition, for CRE ...",.in tight by hiKor'oc;J 

".ndard" In pa"""I". , .. """d<n" lO • 

'p .. ei.1 q .. 1lion in th< July2011 SLOOS 

"pot,ed ,h.t CRE "ondord .... " at Of n''', ,IIri, 1<ri<l<i1 NI .. i",. too~ •• nd ,ho lUnq 

.... lu Im~ Ihown buk 'hiln," in ",tId.rd,. 

"" .. ,,~n<oJ"lJfIlll_ 

Af,« r<b~ '"""I posI-<rl>i> "'''''tIC< or WlIIS in th< fi", h.Jf 012011, the ._1 or 

"."C.\l1lS iMuotlC< h .. betn ""'" lUhdued 

",,,,,!y .• nd m\loinc< in .. utr fill! ..... ol«hdy 

bdoo< u.. p><. Itt in th< fi", IWf offill! 

j(hr. U.J1. DIM ddioquet><y ...... and 

>prnd> "",oinn! hJch" born:Jwm ~ 

to m;nMIC< rm~h ofth< 'pp=i""'Ldy S3' 

>O;U;OIl in ... 'urinl fi..,..,. kwu W, ,o:r' 

or'«in>'ed" th< pnl ofCRE prien in t007, 

Ul ~Busiles:sSector 

s...u.....,...,ItUiof ....... ..woW, "1<"1 

_of .... ..,.."',......J_~" .... .... .--.... ooI.tof~(f/U.-fw 

...a ......... 1M ... nm ....... ''P'.-. IUItrn1i1~fw....rJO'- ... 

roJ..JloJ'.,....., 

:-; .. -'" in th< """""p""" I«tor, "hich 

;,compo!ed pri....-ilyof l1li>11 bwi ...... , f.o 

sharplydun"ll " .. doom,u," buo. ,",ned up in 

2OIO,tId ptw. bit ""'" '" 2011. R .. I ", ... 

comprioes ,Ia'l' dw. of the .... " hokl by tIw 

""""""'" I«tor ((hr. U .i), "" '''''''''' 

in rnI.-.taI< ",1u<I "nd to ~~. Y<fJ'!art< 

i",1"'" on)mill bu~ .... balanc<.....". 11>< 

valutolrnlt>Ut< ..... ~ kill! pel«n' in 1h< 

"'""'1"""" >«tor from tooJ to!Ol)9, b:linl 

lO' oi(nili<>n' ""ttl .. in tIw ratio 01" ",hi", 

on -'" (CIw14.1.l01. Thd ""io ~ 

--= in2010...:l fIlll,,,on-rniOlp""'" 

-;- ·;:-=·=·,'~=-=-=::;' -=:;·-;:;-·· 

--

\tI, ... ,,., ... ,.., ,... I.,. 

-----,,- _, ____ G»r .... _ ... _ 

-.. -" H " 

" " 

" " .. " 

" " 

" " .. " .. .. - = ~ ~ - ~ _I'OC.__ __ "" ..... cu_ 

",, --- ~~ 

,. 

,. 

, 

-.~ • 

" 

., " = " "" IV • 1.11 '0""'" 1 , J.. 

= = = -' ~ "" ." ---- --
92 


.. ,nd dtbc con,rxotd dirtuly. bu, ........ n' weU 

ibowpr~~J.. 

Smlll busi ...... !""""'lIy h ... ~ acc
 10' 

O! IU~ "'nl' ol601ncin!op!iono !h'n 

«><pOr1I1ion> and 111", d.pmd """" on bonk 

•• louu.f"'l ... ,lylKUrtd!lf, .......... Sinu 

,he: bcfin"on, oftho r,n>nci>l ,rills,""'" •.• rnI ..... " roib.t<r1l .,,1 ... ,nd ~"" .. in 

.. _ .• - " ..... ,,---

_ WOoool'l1I00 _ 

' n.-----'=-=:..-- ----;, 

• • 

• • 

• • 

'-.... 'o--' .. o---' .. c--" ...... , .. c--c.,J. _GooI __ 

_ .... ,,--- --

1= I---'------+-A 

~ ~ 

»» 2O(Il l"" IDDI .. .,,'" ~t 

_ ..... _-- ----- _ "" <SOC,, __ 

,he bonkin! 10<"" ..... oonotrtincd ,.-.do 

Mil>bilit,1or .... ,....u bwl ...... , H.,....,.., 

Ih<r< Ilf< Iif'" lhatmd~O>t\Ilitiort, ..... 

small ~1If<rn&ullyi"'P'<"in" 

Nt! boo"""", br nonlinan<ial ooncC<pOr1l< 

,.., .......... 'UmM JIM";"';" ,II< I<Cond half 

d!!ll], .ftt. cItclininc ....","'uiallyduri .. 

<h<rrisia (Cbo.,U.lll.T""",""",",lfi<r' 

""",ncd p<riod ol<ish"m,,« ", ... ndml. and 

'0"'" on o"n. to "",II booli......, <<If'O'\donu 

to "" SLOOS noced 10m ..... '" on "'". 

I!1lMhrd.:Lnd >prtad> in ruen, qw.n.n ICI!&n 

!.l2 1. In oddilion. ~n<t tho ~'nnin, <;l 

\!OJ!. ,he frac,ion "bail)., "'portin, """'~ 

demand fotCJd loan, from ..... 11 t..1in<ssn 

Iw odg«! up. Whii< tho ,,00:), "h ... llioano 10 

bwi ...... on bonl. bab.oce ....... '" 'h< end 

clbslyw .... mor<!lI .. 15pm:m,bdowits 

pnl. brlo« ,he crloi!.. tho>< """,IKW "i' in 

..... fwrth qlW1<f ofilll!. ,.p.erin! thrir fi", 

in<,...... sine, woe, and o;<Jntinutd '" joe« ... 

in ,/I< fi", qlW1<r ol20I~. 

Busifl<Sl1<n<iing by",.:!i' ""ions. wh"h 

pr<domin1ntly Itnd IOlmall bu~lIffi<'I. 

in<molC'dby6,..,.",ll1in!llll tomochnnrly 

$16.5 billi"!,, SimilM impro'l"""''' in emil, 

condi,;.,ru ..... 'ide,,, i" II .. ,oWl bwi"", 

"'MJ'I cond",tl1l by til< Na,ional f<dtr>,,,,,, 

oflndoptnd<nt &wi ...... n.. I""boo orl"",, 

'opo<Un! th>' cmli, h>d b«omr mort diffi<.h 

10"""'" <Ic<lin<d thrwJh til< r ... quanrror 

!Ill! [CUn U.J!). 

NOlW,,!at>ruh"l th<1t impro'lt .... ". the 

m.c...., orfi,m. r<ponin{diffi<"ltyobtain,"! 

""dit ,tn",", .... ~t<d .... , ... to the pr ... "'" 

p<riod.o.mmor .... !wJ.oj,......, ...t.om,gI" 

h ... l.lpp«I """ 11K <qunl in Ih<lr hom<> 

<It u><d IIK-ir home> " roIli,.",1 lot un>ll 
93 


bwi_lo>n~ .... ~ foond <ODd"""" 'specially CIIut 1.2.12 a... fUiIess lInqSIInWIII n lIemInd 

ehan.ngi"l in <t«n, ~.n. In addition. 

bwinosI rtttioabIot" finance <Ompallion. 111 

importlllllOUr<. or wtaU bwi"... fi!l1ll<in!. 

roa"nU<d lO d.di .. 'h""-'" Febru>ry 2(l1! >nd..,,. dowlt nnrly SO pm:tIll m:...lhtir 

PUk in JuIJ!006. 

1foou<Wj ... - ,..".... '"""'" .. ~I­

.... "" 0/1fJ10 .. 1!.}nI fWrl<r0/1fJ12. Tlot r-0/ __ 1IMl.J .. _iM 

-,.,.....~~ .... -,.,.. mow ......... """'_ .. ___ 

c-........nvh.w&-~....dj-_,. 

.. ..,...,;", .. - ......... <...tiI,""l>Idiof. 

~-....... -0/1h:Mtot""" .. 

• 

• 

--• 

• 

• 

-~--.... - t--> ...... -- ClrartI.2.13 SiIJIIIklsinesses'IlitkUlyOb!*qCrNt 

~~""worth"",almost 

$1 ,,;nion in !(IlilO $60.0 ";110"" (nom, ... 11 

ill 2Cl1:Q4. tb<n jump«! an additional $2.8 

trillion in 2(l1!:Ql. Th~ bw mrn- m 

""""'hold nol worth in tb< fint qua"'"' 

priawil)" rrl1«l<d pi ... m C<I<pO<>I< <qWty 

(dirmly ond indirt<tIy hdd).lhhough pi .. "" 

, .. 1 .... 1< ....... nd ... "";"I.hooontribol<d 

lO thi' i,..,...,. in n<I worth (0.." U.HJ. 

llldUnmtd wl;.... """" pn.: .. roalinU<d lO 

drdi .. in 2(l1l but.ppeat" ........ ubiliZ«l. 

.nd..,.". "" ...... <i hotot pn.: .. hll~!how" 

upti<b ""tIltly. o.m.,.. <qu~y in housi ...... 

remained ...... ""ood k>w <i 'W""illl1lt!y 

~ p<rttn,,,,,,. mod-!008 through Marth 

2(l1!. roushlJ 2(l pm:ont>g< poin .. lowrr .... n 

iII ... rago: om" 1990 to too; (Chon 4.1.151. 

All told. tb< ,..lioof_ ... wonh .. 

dI>pos>bIo pmonai i ........ ~ _uwnd 

ill poot·wwn ..... gt Jo,~I .• ~hough it ~ far I><k>w tb< In<i "oo;htd m 200"1. lkrwrm". '"" 

all hwsd>oId ...... <>peri<nc<d. oignLfoanl 

im~' in lhe" bob",. Jhm po!ition>. 

F<:.-txOmplo.Iowrr~""""'~with 

_lin "p"'um \0 ,I><!lOd ... rtn ..... '"" 

b<n<fittod m",h from tb< =<>I<f}" In <"<fuirr 

prices.,.... the 1"'\ ...... ,aI In''. 

II,..,.hoId dobt ouuund, ......... , th,... 

qu>.!l<n ol""ich i, x,oon"" for byhorn< 

- 100(10001001&1 

• -• 

" ""-"''''''' 

---

_"Got_I", 

-- • • _____ 20"2')01 

----_ ---_._---_ ...... _-........ ... ---- - -"--------"-- _rn, __ 

• 

• 

• 

, 

• 

-_. 

--- __ --_ /OiLI _ 10" "'1 _ ... _-_ .. _. .. _--_ .. _-- ---------=== 
94 


~"",---,,"r:";,c:':"'----r--,,-;: 

I • • 

• 

• • 

• • 

• • 

'"~",,,"--"',~' .. --, .. :--c .. -'."r 

--~--- -""'-- --

-

" -" 

" " 

" " 

" " 

" " 

• • , .. , .. .... ......... __ ~ •• . --- -""----

----

",_----_, -• .. :c .. :c:·:':·c',_------, 

" - • 

" " 

• • 

" -~ • 

!Jt:;, .. ;:::; .. ;;==: .. ;;:I-:;-Ji~ 

_ .. "OSQCII 

---• ....r_ 

~ " ........ __ -. ---- _e>or __ .... _ 

""'"Pg<>. <I.dine<! rurth<r in %OIl. Thio 

<l«h .. rqrresen,td, .. """" dtgrtt. <ffi>ru 

byboux"olch 10 M' down ,t..;, n'Hi" 

cI<!M. ........ l ... lowlOl·ID<or.""'IDIIrIS·g< 

~!Uliono_l' 1ho r<fIotu 011< eff<,:u of 

fo«<losurn.nd •• ~ .. leo: ~11~" h>'~, 

in th.'W'P",~ IDOrtpgodrllt .. 

houochoId bola"", ohmI. lot_. ""' ... 

to ~ IIlOI1pgn .... lino'o'umintd 

by tip lllId<n<ri<ing IWKIanb. dilcuM<d 

ru.u.:. in Sec .... H4. D<lt:«r>&in8; by 

~ along willi Iow;,,!tm< .. on, 

~ p<rnmm,wltId "" ...... """,,,"" • 

• nd rUins employ ... ", and inam<. ha.. 

hclp<d 1>owd>oId'''''n>«< wi. """""'" 

d<bt burdo"" n.. """"bold dtb! ...... ". 

mOo-the fnetion of di>pml* i~ 

n<tdtd to""" houJthoId deb! p:o)"""u-

('(IIl,;"t>«! to faU .. ~ l"ar (Chan 4-2,I'~ Th< 

6",ocioJ obIivlioIu """" 1<hoch ", .. ,ura' 

..... ><I>oOl., burdn\ r""". btood<1 ...... " 

of """,mitm<nu. inducting rrnt payrn<nu and _n,,,,' in'unoce.1ho rno«d down WI 

)"Or fur homrnwrI<n ICU" U.1I). 

Mof ,he fir>! qlUfl<f 012012. """""""'"I'S< 

«MU"""",n:<ti\O\IlltaIldi"f;fI<T<utd ......,. 

!i prutm from ')'0" wtier to S2.,lliliion . 

. It ... of ,hi< in< ...... in COI'I>UllI<l" borrowinr; 

Ilin ~i"f,r.dit (o.nU.I!),whh 

K«MlIltl for nwly ,_<hird, of "" .. ron ..... , 

,mi ... .,rob< fin' quu"" in 2011. Amonc 

non-rt'l'<lhing <red •• "udrn< ond lUI() loans 

M~ ~ <lit r.~ ... .growi"l cattgorico. "'''h 

n<W " ..... , loans primuilyorizin1'«1 bym. 

f<d<roll""'m .... nL 

Gn>oth;. ft'I:IM"I ,rtdh, on II>< """" 1wKI. 

lw ,,,,,,i"!Itd "' be ..... ). ....... contncu"l 

r=mJr of"" posti.glaiN in ,he fourth 

qU1f\ef .nOll. n.. redLlClion in ft'I:IM"I 

<min ;". p>n d,n.." by 1M f>Cllh..l:ll1 b,,, 

-..,.,.,. primo- bof"""", <o ... ;n,,"", be, 

lip! undm<liung ""nd>nb lor ,r«IiI (Ud, 

.. I<odtn p" ...... hisM"'!lI.Ili'rbor"",= 

lI'!lil< ,he ",tlit "",01 lim'" to...,.,.,. prim< 

born>w<n".ru, mtlit o:ort>tf<'"'' l/I>n i5C 

hM bo<n .naming lin« !OIl. Ii", .. for 

jIri .... born>w<n wilh cr«IillOJr<> befW«O 
95 


MO Ind j49 po<i.«I up only ~i,I"Iy, In con,,,,,,, 

modilard limil. f<J< -..q.nm.' """'-" 

with emlit K<II'n 1m than MO cont;,,""" 

'" «Igt down .n'~ the rnd "nOll 10Wl 

ll). Dw on modi! canl soliciution. ""'" 

• oimilu pr<ft,moe bybanb IO'Afd ~ 

"",lily~B. 

Otlinq""", ""tI for consum,,, ,rtdi, .. main 

low. S<"""n'ioan <l<linq .. non.oo ddlUh, 

art.!><w< prHrm, .. ,..l, bu, "" b<Iow lilt 

pnb .... du~"1 tilt rt<""'on. R.bt~oiy low 

ddi"'lLl<n<y "'tH for , ....... int ,red" and au," 

10>". ti •• 1y .. n«,.;" p..-~ the <omposition 

.M,~nI h;gt...-",\".li'1~n. In 

pa,licub •• 'ho itlCfn>Ol in <l<linq .. ",y "'to, on ,milt cud Illld .u'. 1o"", durin! ,he 

Cfi>il wort b."'I!'d'~'OII by. ""'P ri .. in ,he 

<l<linqU<Dt)' "'to <>I .ubpri"" ~ .... which 

,...main> UK.i"'"'I!'''''''~ hinoric:tJ kwb 

IChan U.~). In conU'Ut. the <l<linq .. "", 

.. tH on .redi, ",nllnd .uto ""' .. '" ..... ' 

pri"" ..,d pri"" <OIl." ..... "'"0''''''' wbl< 

'0"""" lilt <ri<is and .. o e.mn,I!' a, thrir 

hilloric:tJ.,.",~, 

", <he .. "" time, <I< ... nd For ,mli, by_ 

con •• ",," <OIl,i .... t. be 1Il0(\0>, m.oM to 

tho pr<-<rilil poriod .. housoho/d. <OIl,;n"" 

'" r«alibn .. th<i, bat""" shoot> in lilt ",1.0 

<>I 1>,.. " .. hh ~ du,i"l ,ho " ..... tOp'" 

gain. in b.bor ........ , """""'to «"""",ic 

gtOWlh, and _I< u""trWnti<l, Only. 

_n h.,ion of r"pondrn" to ,ho SLOOS, 

on .. ~ .. ~ ~""'!<' demand for .mli, 

by W1'l>u ....... Look,.~ .. "", <he .mlil 

Ip«""'"', crodi'tpptitl"ion' inc .. ao«I 

dip"Iy ..... ' ,hoi'''' ) ... bu~ throuj:h ,ho"nt 

~u ... <, <>Itol!. .... "ood I>,..I!' wbduod 

mit •• to th< prH~1iI period 10>.." U.!l), 

4.3 GoYemment Sectors 

Goumtlltlll fi-Ka .. III< u",w.so.... 

~....,.,...."", .... -, .. twIJIi<-....... .,wp,~".­

-"f;" cmIiI ......". (ChIl1 .J.ll, $0 Jot. 

pt.l fto4""",..m.t. A. .. """ dI. '" ~ 

"" ...... 0Ii0/''''''''''',. U,S.J*rojUl, hi 

_.- -,-

.. 

, 

, 

.. r ,.,. ,... .... "''' 

"r---, _ " 

• ~- -1 · 

"I-- -

__ ..... _@rll,_ .... 

&<Ooto '."01 -

" 

• / • ~ 

" " 

·V • 

" -~ - " 

• ----." ... ~'" .. ::'":::='::==:::~~::! ...... --_ .•. -..... _.,. 

g. ! a.i oil l" 

i. '" 

• "- -I ! 

i i:: 

! 

, I 

' I '. 

.., j i 

" , ! 

• • 

r ,. '6 • " •• iii l:i ( 

I !:: 

I I I' • i I ! , I P I .• 

, -

II I 

' 

• 

! I' ! I 

I 

I 

I 

! 

, , • 'I -------..;:: I ... 

I 

! 

I 

, 

, I i • 

, , 

iii if II 11' t 

nHH!HP nn W·j;/ a.,.- i!.ll il ii ". g 

q"i" II!!I phh ,· .. ·''';:1 ,.-. "I >, .-, hI" 

;1 if 

- s:i 

l Pt;'!! P 'E.,<E n n ai- it ;.i: i. s: .i!!- 11 j p I .. 

S" l<- i ." t 

inc> E; "Ji "I Gl ira: I .' .... IS.. { • • l · "<," II;!" i -
97 


tilt d!t<""' ..... mbilily. aM prtdk ... bility 

ofAmtrhn poIi<yma~ins IIII<l poIi6<aI 

iDltiM""" b>d "..ilil><\l ... 1im< ofr...01 

111d «OfIOIIlic ,holln1res. (Sot Boc"A: It"pact> 

01 DowJtvadt.r U.S. Tro...." Seaoritin.) 

Moody· .. nd Fil(h b,,,~ US, tom<'if1'_ 

on~"",Ioot..Thn< .. ti"ll"""""do 

nol'JI!I<1' 10 ha\y:off.<ltd tht dtm.nd for 

T ...... u'l' ItCIlritits ..... "k<! p>rticip>nl> 

mntin ... to purtlw< U.S._I", iu.....,.,. 

.. /tty.nd 1iqu0d,''I'_1Iid,<o-<o\ ........ "' 

Trnrury..curity lW<lioni """'n ., tht""P 

tndof h,~oriaor '""ges, and indXltonof 

fumsn participation h>I~ .....wntd on trmd 

";,h_",'!",,,n_ 

D<>pt .. the oil.lblt i ......... in public_ 

OlImandu.,. nn ,~_, """"nltd to 

onl,.._ I.~ p<rr.tn,ofGDP in ="'I)n, .. con~R"" with lI<ndo« tht [Wl<l«ade but 

...... 1h1n "-.rag< ~ ..... during the 199O! 

«about ~ p<rrrn,o/GDP ICIwt ~.M), This 

d<cli .. rof1ccu tht be' tht in ............ 

hll~ [.rlon to hilt""",l,,, Iowlrnk <v<n as 

..... """"noli"l h1l i .. , .... of. The """'V 

.,,,umy«public _,,",utandiOfl hu 

r'orn sh1rpIy~ ... b .. ~ ond is abooe iu 

»,000' .......... . 

4,3.2 Sla!t iI/ICIl\II;aI Go'Ie:mIenIs 

St ... ,lid lou! budg<u ....... ",..;rt<d during 

tht r'«<SSion. and mwlicipalititl , .. ,inu< 

tollIUn\< to ropai' thtlr Iiocal poo;'''''''. 

r""" tht .. iddr. «2008 toApr'I201!, ...... 

r::-n"""" CUt roughly650!lOO jobs (mort 

dan' I"""rnt «thti' wmforutj and 

lnmmtd othc< op<ming",ptnd"um tOl>li1fy 

blb .. «1 budget ro<Jui"""" ... They h>I~"'" 

rtdU«<! capiw c<ptnditu .... who. in tnl 

........ ha\y fallon to thti, """" 1t><U,;nc. tht 

.... 19900.ln P'" ~ dtht ... >kne .. in 

capiW .p<ndi"" ...... and Ioc>I 1oonOO"I"" 

dtcdcntt<I notirnbIy~ ... tht on .. ' oftht 

roc""""'. and pooltd 'lUIail d<di..- in 2011 

and in tht finl qua .... of20121Chan 4.1.5), 

s ..... nod local r<MN'mttl! , .......... , in 

"",<g''', b<pn to r-.gisl<t mild t_th in 

2010,1 .. , declining In the .fi""""h« ,he 

• • 

• 

:1 

,M ,." ,. ,... ,. ,. 200II I'M IO>l 

-.~ 

... __ 11 

- " " 

• " 

,. " 

• 

" • 

• " " " " ..... __ ~ ________ -'LJ. " 

'. ,. _ 'M ""'" "'" mo u._._ -"'" -

",11_-

,...., .... _ ... --.... -

..,'" a.", II SUIt IN lmIo-- 0ebI 

- ... _,." 

" -.. " 

Whu. 

" .. .. 

, , 

-- ~ 

-- " """",,,,"-"" u", __ E_' • 
98 


--: r 

, 

. " 

• • 

• • 2000 I!lI'I .... ,... "'" ,.,. "" 

... __ ... _-,,.. ... ..... c:.-_ , ... _ •• _,,~ .. __ 

--, 

, 

" 

, -

--, 

, 

" 

, ~ ~ 

_ ~ /OlO 2l1li "'" ,." lOll _c:-_ , --_ __ .. _ .. _._ ... . _-,,.. __ .. __ 0-.. 

:~· ~;i;;;;"'oiw~-;;-~;;'~-iii"-;;;-l": Q 

• 

-

5 

-.. 

.. 

, 

"'" M ,... ,.,. "" "" 

--- • ",, "OCII_..,... 

~1Un<ia! ,,''';'IChan 4.3.'1. MLlCh of til< 

imp''''''''", ~. be.., >I ,1>0 w« i<>tl. wht" 

1"'""",,1 incomt ,u mripu in "",;cuL" 

ha~ pi<Ud "p" <II< _i< r«0'm}' has 

proco«led.ln < ... <mI, UJI coIt«tiom" 

,Ot 1oca11M1 ""~ .. " ... ,«I .... o(,,11y no 

fI<"'th (, •• " tl>< f»u ''''' mrs, """If boca"" 

proptrW , .. wll«(lon" wh",h "'«KIn! for 

roughly (h""·fog,,),, of ""I ta, _n .... 

11>", be<n deprt'lOd br tho dow.'om in bomt 

prien.nd. "I"",,,,. ,. "'l<lU mOl ... 

ti ........ n .... 1;""""", of "",""",,~,ro 

"odor 1""'"" IChUl4.l.J~ 

0..",11, ,I>< """""'''' "' .. ihlli<.,....., HId 

local P""'=t! to 6rwK< th<i, Ipmdi"~ 

,.",ain ''«he Tht _', t2lI r=n ....... 

only ~i(hlly high« than ohcywm in!008. 

Tho r.dmIlllimu"" 1"'01' proo'icltd uocle< 

"'" Allltric," Rt<oY<'l' and Rtlnl ......... 'Act 

<12009""" "'VI1_nd down, and oth<r ,""iatil ... ( •. g., 1M Build A .... ri<. BMd, 

prog""") h .... "p"rd. ,l.I.>nr""" taw C\JI 

bod on ....... "". ,. thoo. local,,; .. on onl ... '" 

ohor. "II tb<tr""" bud~. f,nal~. bal>n< .. 

in ""'''~ fund<. which """""t In imp<>rUot 

sal..,. .. "" In tim« ofbuclgn.al1l1 ...... h .. ~ 

btt. dtpImd if! mo.nya.!eO 

..... , ..... , of Ih<>< buclgmry ... _ .. , <...til 

Ikm ,. ~." ond Ioa.I P"'"n""nI> hM bttn 

mL .... "' .... th< put)ttl. \\'hi~ lho """"nl 

of ..... n .. t>ond> ruu.d '00';"'" IOt:Uet<I 

th< amoun, of II"'~ oblipion bond,. the 

iN .. of £<110~ obl-'!ation bonds.mong the 

totalislu>ou i"' ....... lIIbstonlil.llyintal! 

(Chan ~.!.8J. Nt! ...... "'. of municipal bonds 

h .. b«n oIow .. ollal<. in par' td\tc,inl th< 

_); .... in inf"""",'"""n_,.nd 

rlIinp""""p>co by Moody·' ....... th< put 

If IIIIJ<Ilh>. ""ioch too .. IUbitan,iaIIy ""'po«<! 

"Pf!r>des. AI the ..... <i .... 1l>< "",01 

muni<ipl.l bond>->! ",""u.«I by the yidd 

mio 10 ~mibr """,uri,, r .... ...,.>«UriIitIh .. riItn."oith inmlOn cInn.ndin! hi(h<r 

....um> fn;m iul>m hoc",! 6".1 ,h.IIong<> 

ICh", u.,~ Tho iuuan« of\~riobI< Rm 

0. ... 00 ObIipion. IVRDOoJ. an onporunt 

lOUr« 01 funding fur munKipl.lilit<, hoo 
99 


abo betn cI«lin'''1 ""'. Ih< finlDOi>l critiI 

lCl!&n 4.'.10). A primlryft>lOl\ ~ oht JrOdwI 

m",,1ion orEurop<1ll bank> from prom;"! 

liquidior '" this nwt.e.. 

Budg<! 'njmoriet will """';n dWlens«l 

in «RIIing)t"UI ... "'"'Of "'" lod IoaI 

I""'mment' will netd to ;nc,""" Ibrir 

'Ofuribu,ion. to ,hd, ... pIc)oct ponoio<I fund!, 

both '" frlIuild " .... of .... <II!'<ri.r."ng 

"",;!inn< fin_w -. and to.dd"", 

,hKltlic .nderluodinc d"rlns Ih< P'" 

_. In oddirion. "'nyP<"mO>Ofl" Oft 

no( !«tin! a>idt ~ .. fuod tllrironp"ll 

obi'S'''"'''' '" ~ "'~h co .... ''"'" 

rni~ '''''*''''''' Unfuode<lliobibu.. mnlilI 

,00000000lW. Esti ... ",.hggrtg." unfunded 

penlion li>boli, ... 1plIl' wid< "nCt. in f'>" 

btc> ... or dirr.-rm:" in how bbilitieo If< 

.-.hIed. bo, "")'1>< in "'" ,..nf' or$2 ",Uion 

to" "Wion. (For .. x\dil>On>l dil<u>lion 

or >m>Wltin! iuue< rtbI«I .. ",,,,M IoaI 

p<Nlon flllllh. It< S«tion H.5J Iaim .... 

for oht _or pt"O'Iid,"!....,,,,. hnlth brntfiu 

"" ~ "' .... n (!"<II'''' un<erUonty. in part 

btcatat orlhe d;f6c\lItyor P"!«1inf htalth 

<u< com _ into oht f.lUlO. boc one 

tIli .... " pII' the ... , ... ,oIlt<tivt unlutod<d 

liability .. O(2!l10 at "' ... $6fi billion. 

U ExtemaI EllYironment 

o....Itf{ ... IhIrI<IIsw...IoIO~ ... 

,...,..,."r"""'-........ --_ ... p<uI 

JI'" n.firi-7~lIMili:Jfom""..". .. 

... ~'"£-;t o..,w-PofrfPm 

I:r£...,.. ......... II_ ... ma.,MIo 

~_}suI ............ rfPm, 

Md~OIIoI!"'.w.,_"""". 

1a,b...l,...,."..,_ .. I1 ...... £...,... 

,.....".". OvIstMf{/IIt .... _ fomp ,.....pdIIi.., .. 2011QI. ooiI4_""" to /IIt .... _ osJ CAtu.1"nIJ oJ/>tI.I:r .... 

,......~ ........ """"'"n._of/llt 

-... .... io20IZ:Q2"~ ...... 

HI ~~EolOOmits 

In"",~".ohtaoh."'«I~;" 

mainw"'" ~growthtlt"""'K't~11 and 

_ ... _,.,,00 _ 

. ,--------,-----,. 

• 

• • 

• • 

"'" .,.. "* "* .. " 

---
100 


-- • • 

• • ~ 4 _,ae.cu:.__ ""',.,. """ .... "" 2010 

_ __ i!I1' lO" 

-.....- --

--, 

--

-

--, 

• • ,,._"""""" "",_M ""'''''' -

0-_ ... --.... ",,, 

--

• 

• ~ 

• '-, -

~ 

---

-.--- ,011 .... ""_ 

--, 

, 

, 

, 

• 

• 

• """mI __ ""'_ ........ ,.~IO"n>r • 

...... ~-""--..... "'" 

. .. "rlOCIi_ ......... 

-.'--- 11\1, .... ,,_ ..... 

... -_ .. -

wi)''IOJ! (CbanU!~ n..~r2In 

>CfOII .... _td __ ito mIw. mill of 

"""" positM: """ ..... in w Un,otd s.m. 

and Wn,""""'Cothrn. and "'" dwkngn 

.... h," European C<IUIltrieo in 1!IlIU(i'"1l1i>e>1 """*"'" ban); fuoding ,,,,,,,.nd ddt>tngI"" 

and lUUtIon! <tung. (Chart Ht). 

Euro Area Ewo:Jtr\oe COnciI!or.s and 

Po!q I'liwI:veS 

01 ... Ihe boI 12 ..... <h>, W rum.,... 

~d<bI<ri.nilu"'~lirdu~ 

obout tho: MWlUbiluyof public fi...., .. 'OO 

th< """"""" ofban);, in ....... "",",rieo 

""', .... Some Eu ........ fi!Wlcial irn.ti"""", 

bottd rro1X«I >« ... to fundi, .. n«,i,,!;" 

pan thcillar!< "I""""" to __ reig .. 

..... n os <h<it ttiiar>« on -..t>oIuale fondi", 

...,... ... i.dud",! sbort-<rnn dollar lundml 

J"O''id«! t, 0ICIIIe)' IlWI:d fWldo. Eun>pr"ill 

I<ad<n r«ogn ... "'" O«'d to d<q><n th<;, 

_ic and """""'Y union. .. mmplilitd 

ill' ,he .... Ii>ul f{JIlJpo<IlI<>lYapocI bfmo>l 

Europnn Union (W) m<mb<n in Mordl 

!O!! ,nd t,.1h< p.-op<>5lI to <><>hIM '';1'1(1< 

Europta1l bonutll'.pc",w PU' fonh in1." 

2OJ~, Wort "",u" ... on ,t>borodn".,....... 

wid< """'ion <ap>bi< of {OOImand",!! boIh 

poli'''''1 and ... ru. ouppon. 

Th< .,."' , ,,. """'Glllie! "p<r'orn<<d. 

wid<Jprnd ""';"1 of econotnk ,,,w;'y d .. 

to the i ..... sir1ClOtion of lh< <ri>i>, !he <IT .. " 

<>fbanking probIem •• oeI tho: ,,"ltN bonl 

dtlt\~rasinl" kodin,to Ih< rnl_" 

0IId ,lit impa<t offi"'lI ron<oIid"ioo\ .ff",,, 

o.sp;,. ,~riou, ."..' ..... 'mpl<m<1ued br ,II< 

Eorop<"" :wd,oritin 10 COIIIba, ,II< crisiI. 

dilClllJ<d below. tho <um .. ra COP """" .. ted 

br l.~ pmt"' (annual "sr) in 1M bulb 

q"amr 01'2011. lnd ,h. GOP lfO""!h " " 

MrIM fi", """,,,,of20I! ... , ... r ....... 

Similarly. uboo' mallo! ,ond".,., dtlt'riomed 

further. II 1M u"ttnplo) ..... n' .. " ""hod 

11.1 P"'<on' in :.I»,20I!. !he highcll ... ~1 

~"« 1995. 

Crow,b proop«" in 1M <lim .". d,ff..- "fOM ,,,,,.,rin (Ch.n H.l). c.m..ny, F"", •. 'nd 

11',1 

.. it &!\ e:El 

nnp"H!H .• i.i.!li 

l.-. ['If s" 

!c",l., . .t 

, 

.. E i1alJ,il 

• 

I 

S' !! iirl !f:]!. 

.... 

<>.ij,..,; ii :0,. "d i!i' 3. c< !a .. "" =-s-.z:=-

- ! .. 

fb iI "= it 

: g-

"'! ' '1"f ,.Ft t ' •. II ... .,,'''nJ., .•• j !lEi il!=';' &'!'-I- o a $. i! ;J. 5' 

1 "' §'6 !. irs if3 

. j! s a. 

H 

, . 

t 

U 

'il • • ' 

, •. 

• 
103 


""'il o.pa<ity IC ptOIiok t;qu;d'<y '"PI"'" 

to "'" (IobaI6rw><U1.,..,.m. In particular, 

,,,,,,td..:'" r. .. opplitd ICd ..... ""_, 

liquidity '"" linn ptOIidrd b)' "'" r«lmJ 

Itn<no<. as Iotil .. "'" .. t<Dd<d •• pita .... of 

<hnt 0000..,...,. in,."d ... ., .... ..run, 

in finlll<w ... rttu ILnrI ll1u..". mi"c". rho: 

dft<u of""h Ilr>i"" "" lho ,opply of "tdil., 

i>our<hoId.lLnrI bwi ....... 

That ......... wntribu\ed "im~u 

in rum .... ~".""'I COrIdw.ru durins 

"'" fin! ""...",rho ofrh~ )"as, wi,1I doIb, 

fuodin! pmlorn ,ublw"ilIly dimi. iIh<d 

The ... ,,,uk,,,,, a«Ol1l<l<nlN< n>r""""tof 

",ro-doIlar for';!" =hlngt (FX) ""p ba~, 

,pmdI. ,oIl«1i.I reduced.t.on...". dollar 

funding """u" rOf .oro .... "",;'uUoou 

(CIwt U.S).1t=nI utili..,ioot of""'_, liquidi ty'""~"" p<U<d or m"" $100 billioot 

in F<Ilru>'1 tol!. w"h "'" """,.odin, 'IlIOOn' 

for ,he F<dtral Rtstr.,', doIlH liqurd.Y''''P 

b"" .. $'!B billioot .. of July 4 Klun u.'~ 

er-th IIll<l firwKialoutril", COrIdi,iof" in 

"'" "'''' .... mn1in u ...... 1"'""""-J.hrttt 

parti<ipln'"'' .... nu.. to "'" limittd <>pI<iy 

ofrh<.UfO ..... fiN""w bad,,,,,!> in rh< 

""""" ofi" multipa. posribI< u .... .uh<Klp 

rht Cr-ttt. d<bt 1<SIrU<ru.rinS ILnrI rub><o.""" 

rria;""" of <mIi, default ''''P KDS) 

<OfIrncu, di><uucd fonh<r in 11M B: G""k 

s-,,,,,,, D<bi It<>,,,,,,.ri'g. poutd wirl>our 

broad rrwtC< disrup<i(In, ,"",h "",emin" 

,,=iru in til< "tioot. lIIKmairuy about frsc>l 

n>nsojidation .... lItU<Iur-.I r<form bishl;pr 

tho <lullrn",of~ ~;'hin '-'1 

union. Moan_h,l<. CO<I«<RI .boor, ",her 

[Urop<O" pc-riphcraa (indudine Pon"Pl 

l"bod. luly,.od Spai.) ... p<ciaIly amund 

fir<>I JU>Uirubiliry, bnlrh of rhci, ""'kine 

J«1O<1. and ~l rornpni .... ".,.of ,hei, 

_itt. COtI,," ... .,~ on rul I"",th 

.... fiOll1CWl<rMIy in rhc>< """""""-

U2 EmerVOg Martel Economies 

In"'" 0«0nd h.lf ofbsr.,..... KOIIOn>ic V""th 

in '"'ny f..\!u...,.,...lIiptly ... =Ii([ poIiq 

'ixh'""'"!. a ~.ktning of .. ",n>i de ...... 

~U.5 E~OcIIr .... Fl SwIjr bsiI 

--

~ ~-- --~ .""".-. - - ~ ~ 

• • 

• • 

:.-',:,"-,.:.:-"'_=,~, liJ,.:", _,_:':,:'---:.J .. ; 

---- _.,1'0<)._-..._ 

Chu1 HS ToIII Son!> LQ l.!lWIIovtstandirIg _.w ... ""'.....,." _.w ~ M 

- M 

c 

a -

a 

~ 

• - .r \ (\ • , 

-, - - . ~" 

---

1

1 11(111111111111 IfJl11111 

. lir;i'iIIJ!1 l'Jlllfliffltr .11111'jl 

irllllliltt!IIIIJllllli 1IIIIJ1ftJIIIl IJI!lllri 

d !l!!ih]i}!H fl fl· 
105 


~.~ .. p>r<ofa...·.,...,. 

~ 11> .... pcbaI fiaaDaoI ..... ioo ftIOI. 

!OO9(a..n U .!I), To QlIII.IaI. poICtIlIOI 

......... 1II..n-.I"<¥"I'pti<o. and_ 

...... rmW"I f ... thio<mlit <>panoiool. 

Chi""" aut/o:)nt ... btpn IUIO,' 0aIntr 

_1'Ilry>tan« in bot fj)10 • ...;!h ...... _too. 

IkL! wMh 11 .. b, ... d.", ","nun,., ..... ktf· 

m-.lptn<d ~ octiYCy in (loin> in 

.... fine I\w: -'" offj)lt ~ tq .. 

........ ' . <IIIIlIbao£lIoaI ..... -.., 

-..-m II> "W""P"'th. 

• , 

IJIL ------ _ .., 

-- ------_ ... _ .. _-.. 

.... __ .-. 
106 


iii! Financial Developments 

5.1 

5.1.1 ~Oebt~ 

~iII ......... """"""'''''.,1Ot 14ll"""",,"ww,..,-..;,I4t....lotioo 

of'''''''-'l'" ........ """"'f' aM......, _ .... ,,~<M<mU ..... w~ 

.... pi»I,.--.1I1iI<....,.... .... J-1M ..... """~ ................ ".w.. 

"".......,. .... /moIMu...-s..... lMu-I 

Kj.p.,~~ ""Ha_ 

1I ........ _-............ ~k4' .. 

fI"I/iI7 .... '.IIIuIlItll,.,......,..fj~ 

....,,.., 

u.s, SOfeI!9) Debt 

Tbt """I,,,,,,,,", of "",sundinl u.s. ~n 

dtbIblsril<1lto$Il,Olrillion1lof),lay'I, 

!Ol~ ICh.orl HI). Dnpi" llIiI inc ...... ;n 

,um. tht r.s. ""mil" Jiold <11'" !b""ned 

"",,1icIttab!)' .. oct mid-!Oll.,,;o,. de<~ .. 

in Iong<'r.;erm yiold> d,,,,"11 th;'<h>ng< 

IChan 5.l.21. Thr hil<otnlly law1<wb of 

Iongtt.,..,.,. fo<ld • ....,. rdl«I'" ofbo<h 

nip IOqualityolld C<lI\linucd IIIO<'I<W')' polity 

".""",.,..... woc'ia!td w"h tht .... . 

po« of «OnOm~ I"""" and the ...... ttd 

~n1r:l!', 

F",<1p boIding< dU.S. deb! ...",.in 

!UboWIIW, with ... ,,!.! trillion of U.s. 

Tm,",}, ltoll"iOO h<ld ","On".,,,,, J ...... 

• nd 01_ $J <riliion "'''''' OII."fotrit;n 

hoidtn in ApriI20I! """,,",«I to:lboo' 12 

,nil"" and $2.4 trillion, =p«~Jy. in i\pril 

toll (Chan H'~ Nwly ""«-<1"." ... 01 

"""'hoIdinl'....,.".~offi< .. lttlutl<S. 

:,.,:-C,e,.', -" ... :-co ... cc_-cc.c.c~",.c_cc--

\"'O--"::--' .. :O--'.:,o--,.::--,.:c,-' 

""';:--------:"': .. :::"'":::':'--------,'"" 

I _=-",,---==::: - :::::,. " -=~~ ,: ,~ 

'''' , ....... H, I'" "' '''' I .. 10\'1 !H. 

--

•• w.._ ." ._ ... ___ 

" 

-........,"'" --_._-- ... _--,.. _U,t. ___ l ____ _ 

,-_ .• 
107 


BOX A; IMPACTS OF DOWJrtGRADE OF U.S. TREASURY SECURITlES 

0\kq:sl5, al11, SIancI!td & f'l':a'i ~ bMnd bir I ::---,----,--,----,-"'-,,--::----,,-:--

II:lrg-term iIC7oO!f'8!1lcrtdt r<ItlgQ:l1he t.nIed SIaIes" a.t.ll S&P IloompII ttl.l$. DeiIt f¥\ 10 Oudfr 

~ I:>M. franAAA I<'d r8III&med 1ler $1'1(:01-1$'m 

raIqj <:A A-l. _ S&P $tilled DlaIIhI! drJM"ogade re&!<:I!Id 

bir opnion!he! Ihe ~ CorCI'ci~ ~_ 

S9Biilll g.., on kq:sI2. lei shct! rJ, ~ \IOJ:I be 

'oecessaylO SIabim 1I'lo~·smeciJ'n.lowm 

~~. 'fhBy b1her Slated ts. 'f.bo\I broect,-, 

!he~J8IecIa(U"""II'IIIIhe~ 

SIabIiIy>n1~rl_~om 

pcti:;II nstm.w:. ~ ~ II a!me <:A ~ 

ileal WId 1ICIlI'aTic~' 

"",-- ....,."._, -- "r-----~-- -, D 

" 

u '. " - 31-__ _ 

"r::==="':"":===:;c=========cJ" 6eb'e1he~"""'_S9'*-'I~ ".' #,,, .... " """ 

b:':u<;Q:lIhe~~dl!lbaillneo.vess.AI;IIIl ---..-_ --_.'-

dIi!Ith~IheoeVlllfD~nlhel'orC 

end "!he T~)ieId (U'oOII, n SOtnI T-BI_ I ::-cc:--::::--:-:::-:-::-::-:-:-::- 1I1SI~1hen1lC\"lTlalzedalll!r1hedl,tllm. ..,,, s&P~ .. u.s.tl!tll:E/Ift:I..,~ 

--

BecauIe" wilesfmrl ~ illhe Il'8t« II'1II 

S&P ~ 1<Q8Ctiori. end !he reiMMll)'lTi'atc* 

rJ,!he0Jwnp:le. Treasuy Il'8t« ~ VI8I"\I 

~ WId Ifl'tII VIIlfD no rep:rIS" bad ~ 

Also, "*¥iIs\tutIc:tIs';x:rU:liO resrdmI ~ 

cawd out 'ctigaIicos" Iho US-~' rather 

1m ~11rvei 01 deI)'ee "Q'8Ij!!8!i'>g. 

Treasuy)'8:lslelim8ialaly~lho~ 

..tie majOI Sl'Xi rdceo doo:b:.I. i-o:i::IIn;l 'Nt 

~_Im~WllhIhe~ 

0sI<i'Ies!5 

~ 

ttT~ II!CU1iIIS rm MI1 hi pOIIlrIIIi 

"h:aI reI!1lIlCI'mriI b !he/l!llll'-1$'m 

~rI'I<Th'ITI.~Q:lM:Jrdayh.o).st 

8(1flnt:>.tsi'lessdat~tlbmghl~ 

\ha llJ.yea' T reawy)lSkj ~ oo..n 2t basis po;i'U. 

ThII o.mJaIjy&y.eId ~ ~hq.ISI \1 b hi 

tv.o-)'IIII.~.endWl--')lear __ ·l0basis 

pftI, -23 basis poi1Is..-.:l ·22 baSIs poi1Is. ~ 

ItI\ao1A.l) .FIisky!l!lClli!!eiiDst.~I'I')\Y$" 

hi ~ WIIh!he S&P 5O[)01d8< ~ a 6.8 

poom! dI.o:i'III end hi HId«< k>:I9x '*'II tot 2.2 Pfro!<l 

I1)tttlse" tra:frIg ~ 8 (C1Iatt A.2). 

_ '''''$OCII __ 

_ ... 11 

........ '._, __ 11 

" .. +-_Ul1, 

" .. .. .. 

" .. 

" " ." ~" .. " 

--

i1 a:IctIior1 t1hUS. ~ '*'9. __ ott.- __ ~~It\tJkq:sl5.These 

I-c:lded~ Ji1iy r3Iod .......... m..mu. ~1IIIoIed_endbir(!(tt 

There _1I;ifa"...... reecti::wl1O a mew I1)thl QIi::ago 

~ ~p.E)1O n:reage hIiMs '" USTreawy SI'laItiesi,.tSl beb8 \ha~ad8,.-.:l ~ 

~dd~actJStbirhi!iraJtson Treasuy 

S!iO.JIlBSMn 1t\tJ!he~ 
108 


European SMlllgn Del!! 

0..,.11>< l:utl! .... ,uN, II>< Europo'n 

lUcoi m,.;, in",,~r..d., 'on«mI oI>ouIlI>< 

""";nilility", pubil< fin"" .. in paoph<nl 

£II",...." «IUn''''' ..... iattd 1nd b:utb 

llrugiod Ie obuin fillinrinJ.ISee Soe!ion 4.4,) 

1'1uJy!Oll. MO ....... boritin propos<d. 

"""llWJdebI"",hangtonc...l~ 

bon,1L Thil, okittJwi'h """'ktnioggroolh 

prospt<l> and &.col of.iwo«<.1td 10 . IU", in 

CU ... p""'men' bond yitId, (Chon J.UI . 

.... dilnwt<! in Soetion H. European 

,"lhoriIieo rnpondt<I '" Ihnt drmopmen" 

.... h I numIJ<f '" policy ...... ur ... The pti.>" 

1«10< <:lChuItt ofG=~><)f«<ig" debt. whkh 

-Iars<t,- condt>cItd in M .... h of ,hi! l"'>r. 

l"""""d. "",ilkon' prioci;>ol wnte-down 

UJCI Iodditioool oITocw diwu .... """~ of aid 

fin_inc ,h".,.,p tally 2016, n.. inomioo 

, OIl trig<ring of <011«'"~"';'" <I> ..... for 

the 1"' ...... of ,lit debI.",hanr <1u1«l ,mIiI 

dd","h ... lf" ICDS) ,on'DC" wriutn on er..~ 

..... <isn <1<11< Ie be Irig<r«I. whl<h oa",~ 

wilhoul .ny oipIilin", man.. di>rupUons. 

The particip.o'lOII"'" on 'his .. chang<_ 

.... 95 pmnu.. (See Box B, G,....~ s..-.;p 

Dtbo R<$InH1U'lof) 

),I"", rtttntl!' ... ,n... P"""'" on Spain 

inI<rui!W. On May 11, ,I><- Spanah ~ ... nl 

'n"""need . ,.,;.,O( ............ to ad.l .... 

vulr><nbili';" in III< Spaniob ""kin! ...,10<, 

iociudi"ll""h.n<td prooi .... m' r<quir<m<nu 

on ml .... " ..-I.ltd loa".. ,1<0, "P"""'" of 

probI<m mI .... " .... " IIll0 independt!1,1y 

... ,..ftd .... , nun>gml<n, ",hleb..nd pion' 

'" havt .ndtpn\<I<n, ."",nol...titon.-..huo. 

't..<jUIlily "'bank ..... ~ Th~ .... foJloI«d 

...., ....... 1><" byl/l Uoelp«tedly lars< 

opioa1l1.1pp01"1 r<q""" /rom Banta,Spain'. 

fourtb Iarg<oI bank, ,OIl on1""' 9 by 5pl1n', 

"'''''''"' ..... n' of iu inttn, '" rtqu<:St £II..,. .. 

IUppor! for bon. r=pita!i.ta';'" Ifur_~i<II 

Europ<an iWIhoritl<>agr....t to p<OIicIt lip '" 

(100 billion), ISot 8", C, R«<nt F",...l and 

Bankinc o..tIopmo ... in Spa;"") 

_ &01_.....",,, _ 

"r;::c:c:,--------------,--l " II '::;.'== 1I 

:: I '"r:.' : 10 _1IoI-l '" 

. , 

" 

., _._Qo."l',. __ ." ~ ..... _ 

-_ ---""0,.-,-

, ..... ~~- . 
109 


BOX B: GREEK SOVEREIGN DEBT RESTRUCTURING 

n Mwc!1 a'd ~ 20\2, Grgece restru::IUed 

£1 00*'n~S"d~. 

~daI:II tm.qll cioo:'xI1OO ~ rJ 

prtlI9CIO:l MIers ~ peid ~ <rtf ~ esti'naIad 

S2.51A:J11:l ~ ~ ~ htNativet; 

SIMI 0IlI ~ I:l 0UISUIrd'Ig COOconlra::ts. 

mn.ments. [)Jo~ ... l.I!iIIrJ~ar:::to'lilfOO!l<i.ms.l :---,-_ ,--________ _ 

IhaI1.lSlt\.ll::U' was ~doome<.!lIO'edi1 MflI: a.1 8.2 ~ lIebI E.rtUlgI 

bVh~~<nl~~ 

JS!AoIl, 1l'jjcJ.ri>; ~coG'eek aectt dItd ~ 

!XIS!. n ... lIIIennaII\rJ ... GIooI< ~--. till 

COO rru\IB: ~i.n::tO:'ed lIS 11IiIrded. DespIa ~ 

a:!IrT'«<:Sl:l_.~Id"'"Y~"'" 

'II<':O:I~~aCOOI'\;9!r.""~ 

~"~aneedt.>1'p~ 

.:Iblda.sasl:ltmlligler~,Q;h I1lm 

UWrOO COS Pi'PJtS (C/IIr1 B.l ~ 

_ .. 

• 

• 

• 

• 

• 

• 

• 

.... """ ... " ..... ' 1 ---_ ... - -"-"'" --- ~--­ " ..... _-

The e>d'8lge recb::ed Greece's deb! hi!It! bj' tho ¢.'ate 

sector b\' €1061li1ion. ~ 10 53,5 jlIICt8'iI rJ!he 

TI!<ll!m dttt C'IIdtn ~ n!he £Id'eoge 

~8~rJnewGleEl<~_ 

P1.5 perc:en11or a IOIaIrJ €53 ~ II'lI1 stat4lrm 

Eo,ropI'm Fn.n:ilI Stabity Fdy lEfSfl "*' (15 

~1or8I01a1rJOJbIb1 lChar1B 21 .~ 

Cftd:n also reoeM!d detadlIbiI ~ -ants. wtOd'I 

~L4lkl """""'rJlha~boni:1s'tace 

;m;ut n )OWS .men real GIll' IJO"'f' aldl'iOi'l'Qjj 

GOP e><teed spaofoed ta'gO'It$. TIIblg i'Itl ~ 

!'Ie 0.. COI.!JO:1S ald ~ rrwiIies 0I1he new 

bc:fId&. !'Ie1lll:fa1ge !IrIaMJ IlK prewj V!IIJe IOsgeII tr 

~ ~ estrna!ad 8l]5.8J percrt COO 

_ .. "'1Oc,, ...... ..,... 

At;...., aI ~ MoneIIry FIn:I (N') ~ 

utanbIe deb! d)faTics _I pre-<:Oi'dbon U 

~ lh:':n 1EIJ);nj IMF Io.n.lo.n 10 (isImo f\nls 

II'lIJBr I sec:o:d aIIciIII_ aKj ~ Greeoe's deb! 

~~I:l~ttis, puttilgGreeoe's 

~ p.tt;: deb! !:mien (165 pen::en1 rJ ~n 2(11) on 

I paIh~ 120 P9'WI1 t¥ 2020. ~ ht deb! 

t>d'qe iUlsta'ltIatt fe<i.a!d Greece's outsta'loir9 

deb! ~ IWMtIe _ ~ I)-0000'5 0I'IIAIdeb! 

!:mien. 8Iq)eCIed toftf\'lll\q.JIe~, ~ 

o:tl1ru!!d Ixlrro\rm;I from aIIciIII_ all(km I:l 

hrIce ... deb! ~ bri lecapiIaizalJoIl costs 

reIaIed kI K:$ses res.til;J frool tie dote <!>dmg& oYd 

~_.,...tty,S"do:::di'ullddeicir..;rg. 

A:; a iI"5OA, p.tt;: _ cred1crs n P'tieCIOO kI 

tad newly ~rJ ~ 9CMIti!lf1 deb! bV 

S"d 012012. The new Q8OII; _ rD) aI ~ 

1iM'l5;)'i!*!s hcMltrg _ 20 petaJ'j rQc1 GoMce's 

~ irdebIKtIess aldlhe ~ degeerJ ~ 

IibouI tholllllkdc U ~ rJGmeoI:!'. reIam 

;ropn. QnJ.ne 17, pneos ~ lhe E\.1IIM aKj 

prt9'aTl 'fIOO era.cjl_I11te ~ PIriImIo1IO 

tIrm I Q<MIrI1nIIIIli'ipiIy, .....r.g IBn abcu1 a_48rm 

.... mn1te(UQ;nj~!)eoc:e's~ .-
110 


The ",..iN in tb< p<ripI><nl ..... ar .. 

I<M'rtisn tIrl>I and bank lunding ... rt.u allo G",J<d oddi,iotW prnw .. in _ <Oft 

<.'1/"';"', , .. h .. Fro"". In Augu" !ell, "'" 

un,ru banb of ,"' ..... 'l""rn _ ... ".«d 

p"rt!usinS'"'' .It> ~rri", bond~ 

indudi,,! 5p>nUll and lalion bond~ in "'" 

coo, .. , oftb< s..:urit;." ),I.,ktu P"'S,amm< 

($),11).10 odd .... tht ...... "'''"0''' in "''"'' 

... ,kt "f"'<"" 'hOI had bo." !urnpnins 

'"""""Ypol~y """""illion. Thi. "1M!}' 

"""u,1td in "'" , ... <11 of LD"",.ilitd 

wai". in ptriph<r:>1 ~";g" _ lid"'''', wid<ni"l ",di< >p« .... ,lid bid-'" opm<I •• 

panicul.My For Sputilh .nd Iwi ........ ""'en 

dtbt,.nd wrply hit;htr liquidity rut. prt"'''' .... I ""d in! lId,kotl ttchttn«l I"nher. ""0 .rt. p",n.,.,n, ."oouoo:d pt.". fw 

,.h>oo:d IUaI >nd """"u,>I«I«"". whil< 

«n'rol boob .nnou",ed tho .. ttruicIn.nd 

.. pr'o<in! of U.S. doll ....... p linn, .00''''' 

Europt." Ct",rol I!>nk (ECII) implorntnted 

'wo u"pmt<\<nred Ih,et1'<" longtn,,,,, 

.. financ,n,s open';"" (LTRQ,), .. <IiI<Iused 

i" xn;'" U. 

The.. nr'oouI _um "'lped II>hiliu 

m.,... .. in b.1t!e1l and "rly20!!, ....... 

~ ...... "' .. <l<cted in Spoin and half. 

~,~" ........ n'l'.,...'ondi_ 

in ,"' ..... am ""' in<rnood on« >po "' .. 

"'" pa!t fnt """'LII>. ... "" """'nobilityof ,"" 

....... !in 'U""""r I><in,s uodC"r .. un in "'" 

hanIeu hi! counm.. iI called intO quMlion. 

So..mgo d<!It >nd bank <t«Ii,opmod, 

incrnood for Spoin.oo It.ly. ar ... hrn"l 

~".., "'" fi ... quar'" of!e12, Cn;Ijt 

..,.-...Is ,emun ..... ~ted in "'or _,.;gn _.nd bonkl"ndi"l~ 

for bonk m""nu.. bqood "'" [e8 LT1!O 

p<riod of ,h,.. ynn--and mark! I""''''''in! 

.. main. irrtgubr>rith 1Idrt.d r«"" pr<IIU" 

""..,.-...Is in Italy and SpUn. The prillW)' 

buytn of lwian .nd 5p>nUIl,.,..,..;gn deb! in 

r«.nl,oonll .. h>\~ l>«n thtir own ~ 

bartb. wh~h in ,urn rtlyoo EC8 fin.1'I<in,s >nd 

'"f'PO"- PrmIe Iiorrip imtslOr1. ""h II prim< 

..... o), ... rI.t< lund> ( ... x.:.ioo 5.'). hao.< 

_"nut<! to red"" puticipolion in '0" ar .. 

".,"""- ' . 
111 


BOX C: RECENT ASCAL ANO BANKING OEYElOf»MENTS IN SPAIN 

$pail tm:IU'ICed ... ,kroe 9 .... I ~ I:,) rec,.est 

Iir1:IpeM lR:n (Ell aisIaroI I:,) ~its 

1m..tIIIId~_.Euo_fn.-Icarrnsters 

ntcaIed"h:f,' ""-":I st.ppOI"\ ltI&~ b"~ 1:,)£100 

bIbn no percent!:lGl:f\ wIW:t> is e>;>acI8d lOco.« 

MTIa1ed _"\3SOt~ needs pUs an II<HIiI::Ir8 

saIety".,..gn.()1Jtn!21.~~ 

ergaged 

~ 

by ltI& ~ ~ estrreIId ltI& 

needs!:l ~ biri:sal ~ 1:,)£6:1 

~. Moody's.S&P • .-.:IFII:;h~ltI& 

Spa-.sh ~ by $MIll flOk:tes 1110 !he BB8 

range _ tr>e 1ast two rna'IItIs, ~ reIecIr1g 

00'a0lIfI abou1lhe SpanisI1 bri:iIg _ 8I"d IscaI 

P«bm.nce. The SOUItIIi)l ~_t.JIowed 

1:r,t~!:I!he biri:s ~ NoIabtt. !he 

~ Mo-lewy F\I"Id (tM'l COf"ICUIed m 

Its stress te:sIS It0t $pamBgesl biri:s1lPllBW 

~~I:,)wi!hst8l"da~~ blbnLnllr""-.."..,,, •• , ... , •. 'O'n!Vi:> The mooooco""IiC~ g;.,.nt>o<.....,.tarI>II 

bmaI ~ is ~ I:,),*"" hs estrnaII. whic:I1. IIIO"I"ivs gnllailOn 1fom ~ op8I31i;)nL 

..., ltI& ""'9&!:I mos1 pIOIIU-'-!:I capitII needs 

(W:I biblln £100 bIIofi. A'Ih:ujlItJo ~ Ccnctm Klout SpriII1 ileal pedrnwo:e!las~. 

~ 1ha! n:.>ri.i1>:nII ~ ~ wi be bliY,I- abou1lhe prv;jolra!:l ~ In SlId 

~ -..iIh regWs I:,) bell Jdty, $pail trUSt ""* ~ ~a'J1Ij dIIIpanrI;!fIO'lOlS3on. As a red. 

8<isIi'lI} h:oI on:! SIIUCIlnIIltrm CO'M"IiIrn9'a, v«tI uo_ frlanco ~.".,oo ... 9 10 _ 

_ ~ aoped -..iIh the 9j. Spow1's ckti ~ raisi'Ig!he 2012 tavM by (Il8 

()1 ,kroe 29. 100)_ tlBIds!:ll/CWll"rTlilll aoped 

to use euro Mia furls I:,) ~ Sppsh bin<s. The 

~·sfnancen"irlslln~~1haI 

!he 8!18fIITIIIO!"M"lt*l be s9"oIId'" ~ 20.-.:1 an .... 

lI<I/"dIO.l!:l ~ bIbn \IIOUd be ~ by !he a"Id 

!:I~. The fIsds wi bedllmlled 1IYo..o)'I!he 8'Sf 

In flI Spanis/l \JCMlIIYI"IiIfI.-.:I1tm lra'lSf\rrad I:,) 

!he Et.ropean StabIty Mechanism (ESId) once I ~ ...,. 

opaauonal. thcl ESM IIn:lhg 10 SpaRsI1 banks wi 

beco:'no....-alHlmoNy.ltI&~!:Iasi"'ij1l 

q>aI'Iisory mecnanism for 0lU'0 area bMk$. I was bItB ageed 1ha! IOd I:r tile SpanisI1 brii>;I_ 

\IIOUd rIOI be s.t;Io:Il:,) !he preImd Q'eQIor status 

Imbedded nihil ESM t"eaIy. 

• .. ""001/_..,... 

perceNaga poi'IIlC 6.3 fl8U(lI !:I GOP 8I"d " IhII 

g<M'!ImIIIl! an ~l"I" 1n 2014-1:,)1owir!he 

deI>::o1 bebH 3 percent <J0Cf. The agNl'lI01 wi be 

madecikial.!hene><t~"..,.". ... M;2O_ 

The IIIIa>3b;)n !:I1scaI1IryaIS I::Jl:Ms two!l!l'lSials I:,) !he 

2011 h:aI deidI. ()1 Milf 20, "'SpriII1 gtJI'ltfTII'*II 

rMed tIS 2011 twget defiat ~ 1:,)8.9 pa"ca1 

!:I GOP Ittrn a prM:us 65 percent~, a major 

~ frtm the 6 percent Ia'ge\.II<:IIn h 0'00!I'IU1 rid 

h latest re.iIt;)n _liMn by h OI!tfds!:l regional 

~~tJe~rAreiorIg.,h!se 

regtOOtII delicb. M!w1<et reactioo IC dMIo::pmem" 

Spar\5<bsequIYt IC Ihe ~1lQ.JlISt _ ~ 

~ wirh _ ... II).yea' Spnsh II:MIftItt1l deC! 

~ 1 pero!nt 1100) .... ~ 
112 


........ and Iraok fuadiac....t.u. w.pprtIID,.... .......... ."."....... .... 

....... "" .. poua .. ""penphct):. 

-ud .... Spaniol! and ItaIiu ~ """ 

.... ....., .. 

Th< dttfj .. in y'od<b "''''''. ""II" of 

~ """"ric> • ..,...,.... bond! "'" 

bomfllnhtrmnlon; ... ",,,,,,,,,......,,. 

....... iltloip, ..... .,..lin< __ ... 

--.u.-...,.pobo. ~ 

artr.J8l!'tClll,lO-,..- ...... u.s. T~ 

,..w. bad drdiDod ... !bon l~_,.,... 

-')odytCIll. in pan ~ bodo!be 

Iooon .. p«<t<I ""'" of ~ inItm< 

I1It1 and • ioU in oht ttnII pmo .... Th< 

f'>''''''' of <Ie<~ .. in yitldlJw bttro Ii"';b, 

lor c..-. s.. ..... nd UK. JOomrin dtbl. In 

.J>pu.. lto)nr ........ rid>< peIds. whodo ... IIrndf dow .. II~ .... pouou. __ • 

"""10;' brIowiS _ P"""'...,.!be 

_ pon:.d. fQM! H~t 

EmnJi .... ~ IUItoI optad! .. 

Trwwyyidd'lI "' ... " .... '" IN £a..rz'tIJI M.rk~ Bond 1n<k.1'Iuo ([.1181». No .. 

• id<nnI ...... 100 bali. poi"u ..... !be poll 

,..... ~ HrlI'JoIr-Iarr<I!'iIIli .. w"" 

\loS. ua .... ..-.. crtdil oprndr.--<d\«""( 

ptool """'" _ ..... IlId "" pooD-bod i. 

noI;oppnu ... ....u .. .,....~ 

t. «<loll" ~ Tho opmdo .. -. 

lor othn 11IItflU'f...nrt. .... 1Iac1 ..... <t<I ,. 

""'f'O"M' ro R!l'II<! >nd poI;'in in ..... naI 

.,,, .. ,, ICh'r! S.U~ Son.. dilf ...... ... 

"' ........... 'IIfIIUItoI .. onom ... If< 

liUly l>OO<iaItIl wioh « ... ",., riIl.nd 

JnI"IlI ~ .. ...tI., rbrir poIi<in /or 

......... apuI infloor, .. -",-

SOU ..... .IIart!I:$ 

MOII..w-.lr'--rU, ....... 

.... .,-Io-M,,""-.-. •• _- ooJ ... ,........w. wi ... ~..,.,....t{ 

.... '*jnJ~---....c..,... MIoI....-__ ... ,...12 ..... ..... 

.-".1---11'-'-... _ ..... ". ..,.....1-- n. ... .".......,... 

............ 

.-~--- ~ ..... --

-

_· .. ~---, ____ .. :;----.::.----.::,,----;;.: IlI_"'_ 

a.1s,u ~lIIf'IIIkIId~ 

-- ~~-

-r-------------,- -- -

• 

Q 

,~ 

--

t -.. •• ." :c---;;;----;;;;---::,---.:: 

-~--- -~--- -_ .. _-
113 


•• nu I'rbClologesil SeIiIcIIII~"" 

_ ... 

!:.!aIl1 

-.. -~. 

... - -- blil:.ltl "'- A 

~~ .. = -~ 

-- n M 

"'~ 3 ." ---- •• ~ -"" = ~ 

~- = • -- ~ •• 

---- .~ ~ 

-... ~ .~ 

---_ A .ft .. ~ ft -_. 

_ ""'0010."-" _ 

.• ,--------'-'-'-'-'--------- .• ~ 1M 

• 

- •• . .. 

• 

• 

• 

• 

• 

• 

__ .\00. 

-- ... _.......... -- " r----------------,. • • 

· " • • 

• - • -

_.- _ ,,,,'IOC U __ 

-

1I..$...-r....uu....,.n.r...l .......... 

.,.......n..ur......-,....!011th ..... mtr M'tol! _. period of ~ 

'IObtilily (Ciw1 U. ~ IqUltJ "'~ ift 

a.t>"i1'oCOd and <ll><tJin. _,., foil "'upIy 

in ,ho ",in! <jIW .... offill! .. " ..... " ... 

, .... rnu--indt>dint iii< lUlfoIdinlllullpo .. 

<riu, 'h< "",~.rU..s.lilu!poIq, 

and .1Ioodow. in JIoboI ""","-ri(hod 

on_(Coanol.l.l).a,-"""c:r..ot..r 

toll, ~Sl-'~_>nIIIUId 17pm .. bdoot 

ill Irod. "" nod of )motto1!. Tho Eu/'O 

!oouilodr:J.~ ...... r.,....... ... ...-,.....d.~--...,. ...... in~""'""....w.AJ,-... 

~eased daru!c Ih< fin< quantrof 

tol!. """'"" in part" P*I <mini loonk 

~ and ""P"Il ~g'" of""'-;' ~ 

...... UnioN Swn, U,s. "'!""' ....... " 

,.........t IlI1lnf 1""'- 11 ...... ~r, .,,,,h 01, ..... 

rKrnllillll. in oht Unlltd Si>.", ~ mo<>«! 

1oI\owiQc .... ka liIan <:<p«td d>l.o OIIlht 

U.s. ~ wtal(lobol.....- 4m and 

.-«111<'"" ...... <lit tw<Jpna n-.AI 

ofjlllr6. !OIl'" SkI' 500 .... "'"'" 4 porttIII 

-.Ilwt ....... """""' ...... d 

101t.aooIbropou.n..,.. .... 1O 

,...,...-. 

_ ........ periocL .... Corp<n<t bond opmds .. .......... 

"I"'~""~ in ,1>< tin • ..! St .... and Uitop< 

hM 1"'"r>l1y widened " ... m.t.toll. 

all"""", ,hi! ~l"" br<n !no 

ptOnOU"'''' in Ih< Un,«d sw.~ ~ ponicvla. 

1taI"", ... t..... th< Iar£< d,..,,,,,,. btl ...... 

opmds ... ck\>I ioa>td 1w6 ........ IinIIo 

...... ~ fino<, .. inonIon 10<. 

... ... _I<d .... ""'u.iII_ 

fCIoon l.Lt). A Iimibf p>a<m .. lit bind in 

.... Idouoe ....... in COS ........ d"'-'a! 

finII 

__ 

.... """""-:iaI r.r-. r..-." .... 

__ •• """"'"'olEo .......... """" .. 

.,......, rtlk<tinc """,.,..j «III<mu __ 1lI< 

,,""-u,,IInO oC""," ualAotion>. o..nu. 

U.s.lIoIIar ""1""''" bond iuul",. h .. 

,...,.,nd<d """'1'1' i" 201!. parbcuW!rl _1 

nonIinmcial iu ...... 
114 


--

0... ... pull! -0.. i>mp nd>aac< 

........ ~ IIf<IIIIII' inftocIoctd ", ...... 

................... 1nd ...,.....,poIicy 

nJl«Ulioo"'. Tbt ... ro bnadlyde<~n<d .... 

,ho oe<ond .... f or2011 and fin< I\aIf olM12. 

w"h downsiclt p<<Uur< >pirul the "'*" 

ru,mIdn puio<Warl)' ............. in fOil 

.... toLt:Q!. J. doIlar ........ ....w._ .............. IliptI)-...t .... ........ 

pIxcd ............... ,.-frcao fwthn .... ~'o\ea~ 

dor.....,~ ........ ..r.""'"" ... thcs.n..fnDc~."""'I_ 

in\trYm"", • ., III< _ " .. .,.,.1 "'., ;., 

A"fI'M and .. rly 5<p«mbc1 2(111, cuhnin,,;o, 

WIIh lho OM .... "" ..... 01. fkx>r r... "'" <un>-

rnn."'hanr ...... Dawruidot preo1Ut< .. 

... _ ............ <III'mI<ieo abaICd 

___ .. .,.,.,!CIlt portnIarIropmoi 

"'''''' tbtaw. "',...,Ioad-......n 

in ............. rao:ttu ..... Oaobtt 

du-oop nrI)' -...-to11, odIi,..,... .... buyios doI4n, and 0100 «lpItd ill f .. \her 

nIOr'l<tII'f ...... throup thc md d. April tolf. 

Thtlmf"Ol""l"'Minri>l .-.... dwpmod 

.... 0100 uooci>Iod witb • partial r<bourv:I io 

....,.....pq -v. <l>I'mOCin,.r ... ,hoy 

had drpft<ioI<d lIwJiFio 1Ik..-.l ball 

fII!O/l u rdI«:o<d. Ihrod><r ~ 

...... ,...... (Om) and btoaddollar 

UId-.~!.I.l"._ =-'1'.....,. 

'-I'''I1IIlJtoI <lit"""" ltD """" 11M 

doIbr, "",,"""Ill inltnrntlOO by """" dw.. 

«lWm.u LO "'Pf><'<' th<I, ctlrrrnPoo. 

<honIl ....... ....".!Oll and.,...,. tolt, Ibo 

U.s, oIoIIar...,..ooled bf....t, 15 pm .. ......... _ .... broo<II)'~ 

1pIIIOI .... ,...,""'.....-..... -

.-pc..ntu <IIrmI<Jn. Opcxm aM'I$ 

.... >pIOpIoc ... ·~~iP .... proI/'CIioo "C>inll<un>6<pmi>bon." 

....... '06" Ih< pr;.. diffurntial bmoo<n ou. 

ol~~ P"'> and calb. 

-

c-..tiIy pnm '-disploonl_ 

......,ro. .... ,..._'""""...",..'" 

C11w11.UII u.s.0aIIrt-._ 

- W~_ 

• -• 

• • 

•• fir .. ) • ~ •• .. , ~\_A/ •• w .. • • .~ • 1 • 

• --

- - ---- • •• ... •• _N~_ 

... --... _--_.,- .. __ ._._ ... -_ ..... _-_ .. _.-

~-- . 

1'1' ,4 'Ho • i. 1'l • i! irl[ fhlHi

ltJP 

II iHI' JfJll!d

Jhl i l i, •• ,l r 

¥:.' 'Il! n'j1E," l-Jj'! J 

f l'III!II'r!IJiIf!llllfJl( 

trf{Bi 1.1 till I t,'.j tqh •. Pjp! H J 1; f Li a[= 
116 


btfto ...... ,harph. """""" b...&l-. _ ....... or>IMI ........... 1rodo 

..... ""'~ b.Iow 110: Irodo." 110: 

lilt me. (Out s.I.IJ~ n.. r ... ~ 

S)1I .. ond""" .... "l'!ranb""" ......... .. 

acnadourelnldi" ~ lht bola." .. pot\ltOI 

"'>f'hikulJllaIId. Iltlinqu.lI<"f ...... on real 

esuu f .... lo>m >I COOI...m.1 bonb dotIiMd 

i ........ ''f'l''"'' "' ....... 3 p<I<ftIllllht md 

"'!OII. oIiplr .... lht hmonaI ....... ." 

..... 1.6 pm .. 0-110: pIIl2O,...,. 

~u WIIoIaIII N'IIilg IUbl$ 

""<1""-' -foMdc ... ..". 

~ ..... o.m... • ...-.... ..... " 

1oIiI,."...... ...... _...,...,.,.,. no. 

~ ~ WII)-.. ..toou<lOlM/;l <lfnJioI ~J--l'--"" __ ~fO 

_ .... '"'*"_ ...... .,..... HooNo;""!¥u~ ......... _ 

-fO .......,,-lifIIfO';" -.l.IIIIOIiIa. ..... _ ... SlwJHtrm WI10IIAI ~ IIatteI:s 0..-

Sbonimo whoInal< fuodi"!; ~ 

whICh ,,,,luck larJt 0 ..... 0<1 'ht<linc 

dtpcoou. "P'f<tw.........."u (Jo-pool, 

""'_ p>p<r,pn;w;dc fillOllCial 

~wctr.'-h""""'I'f'Irmail dtpcoou IO"'A"'" 1hrIr ....... 1CIoat1 

HI4~5ourt .. .,,-..ia tIIt........u. 

~ 1\aIinc...n.n.~ IlrJoIr 

whoItWt <MIl pools. ""Iud"" caoh [I01h< 

b&bn« Ihrro." Q(lnfilllllCW compon .... 

reilM>l....,~." mh <OIblrnll from ."'" .... 

lmd .. " caoh hold byJooc-<ena """oai /undo, 

"""-....,. ....... f ..... n.... •• lln" • ." 

f ... """r-...n..IIf ... pm .... ." 

GOP .... tilt pill _ ........ >Ithcoop ... 

.....-.co Mo btn.dodinioIc ........ "" fir1I 

qu>t1<T"'20I!fQonS.1.1~~ 

ootpCIIJI< mil.. ia 1'"'1>Nlu ............ """"" 

..... ~, .. " .... 1'"' ..... thM """,ouod 

lhrouJII wIy tolt. 

M ....... 01 ,.Iian« [10 01>0<, ... , .... 1>oIH>1< 

fo .... i .. "' ...... " !rank"" &, .. <OrItI_ 

10 decl ... """ mD>in wli bdoo<'-'" pt.b 

ia !t08lOoonJ. ,16~_"""'" ill •• 

------'" -- --

_-0. .... .. - - " .... 1-

" " .. .. u .. " r "'-'; ... -

- _flOC . . _, _____ _ 

"Yc _ .. _______ ... ,c 

_ - .. --... ..... _--

'::·;'~;;==C~:;:-::;W:;:·~==7' _ .. _._'-...... :;-

- -- u 

- --~-

- .. - " 

- .. - _!:--O_::- O_::- O_::--o.:. " 

_ .... ,,---- ._-. 
117 


_ ''''"o~,, __ 

"\>,, .. ,e W!" <kpooi1 ill/l.,., .... 'nch h"'" 

bmI boIottred t, 'hr FDIC·' ... ponry 

........... 1 .... 11JIt~ .......... 1o<_ 

.... ......bnn .. rnru.a_ ......... obo 

.. pporl<Ol ,b;", <Ioc11".. 

Reee"'tlIOII~~.JOOII 

1I..<enr~i:$>poooibIo~ 

oIlhr l.oobIiMclrarIl 0I'I.m! au. (1lIOR) 

............ rtrr ........... oId1r<uot.-...l 

~ .. Iq>_rtrr....".,. .. /ilnd1llC 

..n.r.. UIIOR ............. rritrtnct ..... 

lor _lrntmr "It.smoo...1tId ........ 

.... Ioan>. -... UBOR mn.1t "'" 

,,,."""'"'" ""'. boIwt. tIw UIO« .... for • 

..... curn., ....................... boICd"" 

...... ~t,.~01 .......... _b ........ IIlC .. Ihr .... bWn·~ 

(aM). no.omnqolun •• -.. .. ....... rata m Ihr l.oobI inrnbont._ 

dtpmdo <nI<i>IIy on Ihr :or:o:wo<y 01 bonk>' 

.......... IhrMA .. ...,. . 

.... ". ...tiJ ,.,....oI....tia .. 1hr 

UBOl ..... ,,"",.-h<.d .. brlrod .. 

1007 ......... ><do Ihr ;",.p,.oIlhr 

LI BOR pro«1> n<ilitrd in 1>,. Ju". 201!. 

Sp«,iI<:olly. on ju". !'l. in "" ;nIO""'''''''''' 

.-.!i".l<OImfot<""""dJon, Ihr CITe. U.s. 

Drpor ...... oIJ_ (DOJ)" rbr UIWd 

lroPo- f".....a.I s.mcaAldoorirr {fW ..n. __ Winc ..... a.m.y. 

haoIl""'*d &he IlIfonution .. rbr MA 

.. ....,. ..... lII<mp'ed '" ..... ",blt UBOR 

..... >no;>rh<r bmo:hmul:.1hr Euro hllorlwlt 

0Ifm<I bt< (Iuribor~ ............... OC<aIIOII' 

lIMI_ on. rbilfbdo ...... boo.,...-

pmooi.-.m, .. ..., .. !II05. flo 

......... _I>n:b» .. ro....,. ....... 

1Id0l1hr ... t, ............... ~ 

nh.nd ........ nd.bnl<Ollndm,,"""'" 

blnt"n '"''''1''''' =niplliolt Euribor. A-.. "'hr' lhin", &rdoj1 ~ ...... 

-....-bodr .. bmdria ........... 

rndidc,.........>1111 III 1'""«'''-

........ P"''l''-'''''' ,-,,~_.db. 

&.01.)', ""mol in", .... rlrn>m, .. _ 

.... h Ihr CITe, DOJ >nil FSA.. no. CITe 
118 


imposed • S200 million p<1Ia!ty.nd "-<l 

'" Ord<r ''''Ium,,! 8>r<1ays to implemen, 

...... , .. '" help <murr: <Iut iu...tni>oion, 

art Ir>!1laCtion focuJ<d. lwed upon • riguroIn 

.nd """"'.......".", oIinf<lrm.aoioo.nd 

,.,. influ<nctd br"""fl~lJ oIint.rolL AIlIOI'\I 

",her undtrW.ingo in the CITe Onkt, in 

rnab,,!>Ubmuriom, &,d'J'l '='""t.,., w,u 

.". (iveo the sm"",..;pl 'ubje<' .. ctr'Iain 

rp«ifitd adjurrm<nlJ >.tid ~ In 

addition, 8>r<1ays ... , _,td '" ""pie",.., 

firr:...l~ ,. prt><'" ""p«JpC'I """,,"u,,,cations 

and .. bm....,.~ .... p:mol.~ion 

""""'mt.the DOJ 0!'d<mI e..m.,.!D POY 

.lISO mill;" pmalrJ, In "anion, ,t.. FS.~ 

impo>«l. pma~f of £.19,5 million . 

....... , Tho """"IJ...,., marUt ~ composed oIborh 

bib.ter:r.l 'llIUKliom ntpiarcd bn>lftll 

,w<! matI.n ~ ... nd !I>f>a"l' "1'" 

lr1rl,""tion, in wb><h the e<dI>ngt of cash and 

roIbter:r.l ~ >dm;nisrtm! bra d .. ri"!lwtl 

Tho Ii" 01 .... -..lJ "1"''''rUt ~ difficW! 

........ ", d .. to ' ....... b,td .... "jog.nd 

",,,,,,nunc «MWrnlion~ Atlditioll>lly, niK'", 

rLou do,.,. pro<'ICle ><Ioqu>" l'iIibil"yinto 

d .. composition 01 "1"'><I;,"ity, Clw1 5.1.1 1 

dirpb» two",...,.... oIthe .... 01 .... "1'" 

marl:<t:lri-pmyl't'pOS.nd prim'lJ'dnl<r 

.. po<. wh~h inrlud< both rri-p:ortr and bibter:r.l 

"poo.AocordinI'" bodr ""","to" ,II< 0I'n'l!1 

>OIume oI"po.><ti>'irrl't'OOairu rubsrantilJly 

lIOiowthat...., ,n the run ..... to tt..,hSII. In 

puticular, rri-p:ortr "1'" "'n'flY pnW in!008 

"SfJ ,ril[ion and fttl 110.,., SIJ mltion in the 

)'0>" litr<.the mel oIthe r«<soion.....u btlow 

prNriliIltYeis. 

.... the """"'" oftr~O<ti\i'f Iw d,dined, 

'" Iw.he Ie><I oI,r>di<iorW a.nd nor> 

,radiUOnal roIwml in "'i""l' ~_ July 

2008. TradiUonal wIlattnl ro<rliou oIT .... u'!' 

"",rit",.og<rq~WSttu';';" 

(.liM), ~ dtbtTlturn, and .gm<)' 

roIl ...... lilt<l """'PI' oIrIiption, (0100). 

NOlHnditioNJ roIlr.rer:r.l mdt>des """""" 

bond~ tqui<i<rr, priYa .. bbtl CMOs. ...... -

bacW 0«:11";"" (.I,8S), comOltroaJ poptr 

-.~ 

w __ , 

-.~ - - -

.. >'OO-. ... y_ --- - - - -

~ -- -'. .' -'. -

• • - ---_.-_-- --." ----....... -_ ..... --_ .. -.. .... --, ... _--" ..... -.... ... "--- "'-"'-

, ... ,,"'-". 
119 


,-_* "'_."'''''1 l_~USJ " r----------=oc-cc-, " .. ------ u -- " 

.. 

.. ,.,. "" "'" "'" _ ,,'0 '''' "'" 

-----

(0'), oo.htr MOIl<y."rk\ iruuu ....... ,_ 

100""00 .,"n~ipal boodo. Son.tr>clitioral 

coIl>t<nl >«011." for only 16 p.,,«n, <I ,n. 

pan) ron."r>I .. <lM>rWI2 (0)0 .. ~,1,18), 

down from 21 p<r<m! or lI>t ",,11 in M>y 2011 

1nd ~ »<IT"" in JuJy!Ol)8. AnIonf lI>IIilionl1 

<oIlattrol in lh.ltI-patlj' "l'" DWk<. ,he 

olure <IT ...... !)' l<tUnut> Iw ill(rn><d 11 

,he uptru< or "C""'Y pap<!. co",;'",,, with 

lt11lM .M .. in."I'M and A;p,l-IO-«IWiIy 

in r«<I>l ruN. ~t ... lJ1'<' or ~ino"l1 

coIt.."r>I h1", Wkn licnme.nll)'. wilh ptM.1< 

010. d<clining ,he ...... 

n..n,.", ,,,,,....,.I0I0 """ ..... >i>ouo 

>lr""un) .... k ....... in "'" lfi.party "l'" 

... rkn. (Sot So:. G: ~ Vw..u.bilili<o lo. 

llo. Tri.l'a .. y R<pO M.rI:t<.) 

Conmercial Paper ff(I As:s!).6acMd 

Q:lm:1\lrt;ll Paller 

CP ........ ndinll""'ked 11 S2-! orillion in lolf 

!007. nd.lOOd .. $1.0 orillion .. M1y-<nd :!OI! 

ICho .. 5.1.19). A. ").I»2012, ..... -back<d 

""" ..... W pap<! \l\BCI') o<counu for 31 

prn:m! orthe.,.,...... fi .. ",ial C<W1lmmi1l 

pap<! accounu for 4B pmnu, 1nd nonfin>n<iaI """""I< COIlIm<r<iaI pap<! 0WlWl" ro. 

:!O p,m,,', !1lWXW Cf .. >01 cmilica,,, d 

deposillCllsl ouu<andi", art around 411 , • 

50 pm.." bdow lhei'prt-<'fw,l""'band. 

rn r«rn1 mon!hl. fi!Ull<ial comonerci>l paper 

",,",>ooing IwconunllCd '0 dedi .. , 1a'lriY 

dJ>< to ....:1,.,«1 d,m: .. 01 from in",""" for 

fOrrisn bank comonerci>l pap<!. 

ABCI' .... only >bouI 6 petl.n, of <he .".1 

"""!!IOtIW pap« .... ,k! in I~. bu,' >«ounl<d for abou, 60 p<r<m! or the total 

.. ,rt.< in mid.2OOi, or .pp«I>1mol<ly $12 

1rilI ..... Tho...,1.<! Iw shrunl.ll<>dily .nd, 

.. d,ho ~n,"g ofJuly!012,,, ~ '""<nil)' 

,,_ $.lll billion "" .. <andin!, with n 

t..nk ...... ""'" cO<>du", .. rnpri~ng lI>t 

n>Jjontyol"lho .... rt.<. Tho Moody',downgrW 

<I I~ largo U.s. ,r,H.",,,,,. t...I.. inJun< 

2012, dil<lllO<d in 5.<,.,. U. 111O ...... Jt«I 

in lht downsr>de oI18AIICP condui .. tha, 

...,. on 'he>< t..." for 1;"flUdity"'pp"", The 
120 


afk<ttd «>nd.,t> h ... ~ a"""", ... d nJuo 01 

>lmooI 570 tollion. n- downgl>dndicil<d. 

lIOIic ...... mlr .... mpon ... wilh an in<I9>< in 

.... rotI.oI funding ,1Iest condUIts. 

--

Sc<uritinlonding iI . ".n..ruon indring 

...... mpon.ry ,runk,oI. 1«."'" ","_ 

partf (oh< Itndor) 1O_be< ( .... lIon-'!. 

in ",bang< for tdlat<ral in .... form oIti1"" 

aoh or "",,-<ash in"ru ..... ts. In"i,""'" 

may wan, 10 borrow .... mits to 11<iI .. .. 

short .. iii", for _'M Ittdg ...... to 

..,,;,j faili •• on. <l<1i><ry. Th< ... ,n Itodtn 

oIlOCU.w...ft i",," .. ""'>1 i ..... ton. ouch 

.. ptnlion pJa ~ ...... ""'n' fund>..nd 

i ... ran« "''''pan .... Tht m.in bortot",,, III< 

bodg< fonds, b<oI:.tr.&.lm, ..... """"' .... 

<l<ril~tM. trOd<n .• nd "",Ita m.I:.m.:.s"" 

"""'eWe IOCUmits lending;' dol>< "Ilairut """ 

coJlakru T)"phlly. oh< Iend<r oI .... o";'y 

M' an in ....... rate ,. oh< lion-.. for oh< 

ca.sh coJ.btml. I.rnd<n, in two. .... to wn 

aD OIIditionoi ...,urn "'" i ...... ire ohio ",lit in a 

""';"y oIinlll'llmen ... 

Tho JIobaI >Olut 0I"""n.;., Itnding 

"",,,,,ioru...,,,aJned f"rtr fl" oh'wthjuno 

!Il12" an:ov<ras< raJ .. btlow n <.rillion 

(CIur(Hto~ Th<KKal """"'~01 

>«uritits on lo:ut In oh< United s...,.. .. ... .bw, S8to bill"'" " tho <t>d oIoh< ... ond 

quJlItI oI!1ll!. About 50 p=rnt 01 oh< total 

U.S. """'" ~....,......,ttd ","U.S. "" .... "".nt 

>«ul"itin, about >Hl prrunl1>yequitieo •• nd .... 

~t 1>y fiud income ,<,<"ri!ieo. Rt""""""'" 

01""" coJl""raJ f""" >«un.;., Itnding 

dcdifltdin""" ............. ""'rcuf ..... Pi> 

billion in 't01 kQI to 1670 billion in !!l1!:Q1. In 

oddition. 'Il< ... ighttd a.n.g< lIIiI'Urilyot lOCh 

""" rti_,d<dinrd owtedlyinbte 

:!Cll. hl.rly in mpon .. to <on«rn •• 1SOCia,t<I 

Wlth!ho •• "' .... dtbllil"""", (CUrt 5.1.!1). 

5.U HousiIg Ma!bIs n.r......., __ If<tW4.H_ 

..-.I_"""Mlipoof",.."",.oft<r 

• /ootIMO UdW, N -.......",. oftm<a .... _~~/~....tt<r 

Cha15.\.20 V ... ~St>cl.ritlelonlolo 

-.~ ""--" 1_ ...... 

" " " .. U .. .. U 

.. -- " ._0' .. 

.. " U 

.. ~- .. u .. .. .. ~ 

- •• •• ." 

--

..... "" ... _-
121 


-~ 

"""""...,.,1 m - m m 

'" '" '. • ,. ,. ~ .. '" ' . ~ 

'01 ,., 

_""~Cool.oi<. "'" XCI "'" __ lOll lOll .... , __ .... ""1 ""'- ....... ~--

_.-

" 

" 

.L_" 

--..... _-Coolop: 

---

-'-

., 

-

\.~ :-:::- -=-:- :-=-:::===-~." -_....... --~ .. - --- -- _ " " fSOC 1/ ...... _ 

_.,Io • ...."w ..... ., ................... oj 

jI1R<JM '-'. ....... IM ~,....,., ...s 

u-.. .... ""'rfJ-l-".o/IOnPlkl4U<r 

Au .... ~_IiIt/>U,.."I.oJ4irooo, 

Il00........,. """""'_for..r. Au--.' 

kh<.u_""ooIs.In'IIs~ .. 1I./f)j •• 1M_~,._ 

... fi-n-I ....... <NiIwou .... ~ _ ___ 10-""""""",,_,,, 

""",""""" 'Iltf"il'/i< __ • ... "'offn 

................. ...w;,. •• .......,_i:I "..,...,~ ...s ~.,......,. 

,..,.., oIJibfo4/ J-lMvm. 

IIousmg Mmelo....m.w 

H"",,"~ ""mlj'lTIDlIm". hU'OI"'11)' 

low 1<..1. ilom< pri< .. ' .. "n...,;., d.d ... 

lh"""" Iat< fGU, ,"""'" .~!OI!.t.ow.d 

oigrl.of ..... liutiorl, includin&. rUe .. ..,.,. 

h<K>Iinz prio: iruj~ .. (0.,,, UU). Ka ....... 

hoIae prie ... ,.. still .. 1IIUdI", $0 pm; ... 

btlow thftr pm. in!006. Coi~ in", d", >t<Ond 

'I"'rI<r "!(ll!, "'""" I' million I>orotown<n 

Oad """'VI< babnceo ",«din, til< vatu.. 

dlllei, homn,. cOl'ldi,,,,,, l_n """n<pIM 

<GU;ly" (aw, ~.1 !31 . Ahhougto ho<>ii~"'ru 

and .. ilW,llIomo: .. 1<I rrnu.in lipiliuntJr 

btIoot prMrili> hl(h>. thoy '-n..n ""..,... than $0 p«<M! from ,hoi, mpt<"",!009 and 

2010 Iowt 'h'''''''' April20J2. Tho inm'I1OrJ' 

of .. isting 110m<> r.;. We hao """Iin.d 

Iignifi<1nt/y """ ohe WI '''''')ntS and is 

(U"''''I)'<OIIIJ>mbk' .. "...b WI...., in m. 

Indi<llOrJ of .mlil ~LWitr'n tho .. , .... , .. 1 

mortg.", 10<," <OIlto""" 10 ,.fl.« 'h< 

",.tlong<:! """r!'Oflli"~ ~D<n.nd 

Imlm. Tho r,,,,,;,., of morl", .. t1ut 

iT. d<linqu<nt ""'" "un 9!l <by! bill no< 

~ in [0«<"".,,;' """",i""" "f<1rtd 

10" lhe "..,adow i",",,""1" or OIn<' in 

d'''Jtr orf««Iosu .... Th,. """"r< Iw 

<k<hmd from , high or! por«n' 10 ,rourt<i 

'ptr<' ~ how<><,. i, """,i., ... rc.-.,cd ~ .. l>. MOI"tOW"t. lhe ... lu. I>«n li'll< ,h.n!" 

in lhe he';"" or morts.g«llu.t or. in 

ro=IoI!I,., whkh """;n, "".nd U pe"".' 10.. .. ~.u.). Th< in""",,,,! of ..... ,pg« 

P, : 

ill -I . 

, , . t f J f'

, 

l 

I '1"'! 

-1 '1'11 _'!:l 

'IJlllllllllllll!fltllliJi)IIII!llllliIIIJ ,'1,.!1, q .. i, fi' d' nH l' .,. " ,,'''' I . • • !! ... "fi!" •. ' .. ',T' PI ,HI·Ii ·nl l' hiHi.;1 r; o'! ! 1 i : ::I,iI ... . "''' 1'' jlifis J: .. r 

H i 5 - , I 

.§:.i 

, . 

E "r , 

'K r I' • • , 

... 

i ! 1 

Iq f • . I • !' { 3 

I ,it f 

i 1l2lJJ1 ! I J! 1. 1 - i !, ! 

I • ,. if if . If i I Ii I g I... :: 

& 

, J I i 

, 

-

9 

-

¥ 

- -

Q -, 

- -

I f • • . ,( .. • G 

I- ii i 

I : " I II , 

! II I 

! , :l U! i i 

I 

. 

. " " "'{ 

I" 

.J H 

ir'H I HHt t 
124 


provam>. prindp>1 t<d",tion,.nd <nnoition 

U!iw.nc.1Or t.orrow.n. 

In >ddition to thest progn .... 'hr 1"'<"'''''''1 

.~ h»~ mack oub<ltnli:il .tr .. " to 

odd ..... """ _"'I.nd fort<losu .... t..dti, 

lorn!y!Oli,49 ...... and "",kdml 

1""''''''''''' """,,,om!. $25 billion ... , ....... , 

wilh "'" fi"'llrSC" Ioan..mcm. Und<r 'hr 

'<mad"", ... ,I<rnn\, ~"l,_en 

.... otqwr.d to J>ir$, bin"" to bt .11ocat<d to 

SU'''' borrowen, • ..:1 'hr f'ItfA. In odd"""" 

,"""en m aloo rtquimlto dodia.,. $~ 

billica ..... <11 >'Iriotu /omu offinlncw 

... lid lO t.orrow.n. indlldinr mIuruon of 

principal babn«l OIl I" .... ith "'V .... 

<quily:u>d:wisuno: in rtfi"mci,,!, Thtt< 

ICtionl <OII\~, ", •• II<n' ord<n and o<h<r 

X"""' .I«ady btl,,! tal<tn br "'" occ. "'" m iC. tho FedtrJl Rc>trvt,.nd m. rnFA to 

>dd, ... >nd ,ontt, dffl;imri<:1 in morIf'" 

fO«<losurt promsing. 

~~EnerJYI$e$ 

G.:tmnmtn, ,upport to f'Mi<!ltX >nd 

fr<ddl< M" "" hrlp«l kep O>Ong1gt mdil 

marku func,iottin" .. pm..l< l<CUritiulioo 

llrtdr mnoim ..... nl At ,be end rJ.!01 I. GSt 

_'PI" ,t<dil fIow ao:cu"t<d lOr 71 pcr« .. 

oflOl1! ~ ons;'''''''' ICba" 5.1.!S), 

""' .... r>biy h;,;hrr lIwI pr..rn.;, 1e>~Il."'h 

""'" of,hr mlu.in"1 oriJl'fI1'ions _ing 

from "'" f«lml H .... llngAdmiru.u.lioo 

(IliA) and o.p:o" ...... o/V<ImII. Albin 

(VAJ·Itc>idtnUaJ ~-backd I«llritin 

(RMBS) conti .... ,. be i......J "*'l' br bowi"l" 

rd>!<d GSU and Ginn i< .It .. (G)l~tA). With 

r><JIipII< ;11_ of 1tCUriu<1 II)' """"gttq 

tn,ru..(CllanHl9\. 

The r,,,,,,,w jIOIilioo rJ. lbe CSt. hOI 

i.,pRMd .t(fntly. In !OI!:Q.I, Flmn .. M .. 

nrntd $2,) binion '''''''''''. and • did "'" 

otq ..... oc\di'ionaI ~ '''P?'''"' from 'hr 

I"""' .... l In """"""'- Frtddi< Mx ."...1«1 

.... ;""""" po oI'$5J) minica b-lh< ume 

'110.", .. and i .. «kinJ .. >ddittooal 519 ",iU"" 

in "pit>! from 'hr T ...... I)' IOu" 5.1.:!t~ 

Ahhough lh< loss rol< f_ ';ogk-f • .,ily 

Cbu\ 5.1.28 .Iib1OI9I ~ 

- eoo_101, 

• -• 

• • 

• / • 

• • 

• • 

• ~" • 

• - • 

• • 

• 

~ • - -.' -." ...... _--

-. ~ 

-~ - -- -

iliUblIL ~ ----

-.~ 

• -.~ • 

!~lW'1" r' :: 

• • 

• • .., _.--- .., "-" '""''''''''''-CC,--:=--::--:J ... ,;. '"" l<IOI l<XII "''' ,.u ",,'" 
125 


_/II,e 

_ .".'ICCII __ 

....... hal limo oIrdionni. ..... KIMIJ. ail __ ... 1bt_ ....... oI ........ lhrcsu.A>oI )1_". toll f ...... lla<1I>d F...wir)Uc 

'"l""""I~ ..... .......... ..... 01',1 ptra'IIj and U pmtnI.........-... rtprn<nt'", .... IownI dt~oqutfq nt .. 

Iincet009. 

5..2.1 lID HaIlIng CMpInies 

.. WIdr...,...(IHQ;-· ____ .. 'C ..... "'"' ...... """"' .... ~Uf/MI 

n41ip"'''~'''''''''''''',..-JiIJ _ _ or" to"w MalIC'.". ... ..,.....1 .. 

",.....,-."'...w.~~~ 

....., ......... IIooI" .... IHCo_ 

--..,..., ........ ~....,...-

............ ~_ .. "*-J 

..... " ... ,..--. _fl .... IHCo_ ..... " ,.....-'01.--,. ....... t*t,.... .......... - ... ..--.... "JnII ... (CDSI .......... MoW .... -... 

"rww_ COIOIi, .. " t.h" ... Io'J'll" 

-...... - A...,...,.oI_boolr ........ "'" 

br 1lI1Co. ...... .w.1Io< _ ood III)" 

.-.k -.t......1OIdo .. brokt-<lealm. 

............ ...,...... ..... I'U«~ 

A> 017<>'--' toll. Ihrn ........ 741 lOp \lff 

811C! in the Volle(! Su,.. ( .. dudins Pumo 

Rico), .. ""."....1< w<u 01 about SIH 

1riIIiQoI. Au ....... pmu"' __ in !OIl 

IOI1W SHe biIlioa, .. irInns< 012& p<rmII 

m:.20KltQartU.I~ 

~"~ 

I. ogroptt. e>pW ...... 1or BliCa....-

m:..!01O:Q4 .. 20lt-QI •• IllII1o<_ .... _""",.1 no .. ....:itr('llrT<llt no&-

_ apIt.l ",In (°ft.1w1I·) ilK ........ ! I .• 

p<r< ....... po<""1II 11.1 ptr<t1lt","!OIt:Q1. 

I ......... in rmintd <lminp. priIuriIy 

rn. JI'IIOIMopmU"S .......... CI:IIIIribI.IOf'd 

U ............................. -.t.iIr 
126 


odditionaJ npi,al raiIi '" co.uribu"'" O.t 

""" .. ..,. P'Kn" (Chari ~UI. 

For ..... 19 btgnr. u.s. BIlCo,api<al "n;'" 

<OIl."'" to imf""IMlrom posKI"iriIlNIs. 

w'lh '''':rur<sl<C ,io, .",.<Om""'" <>pO>! 

.. oio under 8aJd 1 ilnprovins l~ ~ 

poi ... r..." !010:Q4., !01t.Ql ., 10.9 

pert .. , la..rt U .'J. Tho!< 19 SHe ... "" 

undcrwntodditionai ...... "'""II" pan 

ofrh< Compr<h< ...... Cap;O>!A...,... and 

Rm.w20I! (COol !OI!). Simi .... ., ..... 2011 

.......... COol 2012 ..... fon..rd..Iooti"ll 

CfOIHt(U<II'I1! anaI)1i, dcoigncd., ..... i .. th< 

capu.aJ pIanninf: """""" ar,lrv 6"", ~'''' 

,,"11<1.111< F«I<nJ R....,..·'naminatior! .... 

• RIpI'f'"ioory.......".".<I. capitol odeq""'1 

undc-r. b)porhrti<'ol ...... o:...no. This Mms 

«mario "" 1I1IC1"odcd LO 1Idp""'''' rigorouI 

........... ofth< SHe.· copitoI pIam.nd "'" 

Ji&ruli=rrly """" ....... lIwr prior""" ""~ 

for ...... pIt. OlIO <1.111< IIIKrootonomlC f>aors 

\JStd in "" iIrn<!I(....no ~ rh< u...,.,.","I'I'InU 

,ar,. -.hich pI"1I .. jwr. ...... 13 pnttn, 100-

COol 'I!lI!--ron1dtnb1yhp than th< """"""'* wms!l(tnmOl in bo<h "":!OO!I 

~CapiuI"""""'""'Pr-oz""'(SCAp) 

and ,'" priory"" COoR =is< 1000.r! U .tl. 

In ,'" h)"JIO'hnical M=o " ... rio. ,''' F<dcr.tI 

~ pn:;.."'" lIr>' rh< 19 Blle.-.Id 

h ...... IOUI <I.$4~ billion in Ii<!.",. <Om""'" 

capit>!, implji", .. igg", ... ,,,, one rommon 

.. rio undtr BlId l<l.6J pnmrtartho.ndof 

I'" n'~" .. , pro;.nion ""riod---.-.ll aI»I~ 

tho ~ pl'IT'n' I>IJrI ,1Ubi;,bN in rh< Caflit.al 

!'bra luI< iIw<d by 'f>< r .... 11l R....,.. in 

Soootmb<t !OIl. n.. pro fur ... , ... 10.1 Itvd 

und<r "" M ..... ""n.rio "'IUOlll't>.<mI<d 

..... BIle.· >u",.ltlin-OIIO """""'" lOtio 

.. tbc ..... , of ..... :!00!1 SCAI'. rdk<ti,,« "" 

..,.. thlUl nOObiU"", ill< ...... in '"" OIl< 

rommon «!u<y" ...... SHe. ~n« wly!OO'J 

(0.." U.Jj. 11ow<\n. 4 of tho 19B1le. h>d 

OIl< or...,... pn:;..:led .tgubrorynpiul .. tios 

lall .....,.. "fUto''''l' mini"", .. .",,11 .. _ 

poUl' .......... M .... 1ttIIario horjl<l<l. 

ttIwIS.U Ching! iI TIer 1 CooIIIIOn Ratics!Or ~ 

U.S. BHCs 

" .. '" " 

~ u It " -• I ....... _- - "", "'-

-.- ---~. 

" 

• 

--_ ..... 

_ ...... ... _,."ot _ ...... " 

:1 u .. •• .. • .. .. - ••• L,_;;-,.;;;_:;;C_;;::;--_,,- '.' =="---= 

" 

" 

• 

_"'.0:: 

_ ... _",,0< _ .. r.::;;:::::=-=c-------, .. .. 

~ -~ 

" " 

_. __ r-.. 

~---
127 


_ .. 01.",,, _ 

"r-""",~ ,,,--c,"'-,,,,,,c--, " 

--.. -

10" -loll! 

....... --.. ---- ---

_ .. _-.. ~-

":"r-----, .. ,"'::,"'c-----,":" '

, . r'::s:'Y?\'" --1-- ,,"'" '2.;:.. I " 

• • I.. '010 ltOI mI "'" 

__ ..... _ .. _ .... _ ..._uo_"' ... ....,. 

-",,«,-'OIX~ ... , .... ---~ _'f .... -.. I0_~_" 

___ ",c.,... .. WfCo., .. __ _ 

_ "" "CO II ............ 

Aloof with h>sl><'r <>pIUlleYeh, bobn<. oh«u 

"th<blt<IIBHCocon"'uttoi>< ~n>b.JSI. 

as ....... btnltl< -.liqWd ond lilbiIi6n 

IIIOI't IUbIo foI~ lho 6".",,0.1 ,riIio. 

In paflkular, It.: ffxticn d ....... on SHe 

b>b.",....." roruiSIicC dhighly liquid ....... 

~ -. Ih1n "'" 1I10000nl drnalioru al:><M II, 

~from 1995 toth<ondof:!llllla..n 

U.JI.l.t1l ",I;'r.« on >f>orH'Im .'t>oInak 

fundi", (CIIa" >.I.n, rombin«l wiIh an 

inc"" .. , in cor. "'poW. offen, fIIO!< 1I1"tNt 

loci ruiliml fun<lin! bast, 

Sin« >OlD< of lhi> ' ....... ncins....,. from 

"""' ....... Iunding ><""" ,II bon., in """k of 

mpto ,!",Iny br wholeWe lundi"l 'upplin> 

....:I ~n<,""" of rbe inu .... in «« dtpooru 

III>ybc """,ial«l wiIh "'" • .tp>rr6<d FDIC 

1""""''''' thai isKhodultd to "pi",,, the 

end of:!lll!, "'" Ionger-run p<MI<1K< oftlr<r< 

b>b""' ...... i"p"" ..... nll il "n,esoII-od. 

~<R<I'I<f.101D< banb to..., b'l" .lIIOUntI of 

"""*»10 fun<linl thot or, "'" """, •• rily fully 

c.....-.d br liquidit) buffm. 

f<Ir U.S. BHCo with ....... 1ero ,un S50 bill;"'" 

rbe tier on,""'''''''' """ unde, 8>..-1 1 

impn>v<d by appro>i ... 1dy 1.6 pert<n,,!' 

point. to lU pert",t".,.,.\be 1!010:Q410 

1!01!:QI period. prirnarilydU< to "'pial r>i~ng 

(l.4 ptttt ... poinll) ....:I po>ilM: ope"'"'1 

=uh. ro,nribuu"l to reuintd .. mIngo 

(11"'=""8< point) ICho,05.U~ Thn< 

incm ... wm ........ Iw .. qaled by \be 

inc, .... in risi;..mv1«1 ...... rIw rtduced oh< 

tier .... """""'" oapilai ratiormdtTB>stII by 

0,) I"'run .... ' poine 

.\WI) SlICO"""' ..... to""PV In _It .... '" ,tpUKharn.ocI di\'ld",d P"l""" in ...... 

d <OIIoinued «MOr\1ic III'I«:f1ainr,. forW:oml'" 

IrW><r "'!Iubl"" e>poul ""I"irmr<nll, ....:I 

",h:on«:d rtgUb.roryKnilioy. Althoof' II'I>rIJ' 

d\be 19 b.rJnI Bile. INI p>rticipattd in oh< 

CCAR ",,"mod diitributiom d<apil>j in the 

form <i <IMI<n<b .......... "l"""hwr i. 

:!Illi. U.s. SHCO ..... "nil" oIigl>i inc,..... in 

diridendI....:I. nO! ;"uanc,of _moo <qLlltj' 

in 'W'P" (Cllan 5.1.91. 
128 


.... 001«1 in !he Council', !OIl Annual Rq>ort. 

!he e...st] Commit ...... BankinC Sup<r<WoII 

(BeBS) lJr..d in Do<nnber !OIO ",.further 

rm..d ... of <>piul ..... liquidity ot>nd>rds 

coIleaivdy rdesrtd to .. e...stl m,lnJ""" 

!01!,!he Ftdml fDIC,>nd OCC 

inlitt<! publk ,,,,,,,n'm on th,.. propootd 

ruks <ha, _Ill rtrisI'.nd T<pU<' til< >t<nri<s' 

""''"' <>pial ruI<>. Thne propoool>_1Il 

irnpl<mtn~ in !he tlnittd Swn.!he bid 

III rqul1tory<>pit>! rtfonru from til< BeBS 

and ,ho ch>ngn ",,!uirtd bf ,ho Dodd·r...,k 

Act.A ..... golhtr minilllUm,WI<I>rds. tho 

proposal> _Id..ubl;,),. ti<Ton. «,,,,,,,on 

<qUi<)' "'I"i""""" <qU.].,. ~ P"""'" 01 

rUk-wt<gluedas><U. 1,_1d 1ho..ubli>h • 

<>pit>! '""KMlion buff ........ tho minimum 

ri>k_ 'apit1I ""!U"""""", -'tkh "'"" 

be m>int>in«i!O mill mtrit!ion>on capit1l 

dillributionl .nd ' .... in di1cmionary bonus 

paym<n ... A, propot<d, ..... consis''"' with 

8asd III, unkin! orpnil100.lI V"...ny 

_Id btgi" implnntnLing ,ho propootd C1p<t>i 

monru on Jonuary I, !OI!, ..... _Id be rully 

wt;tu to tho ........ ncbr<b "" Jarnwr], !O19. 

Coocorftrllly. tho >t<nciel1I>o.ppt'>I«! a 

fin>! nil.., implc-mm' dangn!O th< owk<t 

risk<>pitll nll •• lndudinz"~ m>d<b)tho 

8CBS in !OOS.nd !oIO, III b<! .... upIIill' 

p<>liliotu r .. ""kh ,ho ... rk\ riok r:apiul nil< 

;, ~\<. TIl< 6",1 nok t<iU bo .f!t<,;", 

onPn"aryl,!O!!. 

In """"""""" 2011, !he BeSS ",kal«l '" 

IrutI<"oOt\;.nd .... " ... n' n><IhodoIorY III 

io:!<-ntify P>b>1Ir '1"""i<1lIy inlpOrU"' ,,"n" 

(G-SI&) <has "" wl>;jc<:l to "" 1dditioo.o1 

rom ...... «lui.,. btt on ... pial buIf<-r ... nJin! 

I""" 1.0 to 15 p<Kftl1 or risi.-w<ipttd ....... 

Eight U,S. BHC! ...... dnipattd .. G-SIB.M 

"""It! II< subj«t to !he high« <>pial modard. 

Iq>nn'''8,n !OJ .. witb lull ,mplnn<-nwion 

br'1019 ..... with s...11I11Ilnd>nIs. tlK C-SIB 

r",mewort, """"'" ho i~ by ...... ba 

junsdi<toon, in., ,ho ... I"",] capit1lrul<!. 

--

D<opit< IIf<'l!lIh<ntd bW.",.1h«u and 

Iiquid'y. BIlC IIIlIht indbson h1I~ ""'" 

-" •. WOooolOl101 -~ ..... " 

" 

" 

" 

" 

" !! " . '" " 

" • • • ., -,_:-,.,_:::"'_::::;-C_,,- .. -['00II '-_ -- ---, ... 

_""-Ie 

" ---

" 

" 

" 

" 

" 

.. - -- 'II 

• Il ~~ II~ . • • 

• • 

• • "'" lOCO ,..,. "'" "'" 001' _""-Ie ___ ..... 
129 


- [00 Doooc 101101 

" 

.. " 

.. 

.. 

.. 

., 

•• 

., 

." 

• .. " .. 0011 ...... ..,.... 

~ down "r«J<l(..,lIaround po«nual 

~fmmwl<1p<,."""'gO!hn 

1'\Ilnmbilitito, d~ furW< .. S<ci:Jn 7. 

II'Mhio .... """" 0169 fIIlCs..1th ...... pntcr 

<IwI S10 billion. "II"S"'" pmn in<oaI< 

in<mIed ",'to pcmn< in 'lOll.., 11$8 billion, 

but mum"" W<!IIIiIl rernaim """"" <IwI the 

......lh>t~in .... l0,......t..fo.."'" 

'risiI(Cbns.!.I~). T .... illl r=nuein'lOli 

.... n<pi.oIy lfftatd by Wrp/y Iowtr clitn\ 

I<tn:<y:ond >OIumn:tmill r..BolEurcpt>n 

<OIl...,., and ''''''''"'' of""',"g PJbiI 

t<Oo'IOIlIic p''''. tam'"~, ..... abo ""''''''''r .rr..ct«I br .... in'rrno rot< <m1 ..... mrn' 

,"" ... ;..,.;....1.". .... ""''''''''-' .... ,...'''..-.1 Iowtmn prtmiumJ. FurthtrtllOft,WO',nutt/y 

4(l pert, .. orlh~ p<<tu_ for !OIl .... 

doe., IWO _urrinloccwnt"'! ittm>: (I) 

in< .. >l<d rtIr .... or"""",,,,,,",, .,.... (Ill 

loa .. and ....... du< "' irDpo:<Md<J<dillJUllir. 

and (t) »nlIt<I·&tbo.w.uoo odjuI<menu' 

(mAI),~dtmastsinlhtnu~ 

ruu. of> BlIC',Ii>hiliI>n;, booI.t<I ... p-nfn. 

l,;'undeor",""""""", ","",~rring 

"""" will «l<IIIi>utt 10 tho profu>hiliIyofliS 

IIIIC1 Pot~ ... the p><.olm<rW 

......... "",ti,.,.. to d«lin<, ond po«n,wly 

tiCh"rung <mi. spmods~ ....... in 

mon1koflh<>< 1tIlJt.<<Mnat\:.tt O\'Ap"". 

On JUri< ~l. :!(lIt, Moody • ..,,,,,,,n<td o.ht 

,.....luor .. t<'I'itwdthe, .... i'l"iIin«>'" 

Iar&t intml>,ion>l bonb with p:.b>I ~ 

m..uuopmtioN. ,Ift«n gIoIlaI bank< ...... 

<l¢wnl:r1d<d. with 10ol","", bonb incurring. 

,.........a«h dooonvod< to Ihrir Iong-<trm I'lIings; 

CmIiIsw... .... doo'l\Iroo:Iodoh ... ~ 

(In oddiIion. ""dub banb, Nom"", and 

.Itocqu>rlt. b;I b<m downfr1<kd in M>t<hj 

lbcst~-''''''~III)' 

Moody·.of~,""" \1II(orwnIi<I:wo<ial<d 

with <>piul m>rtrt optntoom. 1 w..., •. 

• 'ioody',<(lrltinu<> Lo "~It. """" hiply "-

banl.s ... n"'h .... wp<rior~' 

<>pOboliti<o, 0I0<t COI\KI'\"W"< fondin{ pro/ilts, 

mcI/ ......... rdianc. on capiW "'""'" 

><tiritieo. The>< r>linz' 1I<tiM ...... ~ 

ill ~ .. wi'" ourta •• pt<t>.tion>:ond with pnc. 

JUic!ln« f"""Id<d t:, Moody'. in februaty . 
130 


MarUI nicalors 

Following <he h<igbtcntd I<m of <lure .. in 

Clpiral m.rku d1lrin, ,iI< roocond boll" of 

tIlll. =rUt. indbton for BHe. rcfk,:,«1 on 

improred ;n ........ ""tim<nl and F<"t" rUk 

app<ti .. ;n nrly'lOI!. n.... i"'~~ 

b,.,. ... «1«1 <lurinJ til< _ quan<rof 

'101!.11I< m • .u. upiraliza_ ""'I!h«<l prieto 

"'""""" .. ""of <he';, brgeo' BUe. i"'f"<"'<d 

in till!. but ""rU' """'tloru mIIlin<'d '" 

mort thon !:'i p=ent dil<oun, .. bool. ,.1 .. 

in Julf !Ill!. wIIkh ~ bdow boIh w pr«tUio 

I<m and ,iI< ... "I< I<m """' <he posII2 )n" 

10.." 5.t.1I).ln Iatr 'I(l1l, on equalIf""'«h«<l 

"""'" dCDS oprnd. kif ,ho~. ~o/" 

BIle. rnch<d Itwb b~ ...... during ,he cri>iI. 

SprndI ....... in .10<..,«1 rd>,;" .. tarlrtllll 

imK{Ch.,,5.!.It), 

S.2.2 mn.l DeposiDy mtilutioos 

PtrJ«-ott ...... W-"'* 10...., .........,_,.""-4.~1RIIr1lt 

p>Iml~""'f'4Iily_w 

-,. Dt>ptItIlt .... "Io.lIM'" ~ 

1It-..l1o...., ............... .... 

~ OS iMrrr"'''''' .... _loprf kw/r 

,,~a4_,.""~<>iJir. 

Insted Ca!Ime!aaI B.!nU IIId Samgs -"" 111< boni.ing il>lhutryio compoo<d of mort 

ohan 7.»J COIIIme,,,,,1 bonb.nd "';n!' 

inslitutioru. Of<h<i<, opproxi .... riy 6,000 

inllilutioru 1'''' .... 11<1. undn-SI bi~ion, 88 

i"""Lltio'I! hzoo...." bet ...... ll~ billion and 

_ .... _f.»lI>l, _ ,--------; 

--

-• -

-,---

.... -

• 

!c ~";C~C;;C~ "'" ., 

-- ---" .... C ..... WFC, ...... 

.100 billion, and 19 inMi""ioru hzoo...." .... ' Q1ar15.2.1l FtIC-ftsI.nd faledilsli1\llklnl 

Jloo billion. hilum, ...,...... atId a tkdi ... in 

<lIartning ><Gvitf ~ <mtribu«d .. Iur""" 

<mlolidallOll """' III< ""' ... mJ,. .... 

rillu ... of ""um! 6<posi<ory instil"",,", 

<ontin", .. &eli ... from <risir ~1>. .. 9'1 

in~~ution, ,tpr...mng $lS bollion in...." 

falltd in 1011 (Ch>11 U.l'~ An addil"",1 

31 in>urt<l i .. ti,ution. h ... lailcd thur fu In 

101! (til"""" J"If 6) "l""""'in, fl-6 billion 

in ....... ,..,of.ltuch ' l, '101!..,.".7n 

in"it .. ion~ ><COU"t;",/« 1M perc ... " of>!1 

in"n .. ion~ ...... "" th< FDIC'. probIm bani. 

~ 

_. 

-

~-, 

,._,., .. """"'" 

-

• •• 
131 


-• 

• 

• 

• 

• 

• 

w~ .. .lfII> 

~===1: 

~ 

• 

• 

, 

• ~ - • 

• 

• 

• 

• ~---- _., .... "'" 

• - :c'" ... :::-"'; .. ::.c"-": .. ,.:.---; .. :! •• 

----

,," - ~~-~-

• 

• 

• 

• - - _ .. ""~c,,_..,... 

-- '"." .. , 

-

_ ....... 

_ .. 

• -' 

• 

• •• 

IiK.nhinlnciaL.".....,..... 

__ !htnInotoI ...... ... <OIIlioooo:<I ~ 

r.n-;.IrioIIiIiq 

Pr<W ... i_ for U,s. -rn.I ban)" 

.... ..,;nri .... "'''''' ......... 'I59.3bill>:)<l 

in toll. "1"""u"'1'li(niliCl .. in<n: ... 

<Mt tolD and • conti .... , .... 01 the rob,,, .. eI 

ioIbo<inf Ito. ,m.. A ....... nd in crodiI <pI>h<I' 

nhllw~"""""ol""''''' 

proraiooIoaad odorr..,... ... """""""' .. ....... ""'....--.. ,..,.. .... -.- 1iIIct:root (Qlr1 U.14~ AkIIoup .... ..... 

u...;.....,.."d (.-.rybanh benrfiIrd 

_....tun ..... ;" ..... "It>«~ """"",.it, bonllllM •• p<ritnctd,,,,,,,1n 

,"' ..... in ........... ,1\1n 1>'1< ,,".41 • 

...... ,_""1' banI" """""" II>Q .. I 

_ cm!~"""'" W«imd WIIh robtMIy 

-..d,--io!lo<~ 

ral __ ............... cIrprnMoI 

(CbutU.l'~ 

""'

The "u'""" - or ,rN •• ".,.11 cltdi...t II> 

1.09'4 i.IIIt.Iio." bf )'1'>1,,'" !!l1l. down 

ffOll 7,»9 • .,' ...... nd !GIO. This , ",,"'011' 

drdill<;" II .. """""',, credit """"'" io in 

lin< nh rt< ... tftIIdo. A.o ill ...... J'l'Uol 

...... k"".-,-.-...tII<<rtdil_ .,..... _,,"-~-=c<I.W1IIo 

,lit .... 100 o.dII oaioM III<JftsItIf w,r 

dw. ollOUl <m!~ ""ion ......... " pm .... 

(CIo.fI U.I'). Cotpon.te crtdit "nion>-

which 1""'* enll(ol sm'O«' ,. !he ~r 

, ... hl un .... ..,... .. -ar. oonsoIidati"ll.nd 

~ ..... ....,. mon.. d><ir 1Kno .... 

....&Io .. ~.,.,. ..... "'I'P"" .. 

.-... cmI • ...-raiwlt: ....... .... ...,...,.. .. 'M ...... .,......., ___ 

Ai 01,.... .... toll. oloert If< ff totpenIC 

cm!io. u" ... , WId! S~ bin.... ill """",,0 

de<ti .. r_ t7 corponI< m<li' un.,." "i\h 

S96 boll"" In .... " in !007. 

Tho mel. _.".... .. ptriIn<ed .. 

....,......t .......... -'>II(W iotolJ ollii 

... p<OIII>. ....... fr-.liO_pooIII> 

ia!lllo.~mdIio. ......... 1k 

1!-' ;-1 

" i ... 

, I'" .. ." '" " II IS " -I ; .... 

I II s. 111

11 

II i 

!I Iii I 

i I: 

II ! i 

! , ) I • 

.. M '" II IS " '" I 

1111 il I 11f· , lIil 1- · i i E 

II' . , "f !I 1

_ 

i I 

I I i /I I;. & i;. .. " II I; IS iI 
133 


CIIIIIU19 tLs. BrlnchelnlAQencieloI f«'!9I 

........ 

--- ----- -_ .. _-- CIIIII S,2.2~ S.~nlAoenQeIoIf«'!9I 

---

----- -'-- --""---' 

_ .. ">Soc,, ...... .,... 

baI1\i!'\jl""'" n.... <t"";,, roprtttnt an 

imporunliOU= 01 , .... dil for U.s. t.om-n, 

Thtt< art dtffmnl bwneu mocIeb in the 

opt, • ..,,,, olbrand ... in ,II< rnit<d St .... , 

with. mix dWJ<l«l in>'<1lmrnl and ..... 

""'''Kia and. ""'" d d,rr. .. nl fuodin& 

..,......., .... On .. -mgt, brancll<»nd 

ogrnc;.. ~lyd«li<o" """'" '" p<r<tnl 

dthe" balon« """'., ""'"~ t.o.can difl<, 

lUb>un,ixU,. in the c ... pooilion of thei, Itnd"" 

"'''''' c ...... r<i>I and ind."ria! (<:Id ) ",tnit)' 

1m", o<htt U.s, dom<>ti< <II ....... ,.. Dirw 

Cl:l loom OII""odlng br u....lwlb. -.micll 

~, ... ojot"""""olfi".""in,,,, U~ 

bu~ ...... and in,,.,.,,,..! pro;.ru.lw b<tn 

.. hie!>" 00 billion. bu, IDOf< ft(mtly Iw 

Wltn d ••• , '" 1:160 billion, WI oltoUlloom 

dO\<, M billioo (Chan 5.2.19). Olhtr 

l«IIrilios""Id":w<Uh ... riomlilUJllr 

from:Woo' 1~ billion jlfNrui. '" cIo><, '" 

11 'rillion br :t01:!:Q1. Somo ol,hose bra ..... 

and acm<;" alto O<nd doIlu 0.... '" ,lint 

purn,,,..anil>'iom and rd>t«I affil", ... 

.. ind",t<d tor the ~b 011'<, 0 ... from 

1l<U!«I Dtposi«:o'r hutin""",. in 1M bal1n<. 

iii ... decompmition> in a..... U19, n.... 

fIowl,uppo" doIbr Itndins and ilnn""'" ><tiIitia in the Uni"" 5<0, .. , nd .IIn''''' ... luroptan pmnt lwIb in p>ni<ulor hal. 

xlMlr ustd thei, 1nn<!In '" _K< dollar 

fUMing; Outw.nding pooiciom vi>4 ... ~ purnt 

lwIb <IIrn-n"r If< lllll1ll« pn«ntage d 

InlKh 0IlI! "1<11<)' .... 1> th,n "'Ilj' poin' in 

...,"'" hilt"". 

Tho: li>bili<)' >ide dbob""u""'''ol ,ho U,S. 

branch...0<1 o.z""'" dfor.,," bonb abo Iw 

boori", on fin, nrial ... bili'l' (Ou ... ~.no~ 

MOIIdlh<o< U.s, bnnc .......... ollowed", 

oIftt d<po>itJ in""'" br FDIC and 'hw bck 

0«<11 "' the .ubi< .... K< dfund. rtpn1O'I1t<d 

bylll' .... l>olch' checkinio .... mr. and oth<r 

tnruo< .... "''''''"II. In""",, .......,.mM«1 

fund. and oth<f nonin,urt<l depooil> prom. ,lie !!lOJOritydfWldl1ll b- ,boot in~ilutiom. 

1I"hen """ fundi and rI<pooit<>n witI.l ..... 

from p>ROCUW baI1h, -.mich oc<urr«I in "'" 

",mn><f ol:tOll ""'" Eutop<'1'l boob •• or< 
134 


,w..! .. I"l1icobrty mky. iI can dt>tabiIi .. 

,Ii< bola"", Il1<0: .. orohoo< bool.J.le>di"l to 

d< .... ,..inj: or p<>Uo,"1 ............ or5Uppor! 

to "'" par<fII "'1'"'''''''' Is.. So. H: 1oI-,. loIodoo Fu.od ~ '" 1:uf<IAt<. 

lIt>Ctnoiuor.) Such dpwn , 1ft awtti to 

-""l< .. ~in ,he ~.It ... 'i""''' 

"""" <IopoW m>yb< rt<Iritn,<d to ",her U.S 

In"""" ilIIII ,g<nOes. H" ... ,.,. oh<!<mIt 

in= .... in Net Due to Rtlattd Depository 

hud""""" sIIOWI." ...... dtJ; .... or IUfI!!OI1 

r"""lI>rtisn l""n1baoili tlunpm~ 

had boon oh< <>It." in, ......... . .. "'* 10 m,,,ain ,Ii< ptnn'ICt orthe1t bonk> in 

U.S ..... , <Iu .... >nd,.d""" can,,",,",,", of 

intdi"!wity.nd ..... l<IkIIb tIw roWd 

otbm<i .. OC,,"f. 

5.3 Other Fnanciallnstitutions 

3.1 mance fJotIiU·_ .. i«IioI .......... 2/)/I • 

,.wM .... ... _*"""' ........ n./if< .......... ~ .......... "' ,..,. ~ ..... ~foohrr , &Hils '"-P 

lM_,;m-_...-. n."",_ 

--... ~~jot/if<1Jft """""" __ ~'-""'f'" 

-lop p"" .... 6ttwjiIs,.....". .. ,....,..,.. 

,...",.~ .... .......t}""".."JU~ 

~ ..... r-.... """"pnfm-a .. 2/)11. 

For hft inswin(. <01111"";'" which odI 

«Ii ......... po>du< .. "",h .. 'r><!iUona! H. 

in,"""", contne .. and .nn";'in, boo< capiIIl 

I'<'" ,,,.d,,dy, dnpitt ... _d<di.onS 

br....-5O f"K"" or $1~.6 bill"'" in ~ll 

~ to ~IQ (Olan 5.'.1), Tht.pmd 

ba>ot<-n oh<)'I'ld ,~, lif, i •• ufm .. ", 01\ 1hril 

inmlm"",and. ",...=d""'i ........... 

n«.....-y to ... ,",lin poIic)hoIGet mtr\OS, 

abo I..-n .. oh< r<quirtd in ...... nit, Iw 

JlI1T--.t >irK, 200J (Chan U.!), If!hi< 1fl<""l 

hldllO)<d" 200J 1o:Ytb ..... income would h>Y< 

bmo ~11Obiliion hightrd"ri" ~ oh< p.,.;od 

from roos ,h"""" tOI1_SU bill"'" hisM in 

2011 >b-i<. 

" ..._, ..... 

- .... _:11" 

" 

.. . ~ 

" 

.. -~. '--" '.' ~. 

.. -~ V 

.. , ,... = - - -~ 

_.m m 

., 

• 

• 

m -

- ., .1" -

-" 

" 

" 

" 

" 

"" ... ," 
135 


----

_ .. ""OCII_ ......... 

Tho klw in ....... "u. , .. i"",,,,,", """". 

~!1lif .... , dlll"o", IDr lif. im" .. " with 

Ii<>hl< block> dliabil ..... ir>corp<nU"Il 

ombeddtd in ....... "'to fU>"" ..... ltI<h .. 

.".urue. 0< """"rsalli/t i ... "'11« poIi<in. 

Tho indultIJ' h .. mIoc<d~, minilllWll 

JUI"'nt ... OI~' " .... bu, prodt><U told whorl 

inltfe01 "'''' ~= hichn ,eprtO<III' ""''';000<1 

d..., on prnIi ... Tho Wit of lif, .nd .. m,i,y 

prodoK' "rowo' ",Ju<.'" to. minimu", 

1"",",«<1 "'to of ... um of5 p<r<"" or 

higl\<'r /til from 20 JI"'«'Il' to 10 p<r<tOl' 

01 ... the 2(106.20IO p<riod. bo' ..... thin.f{l 

I"' ... n, 0/ ""OlIn, valun ...... 1Ii1l .. t;e<, to 

• oIitoi,""", ",,,.,,n....:! til< of , .. urn of.! ~ 

1"" .... " 0< hiPa in 2010. Ufe Uu .. <n h». 

<liI<d I<k<ted man...d .. to .... inability 

"' ...... ,il< minimum gtWVt....:! "'"nII 

0>I0ci>.t«l with the und<llying prodoK" in thil 

klw ..... ml;"", ... n" Of!\Ole. bit III>Uf<1'I 

h.~ "'," .... d ,hoo, we of non-uadiPona! 

im",.,ffitS,ltI<h .. htdr;. lunds and prWato 

"Iuit,. perlupI ... "'P""'" t ..... klwin' ..... 

..... 'h .. cumntiyp""""l 

Tho '* of the lif. in,""""" ,ndouIry in 

funding .... <O"uDtrtial ~Iw 

in<rn>ed lio« ,be coD'po< of rond,," ><1nity 

in tooII. Lift in ........ funded ~Iy 5 

I"'ITftI' of .... rommtrrill """""l" in 2011. 

<Onlpor<d to 10 peIUII' in 'lOO'I (CIwt H.l). 

Although the iodustry is pbying .1>rgt< '* in fi""",,"Il ''"'' ....... rom<O<lciolmor",,", 

... w ... o/totallift;n""""" ....... ~ 

o..:" ..... llMMI<stlylfOtll 'lOO'I., toll to 1m 

,hin J I"'ITftIt of ....... 

Prop<rty and <O<ulIt, in ..... "' ..... sell 

in",rane, on '"->. C'iH. and bu~ ....... . 

• r< "" affected '" ,he kIw in", ... ..... 

rnviIOO mrnt bt< ..... ,hoy und<r>oritt """ .... 

dun"" liabil ..... withoul.rnb<dd<d in ....... 

ral< ' ..... n ..... H""" .. , pmpertyand <2>U1ky 

in ............. pmwl't<! '" b'1" <>i»U<>pI>< 

.,..., in toll. !"",l't<! "'Wlroph< .,...,...,.. 

11l.6 bollion in 2011, m peIUII' hight< ,un 

in 2010and ~ only ""he .. lr>Or'diou'Y 

.,..., """' .. ted with Hu,"""", K>lrin>. in 

~ I'r<oj><rty.nd CaI .. I" UItU ftU ~i:llholy 
136 


during 'lOll. al,~ book capi,allt-tl, __ 

brcdr"ndungt<i ddpilt. 46 pm .... <ltdin< 

in ... ilKllrD< from !i:1l0 '" '101l1C/wt 5.U~ 

5.12 Morley IIWI finis 

TIIIoII...,._JooJl.\!lI1) ...... ~ 

_~,. 1011.~ p<UsnJ 

~ .... t·....,..at-"" '-"""III» 

rJouJ"' ..... 1-"Jo""...,....,. ~ 

,...,....,1-/./,\IF',. ... _I/1011 ,. 

,......."""r""""Jo-n4l-.1I<tII4IoIJ' 

"""'"""' ............. """" oU jtJnoJhip 

..",.......;". u...-SIour;//O_. 

_ "_.\I.\lfJ ... JIiII. ~ 

...... -

Total U.s. ~).!f...." d«H!>«l from $2.80 

lriIlion:lt l"lr....t !OIO '" SBIi !liUion ,,0( 

).lor ron Psi ... lI).1f:wru &<Iill«l 1_ 

SL52 'rillion '" SI.42 ,rillion, while p""n<I, ... , 

and Tr<=ry ).I~(F:wru in<",.scd from ~ 

billioo '" $872 bollion during thl> p<riod. 

r ..... umpc funds ,Iso o.di!>«l from mil 

billion '" rm biDion (Cb.n >'3.5). Durin, 

july and Augwr 01 'lOll. thrn WlI oigru/ill'" 

rtdttopr"" 1<1;',.) duo '" IN Europtan """ 

nisi! and ,II< poIithJ uromuinlrin!he Uniled 

St> ... lead'ng up '" IN dtbt Ii ... "'''"''''' 

in .. r!)·""«USllOll_s.........,l1<mdo()./>[' 

and !he tnd 0( Augu>< 'lOll. p,une ).I.IIF:wru 

fdI b\" __ Ilwl SHill billion (9.8 pm:."~ 

((]un U.61. wi,h """" f""'" di.lLJli>bnI b\" .. much ,,~pmtn, .... ,hi! poriod. Prim. 

fund bank holding> in FI"lII(' cononutd '" 

dt<lin ... .....p ,II< tnd o(rolL (s.. B .. II: 

).I....,. M.m, Fuod R .. pocf<O to b", Alf. 

U_ruJ"'Y.) Si!l(' Ilul p<riod. pri ... .\I).1f, 

h"" boh .. rtd ,00, liquidity 1ev<1> .. ""rrr 

hlodle mIo"'l"ion~ with doilyliquiditf Iev<Is 

ranging from 2ti pm:"'"'''''''' ~ pm:rn' ond 

_kll' liquidity 10><1, boldi"ll" "'''' 4(1 1"''''"' In 1>1< 'lOll and <1r1y !Ol21Chan B,7, M.\If, 

"'" r«Ioced mlrurru.. >irK< III< ........... 0( 

C/lInU. f'rt\I!II'nl\alllJNn'a: ",nlilarllt 

-.~ "'_'011 -.~ • • 

• --Il00 .. ,' -

• 

• 

• 

• • 

'" - - - - ml" 

--

f_~"'" Eot_...,.m: T_~W 

" " 

" " u i""- I ~ u , . -/ " / -, " U .. ,- " .. " ,. .. ---- ., -10;--

" 

.. 

.. 

--
137 


~ ~ ." . .",..-, / 

• ~ • 

• .. ;::: ~ • 

• • 

• • 

• • ~" .. " 110< " 

a.tUl IIIfMl.' 

no. ............. ~.....u..-obo Ifi:<<od 

.....-oIl00IF.....,.,... TocaI..,.-

...... lor )OIF,. fain "-49_ ~ 

.. n b>M pCII'U .... ..uiI WMh>nd "-M 

_ p"' ... .. 11 .... pIIftI b """,...,.,,1 

).I).If. r""" !009 .. toll. Th"liJnmc ... drop. 

p311",ubrly""*'1 , ... 11 ),IMf'<, is pnmuil)' 

rn.. '" r.. niwn 'of ).I).IF If'O""'" '" pm<n< 

• JKII'l"'O ot\ y;.Id ... )I).IF , ........... .... 

a.."'....stdlow ........... ............. 

............ ,.,.........!oI),lf,..w.._ 

)(lIr. ""'" 11-.. wiIioIc-....... oddK-.I poni:IIio rill. (Clan UI),.tIido 

......... )0.11· r-""'" >nd oIhru "'" _ .... pmrido-r.. .... ;...-.. ThIIl.wbil< 

... ""'rlV MMF. h ... !how •• &o.lJ<d risl. 

....,.w in tol!, -.. fundi h>oo OOUP '" 

innn .. o.htir riok proi\k. 

-.~ 

• -"':' U3 "" .............. ~ 1101....,.--

• .. ..,....." .... ......, ....... c-

, , 

"V'\ - " "'I M~ ~. 

,--- .. 

.. 

-~ 

--_ ..... _ .......... 

.. 

u 

_ _._- .... _ .... 

• "" 'tQell __ 

..... --, ........ .... of ", .. ...wI !olI. tlI<rt ..... 4.679 ~ ... 

and fornj: ..... ot<I BDr. ....... ';"1 in It.. Unit«! 

St> .... , Cainticlinl wull ..... rp W .. in 

~ W1Ih .. Ilor inIIuouJ;..,. _ """in 

Ita. U.s. aD ~1rD ohatpIy .. SoI.J triIioo 

>I 201tQ1_dtduoc oIn pm ......... !00'1 

(Qu1UJIl. 

n..U,S.BD_~ .. btnoIy~ ... 

)'t",-<'IId fOil, 60pmtnI of ,n4uIoy:wt!S ..... 

hdd by '''<lOP 10 BDl. (110 blJ"ll ofwhkb 

... ,IIU",ed """ "' .... banb and domestic 

SHe.. If contmI, ,lit lOP lQ in<ItpoDdmIlIIlI 

,.,.-.doolr' ,.... .. ofiAduluyOOlN. .. 

""'!Oll Ibr"inlloIJ<I'~&D Wf 

Global, 6W'" ~!So< Ia Do WI 

-......,." 

Au'"l'" pm .. iIIc_ dedW<! bt' 59 

pomol in toll UI 514 bill"", .. tnding 

,..... ..... d«1i...t ..... M' ICU .. S.!.ll ~ 
138 


S.l. Speda/lylerom 

spm.JlJ Itx4m _ .. If tu'J ' """"" .... ,. 

"...,rnJil lf lloot ...... 001 """""'" ~~''''ouIIJ'''''r-'i'f''''''''' 

fnJiof;" -.;. "P""'''IM -,.,......t.u 

The Ip«w., Iend;",!«\Of is """pot«! or 

......... or ."ti,;a, rtnCi"l r""" rt:al 

...... in .......... 1tIUI> IREIT.) _to in"", 

• majority orlhl:i'npital in """'W and 

m<or!p!<<<ht<d boId,"I', to..,u.. finan« 

arm, or "'*" manuf"",""" 'OtIo facili"" 

.... f""""ink orlll< pm .. fino', JI«Id"'''' A.. of April 201t, Ip«ialrf Ioocle" ""ned 

'l'P""'i",,,tIr~ ";n.,,, 01<., ..... "',,, "'n,. S~ billion of "ll ...... 1o:lnI,.ro:! Sell-' 

billioo of bwi"..loI.n~ ...... Iiorn ."n.,,,,,., 

unlit m<>I>ing Ioatu.ro:! mail bwi .......... ' 

IC ...... Ull and ~.'.U). Ip«WtII<nd<n 

np<rirnml. a"",&di ... in 101." bolanc .. 

0Cf000 . wide va.ie<yofloon ~ wlllch 

..,. C<IIIIiottrtt witIt <M1lll U't1IdI in ,lit 

n:lilion>l bonkl"l indruIry. 

A, ,lit (;SF.>....., ltd", ... !ki,i......",.", 

po«f<Iiioo, REm .... ~ btrn. rapidly 

JfOW'''' "",IT< of ,~1II<Ilt ~ for 

>gtncy """'Pf'-b:ko:IlCCUriIin 1M BS). 

A.. of2GltQI, REm hdd Jm4 bini"" or 

>gtncyMBS,'I(l9prn:<1Itinc ..... r""" 

2GIO ..... ""'IftIyn", t"" .. ~ bd> 

lo..r<B_141. 

5.15 ktVestmertt Foods """" ... _'!P<>,,-...,. ...... jo'" J-_10 "fo<1' r-J sI>iJI- ~ ........ ooIwloo.".w....wis 

......... ...J.,..,......_ _~ 

"'-fo-noI .. IUt _ _ .... 

. ,,""'..,._ .... -.,.,.. 

. M ..... 

}I",.ll fuM flows r""" !,,",,-<ro:! 2GIO to 

2GltQl rr:1l«' Jlowin~ irnntor prtkmr« for 

<>-pita! pr<"'<"fl'Ition. ir."' .... prauon .• nd 

Ioooc-t """'ilir)'. M",ull fund, liar! '" .,.; .... tod 

sm billion IICI;,,/low for the ptriorl.l&rJdr 

auribuublt to tuabIe t.ond rondo. whith 

m:m.d . .... Jm biltiool(a..r< 5.' .U). Of 

_ J:oI lQOI I\IOt ~1 

--. .... - --- .. -~-. 

-.~ Wl>Oo~" -.~ ~ 

--_ .. _-- ~ 

• 

• -

-

--_ .... ""---- --- :=illJi~ • 

• • 

• • M • M ,. ,. .,. 

- = -= = .' ---

'-";~ \J r. ;::'----'~=-=-.:":~ ;"~--;---' '~ U 

' . U 

" " " 

. , '.' 

.. 

" .. 

.. 

.. 
139 


BOX 0: MF CLOBAL BANKRUPTCY 

'* GtOaI HoIci'VILtI, (WGI a'ld MF Global Ff'e"c& 

lJSI, Inc. fII>:I on I cood:!ated basis b" reIoI ....... 

Chapter II ~prob.lCtIOnon0cl0ber3 .2011. 

01 pri:IJIr intns! i11ht lkliIed SIaIei! was Iht FJi1Iy 

~ brobr-dtlllor 1!lQ.-d fulnts~ 

~ (FCMj. QOIJlIIng asMF Global n: .. wI"ICh 

nered ~ proceear,gs U1der!he Sea.rii!Is 

~Proteo:b:.:n.oa~ 

Tho""""'~ BO-FO.I_. cIoorIr>;I """'*"" • __ ~C8"lraI~pY) 

~~h!Oi::ai;I;lMarcardt 

~~E).1he~00.0'rg~ ;nj 

Na\I:oaI Secu1iIs CIm"Ig ~VlSCC). The SO 

\I\I$!Ibo, prin;rydoofllr i1gJ1O)1fm11t ~v.iIIl 

!he FeOn ~ Sri rJ ""'" Ycrk. 1ht BO-FCM 

cm:1l!;Iod ~ b" lIS (MIl I!<X:OIrt as Mil as b" 

~ 

A_rJ_1ed101ho~clr.FG. 

~f.W(:tI3:llOtrd r.mt12011. ~nered 

Q:) replItf"ese ~ I~ coIaIeraI2ed 10 

ma!Iriy" Et.ropeaoI ~<.ib ~ ~ 

3:111. Ihe ~CO'WiI.o9d ilsatrost ~ 

snso:l~~klsS8'l!9rJ lq.a1erS 

IIYoo.q1 ~ 2011) bI re!IJIe;j patltnrn 

<Ie<b-o;l-n:an. 0IIIflad nrn iM!sITIg MI/".J<IYJ< 

fIn:Is. CklOclc:Oer~. Mo:WIs~!.IF Global 

Hoki"vs Inc.. ~ ~ 10 Et.ropeaoII<l'I!If9i01 debt. 

~ Mage, tnd its kf1 ilat*y 10 ~ frmciIII 

tryoIS. The i::IboiIg diIy, r.FG II"II'ICIIIl::e a $192 

don QIM.>"If lOss. '* GIobaIIti:i"lgII ilc:s cIetI:_ 

~~1O ..... n.tsry00sm0n 

beiM hllhe rIIi1gs cbo<"gad! tIso ~!he 

~ cllhe cclalalll aa.ance .. Q\!he 110m 10 

maII.Ry~~ ~all'*9flcal 

The ~ repcr! .-.dcrettHa1i"9 ~., 

~MFG"s~ .• C«tan~nI 

~ crg;riIabon$ -.ell 1hei"crd ~ 10 

MFGtnd~iraeasedoolalef<ll~ 

On Ihe dayd Ihe~, Ihe CCIf'I"Il8I"ri ctd noI 

MdlIO til ().E. Ilt~ Clooriv Capa3Iic:n 

_ ",t"OCII _ ..,... 

cr NSCC. , iaII!o"Q\ IheSliOTJl diIy, !he~ 

1I\lI.>"IlId~$l:.:rlIaIn~ ~_ 

ThoU~ cI!he sIn1!III;, co:mmtie!I cusm'W!f 

tn:Is wi no! bt\<r"(lWn lTd !he Trwee"....-.g ~·s 

~~ibeflortslOreccMI'_a'ld 

hIizes 1ho <l.IS!O:'IW darns fJO<:eSS, The T_ MS 

~~S3 91;6on1Otla!e1O~ 

-.m.:.-.!I1ICi"lg pm.t,o Q\ US, fUlI9sllliltl«s. Tlis 

-,,~n~d""""~' 

iICQOlIII baIin:IIs. The T_ *" 1II<>iIMld"hl awM 

cI!he ~ Co..rt on I(ri 26. 3:112.10 cistrb.Ie 

'-'I' to OIl adiIionaI $685 don. i'dJdrIg S600 don 

10 ClISIQme($ WIt! o:iiIm5 b" IO:W"I!s Ir.Dr,j Q\ l).S. 

--

TIlt TIUS1ee, '""'-. MS Slated ttIiIIhnI is." 

~ $\,6 t:A:flgap bet.-. til .... cI!he 

TrusIiMI S~rJpOI$'ItiaI\r"""~ 

darns nI!he _ that ... ClIIIWIIiyIl"der til 

T_'s oorwni A si:}:"kn o:'n.,:nlI1I rJ Ihe gap iI 

Ml/".J<lYJ<ln:!IJisatri:oJlai:l& 1O~$700 

don rJ WSIOO'IO!I _ that -. dep:.l$IIOO ..." 

!.IF GIobaIIJ< LmIed, '" '*" Bf'Ii*;' til lI"1I8:I 

Ko"q:b"n. b" ~ on n::n-US. ~ The Truslee 

is~ 1ho InIIIm!!Il d Ihese finis U1der Eng\isIl 

8w 'MII\ Ihe Jon $pIo;a'.Id:niistram d MF Global 

UK liTiIed, am !he IkeII:ood rJ SLd'l 8SOOI$1;&rg 

repaInated IS I.I"WIli"I ill It.s IITI(l .wi IS expecI9d lObe 

Stt:jBa 10 UII9 ~ cr I.tIr8" lRIOO Kiq.Iom <X:U1 

.:tion. h !IddIIion. rrtJIiP! ledeca! IqIIOCies ate ~ 

1he~~1ho1rlrlSlecscllTlOl"ll8S 

cutclCl.lSlOm!lr·~bril<XltU"Q~ 

QI!(!ail ~ I!"IaI oc:a.rted ~ IheIOMk pncr 10 

No 

"-~ SI'ClId ~ _'*'*' Q\ 0;:t;i:Jar 31. The 

Inn M:I 200 10 :lOO IIIO.IIies IIC(;O..I"IIS I::fIklg IIss 

ItWI $500"*,,., _ nI (MI" 38.0c0o::tl"lTOily 

t1ISIOmar aco::ttts I::fIklg (MI" 57 bien lheSI'A 

rus!ee~f!Io~is~b"~ 

MI:rr8'S" ~as ~ as ~ R.ili"w.I 

boJlI1 !IIICIIIIes nI C011'OOdiIlIS cusm.s. As staI8d 

~.~nparoendU.s.~ 
140 


~~Ii,\$!:&r1ds1rb.rttdl;l~ 

a&'r!'e'11'd'g CJI u.s. ~ iJtu'8s rnrkeIsas 

oINrl2SCJla""oaraba!i:l.haresoiloladlsrtW:tl 

oIl.n!s~WMdb\rhl~CM.1haI 

ruOOer shot.tIl'Ic:!9IIse I;l (MJ 9J pemrt 

Thio ~WSklm!r ~~ h&iSIUB 01 

Q.IS!trJle< prtJIOcti<:n kr ~ acco..o1s. Fa.1 

acoJItltS III custodin 1haI co:rUi'> customar IWlJIIOtIY 

n ...... lho".".,...oI,...~_.tt.lf{).I 

FCMs taNiIIy keep tOOs!¥o!i8i a'I'Q.Il!S 01_ (1M! 

o;aPt.I n Ihof customar aa::osn n Older I;l ~ 

aganst IIff1 possttI;y oIa h:rt!aI n customar ao:xJU'l!S 

tI'aIl\'Iaf red IrooI dill' <ra1<aI rJ'OI'lIS, rrwgr. 

~trdO!her...,.;ry.~,liso1tical 

kr CUSIOCIn 10 II1Mt:IIhB tI¥W 0I11ff11Tm11'J CIUI 01 

....,.., ..... Thio CFTC r.as blka'l SIe!IS I;l tf'tIIr>;e COSI<.mir 

~., ~ 2011, hlCFTC aTI8rIdedils 

reg.Ia\o""cs~~dB!nlg~ 

p::osj a'ld fCM ~ 0I~ b"ds.Arrmg 

Q!her tivs. !he CFTC *rinII1ed krn lilt 1st 01 

P!W"'Il8d ~ IlO-."CM n-IxuI ~ It0I 

.. 11>11 ecoro:mc eqoJ.Wlt 0I~ageemen1S, 

~~ .... aIIiales, oocpontle rlLC8S 

IJ'Id tlonds .... In rr;l1&cBatt~ IJ'Id IoreiJ1 

~ tW ~ Thio aTI8rIded..qJalioos 

aIso~_-.ba:sed~mtsnrepo 

~~ m1s. n!O:irion 10 rronla!i"(j 

sW:ler issu!J-I,l;.rnOO coo:en!JaIJ:ln ..... 1I tm Ml beIrl 

--

11-. CFTC has also isru8:.! a rY!N ,. lor ClISb'ne< 

~oIdendswaps,t*llagoll~ 

Mhopnti::loll ~ l.5O:lllrda" ns rood!/., 

ta:f1 fCM...t Jl<Oo'Id8 hi OCOYli!> poeiIic<>lJ'Id 

ooIIIIIIraI ......... rDma!icn III h ~ 8CtCU'II 

IMl Thio OCO C<W\ hot! customar o:ta1eo:aI ptCi'IOjecj b\r 

FCMs 1'11he srmeCOl11Tll'lgl9cl n-.asir i"dIsn..-gi'l 

_ lor ~ IIOOad pro:ix:1s. ., a s4uIIIi:rlol 

"doIbIe da/d."1fII1n 1ha<.IIII<UI 01 an FCM ~ 

causes hi fCM I;l cWaA 1;l1he OCO.lhe OCO ""'*' 

be l1l*.I10 IIWl i:lenIiIy II'lCI access hcc6llilrJlol hi 

~ (»SID:nIQoIlhe fCM IU. rr;lh <OIa:erai 01 

""~~asispa1l'lltldl.mf""" 

........,., ..... 

, ....... ~-.. -
141 


":':''' .. =-___ w=~='-= ~r-=:; ,-". .. .. 

" 

.. 

" -.-

" 

.. 

" " " 

-- " " t---::;;=~'-.--1 

" " 

" " 

H'· .... .......... - •• 

I: 

--- ~---- -'--"'-

.... -_ ...... -'-"---

...... _01 _" ..... 

- C------------'--

-

-

• 

-, ............ 1fC"'1lI nit> ill !up 

roeId flBh en pm ... "....,., ..... m..n.., 

2'011,........ ... MKUI ............. ....... 

Iooncb ~ JI<ft"'" (I"OWIIo rwj ...... tha pmod 

..,mIoc1 ........ ~ ... frlIaamc "-' oobtil;.,ftJtd i_ produ<lI (Ckan 

>.'.161.1. <Of1lrJ11, U.s. <quI' fund, hod 

D<I"'fIowo ol$86 billion. nil 0<1 -Ilhlr 

... n- ""'" )I., 2Ol! 

--

"' ..... _ ........ 2'011 •• .-.1 

.... ..... ........- of pn<>" am pAlIk 

prmoom ............ JI~S!ril1O)o (Ckan H.l1~ 

Bo!h pub!~ .nd pr;"'" <k~otd bo.di. plan • 

..,...m lipifinnl" und<ffurwlrd r<Ia!M 

"' .... ,...... .... of ,h<\t li:IbiIiOOdur .. 

~'plM~lowi ........ 

12la.>IIII-. ...... rtd io.!OO'lllld!008.. 

"'ofJ"'>H"'l!OlI ..... __ t-fo 

pI>m ...... ....,.lII,.....flltldod.""* 

prinIr dd"....d btdI pIIooo ...... '/9 p«<ral 

f.rded la.. .. H.lS). Scm< """ .. pon-. 

funds ~ ft(,,..d <Of1<ri","UO'" '" mal. "I' 

shonf. ~ II< 11M bmllbi< 1O.1hrir pblll 

'" mj"" fill." 0<IIb)I. 

A .. _ ol .....•• 1oaI pto.a f...:l, 

COII1inut ... 1"I'fIIt wit.h """"..-aI ..... falll 

boI_ .......... uod li>llilil .... 'lflWr: 

,bn< ,..... f."", fact pr .......... rodoc. 

,hoi, .. pt<1td ,tlu" ",,"",pliom. m1nf 

." "hK .. ru '0 chl"I' "'Umptiolll i •• 

,""oinlful ....,. "docl., "pomd ,.,.'01 

br .... ,,!! 10 loCI basu poo..11 oM' ,lit PI" 

,h ... ,..n, Curnn,,, .... ootdi.ul..."....t 

.. pont<! m"", ._ public pbn> io 8 

""' ..... "', .. "'~_ .............. '" of 

m ......... _106,... ..... 

.. 0.... 11K pu1 """')df'."""''''''' am IoC2litir< 11M ;"" .. >Itd rib'u 10 odd .... 

• - ~ /////// 

------_ ..... - • •• "flC>CIi_..,... 

Ionf«'"" po"_ ru.d"" ~.ua by< ...... li'" 

bm:fill and ........ "'.""..,... <orI1t1bu<""", 

""""'I 01htr ..... rn. AlIa"" ............. ...,.., of ...... <banI"'" pm-. fIlOd"'c pr<ll\lel1IiIJtt. __ ......,..1br:ao .. 

,....... ........... pba.......-,. ...... 
142 


0Ihcn «pm tb<m ...... Iliciont .. odd, ... 

1II<diturH<nn fundu., ... d!.. To rtdocc SoaJ 

pre,,"m, owt and local P""''''' fuoel • ...,. 

It,l .. fun}"" cum;1 brndi~ lor ,um'IIl 

lIld rut ....... i= o<..u ,,,,,..«<1 fi .. ",ial 

.upporl f""" m.;, rnp«IM lpO<llOn. If 

",,«ilfuI, Ibn< dndopmm~ could !.ad .. 

"""'''1''''1<'<1 p»'OUIl Jor ""1"01=. r<d\lC<'d 

1tr>i«1. hi(tl<T """, or..,.,. rornbi ...... ri 

olllh,... ~,. pubIi< p<n>ion b<odi~ If< 

d1<n ~1y'IW>IIIted. ,nd ..... ndml'I>tm 

rrnlaLns 'haJkn&inc. 

l IS "",,,,' ''I'''''' ...... , ""....., m.""V"'"" 

i",rn>«\ '" S1J trill;"" In !Illl (0." ~.S.191. 

Tht g""",,, in ...... ""'tin""" '" b. "'pporttd 

br .lIocalion! f""" 'IlS1~Ulion>J , ..... on ouch 

as p<nsion funds. wIli<h rornpnlt 4l pm"'" of 

U.s. prM1<.) npiuJ, Although !no. 

bujow.nd ",nn". cap;uJ """"", for.,.,.,. 

hili ri pri>'a!t <quitt ...... unli<f m.....,......... 

.... isen""'ti_ '" dMrmy tb<iI Imntmn'll 

IIr>I<ptI inlo .... ' ouch as real ""'<t, .. ,un! 

"""""""d"''''''''USt..,and.'''''l'''II 

DWW.opportunilits (Cban 5.S,tol. 

Tho hlP """'me offuncka","11 and """'" 

d<1J iOCli<ity IIw sikmfi«l pr«tlois p'n~l< 

"luity oniril) ,,..1<'<1 Ill< C<!ndi..,." tha, 

,u",nt.ly P'<'~, "ish ""iIt" """ fu<US<d 

on .. iUn, .. I~i"ll in,,,,,,,,.,,,, and dcplori"ll 

,ommilttd Clp't>l Gil ... Ill< ,.),u,rainc<I inilial 

public offm"C ([PO) "lVi"",,,,.,,, and 1<pod 

mtrg<f1 and ><'I"'~I"'" ><tMty ... o:I '"'soL"II ««><:<nic """'tai"". privo<t "lUilyfirmsOR 

k><w<d on ... Iirin, ...... , on hi~.ri<>I" 

hi!'< ,"",,, of .. 1","11 por1fuIio in.....",."", 

They ..... 110 ...tine in' ......... 1 opportWlOO 

Jor <Mr l500 billion in undcplor<d capiu.I 

"""milm<"" """mu., from r«ord 

1cYel, off"ncka'~ng r""" m to !CI07, 

(See Ch>n H.l9J 

... """ InOlilutioo>! I",~ton 'ootl"", to lit itu...-.sttd 

in h<dg. fund> aslllUSt"b.>l in pan b«au>< 

oflhe J>'1'«P'IOfl dw ,II< o:o:-relatioo. "" ..... 

hodJ. fund< ond brood ..... ,lw« .... low, 

CI\itIU.16 llIIiIIIFt.ndlmbll&n!Fklw!flIl11 " 2012Qll 

--

_ ..... ,,---

-,. ""_'0" -'" ,. -- ". ,. -- ,. 

• • 

:1 -- • -- " 

• l'IlOIlOOIlCOOlO:IIlOOI"""lO:IIlO:II .,10 .,,, 

--_ .... _-

.-.,.._ .• 
143 


• 

-... - ---- • m 

--

-- --.~ 

awtU21 \:NniIilHedglFldU1J1l 

-.~ EMo.,," 

• 

-----

• 

-

_ ..... .......,." 

AI)W".flId !011, ..... , ... n>g<d by Oodgt 

fund! ..... ..,.,.".;",.,.~ 12-" uilllo ...... 1<11 

..,.......". H ptrum inc ...... r"",,!'W 

!GIG. thlo f""'th in .... " Ifnd<r .... "f""<'" 

prim.lrily mk<"d inflow!" ",thor ,h." fund 

ptrfonrwI<. in !Ill! (Cban 5.111). In ra". 

beds< fund> hod Iackl11!l<r p<.to"'".n<."" ..... ,he • ""'«g'" for ,1>< calendu)'Oar 

lCh&n B . n). Simi1lr to oth<r ilM1lm<!'lt 

opIion~ h«Ige land petforoww:, .... 

!'<bounded >1iptlf in .. ,,2012. 

rollowi"f til< cm;., iMi,LIIiooal i...,...,-

p«f<"""" for "'VI. roor< rsulNoo.d fund. 

wi,h 1ooF' t..., ~ ~< v.J ",. ,",,'n 

«IO<rntmioo olindu'IIJ' ...... at "<gel 

fi, .... Th;"lf<nd toolirn><d thfOUSh!Oll .rod 

inlO !Ol! '" iatJ" fund. "",><IiI"" f_ Ill< 

p<I<<pIiol'I ofin<rnStd llabili". 

raoedFIIICIs 

ExtlulI« <r><kd lund, (m"l ltoW" • 

populat 0>nN ofKhioving "1'0""' to ......... 

_indim. .. ~bylh<ir,on<inU<d 

I"""lh In , .... , or product bun<hes.nd ..... 

sr-th (Ch&n UU). In t!lll, ,he numb<rof 

U.SAi>I«I ITt'> "'" bytS pon: •• , 10 I.ID 

p<Oduc .. , I nc! ro."", Z"" by6 pnttnllO 

S 1.06 'rillion. V>onpoT«i 10 !II 10. n<I inflows 

.. 2011 n::maiD«l n.t" SI21 tKllioo "';111 

h,ghtr """""""ionlolfuruh""';ns into 

10""_' ITF.with ll>:1bIo bond,U,S-MOd .• nd Iffi".. 

.p<cifi< ~"""g;"" 

-.~ 

• 

The U.s. ITF mart.! mIl.in, popolmd 

p«<Iomi .. ttIy by p=iwIy OIlnljlod 

• III II. m 

produ<tI Ihn ..... \ widdy foIlowod i ........ 

in <qUity. ~>«I io<om< • ..-.c! """""","If 

m>rteu. R<crntly •• k,mUM ,ndtx """,,101 h ........ rg<d .. Elf p"" ..... >d.pI to 

,n i"""",npy",umed =M Tbn< 

·f"""'""" .... ind<.in( prod""" ..... 11. .... 

,00, hoId,n" .. «<ding to p<opO«lrJ' 

~'h ..... k,"",,,,,"~I .. 1hat1l 

a 

-~ ~ ____ .xc_ 

- - "" "Ot ". __ 

~ 

." -

rith<r noI <aplumi ... II oboctt mi 'of ... i'""1 i""" con>tru<tion. FO< ... mpit. amongoqu"1" 

baotd rn~ weh prod",,, m.,.1ixw OIl Io.tr 

..utility.1aoo.r 11< .. to tho brooder 1I\ltkI, 

h<sh<r ... rn,"I' qu>litr, hig!...- d~'Idrnd yitld, 
144 


widtlpiowtd by induMry_ ....... u .Iil.<ly 

...... of ,...,..0, fur poW><Iy"""" fuod., 

In addi""" to .... ,"""'h offun<i><n<nIaf 

indaing. ><ti>rly IIWU~ ITf'Ilr< d"<l 

by,""",,,, po<tfIIOaf ....... .." .. fur .... 

ITf iod""'Y '" zrow. ETF",.. rtqu,ttd '" 

dixlooo ,OOt holding> d:uly. whik <nditionol 

1IIU,ua) fuod. FntnJlydisdost !hei, boIdi"" 

qu>nmy. Th< rtqui,-rmen, fur d:Ulydioclo> .... 

is. ""', .. of conam "'..,... ><live nwugon. 

who Itu .... r:.posurr of!heir "'a<egjto in 

.... ITf WUClurr may>d><n<Iy.Ikt .... 

"' ..... oF!hei, lund. _. :!II ~ ........ 

,..,..blo bunches ohm filing> I(l<".,..ro.rir 

m..uztd m., particubtly lor fi<ed income 

prodU<ll, indicating th .. 0<tM0 "" .... vm<'" 

may indttd....-.om. ,he diKloourr w ... 

Dtop!t , .. ",."in""" robu~ rrowth oFlh< 

p:t>ol m _~ marI.tI particip>nu mrWn 

.t"" .... '" oom< p""nlilJ riIIJ pnuin'"1 to 

m •. wflich ""'Y no<)'O' be fully und<nto<Jd, In 

partitub., fOlD< .... rtn parodp .. ". <OI'ltin .. 

'" hipliCh' ,he .f''' .... '' m """tw .... 

poI<nlial ... rumi>sioo _han;'" foI riIIJ 

bet'.,,,n .... United su, .. and [uropt .. 

6.,....;..r Ij>t<m." .puhelic m C'",rR« 

.... ,",urn <:I m indn th""'Ch' <OW .... u'" 

""l' wi,h. bank. whe, .... ""phy>kal· m 

hoId> .... "'Ull inda "", .. i, ...... Sm, .... " m •• rr ''''''1lI0II in Europt 1M no< in 'M 

United Sta .... s,nthrn< ITF. ""f I1U.!I>gt 

'" tnd ind<m with.,..... ,radilll<oSl> and 

row.rlIXl.iJ1g mor_pa.nicubrtyfo< r... 

liquOl_~",anITf,II"""'tI". 

dnpi« !heir poItn'w odnntac"' ...... m.,u, 

parti<ip>nll """in .. to IOi« """,<fill <M, the 

potrn<iallor this """,urr '" ""f'lilyfirwor:w 

rrwk<t "'~ in ,he....", ,hat. bank 

"g'llinl in .n!" with ' I"f"'hetic ETT oporuor 

should be u""", '0 ..... it> obIiptioro. In 

>ddiUoo .......... rg<'IICt ofn ... 'IP" <:IITF. 

and ~milar prodLKt~ su<h .. ~.nd 

in,..,.. ..... ,..g<d En" ><ti>rly101nagN m •• 

md ITT. butd on '~ry particubriud., ... 

<Won, is. C"""illl ".ncr in ,he ...rtn and. 

"", .. of "!"b"",, 

-_ .... -

-.~ .... _,." _.- •• - - - • - • • ~ • 

• • 

• • :IOIII""_~""_""_"""" 

--
145 


BOX E: CURRENT STATUS OF REMAINING STAflIUZAnON FAClunES 

INAUGURATED DURING THE CRISIS 

£\:rilg'lhecri!is, ~~~s..twlaci!ies 

l;l,..,sIabbe Ihenwl)$llrll"'*'¢R/811B'W 

blc!i:ri"q -1M\'a'f~ I'.NllseM'IIct_ 

todlos stlIld1 neI biIIrn:es; mosr I..-e be!o> WIN1J 

0:-n 1_ tnar ~ hlus' Ja4I9)« 

Troulild Asse! IIBiBf I'I1pa lID: Si4JIIlIt l'ropns 

Ke!' pn ct h IaderaI !Po9f'TIIII1's resportS& Il hi 

Inarri!j crisis ...... !3Tied <>JI by T""""-'Y ~hI 

Troti:IIod_FWoI~(TARPI ~_ 

NI'~ ~ hi tJir'I<no sys1lm. hll;o-gesi 

wash CapIaI f'IId'I1Se ~ ~ IRIer 'III'ich 

Tr8I!IIU')'i'Mls!OO ~ $205 t:Ii:.>:l n <MIf 700 

briR;I~ ThaCPPis I'OI'Icla<1 AfJ ct Ne 

29,2012,fIlPIlII'I'lIl!-ab:'lgoMtli'leresl.~ 

on:J QItojr ilo:mJ-~ hi oripIli\bI.nmn 

T reawy esIi'nates Ita! hi ~ gail to ta>:PI'!I'n tQm hi 

$245 t:Ii:.>:l tist:on8d IRIer 11181< IUPPC'1 ~ 

IRierTAA? wi ~ f!>r:eed $20 t:6ln (Chari e.1) 

~ ~ depoIiIlJld!ton nva-aeo«age 

b' ~ 1ra'lsa:Iiooa(X:(U't! ~ 

!lo.olni.>er 31, 2(JlQ, Indl8<:iJlld to ..... Do!ctrrber 31, 

2012. AfJd Mml31, 2012, $1.31rfoliH~esI· 

~ a:o::u1$ II! <N!I 7/XIJ i\sIlUicos IIItJOOldIId Iho 

1mk:""""'9'l hi ~$250.ooo~!W.lI.01 1;1,1_ Illy 

hslIvd by ~ CO"o'!J"l9II. Lnder'hl TlGP, .... F!)C 

\IlJIA'l18IId -'1iwed sert;)( LJ\!IeClJ'fId debt ct IfWed 

\1I:IposII(ry~ ""'1"QIo:ir,j~amoertain 

oIfioIoo. ""' __ """bo~...whlln.GP. 

1;I,I~$I09t:6lnn~debt~ 

~asdMil¥31,2012. 

TI!!III Assil-Bll:lu!d SeaIiIies lo.! fICII!J 

The TIml AsseI-Badoed Secu1Ias loIrl Fd\' (TALFJ. 

VItid1 b FedeJa' Flesflrwnl Tr8I!IIU')'., ~ 

nam. _aea!OOll~mIIIIIlI~meet 

hi ete<:i reOOs ~ hcI.JWdds lW1d srr.I ~ t¥ ~hlis9Jn:ect_-t:ed<ed-..iies~ 

~ t¥oertain COi'l!UTIIIf am tllSness b!nL 

--------,------1 Lnder hi TALf, hi Fednj llM"'1~eIgt:It a.tE.l roW lin SIworlI'l\VJll SIlIbIs Ix:mMIn Mh m.,..,..v lW1d M<,elf I'Q"HtCQXSe Ion. 

-.~ -.~ coIetIer8b:I byASS. 

""[ -~~~- ii !OO hwl, $71t:6ln nl;1l:r$_;mided1Rler1l1llTALf, 

W: mwt;\WII oepaid.my. lhII~..-.::In aI 

... T,o\I,Fl;1I:r$felttrn$24.7t:6ln1ll1l1llSllJ1d20111l 

... $5.3 t:6ln as ct ..Iu-. 2C. 2012. AfJ d Iho n1 ~ MatdI 

2012,"o::oIaler/JI~I9IilSI~T..ukln 

... ~IIIIIO'AAA'*'9S amlllloons ...... ~ 

as sc:hao:iJed. Tr8IiW')' coomI1IId Il proo.;je hi fedn 

11/ ~ ~ Il $20t:6ln IRIerTAA? n ete<:i proIeC&:ol b' 

hi TALf n. ~ """ b!I'r II.!(t.mlI;l $4.3 t:6ln n 

T8I1IPiQ'J u.pd<Iy GuarMIee Pr\lpB 

Tho 1aderaI~'s!8SpO"l$lllOb fnh:::iaIaisos 

3boh:lded .... FOC'sT~Lq.i:IIy~ 

f'rt9aTI~ lhII TraosadIOn k;t;;oP. ~ 

(T.'G) p;l<1ion ctb TtGP ~ d!p;:isGn 

~~ I"lIIr;iIdm IDXlI'IIs II! h!ond 

~~ThaOO~",~ 

31, ;mOo Se;:ticf1343ctb Oocfcj.;,n Hj. whdI 

_ .. ".$QC" ....... ..,... 

:AJt 2010;nj ~1I.!(t.ml1l $1.4 t:6ln n.lno 

2012. Treasuy~ Ilinw no bsSII$(Jl hlbiIIriIrm 

_,""ill 

Outsided am prO' Il TAA?, 1I1II1'eo:in ~ BoIrd 

IIJIhcrized 11111 FedeJa' IloIso:IM BIn ct New \'ct'< fIIlN\'1 

Il bm Maod&'l Ur-. u.c 1M- uq Il tdIaIe .... mI:IfIII' 

ct Bear ~ ...... ~ 0>ast\.f'14 The Fedar3I 

~ 13oort!!I.IhcriM FFBNY Il (I>dSnd C1$iIIl 

1.o1l. u.c. ..tich ~ dd tra.oj11 S<8.61*n SIri;r 1oon. 
146 


kI pa1iaIyb'd Ih8 ~ t1 C/!!t3i'lassetslnl 

~ IIocIges ttm s.. S1eirns. Ast1 J.r18 14, 

2012. "I.LiC Illy ~ 1h81::81 (i'>:Ui"g ~ meda 

"""" AssiIIImIOAIrm:an ~_ 

The FtdnI Floso.:rw BcmI.m 1he Tren.ry~ 

1~!8IPO"II!IO""C8JIiIaI.m~ 

~ 0X1 ~ i'*lma1ionaIl3rtq)~ N i1s 

pooO<. 1M...."...."""""'" 10 SlffO'1 j!j(; 1M:lov:> 

FreNV.-dTI1!Ia5tIY_~$I001An 

F!UIY ~ irdJded a seand ~ CAdI faclty 

1OAk>."" .... "" h bmaIm.m -.si:nt1o-e01 kI 

Madan l.a'I! I LiC (1.1. • 1R:11.Iai<.IIr1l.a'1! lLiC \M.- ... 

To da1B, III t1 FRBN't"s b!ns kl1¥31R:11O W .m "I. I 

l'IM~r\llXlldwm~ 

As t1 m 29. 2012. rrlf Treasay's TAfIP rMIS1mert 

;,PI:>~~ TheSll.44 bikn ..... 

baIin:e is less 1IlII\ h S34 ttn """"* ..-...:0 t11he 

PI:> coom:n md< thai T raISlIY I\:lkIs. rr.s stlio;& aro 

FR:!NY's r8SII1aI i'UI8s1 ;, assetsl'eld ",. "I. I aro loll 

1~~!()FRB/oIV'.s_ ;' J<I3," 

Ibti kl ~.,~~i;rbU.s.ptjc 

(CIwIE.21. 

1IBIa1¥~~SI.IUIiIios(MBS) 

issued t1!' F.-ne Mae InlIf8d:ll Mac. ., 20Ce IR:I 

2009, Tren.ry ~ Wl OX1Ih8!111CO'>3'yIlBla 

all oosI t1$2251tt11R:1 ~ IN! ~ t1 

1hese ~;, M<rdl2QI2. The pro;::eed$ t1 $IIItIi\ 

;, a:\dI1ioo IOpb.:ipIIlR:I,.. recet..d. "'" S250 

tAln,"""-*".I1he~'soosll¥~ 

"'-

--

T-..ya881ild1he ~ n1Sry ~ 

F'It9lrn i'U'I'l;, Deants 20Ce 10......,. a 

~~t1Ih8U.s.ao.A:mlIM>iWsUy 

beca.tset111'ot($o;s 1tJdI ~ ooUd p:ISII kI 

QoQistabity..; IhtU,s. ~.lk* 1heAfT>. 

T-..y"-'ed ~ 5robikn;, G/in!r.I 

M:l!In ~ 0lI)*r."; IheO' respectMI fn;n;r,g 

..... As t12012:01. GM IR:I Qry.;I9', II1IIIlilsWfiII 

~~rnlnlfMI~ 

pdtabIoq..nn.~, 

T-..yhasmeda~~nNll'dOOti'lg 

i1s ~;, ~<:O:l'J8lIBS aro COIlIi'u:ls 

kI~ Ih8 ~ t11he:!e frmI aro MIJaIe 

(Iptic:o kI ad iIs~ Ast1 m 3:). 2012. 

::-:::---,:::---:--:-:--:-:--::::-:::--1 Tren.ry'a ~;, GM Ib:)d II $23,39ltt1aro a.t [,2 NG _CtaailtedIlll1I1e11ned ;, />Jt FrmciBIII $13.75 t:tn T-..yhas Uy II>:I!tId 

.... ~-.._ 0-0_ 

----- --_." ... ~--.-" ..... ,,-

~sea.iIy fWtOat ProplI 

~ ilsUabos \ldef1he ~n Eo:n;;m;; 

~kj.t1m. T......,.~hl'K:lusrO 

IS ~;, ChysIoraro ChysIIr fnn:iII, ...td1 

m.«AIod fl i $1,3 bikn kla ri8i kI be fI.Iy~ . 
147 


..... - ......... _...,..,.., • 

• 

--_ ..... _""_J 

• __ r_ ..... 

• -.~ 

• 

• 

, --"'-

~~ , 

_ """'0''''-'_ 

5.4 rlllanciaJ Markel Infrastructure 

SA.1 BettronleT~oI~·Traded 

..... " T""",,"'oh"""'dIJ~ritt _ 

jt.~"""' ....... ~IItr-' 

'"~m.tmc' .......... ~ .. ,_ ............ ~ ...... 0111~ 

_ ... ~~.1,Ilt_ ...... 

.,..".-"""' ..... ""...aM....w....I ..,..,.,.., -""I .. """"""~ t{ 

""""' ........... """'''"'''m..Io>...,....., jt.IltJ-;otJ".,... 

"""' ....... i" ...... p'.;ns • ..t mn,,""" ....... 

l«h"'""v., ..... , orith .... ulatot}' ch>"~. h .. ~ 

<nruform<d d«tronK Indi",. Ilipip«<l 

compwri«<\ '''''''"I h., b«" .twl"",,'" of 

IIIO<km "",iii«. lu,", ... and ",..,," ""'hang< 

mul:cu and ... opr<:Id m r<ttnl)t'>" .. 

rnan.u lot derMli>to.nd [,nd U>:00l< 

imtrwTlnlu. Compu<triud 1nd'"1 u...". "' 

focifu>t<. will< arnyof ><tiviI;." inchodi"1 

....,..,«<\ ord.,. ""'in, and IO-Olltd hiP. 

I""",nq Indi",. (s.. Box f: AI~'bool< ,oil 

;p. r""lIl<D<J'T~1 ~ ..... "PO"'"'" of 

mlM <boa suppo<U ,,,",,, .,,~'itits. 

Aion« wilh <l«im>li .. ".n dU.S. "I.", and 

"I."' opt ..... m>rtm .1«"",,;0: Indiog Iw 

.... ~<d in IIIl1IItr ,~l.~ ... aod <1«""";"1 

,radt Ii .... In p,tio;ub, .• ", .. uno" US< of 

"""PU~ ''''''ing .Igorithm. ~ 10 split 

tr>d.i'''10 ","~ipI< Im>ll<r ",ruaction~ A • 

..... mCb"H.I. .. tn.Jt~" per tnde 

in U.S. "IuiD<> marI:<ts <l«lintd 81 pm"" 

~.'" 1997, ~hd< ,,,,1111,,,, mnrut<! """" than 

J.OI) prntn' 'hlOlJllh )by !OI!. Thi> pnctio:. 

oftradt splitun! Iw h«ome in,'n.nslY 

.. O:\ent "' ...... P'" 15 1""" lu Ii..., 

PU'?C* i ... m'nl""" .... pm impx1 of 

Inding, t..t <1«.-.....1 ,node Ii ... ...,..bo bo 

• """P"""" of mort """pin <ompwri.mI 

Indi", ""'"I;". 

),10« rnerally, liquid", Iw ..... T"f"I<1It«1 

211>Qt\1 Vlfio<l> "l"lt1 Ind io! mo<bl~;'" 

intlud<nl <"""" ... >1trn,.tiI~ Indi., 

~., ~,i",em>li,,",and 
148 


IO-(ill<d • dark pooII. Tho litter ... tr;>dins 

"" ..... !hal ... "", optnly .. ~ilab~ 10 lht 

public in which w,.n 1lId ....... >Ubm. ord<n 

"nonf"""'s/y. wi,h .. ,lhtr ordo,.u. nor prit< 

re>nkd publicly "",il !he ,rode hal been 

' ... pItt«I.ln ).I.,. 2()1!. .1rnotI. !hi ... 01 all 

tr;>dinS in !he "'l"i'''' rnafl<i ",.;our ... .,.1>id< 

n<hlngn in >uch dark pooIIlnd btokr· 

lin ... int<<mliIen. wi'o<!< <WIom« ooI<n 

ar ..... "hod "ViM <>do w..ror agai"" 

p«?ioury 0f<Irn 01 lht in"maliti"! twI.tt. 

de"" (Chon ~H). 

Mor< m:rn!lr. <l(IIi,'" mhang .. hJI'< been 

"""1"""'1""' m.n.-t ,Iu" in . n....;,.",......" 

of nlmMng..,....u. \orn',ommWion., 

~,...ttf cornp<ti!ion,.nIl d<dini"l sh ... 

""" ..... 5p«ifically, ... "". daily """'me 01 

U.S, sh>rn !nodinS Ill> doth ..... to ptmn' 

~n«. pm. 019.82 bollion rlI> ... in!0091O 

7.83 billion "lht <nd oI'tOll (U&n 5 ... . !). 

Also _""'ild .. ~hol'tr>di",in 

lh<!uU hcifx «!»n. From 2()I)(I!hfOU!h 

!009. A3i>', o/w. of pobal tr;>ding ...... tho. 

doobkd (Chm 5,U), Tbilv<*,h in A ... . 

,!>dine iI. 'ofionoduct oilht r>pOI_ic 

grooo"" in !his ftJ",",";!h . coneom"" 

"""'" in d<mand for fin.",ia] ~ 

5.4.2 'IiIIoIesaIePaymenlsmiSeltlements 

~-. ... ~",,-,oIiIibor'" .......w .. ,... .......... __ 

II """"" .... IItmsu. 1WIuo .... 1M tAt 

.. 'l"I<f ..... oIiIibor,tAtf ....... ~ _, ... .."..,.. ..... oatitr _ ..... 

.. ~~...t.ho~ .... 

.. _~IIIImIoIIio:uI""'""" 

A.rto .... ~ jt< Io'f''''''''''''' aJ _.-. .. ,../1 .. jt<"'"" frut-J 

--

Th<...p ......... ~f"l'l"<"uotil"". 

>UppO<II"I U.s. 6rworioJ ........ ". ,be 

F",,"u'. F" .... Sorvit'.' rnkim< II"" 

1<1!lrn1tm I).tom opo",tod tor !he F«I<nI 

~ Banb, 1lId !he CIear,ng II.,.,. 

Intorban'l'l)'menuSysttro «(!lIPS) •• 

<OI"i.""", ... I."~""n' '1''''' """",td torTh< Ominll!OU1O hymen\lComplny 

- ...... ....,.,1 

• -• 

• • 

• ~ • 

• • 

• • 

• • 

• ~ • 

• ----- r- • 

• .,,--.................. .....-: • , 

........... "" .......... " ... " .... '1 

_, ... c..o 

• • 

-~ 

-- - -.. 

Qw!U.1 I\eoiMIlIIatI:rt SIIn of !lilies 

- W ... lIIII 

- --....... _,. ,. -- • 

• • 

• • 

• • 

• • IItOO I(Q lOlO """ ... lOt. 

_ .... _ _ ....... """""'-_ _,-...,-- .. -
149 


BOX F: ALGORITHMIC AND HIGH-FREQUENCY TRADING 

~ illiK:J'a:JogyIlaoeMd~ {XdQ.ni flied 

onlr<l:i1g; as oc/MIy I8s b9::>:>ne __ ,,,.,,.."""*" 

1IYJ/rIPt 1I4:m!I18d. AIIh:Jui1I~.(W9d 

a;piIIrns 1iMIbB!!.dim ilUS ~ _ trr 

~I_ the~ilfOr.ttItII tna'feIs IIYJ the 

~d~aipittmi:I'3di'\:;-ltbVl'i!1I 

thewnn' ~ _ SI1l£ln-OO<idIead III 

trilIi!Irdld&m'S~ 1/rol9I1hehn;;e/ l)'St(m 

~1IYJ_~fflISIlIeP&'IS<R1hM 

~CO'WIMtn:J""'~~""""' 

;1Ioe I:l ~ 1hese ri!:b. 

~~udlg!.dzes~ 

~ IOdaIernWIO.I ""'!lrtIjj. pi:le. trdq.B'l!J!y 

rJ mes. ~ udlg JiFTl is or-. PorioJIr 

!W9 d ~ TIai"g. 'M'ie1hanJ is no sta'>:»'d. 

C(ITI1'I(dy ~ ~ rJ Ifl n the r.t.osuy.1fl 

Ij\li:::atfr1ler1lO1het<Sed~ Ird'IgIOIOO\OlI 

n trd OUI rJ posiIi(JrG~, geoeraIt~ 1heday 

aat WItlI\1&Cl no~ 10 "'" ~ Cl\ 1I1...ernq11 

baIi& n oortra:sI, CIte" sttes rJ aIrp'II'mc udlg I!bt 

~ 1,Ib11 heI:j 0/9/1onger tine hcfiD:rls. lfliJ 

~ IIS8d n u.s,~, IP:taI U\M, nj IP:taI 

b:eq1 ~ ~ b' naa-tt 56 pIIllIIt, 52 

~ .-.:! 35 pe.-cert dkllll ~ respecI/I'II!)', n 

20111Ctlir1 F.1 ~ 

~ 11M b:\;I been l.SBd n US. oov.;e.lf8Iets. 

!1CIaI:tf I,II1J\J1f1 orders 10 "'" udlg "'IIlIII will "'" t.$t 

IIOlO..lb'I ~ n ~ ,",,!he sa:~ F\egJat(:n 

Na1D\II MirlI!I S;sIem {NMSI. o,.y !he past decaOt. 

.... :dtmsl1Mbeen~b'tra:r..ln_ 

asset dasses. AnolabI8ctass d ~ tra:r..I 

aIgcdtrns is so-caIed 'black bel( mI9gi8s. wt.:n n 

uy~trdpteprogoli, 'ed,n!whi::I1~ 

111M! tI3des rlliaIecI ~ t7f!he aIr}:d:Irn itslil ~ 

tru-"""v~ .... ~d~l,I_ 

data, ~~ 1Ilcusa"ds 01 order II'eSSiIQIlS PI" 

1lIlCCl"<I ~ toeectrorie Ir800g -. ~ 

n!~m.Io.r.;b;,<sOOOfI~_ 

corO!Joni" trd ~ >ri::e ~ wiIllt!Ie Cl 

no ~ i1IeMlnIicn 

GM!n the speed ~ IIoI'Idlthese f8IlS<dnS .... 

lI<OC>JIIld.lITt<S(31~~~~ 

trd!lCl'OSS...mts. Si.oJ\ lITt<SooJd n:IJd8 ~ 

I::WTJJaIrJnrJlrtg9~~~ 

io:l~-I;I"_hlred."""" 

fftjtl1Wtri!t~~d~~ 

n these!TlW1on. ~ PI&- nj jlOSI-nd8 risk 

COOIIOI& n d9IrItI& 81 II .",. rJ the Irade lie c,da. 

fr<;rn oj) SIbTis:so;)n \:) tradt trIaId't"G deIri'1g. trd 

!iIIItd&f'r8l. ll>nbe. rd'1g frms, ~ tro.er. 

c-C---c:c-:-c-:-------I <IilIiInA lItu'aCC\mlSli:r1 rT'8dIirt$fC/4 bfql OWtf.1 1FT 'Ii lIsIIln'/lrl:ll;ll.l$$elClmos IId'e'>JI prine tmo.n(FXPBl. MM::e prMjIn. trd 

-;f::::::=:-'~:-~.~. " ==::.._" :::::::--"-: ~~~=~~ ~~rd'1gMm. 

" 

• """'OC,,_ ...... 

• The des<e b' faster ~ ~ ~ ctoanges 

.. WI1Iw1 "'" ~ to mIIlirri<D latency. l.ater>::y os • 

.. ~dth!ltlne~~109IWIdanarde<101 

'" fIaI:ir,j ........ and b' IIIadilg \6'IIJl! 10 ICI<now1e<Ige 

'" Ihe arde<. f'aMipeiI\s sook 10 .......... ' latency n 

order to n::.ease Ihe chInces 01 g9tIr1g ~ 

It order exeeutIon al1he best price. Facto'S aIIecIIng 

III8OlC\' 0lc:U:Ie lJI!09"aotocaI diStanoo and respoose 

_ from "'" ~'s matclw'lO "9"'";n:j the 

SPIl8d 111 wIid\ markeI data and othII sigrIaIs tom Ihe _101'-

-~-
150 


Fiecb:ng1ill8>:y1S~~I;r~· 

frecpn:y hders because !hi passaQa d Ii'ne, -' I;r 

.. nsIirt. ~ ItllmIJ ~ risk. PIlle makers 

fi e:<pOS9:i IJ hl risk tim,.,. tnIers ooUd......, 

n ll'emlBrlmk III'ter hl _hIlS mMd r) hi 

~ chc\lon <:I iIIllif tradog S!rlI!eg\' m be/l:v91flet 

~fi processed. Pri::e IaI<n fi e:<pOS9:i 

IJ hl risk IMI a I9SIf'9 0I\IIIr IhI:r/ W/Irl1o C8fl\>:1I ooUd 

be CII'lCeIad Iri:< IJ e.ecuti:n Of o:Ud be CIIPIJ,rOO \Iy 

.......... /asIot trrlIt 

kl*POflS8lJ ~ I;rfasler em:.>,JI>;tl, SOOII! ndng _*'" '!h;:I tIXI!Iid ~ 'I'JferrIod IJ 

IS 'sponsored.:tll$S1. 1tY!.:tq1..tic11 oeo:\8J\ racklg 

frmsa::mss IhI fIII:tta'Ig8's ~ engne<hc&;. 

tJ\'pa:s:si1g IhI sysIamS<:I1hor ~ 80, fCM. Of 

m'B.Ris~"*~II'IliIies~ 

o:keo;I a<mSS ~ ~ to:'C'tIII n pkIoo b m:::riIomg 

Ihor ckrG' 8CDIity a:ross IhII'tIMr( pIt1!J::Irms. Af>ld'8 

'di nma fIms COWl reci>ce m.:.cy is to place ~ 

IIx:a!tf ttIIIi'l8'IIIn as nea- aslXl$SilllllJ hi ~ 

....... '1 matfu;J ~ M ~ po:icyisu 

Is IhI S(\III'IIIJ M'«:h IrIIdi'IIIIrms ~ equal ao;oss 

10 c:o-tx:aIoo Of 00c1 a::cm seM::es. 80s. fCMs. 

and rn>es,... ~ resporIIII:IIe b hlu..m 

<:I3I1hor C>.ISI:lI'IlIf' R::iJo:i1g moe "* trgag8 n ~ tadng. To ~.....-e cruo:iWI CUSIQfl'l(!f risk 

lh9"'JIIIYnwllet.IhlSEC~ 

!U3 1503.0 n.)Jy 2011, ..tlCh jIrro:Tog oIhr klgsI 

~BOs1o""IiUai'Ia~<:I~fJ'Id 

~~~~1or.r. 

II'e ~~ni'Ig frQtn CO$;mIIIS hi 

IICC8SShI~~ "a;S:ib::rJ. hlSEC~ 

op(:1tM!d tv.o proposalS \Iy !hi SID and FtfAA The 

hi J>"OIl'.lS'IIwWd \.¢ale. (J11 >*'t basis, II'e SI<isIng 

Sl'llll&-md<~!rook« rred'IarIIm ""'" aI1lrlilm11 

'trik4l' and 'fri.oown' ~ IMI eI\ectMitf 

prtH;iIs m.s!Krn ben;J ~ ~II! 

p-m 00ISCe <:I ~ roIfq ~ The seo:n;j 

rxcposaI wcUd ~ afro (J1 a >*'t basis, 1IlI 0I>isti'g 

m<rIa'lliie c:i'a.II br8akln hII. wtm trggered. ... 

,..q n 31 ~ seo.riies II'n:ujIouI 

IhI US 0'IItI<& The f'oposed ~ boolr hi 

~1rvsI'ddb'~,,,*,*"Mde 

Ird>d hak m stmen hl a"I1ClIr1! dm 1hat tradog 

is teR8d Among o:Ih!r IN1gs. '-rre:;hvisms wWd 

~l1'IIlIgIIIhl\'l1laCld..,~cnIEIr$l!\aI 

o;dd \lI!aWiso IlI(:IdJ <iiw!tle fri:e d a SkX:k ~ Of 

00Nn. ., !hi fI.4Ins,....,., b CFTC MS IdopIed rUes 

IJ boisW nsI< managEfIIeI'l! II! !hi ~ d8mg rom 

m cIhIr IIM!Is. ., hli:l<e9l ~ .... prim 

I:rtI<ers are ~ rI'i.Iki"d IJ!lOl d /XISt-t!adII SIlI"Ces 

dosigled 10 "'* prim I:rtI<ers mnge (i(rt risk (J1 a 

~ ~ t...;. """"rrdfiIo 1r'ID'cl .......... 

, .... " .. _, ..... , . 
151 


':"r·c·:·:-=-...::~:-::·::'_c-=:·c·:·,-::-

•• / ." 

.~ /-::, /" : .~--

• ___ 

------ owos 

a.ns.u w.~a..n.ava.. 

• 

_.- ..... _, _.- • • 

- - - -

• » 

-- • - --- -- ---"... 

a-IU1 Ftdwh f\n;!$lJa!I8I!\ 0IwnItI _.- """.JI'II'" _.- • • 

• • ~ ~ 

• • 

• -- • 

• - ._le_=:_:=o_:.:~_;_;;::_;:'~_~~"~ • 

• ",,'ICCII ---__ 

llC. n.. r ........ s.an.nStmct 

~1mII1I"'_.--' 

""" ........ ...-.-/01 tho u.s. TIt2SIIn, 

u.s..-.-.. .......... pcm_ 

~ ...... pnsa, and '«Wn 

inotrn ..... al OO"pIIll.O'-. 

n..r. ..... o/Ilf;> d«b .. ill to09 in .. nUll 

pa)'II>tO,dtar"'c_ODd .u..for"" 

r..tw.f'< r ...... Soni<c, Ollr$,""" dot 

~ s........s.r-"-prr-<riIiI pou.. 

tcIoono U.S'" U.J). fn.!009 """"'" 

!oll ................... _ .. ~ 

dtdi .. iOr .... F..t.ito SmriJns.nx.""" 

w-.t.-..,.. ~,...F ...... "'Fu ..... 

10",,;" and CIUPS. 

T.., .....u\hrdt><1opmtnn in us. Jur: ,_parw.~ ..... .....,<d ... 

of cby\ipI """"*>fI> (CIoatI1A.7j _ .... 

...tier"*"-01"",_ (OwIlou). 

ano.. .. ,ord)'tn,.......olf_r ... 

5<nX·P"!_It, .. ) ..... _bf 

1:00 p.a. (w.",) • ...to.d,. ~ ptIU<Il-. 

... <ltd "".:00 p."" (bat,.) ..... oI' M>y20I!. 

...... 'to ptltrnl.fFtdwi .. F"nd,S<n-ic. 

l'aiutl<!lltdbf 1D:OO .... and50pt ..... 

........ bri>« !:IlO p.& (Eaotrrnj.1IodI at 

It-~ """_ .. bo: """'" IarJd!' 

"' ............ Io .... .......,ofmu>n"" 

banl bobDc. shtoI> tcMn M.!). F_ .. 

.,......., 1M pmpmtI't. atIirt ~ 

-....... 11K ...... "" poomtiIJ .... niludt 

olOqulditydialon!ION and risk 111 "" hn>nClll 

ind""ryiMold on OfI<mion.1 disruption 

occur""" the doo< !Ii ,I\< r ..... ir< do)' .. tilO 

p.a.(~M ..... ~ .. io-.&.thor 

>«""-ifuol 

JII"1"O"Uwill~1Iocl 

.............. 

.. ~ 

w...c.. ....... 

"'''''~-

loW _'hfd<..lopmrnc .. ..t.oInaIo 

~·rw:I~.""m."'bJ 

"" tom ...... on PIymm,and St • .,....", 

~ (CPSS) ltId!he TKhnocal ComJniIltt 

of. "'" I ............ o.p..;.-a dSrouuo 

C-(IOSCOI oI ..... poo:bv of 

........... 0III<I".."... .. FlIIlII<iIIloWtCI 

W-................... ""..p.on 
152 


in OndiI1dUll juritdictiom. Tho pri~ 

. ... inttndtd lO'ppIy 10 all 'l"'''''icalIy 

important JIO)'IDml 0)'IrnI>, (mlrai 1«UilJoo< 

~1«WiIic> I .. ,lo.ntnl 'l>lCmS, 

<tfI1rai <owu"""';'" and uadt ~ 

(00110<,""", "1inaocial owb:, infn&truc'''''''"). 

n.... principleocornain .... and .-. 

....... nding inttrnational ~i ....... ~ tlw 1ft 

cl<.ignt<lro h<Ip rnru .. tlw ob: infno<ru<lUr< 

wpportinf r\obaI fuun<ial ... rttu " ..".. 

"""'" tnd tilL" -...Ii pia«<! 1O...-ithsIand 

finlndallhodJ. Tho (J'SS and IOSCO 

"""'"'"" (""ludi,,! "'" fedtral R<otM. ob: 

crrc. and ob: SIC) willllril< '" impl<m<nl 1M 

....... ~,nd>,", bf'''''....J d"'!OlI ~ 

5.4.3 DeriYll!iYes lnlrastructtn 

GWooI ... ., .... ___ rOTC) ""-'" 

~ .. 2I)11.,.,."..ocIJ._.."......... ... 

""'""'dto ........ ""' .. _"""'"""" .... ... "'/'OfI'Il ImM,.,........,~ .... 

tdo"" .......... .,_....tru. 

Gio/)aJ Otrioitiot:s Yc,'\rmes 

.u ...... ..." bf notional ...... , ob: pwl orc 

m1Ilot hufIO"" <OIlDdmb/y WI"- """ ,Ix 

ncllangt-tnd<d d..-"" .... rrwhu pun 

1.4.10). Comparin, til< ot<Ond h>1f of:!Ol l 

lO 1M .,.".,.. h>lf of:lOl0. til< Ole mrW 

""" .. >II 8 pc1t<1Il p.><t, .. 11o<u"! oontinu<d 

otron!tl<m.>nd by rod ustn &>r """",,1«<1 

ri\l-m>. .. !<""n, produro. In <OIl''"'', til< 

nch>nr:-<rad<d III1Ikt"d«liocti by 17 

~""'I.,..,.th;, period. N";';"'I wIu .... 

for both <><h>nft"lrad<d.nd orc in..,..... 

"". prndoru d«lined .... """ in llx......-..l 

half of:lOll, with ootionallInOUnll for On: 

in ........... 0W>pI d""""n! f""" 551! trill"" 

(U.s. dollan) 10 $51)4 trin"" r""" :!O11 :1l! 

"' !OII:!I!, .nd nch>"g<-ind«I "" rnbtn in 

""' ..... ~nod d<d\nm! from $7l; trill"" 10 

$53 .rillion (a..n U.U~ I, il !ik<ly I"" ""'" 

<!ffii""-=d .. ,,,1ns n...tforin ............ 

hc<Igi,,! in .. <"mironD'lrntof""'in..,...r.II .. 

tnd diminoWd <tt<iill"""b. 

A> ...... ftd by "",""",of COIlU">CU. 0<'" 

lwo</t,r,h of <>«h>ng< ~ dni.o .... 

-= tr>dod out>i<I< til< Uni .... Stolt> in 

r ... ~... "<11~l T ... ~Otr "" r---------C-------, .. .. .. ,,<iii "jIO ". ::f--: .. :c-"----,. ". 

~" ,. "jIO .", ... '"'' 

,,<iii r"''''-~~~~~~ .. ~ ". 

,~ 

.. ". 

•• •• 

". •• 

N 

.. •• l:--::;--c::--::;--c::--:J • . r! _ . ~ 

--- _,_. __ ",_(OIl1~ .. " 

-- ... Oolo 2IIl'04 

~ --~ 

• • 

- - - -,- - - - '. m ~ "" 

-- ----_ ... " .. "' .... 

'-"- -
153 


• 

• 

• 

...... _-- T_dl.$l 

B 

,. ~ 

,. ~ 

• ~ 

• ,. • 

• ~ 

• ... "'" .... ,." . "

. .. ""0,/1 ....... ..,... 

~1I (Chart M.lt~ Th .. " .... or c1e,.;.~' ..... 

>\)/un'!< ndtd on ."".U.S. ",,~ .. lui btrn 

;"""lSins ""', u.. JW'.....ru)O>", 

~ Dtarlnog or Derir.l!1¥e$ 

A...,;or <mill in orc ......... om ""')lUI 

f<w)<= II th< ilKf<>Rng numbonolOTC 

"""....,.., <I<md ..,.""und <OII"«rp>,ty 

(CCP) cbringhou .... CCP po:w>de ,rtd~"* 

oUtipti<:rl fur """" panicip>nu bf at,",," 

b\!yer to "try .. lIer and ,.u.,. 10 <=J bu)<r. 

!'rio< 10 2009.lhm had been «ntnl clwing 

<lOTC dmv>...., ir.cluding clt>nn, or 

On"" ....... '"P' (IRS! by LCII,Qrunn", 

!O<:>p(l<>r . 1Id d" rin! or ,.riouo m<IJY 

""'-.... " .... o..rPon '}'I<1lI op<nl«l 

..,. rn. t> .... yOl\:; lit .... "',,'" E.«h>ns< (_ 

part "Ulllago .ltmama. u.:l\an;<, '" c.\t[) 

and 'of Inl ... tomill<lltllExdw",,', (ICE) 

ICECka, Europe.ln \.'OO9.1Ct a.... Crrdil 

(fonn<I1j' t ....... >lICE TI1>II) and ICE a.... 

Europ< ....... 1., OtE, ""S,n tI.,,,,", trtd;, 

clehull rnpo (CDS). Sin<.1h< 2009 G-1O 

romm;"" ..... ""icb <>Ib fur <entral d"'n,,! 

of >IllWldardi<t<! ore ....... "'" """"'" 

br <h< .1Id of!!)l!. cIelnng xtMtyhall""'" 

dr=ID<illy in allsuch ..... d...... SubIoqU<lll 

iep!aUoo in "" Uoit«t Slat", (Ib< D<>ddFrlfll. Mt) and ~ .. <he!'.urop<>n 

Un"" (Ib. [urop<" fuM InFrasrfUClu" 

R<guboion) at< ""'"""'" with "'" "'rilol tilt 

G-:!O«I!!I1!IiunrnI. 

A good dnl of progreso hu btrn ....... 

-.rd ",nonl d .. rin~ of ""nd.u<liItd QTe 

deriv:" ..... <",,<nets, d Mu(h oM .. iutiU 

pn>gr<:sI to bo ........ LCII,O<am<"s...pon: 

"I""" tIu! til< ........ odin' nOlion>l .w cl 

dnrtd IRS hoi v-n lrom 1bout $70 tnll"" 

ill!OO'l ... 1..- $500 <rillion P"' into 

JUn< i!0121C1wt 5.4,IS). Th< "umber ol n<W 

IRS '00""" doar«l P'" moo'" ('moo,M,. f<I''''''''''. in Ch:", H.!~) ho, """ from 

• bil <PItt 10.000 in !OO7!O nwty I~,OOO. 

5o<>pCIo..- now <>Ii.,.,., ,h., $2 P""'tflt of "'" 

IRS....:!eo It< ,...,..,,<'<110 iI fordnri", As of 

Juno 2'), 20!2, to p ... "nl of til< _aI ,-aJUC: 

ofrRS durtd by SwapClm i>donom .... ...r 
154 


in '.roo. witlt ~ ptrttn,dtnonti .. 1td in U.s. 

doIIan IG1No" 5.4.14). 

CNrts'4.1. ~"-"'" 

CDS nu.t.u abo """' ........ .,,'ill i..."..... 

in un,rollycinml con"" ... M«<dint to Ill< 

Inlrnllllional SWapo.nd om..tM<A>!oci>Iion 

IISDN. =l12IIyd •• mI CDS "",,,,,,, 

rtp<tO<'fI!«Il0.6 po<mIl of,he lI(J(ionaI 

""""'n" outSUndin, .... 1lo<tmbn-20ll. Tht 

i"" III>joI CChb CDS both II- ~piIi< .. , 

"",,'h in duri"" leI 0.., Cmli,',op<1l 

irue'''' "" grown from II< .mumn "'"""lID 

tit,... l"''' >«" to ~ billion notionaluof 

J"M I~. 201!.rompri~"C $-170 billion in index 

fI""'h><u. S390 bill ... in «>rp<n!< lingle. 

.. III< con""'~ iIId W billion in _In 

Iinslo"" ...... IClClnrE""'P' ........ Iimil>.T 

...., 

--

-~ 

~ 

,-. 

_LO<."""'" 

...at .......,." 

--If_"_ ,~ 

,., 

., 

"' 

., 

" 

~ 

'""""'1Q, .. IJU.I~ ndU.16~ ClunS .• ,lS ICHINrClWl 

CCl'lhM>dd«I ".II'It'I<IOJl .... prod""" .. <ltoring. FlO' ..... pI<, the variouodnnng 

.ntitieo wodaltd wi'" the ICE >dd«I ..... I~ 

..... orc """ ....... '0 ,~, 1000( produ<" 

>«tp«d b doaIins. including <m'tgy 0W>pl. 

..,ission .... "' •• nd !ddi!ional illd .. , " ..... 

n.",..nd _~ CDS ..... "'" put few 

""",lhl. Eom; Oo:aring "" 0lllI0U!lCtd ill 

in"nlion '" bqin d •• ring OTC IItS in tit< 

• 

, 

• 

-m_ ,-

-,.~ 

~,. 

.~ 

,~ ,-

.. <O<Id IuIf O(20U. In ""HI,,,h WI?, 

LCH.a. ....... •• F., .. O' ... bq:ul ,Ioari.,. 

OTC furriJn .><hang< (FX) non«U>er>blo 

""...",d. (N OF~. GMl Group 61bo .... 

,1o'rin,OTC FX, .nd NDf~ ICE an_«I 

-.' ...... .....Il 

!O;OO.cw,_ .... _ 

thell pia .. '" toesin NOF <10";"« u .... 11. 

finally. ,he Opuon. o..ring Corponuon ;, 

dtvtloponc ' S!.ndud" Poor', ISH) SIlO OTC Qart ~4. 6 ICE IlIIr Eltope 

optionfo<'l<uing. _ .. ,_ bo_~" --- On< 0/ "'" <xpt<1td btn.fiu" cenlrali,..J 

dnring 01 OTC<I<TM .... ~ "'" posoil:Olily 

of ""'""« offomin« wn'''''l tIw "''''m"b" 

"'roup """,ltd tndinc. LCII,CInm«~ 

Sw>pt'l<>r "P"'''' r«Iu<lion 0( >bout ~~ 

ptr«Il1 of the lI(J(ioftaI ru... f< .... ltd '" i, 

fOf ,lnring W""Ib M'Une, lnrine"pof 

offoetting COIIl!'><U..nd other ptO< ....... 

• Iimi .... mI.ndan, «'''' ... ''' ICE 0. .. 

Cudi, r<p<>rU' IIIIICh 1011" ntUinC .fficitnq. 

Th<y Khl<ml. r«IU<, ... of abw,90 p<f<rn! 

• 

" 

• 

."""''''-. 
155 


-

--

,-

____ _""G"."_"",,,,_ .G,,_ . .. ,,_ ......... ,--

-, 

- -- '. ---:::. ---- _. _. _. -•• ~ .~ -- , .~ 

•• •• • ~ ~ • • 

-- -~. .. _ . 

. .. "rsOCIJ"-'_ 

oh'" ""'ion ........ ofth< orisin" CDS '""'" 

pmtnted fur dearing "''''''gh 00""&-.....-· 

"1'1, ond other <OmprnUon pnx ...... 

I'ade~ 

A rtlatMtr 1I<>'1n,"", in "'" ."rtn infrutrudur< fur "~p'. th<.s.mopm.n, of 

...o.~(TIl». VnderTod<V11 of 

"'" DOOd-fr>okA<t. "'" oI .... il' of ,II '"P' 

(1nd I«Um~ ''''P') will """ '0 b< 

«pon«I to. TR (or to , ... errc"" SEC ... 

~lr.;f..,n ~ .... ilolrl<).n.. ... jor 

(Io/>:IJ .... po IlWi<I putkipan~ ... ~"f to 

tlotabIilh. tnodt rtpO$iTOT)" for ... h .... ,d ... 

• ..t h> ... """nI. n" I"""'-I<d inform,,"," "' 

,II< !"<"pOOi,""",Oft ,1Iti, ...... nc >n<I. in,.,.... 

i ......... ltpcrtr>dd. n .... op..,";.,., .. 

in lh< Vn".d SUt<l, VnTltd Kingdom. ",dl 

Of Luxtmbollrg for in""", r>lr .... l". mdil 

<khuk ........ rqui"" '"P'. """o>0,1i"" 

onpo,.nd rx .... pi. Md,bonal Til> ... 

.. rd"' br~by)'t.T'«Id tol!_ 

Thd ... can bt ..... "' """"' .. I ... ~«.nd 

"""p<»ilion or dilf.r<n' .... l" m.oUts. for 

...... "". ><COrd,ne to TriOpIimo, In",,, 

...-..d "'" ;nI<=I r1lt drrivat ....... tte, 

'hrough mod-WI! (befor< boio, rrplom! 

by. un~ofn.pooitoryT"",.nd CItarins 

Corpor>,oon).,.,.... $495.9 triltion 1""""",1) 

i"'<'<I' .. " drrin';'" COIltr>CU """ .... n 

«pOrted to th< TIl. by , ... _aIIrd G-14 

",",lm. of which. bit ...... "",,-half.,. d...-<d 

by' Ct7lo..n U.m. n.. '= mojoriIr 

of, ..... <..un1Ir d...-<d • .....,. 'f< dnlr~ 

to-<ItaltrCOlltrK"- In oddil"", """"'" I) 

prtUIl' r<pOrUd .. roon-<tlt"aIly <Iw<d 

dnkH<>-d<aitr {ootn<\i »rn: 'mons tho 

G-14 major.,.,.... dnlrn. Similarly. the Tm. 

lnlonn>lion II"mhowe. I TR for CDS, r<pOrU 

th .. $2~.O trilliool (tIo<ion>U COS<ootrKtr 

..... "'POlled to "'" 11:, or whicb $15.7 tnllion 

(awn»:im."iy 63 p<"'<""Q If< dnk,·,o-

_10.." 5.4.181. This prtpOIldenn« or 

dn~ ........ ,ropt<ially,hox"""", 

,ho Io'lffi ..,.Im, 'pp"" T<I bt .n ""png 

In,u", of,,,,,,,, ... oUts. [ndwlrj"ronaru 
156 


,eport 'h>' u.... inttrdtaltr ........ ". """'17 

for !II< purpot< orh<dpoJ!II< risU...oon«i 

"rth .,ortn-rnllonK ",!n;u.,.lt;' orin ...... 

th>t. in ~ •• dealer position, .. stilt, 

«CDS prw<tioft (U().:w~ triUion,..,..,.,oI) 

app«IIIima!dy "'iU2l dru:r po<itio<II .. b\Iy<r of 

...:b prw<Qon (m.:WI trillion OOIi<rn>O.ln 

orhtrword>, tilt _ rom"",,,", i" oqr",'" Iw .ppro>ionaldy. 0 .. (J}S boot. withoot. 

JI"I'IO'lIICod d,,'t<'ioruI til!. 

' ..... ,~_. 
157 


Regulatory Developments; Council Actr.~ties 

o..r the """...,,. J)odd.FrukAcl impiem<nulion in<1ud<d inlrodoci"l 

III'<I!'I$<f >Uptn"ision. rist.1II>".,.. ...... ~ ...... 1m"" and di.do,,,",, ... ndar<I~ 

<>UhIWIins mo/u .... pWu and "" '"""rtr liquid.""" rq:i ... "" financial 

compo"1tS; rq:ulati .. ,ho ~~..mn marI:.n! 10 rtdoc. rill..nd in< ...... 

tnruparOll<)'. rofurmin! the ..... r'ltiUIion ... rtru; .nlwKin! ... ndmIl and 

dildo." .. "'I"i..",.".. fur h«Ig< fond od>l><n; ..... implemtnli"! ....... , .. .., 

",han<. O>nII<mtr and i.....". prott< ..... 

In >ddition, the CounriIIw~",..ne ~ in fulfiUin! it> mand>«. 

I, hOI int>«I. fin1l rnl< ..... ~ rrI:W"I: II> the d<tip2Iion ,. noo:tbonk 

Iin:oncW rompani<> to. ful<r.t! 1:= .... ~ and .nhan<<<i prud<DtW 

... ndard>, .nd Iw fi.,Jiud the dtotgna .... d.n ini".I .. ,,. .""'.,....,ically 

imporunt 1inan<ia1 m>rh:, utilitia that,..;U It<...t.j«t 10 rnbitn<<<l ri .... 

m"""gtm<Il' , .. nd ....... The Co<uI<iI .bo <OIItinued to lD(Ini(or po«ntW riW 

to t'.s. fllWKioJ .. ability: ~illiIltd .. ~icit '''tutor)' rtqUU't'tn<'!\u. ""hodin! 

,he rompl<tion of th,.. "'I""'" and I<f\Od iI. forum fur dOOt,.;.,., and 

COOfdination amon~ ,ho ",.,..J,o, ~in impl<mmi,,« the Dodd·)'"", ,,," 

The foI1owi"l:;" <fucuuion of the "",ilinn! impl<mmt>tiocll'"'!'"' "'" 

Council .nd it> m<mt.:< q<n<ico h .... achi<ved ~n« tho Council', pmiow 

""nuoJ IOpon. 

6.1 Safety and Soondness 

6,1,1 EnharJ:ecI PrudeI1tiaI Starldat¢! and ~fwtAcl S~m Tests 

Se<Iioorts IMand 1660fthe !MkI-f..nt.Acl...,..u. the -.:I ~ to <ll>bliIh 

<nhonc«ipt'lldcnliol~and"""'~~b"conainluz< 

butt. 00IcIinr; """fI""ic' (SHCoj and itt IIO!IItW finattciolrompan;.. delign.u«i 

for FrdmI &esc... II.Ip<!"iIion In D=nl>« 2011. the FedenJ ~ ito.><d, 

forp<ttlir«)mmml, .1""fI"'iIl1O i...,...,.,.. the<nhonc«i prnd"\lial~ 

and.....,.,.",...i>tion ~ Tho DodMrutkA<t ... the <rthoIwd 

SW>tIortb tstaltIiWd..,. "'" -.:I &....... b ........ ~ under S«wn 

16.\ to (I) It< -. itrUp """ It-SW>tIortb oppIicabIo to oxhn &He. and 

,..,..".. fuw:rioJ companin thaJ. ... ,.,. prt><Dt IiIlIilor rill; 10 u.s. financial 

...t:01lyand (!) irocrw< in otringonq'-<\on the.,.....it: """'"'" and rill. 

<llm<rrn.tiaofindMduol ........ compan .... 

The f«knl RetoM', pt<tp<'Ql iro<b:les risk"'-d """'" .......,..Iitr->idiIJ.. 

"""""l'""mdit..,....,.. limiu.lUJ"f"oc<yond"""'P"'Y'" """ """'" 

rist. ~ and .rist.o:>rmrt&<r<,and.....,. mo<diaIion rtquirnrtC<ll>. 

Thep<Op<lPl~~applytDoJlU.s.p,JIC.wih""'_tcd ...... ol 

s;o biUion or ...... and 111)' nonbank fil\lllcial <O!IIp>1l)' thaJ. .. d<>igtwed ..,. the 

o-dl b~ by the f<dmI Rnmo.. The ~ tDostob/ish. 

rill. _ .... of "'" board of <fu«"", and .. rondoct. «CplD]'<UII ...... "" _O_ ... o:C-''' _ _ 
158 


-.Ii! a .. owlY to Bi le. with tQUl ~ ....... "'$10 billioo:tor..,... \I"d! 

<ho ~ 01 <ho r<qUirtnIt<a ItIaI«I to«llllpUlJ'<Un ""'" ...... l>Vinpand 

loon hoIdlnfIcompanioo (SUICo) thai ... ,.. ~ hi' <ho Couocil"OOllld,.. 

bo.....,to<ho~III"l<r<hilproposaL Tht f<dmaJ ~.,~ 

add,."..""'~ 

R;,.H .... dcap;uI .. d l<><f.S" "'I"; ...... ~ n....",ItI_ldbo 

impkmcn1<d in 'wo ph ..... ln !he firs, ph .... ,he illll;uruo<ll _1<1 be ,ubjo<' 

.0 ,ho Ftd<ral Rtsto.', <>piul pIIn mI<. which ... , publioho<! in D« .... bn ~II. 

Tha, rul< "'IW'" ~ <OI!IpatI ... to develop annual tapilll plano, rondOKl 

.un. """.ocI m.m"," >dtqual< "polll, ilKhIdi,,!' tit,,,,,,, """'IIIOIl rio!:.. 

Imod <>pital ratIO crra't< "'"" ~ prn n~ und<r bo<h o<p«tt<I loci ot,<SScd 

ronditioou.ln tho ... ond pIa>e. tho fcdml Rest"" _lei ...... JI"I!'<"al 

to imple"""'1' ~ copital ",«hi"" bated (1<1 tho fro....,."n..ocI 

""'00d0Ina~ ~ ,Iw """" r""'m''' .... "" Ibn\'"1 s..~,;", (BCi!S) 

UqWd''l''«i''i.-a. Thnt ...... ,....,.IeI.bo bo implomon!<d in multiplt 

phi><>. Fin<, <lMRd <OI!Ipanieo _lei bo oubjo<! to qu'li .. ",~ liquld;,y 

r'ok. ... n>gtmen' otantl>,d, S" .. r>llylmod on lh< !nl<ragrnry liquiodity rN. . 

.. ,,,.,....,,,!"idan<. Osutd in ~an:h !OJO. n.... Ilandud. _Id rtqW .. 

0>Ytrt<I companieo to rond"" intt'nal hquidily " .... ,..., and It1 i.",,,a) 

q ....... ,;." Ii .... to man>g< liquidity riIi.. ln "'" ",ond pit""", tho rtdtr>! 

Rtstn. MlIIId muo .... or IDOl< ~ to implomon' q",",itoliY< liqUldKY 

rrqWrt1IItnU Imod on lbo a...J IIlliquidity rrqu,m:oenu. 

SIms ...... S" ........ "'<ho ""'""" """panin -.Ii! bo «IIIIi><l«I''''''Dr bttho IWrnl k<sttY. ..,;'" tIuT< «<Jr>Onoic:and firurrioI1TWkclomurioo. A 

"""morrol tho reoulIs, indudirtc~iIit iltbma!ion. would be modo: 

JMlbIi<- In addioion, tho prop<lIal-'d rrqu;rr ""'""" """I'""ioolOcondoIc! 

_ or """'" <o>n>pO"I'fUn ...... ltotI ndo )'!'II and lO mal< • """OW}' '" thrir 

Sl,,!i«oo......-po

--

rlyntdi! Urn;". n.... rrqui ml>nlll _lei tim ~ <!<d;, 

O<J"'Iu" "'. <oorr«! filUocW """]WI)' to. ~"gIe <OI'n"'I""'r'" pe""'"", 

"'tho fiftll', "1ulalOO)'capitoL Cr«Iilo<posurr bel'Ot<!\ "'" larv>t fino",;'1 

rompanieo """lei bo out;o<t to. tight .. lirn •. 

Ri<l; <niD." .... ' "'IDir< ....... Tho I""f""'l """kI '<qui« ,,,,~,td 

" 'lIIpan ... to «lObIi,), ."'nHIone rio!:. <omm"". of,ho boord '" dll""'"", 

and >woi"' • thief riot, offi«, lO ... """ <n".,.."'.wi<k ri,k ""n',,""'"'. SHe, wilh $10 binion '" """" in <OrU<Iii4>I<d ...... would.1>o II< .. quir<d ., 

.... bli>It III ind<pend.,I1';';' commi" .. of Ii>< board. 

[arIy .... tdio, ... ~ .......... no... ......... -.Ii!bel"'in piac<forall 

fimt>...t;:<I lO <ho propos.al>o m.! fin.naal "","",,,,,,,,, ... oddrn>«l" ", .. o1y 

.... The ftdrnJ Rtom.Iw propostd. rrumbrrd. trig<n lor rtmtdiatioa-

""" .. <>pitolJ...b,..,... ....... Il>, aodrN.~""""..,.~ 

.......... alilnltd to be ~"I. Rtqu,rrd ""iom_1d 'Uj'1mod 

• "" fSo< " ............ 
159 


...... It>trCJof ............. _<oukliIodooIe_ .. ~apI>I --.11111 ___ ~ • ...a.ap..I .......... _ab. 

no. Ftdenl broo <OIIIIIIIM ltd! -..... of .... Cou<ri .. ~ ... 

propooa!. The.-.... ~ lor .... P"'fO'"l doot<I "" ApriI)II, 201t. 

In oddilion to .... M ......... U .. rtqIIi,.",.".. 10 b< <OI'\CI",ltd br,hr r~ 

k.......,.s...:""" 1M(lj1fl "'tI>< Dadtl-FrmlAct>ioof«!Wm<trWn &n,,,,,aI 

......... 10_' ...... tnU booed ... rqubuotIo o.u.d \w that ,_', 

primoryWcnl '"IuIooor. IaJamaarr5It ... occ, F.dmI broo, lIIII JDIC 

..... P"'fI"OOII ...... iIIIf*-.-...... -......--- ....... ...., ...... ,,-yir*nol "",*. The __ poriooI ... .-.... 

doood;"ApriI tolt. The FcdttaI broo. occ,.,. FDIC ... ~ tift-

""f'«'i'o<rukm"""' .. ~_pnMsiom. 

U2 rin5 r.GI.GlTnrifI~FIn:tim 

T\III: 111 of,hr Jlodd.r ... k "" , ... ortlm! '''''''' """"",,w:I function, of 

th< ionatr Offi<t ofThr,n s..pm;..,..lOTSl It> tl><0(;(;. rDIC..1Id fcdtr>l 

_ Thio tnttsftroffomctblo........t ""JuII"tl, toll..".g tIIr r.dtr.I 

Rnmo:-... ............. r..SUICo, .... oct-......,......... fotit-dtral ........ __ wtllrJDICfot ........... ___ no. 

occ, FDlC.and Ttdtr:II ~~ """ c&ns 101odp_. ~ 

........ ofthae fun<u:oaand a&<wd OlS..po,.... To ~wbdI;Ip<J 

will boo: mfurtUoc .... on ............ Jlodd.f ... kAct rtqIIirtd <I .. oct. FDIC. 

and fo:dcnlll.n<n< to poi:oiisll. 00Ik. in .... r~ iI.tp<t i6enti/l'ncll.-

rquhtiono ofth< on tluIlhr.-ia...al <nfoou. The TDICand OCC iswtd 

IPOI ""'"" "" Jull'i. toll, ......... F<dtr>IItr\<n<" isoDod iu oWtt onJuIy!l. 

2011. no. OCC hal oaktrI ............ of odtLo:onaI....,.,. .. ..,...... ~ 

OlS..poo-...... 00;. doapto< of .... Codt of r.donI LpIIuonIanoI 

.. iIIqnotOlSand 00: ...,w..-.-I............,poIaIn no. r..t.nI 

broohal......,..a........v ........... r<pbrioooand.........-, 

JuiohDtt fotSUlCo. Oa./ldl'tl. toll. tIIr F<6traI bfW ioouod.,......,. 

po:Wu diocuuioc .... FtdnoI Rtttrw. -.I.......-r ow-" '" 

SI1ICs. Tho ftdtralll.n<n<'" poi:oiiIhod on interim rulo 10 ~ SLHC, 

;OIC 1hr ft<Itr>Ilt<>tr>o',d'>pI<" of .... CndeoHo:dcnl ~ ond no<ic .. 

oodinilllllO rqub....,..,...un, ~b-SUIQ. 

AlofDto:mloor 'I. 511 ...... -.ll1top ... SUICoWOlb-...d 

....,~ -.. of "f'FI'*IID"'Iu ...... Thtoo SUIt. ...... 

~4I"'"""""" ......... prwrif.~ ............. 

........... 

~ 

~~t7S1J1Co1,-.NI""""'" 

II Sl..IICol.wl«Wicioo~ (IOS1.i1C4 

Tht U wr SUIC.l«OUtIltd for ..... th.n U.6 trillion ofooul C<lll1Ohda,f'd 

....u. Of th< S!11C, ..... -c<d 1"""",,,," in oItpooitory "' ......... only 6 .. 

""'""""' ..... on .... "" rs.,., ~8S prntrIIofth< ooul SLHc. 

-. ftl(qtd Pf1III"'lI ill tlr.,-yoro...... Tht ~r....."""'.!odd 

onlr I' panct ... Sl8I b6IrI of .... IDIIOI5LHC~ ....... 

-.

_

" 1'-

ifilqn •• ' 

... 

i 

1'!lilL'I., j!l,' 1 

I: I: i" ',1 II ii [ 

If",' 

""'-- ;"-5:ra. ii ... , j , • [ • , • 

.. .,,' ' ,,,-,,,-. ... ' ,d,.ii.' i5: r;; 

tun un I iHU l[Hff E 

-'" •• '!r[§i 

fi>'!" P ,1· 0.' j. '11-1 1;ltrlilllilllll!lli'llll I!.i! ;[1 i -{ - " . & • .. ,!, ;, 

s!! s J 

"i!.fft1!"'; -

i:! a;: f '1 El :i L!] OJ a. .. · --i "'"- -[ . "iii" l\. a. 
161 


10 ....... ..,.......,lIMI ............ rill apouI """-.IId......,.1O Sl.HCIWllb 

1OpIlinaI ....... ~ 

1. !oIw !OI! ..... r..5mI ....... diocbcd......,. ....... " .... tol! 

C-preb<nsM ~ A.w,.lIMI _ (CCAlj. Tho CCA~ ... _ 

to..-.tu. ....... npUI pIonn' .. procaotI >Del <>ptt.lI >dequa<r"'ho 1>"", 

BHc:'. Thil <urc;'" lncludt, boIh com",..,...,..n o.nd "'pom""'Y ", ....... , to 

...m... wh<Ibn linu...,..Jd bno:.,fIlOcnI upiW ......... or .... '" «CJUoic 

aM filWll'ill ...... """ ..... to kw:I II> I>ouo<hoId> and _ . Thr ffiI<nI 

....... ~ _atld ............................... baotd .. 1IeIaiIed 

dauJlf'll"'k<l"" .... _ .... ....r...t""~!S<ts.n-U"' ..... 

dn>iItd """-" .... CCA.lJ 

..... p>I1 " .... CCAR, .... fo6onl ........................... npobI pII.m ot_. ntIf'I "m...;., iM .... incI. ~"" "" ,1m ..... , ............ IIn. finn 

could ...... 111110 (>pUll ~lItribuboru ,o<1ud<d in .. plIn. ""h .. diride ..... 

and _k tl'pIIr<hlIco. while Illn 1IIWIt1''''''! <>piW >bo.'< ..... ftdml ~', 

0WIdlrdr. In' hypothniaI ~ M""'t«'IW>f>. Oobtr <OII~ f« apiI.oI~ __ ... ....,_OC""'r.r...·<'f"'1I~ pRI«1O<1 

.... pbm ............. Iud III ............ "'"' art Idwdolnl ... JIIwtd 

.. btpuIms toIs.-... .... boI ........ ""'" Iud III SI'l. 

c ...... "'" Fed<nI ....... '. ~...........u.."'" (oooIod '" $KuorI 

6.1.1) ...... -w" .... ~ .......... -.ld Ix "-JI<nIod inIo "'" 

~ "'pporunl' company" .... t1l plan .. balilsoon. Thr .......... ""'1' ,'" .. 

... , _lei be oond",«<i \If .... f<odtnI ko<rv< duri", ,110 ",0"..1.,1 pl." 

rtW:w 1""''' and _lei be 1I1C<I ... 1OOI .. bdp .... r..5mI an..... .......... odoq\Ia<Jol .... <IIIIIf""l" apiul pI>n. 

1. Apri!Ol!. .... FtdenoI ....... __ ........... 01. .... )bioi 

l"loIiIbooIIc-iI (II\'C). Thr !oI\'CwillprGOlII< .... F..Im1 ....... nII 

........ atId......,...... .......... I""' .. IO.......,_""' ..... ...... ia ........... olblnli", iIuriI ......... Th< w.'C io ifl1tIIdtd .. i=p'o'II< .... 

lJUlIitrold .. F ...... I ~., ~ ........... , ptOI .... 1IIII to ~rtf'IJ'hnI ,110 

"",fid<nc< in tht in",,,,,,, atId indtptndtn«" tht p«IS"ra. 

1. :.c.,. !OI!. tht FtdcnI ....... , occ.""" TOle ...... &.oll......,.....,.. 

JIIId-< ~i .. ".........,,'" pnaim .. bon~'"I ....... i ............ 

....t ~ _ 01. ......... JIO Wtioa. Tbo: r-s-' wpIipa 

.... 

~ 

~olllJaO'"""" .. lIiIIIlmC ....... _ ........... 1 

f"X"'" <hoi oupporU' to.a1mc ............. ', .... .. IooUoJ _,01. .. nW.1Id btu ... .,,-ip<. '" odd ........... " 

.......... """' ....... Wbile .... fl'id."" dooa "'" implemrn' .... ""-"""" 

rt<l"i"",."" of .... Dod\l.f .... k An f« "1'111" brr< BllCI.nd _bonk 

fi"",,"] compan"'II<wJ ... ,ed f«....".rn.- by tht F .... ' .. Re ...... (It< 

St«;oo. UI), .... , ....... iI i ......... '" pt<IY>d< mlll"'..,q..:' to "'" 

Do,s,HnnkA<lOl" odI«_ ..... , ......... ouh prtD6fIo1 .. loIIow 

__ 0:-_ . 
162 


..................... "-....... ~WI1b tho [)odcI.Fn~~An ....... 

--r .. ""'btory ..... , ......... 

l 1.4 vot:kIf "* 

s.a.on 619 of tho [)odcI.f~kAcl, ~ ~ .. tho \"oIder JtuIo. 

~prohibill ...... """"ilinf""" .... "l'"1in~tnId"'land f""" in"";"fin "1fX"I"""'1 ~ IWId>>n<I prMI< <quill f_.....,... .. mWn<'><ql<iom. 

Stctioa 619 ......... -..--... io....,..! ...... r-.... ok Cooori_ 

..,.or.d ............ ....,.ondout..,..,.....,_ .. ........... 

ok \'oId<. It*. no..c-;r .... ot.ido_ -...r. .. .I-Y I&, 1011. 

~ 

~~ ... ""'Pk--.tho\·"""loItand....,...t. 

r.-t ... ~Io(\I>m..pn>/lilil<dbf .... noIo • ...w...c .. ~....,....II«"ti ... ,,, .... _ ... ....r,..."I""tIftC.ond~ 

...;.,., St<OIId. tho P«ImI ~ ... , ""I"'~" publish. nolo .. impI<mtnI 

the conior=nc< p<riod """"s whkh ..... lmt...we.. and ,.,....,k ~nan<iaI 

"""f'>"'" ""P"".....r bf tho Fodtnlla<rw. _ bo'ul! thou" .. tMtieoond 

___ -....,.a;.- willi Soaion 619 of tho Dod6-i'rW. Act. no. Fodtnl 

....... JIOIoIi*d.1iIIW -""-........ f<I:narr 11.2011. 

"_,.,..... ........ ofdotCooonol·' ..... ,......,. .. adop< 

~ ~.diridrd ...... dot f<dttaI~. mc.occ, SU". 

wi CJTC. no. ............... dot~.,a. .. <OIIIUit ..... """"''''* .... hoa<h<:!<h« ... ~tt.Ior'htp"""""'of"""""" .. 'ht .. "'" 

poMII<. <hoi thrir nor.. art <OIIIpanbIo and. prurid< lor ""' ....... >ppIic>Iion and 

'm: I ...... no. ~ ofdot Council;' mpomibIt Iorco..-dwtioo 

ofdot rqubQoooI- 0. 0....... II ...tIt, 201:, ""'of<be...r...u.c.-. 

-....r .... public .. _ .. pr..,...t ...... ~ .... \'<*ler JtuIoi 

~ .... .-n.cm:........,...r_ ... ~ 

w...:ar ptOpOOIl-Jao-r 1I.1II1t no....,.x. ....-1 .... l1.000 

_I'rcao tho poIoIjc ...... ~....r ... -kmc .. fwliot ............. 

Pmd"" """"'" oflWl ....... "" fedor;olla<rw iIsut<lalUltlDm1 ofpoQtyou 

1opriI19, lOl!,rluifyula IN., nuioia ..... ' .. <be \'okker RIIk r.... "" fllll _ 

)'f>I "",I'cnnan<e p<riod prondfd bfow ..... whi<h _lei be tontiI J..ry!l, 2014, 

.. <alb.. ...... aaio'iIiaaoo!""""- ...... ..,....- of<be \'okker lok 

....... _..........-. ....... "..-.""' ...... '""!'k.-.lrdbf 

dot r.c.r a-w. n. r..kral ......... , __ of poIi<y_ "", ... ~ 

_lIoouId""l'l"-.,...uw. ~dJora ................ ....,. 

........ VoId<r bit and!uW.......-... "*' br ... IM<t'" w..r of 

<be...,.....,-",-"ponod. Tbt.........u; ... .-;...roo-..l"'" 

!bey pII.n .. ..rm"""" thou" oo....p; ofboltllinC _ .. thou".....,.ro.. 

jurildo<tion> in ",<Ortbr« wiok ,ht Frdmlla<rw', "",1Orm>",. ruk and 

lU_of~, 

_ "",.CCII __ 
163 


6.1.5 IIIs1IIIIIiII PlllllIIIII <'RIlly l.iiPdItiOII Au1!lcr'q 

-. ... StcIioD lti6(cQ dtht Dodd-Fnnt. At! ~ ~ boarilI ~ 

qn><t<l by"" Coooril """"";-' by tht F«Ior>l ~ ODd 1111(;, willi 

»Ill _idattd ...... afl!oO billiotl or.-. r"""""'<OCIIJ'lI'inllO plepm 

oncI "",,"II to th< F<denI ilt1<n'<, th< fDIC, ,nd <h< Coun.;il pbn __ """",mn 

rrlamI .... ·!M"II..;lh· ...... their I>pId and ord<tlr moO,o;on under tbt 1,1.5. 

luUupl<rColk. Tho FrdmJ a...... ODd <h< FDIC ............ adI pta.ODd 

..,.;.odf<lc!mulO!hot.,........ plan is ,..aftlibio orOoOUld 00< IariIiuIr 

.. ard<tl)",........ ....... co.puIJ ..... 1h< us. ~Godt. r ...... 

10 ........ <RdIIk plan ....... tbt -"-... bylh< r.drnI a...... ... TDIC..,. ....... tbt..,ao.;-t!" iIIIpooon( --1It1IIJ<'" aptol. ........ 

or !iquicli!r...,..,momu. or moricllO<lO on <loe """til, """" .... oroprnboa 

........ .".,."'/ .... ...,,~...., ,,,,,,,",,,. ""'~ ,II< _.....twoll>' 

pbn tlu, rrn'Itdin ,lit dtficicn.; .... lfthe """1""1' II» ftikd 10 mubmil 

... o«<pIObI< plan withUt _!""""' af ... ,he .. position ... .-.Ilfinsrnt 

~ or ~ tbt F<denIlIsm-t and FDIC, .. _1Ioto>n wtth 

.... c..u.ciI...,.joiodr '"'I"""' ~ of <maul ...... or .......... .. 

!ariIil>I< .. ard<tl)"-- ............ 1,1.1 ~Cotk Ito tbt .... at 

.... ~&ibt. 

IQ Sootmbn !!Ill. tht f1lIC atIII dot r.drnI ....... p<I>boIwd • pallaol ..... 

!hal i=IpIto>en .. <h< maIwon plan r.qut......"c In xcord>tto:. _"" th< joint 

finll ruk, <Ootf<d ,""'I" .... ..;tIt S250billion Of __ ia »Ill .............. 

(or. in lilt cu< af.Io«-tJ .... 1<d <Ootf<d """1"1\)". U!oO billion or -. I. lOUi 

U.5.llOIIbont.1O<II) ........... mllOdmIIlbtir rnoIutioa pb .. 10 the Fed<r.ol 

a...... ... tbt FDIC by Jolt I. :!Ill!. CooemI a.p>tt ........... k>M SIOO 

_(t.. .... thMmo~ .. .,.. .............. (or.ImISlOObillioot 

_t.oa_molilliooioootalus.IIOIOlto<tk. ....... "".~~ 

....,....., _ ..... tItn" _,.... by JoIr I. !!II!. c...r ... c....,.mn ...... .... _SIOObi&oaioootal ........... _ ............... l>lpIw"r 

Doc ....... "I,:!III1. 

AI. compklll<l\' 10 tit .. ru ...... i ... th< FDIC i&wrd. ~.w "' .. «qui",,. "'l' 

fDlVituur<d d<po6ttory IIIM .......... h ...... of$5C billion ........ 10 dMIop. 

--. and ~ ..... pb .. ooali""'!! how <h< I1lIC oouId ....... iI 

tI" .......... FDIC". moktoo. powm _ .... Fedm! DtpooiIl __ Att. 

n..o. -..-u:co Oft ~ 10-" ill _ by"""""'l .... W "'"I' 

ofbowteoo .... ltpI_""" ...... UIIClUI"t.-...-....... btJt 

~ r.r.. Thnr .................... "IOpr-.....w;r.. _"""'_ 

ahoitttpnM"""'......,.pIan""'II.ndflol. ............ ~inIttc..-

and iaoprooe .... ",,_for ... hutttucioo·.<OIUlit ........ utd..,~ if 

tbt in""",ion rllb.. 1 .. "",u,IlY ... «)YOm! """I""in prtp" .rod ,obmit .... ir 

lirinc willund ~ plan. lit .... itw<d, .... proe"';' upmtd 10 ",WI in In 

""I""'C diaIop _ .... ..,.....,..... and .... fuao that.u... ""<OIIUIIIIll 

..................... pIam ........ 
164 


0nIert\' ucpoiItIoIioMmIy 

n,1o [I ofo.. Dodd-F .. nk Act..ubfuhn ...... r .. ....-t-lllt ordaly 

IiIpoIdabon 0IIlb0riIy ~ oddmi " .. pocrntill wtu ... of. BHC .. athtr 

&a..nl.......,. ...... faiIor< ofdoo: UucioI~ 0IId u ___ 

....... doo: baotlrupIq (lid< .. <>lbo:noioo IIJIPIial* WonI ....... Iow-'d 

'-..no. ........... " '"' fin>n<iIJ oubli<t in ,t.. U"*<I s...... L'od<r 

Ol~. tho FDIC _1:1 "', .. ""eio<r<l,t.. fin ... <i .. cornpiny. ,ud ...... 1:1 ,,,,,,," tho.........,....., 10 ou..' 

!.,..,.!OII.!bt TDK: bootd >pp<-.I. firoaI "* ......... ill Tair II 

...",.,..,.. Tho: rulnn>kl"f • ....". athtr 'h""" ,bnIic.I 0.. ,w.., p""'" and 

,......,. Ito ",,,.,,,,,011 ,,,",110<> .. W<'II .. rt.. rI,,,,,,,,,,, of 1«'111011 <ted ... in 

,TaIr II ___ I.o)Wrlo !Olt!llt fDlC pubIish<d. JIf'III'OO<d ndo ... tirrc 

bIiI .... _alId....-""'_.....,. .... FDlCiO<l(llf 

"' .. -horirr_ .... OU .. _ ....... .......,.<tl..-..n..'" 

amlio ... of, fin'n(ial tonIpany """"""Wldinl """",," ,Iou ... tIw purptn 

10 ..... i ...... 0<CdmIt ... ,.......o: Ox athtr rtmtdin bolt<! on tho iruolotocy. 

fmaKIaI.-.., .. ~ rJd.. r.-iaI.......,., Tho: <'OIIIR'IIO 

,...... .. !lIt JIf'III'OO<d .... d>o<d ... lUf!9.!OIt. .......... <pOI<d thai, boI 

",Io ... n b<.......t i" ,110 _ f ... .... 

u. rill< IL rho rnIC 111> .... ouOIor'c!' 10 bomN r-II f_!lIt T.........,. 0IId 

..... athtr~in __ .... lhront.ctr ............ d,6ruKoaI 

~..qra •• .--oIoIipuoa ''''''lI0II (WOl.). IoIj1ont !O!!, 

rho )'DIC and Trt"""YJIIII>IiohM. dIrt!lOll<. ond """ ...... ,pro final ,ulo 

p<minK !hrakuw .... of tho MOL Ailo. in April !OI!. <ht FDIC adopIt<I. 

>fin IIOIitt and _. final '* \hat .... 1mb .... u.diriona.....,. 

...................... hoI4inc.......,.-W bt 1rUI<d ... """'-' 

<OIII!'""l' lor 1""1"""' rJralr II. Tho: f'DICabo _10 I""'f"* addiuonal 

",10, 1<1 irnpltrrltrrr \he ou.. indLlli"f (I) ",10> JI'l'"f'Ilnl rho mi",mum """ d 

~ In<! (!) joiar ",100 with .... SEC. aI' ... owrrIu""" with !bt Stcrrmn 

I ........ PnrIr<tioa Corponboa. .............. 0I'dtrlr ......... rJ <mPI 

......... "'" 

Fu,!hn ....... Sotlion flOd ,t.. DoMrrlJlkAct "'lULl" tllt FDIC ',. 

~. III <ht ........... "'" poaoibIo' with """"""* iorTrp ..........., 

............. tho .... d ............ d • .-...d........,. .... ~ 

oponr ...... Tho: fDIC .. bmr .nrncd~"" badI ~ oorI 

'oilaltnllwtl .... h rom,:" _."'pam i".optnUior> and.....,......, 1<1 

......... "-mrciaI <~ ....... Akhw(h U.s. ~ ..... Jr.... op<r">tioo • • ....,_iJooae.......-_ .. bt~ .. ,rNIMI1 ..... 

.-.... d lqjrrnsdic.-.porti<orIo<Io. .... Ul. Tho: f!)IC oM l'laodroomol 

'-..doollllrot-.al JnII'nI in .....r,.n.,.orI ........... r=p<dimttlu 

co........uon. To I"'~iwe bilot<raI diKullOoru.nd cooptlllion, 0.. FDIC ~ 

....,.1W"f........tad~with«"lUlrl~"""' ....... " 

\hataill,......I ......... "" ......... ~ ... ~ ........ 

.. _,........ and... . ... oorIn .... lopI tn.cwortd_ 

Dodd.FranlAll 

• ""fS~C" __ 
165 


1.1J IIe'IIooIIIIIIIIIfntas 10 Crd Rmgl 

Sr< ..... mol."" Do<Io:I-fnnl At., r.-. .......... to <mi. nlinr in «rUl_ 

"'M ......... Sr<tlon ~ rtqU,m .",h ftdtral ... nq to m-iow it> ~"b,"', 

1hat .......... "" .... oI .. _oIcm1 ................ >O<III'icy .. -,. 

...t.n .......... MoI..,. .......... "' .. ~io ..... rq""'""'" 

rq>nIi", md;o ........ b;k.-r_ ..eli". .. 1<1"10,""" .. ioImtiIl«I '111 

''''' ,.,;.w 10..-. rtftr<nc .. to Of rtqUi",,,,,,," 01 rtlianc. 01\ .«<IiI n,,,,," 

Mol '" oobKi ... apprq::o->Ut _of cmliIwrwtlunno. 

AI Jt'CIUI"'d '111 SmK. 9!9A."""""'-""" Dodd-Fr:lDkAn. iod<nI 

....,0.. rtpontd '" Coo, ..... 01\ "'" rm.w oIlholr ""uhtiOll,lh .. ox ,«<In 

rlIIII£' ...... ~oI...,.oIlht~""_ftd<nI ......... 

boot Pf'I'PC*'I"" fiAoIiaod ...... WI....-Id -'ifrlbrir .......... ~ 

wO ""s.ruo.~~For<UlDf'k. ""~bao"'" "" ........ .. Ju ... tol!. ~",I;O«I""';';"'. ",.11<" ""rUt risk np"al ,uln.1I>< inrpi<rn<n< 

_ .. cmI.l1IIi ... b_ ..... ~pooit-.Con<un<mlJ. 

tIo:W<nI~_pd.:Ik_.w..,...,...,tn.ob .. "' .... 

at>d ,epbce lht ........ ·<IO"_npou!"'In.~ .. ~"'" 

'hart .. rtqUiM byStruon ~ Tht SEC ocIop<..t ",I< .nwnd ... nll ",,,,,,·on, 

................... 

........ .-.inp .O>ndition> 

~I«VICin""poIIIic 

"""""""'...u.. '" ox 

....... 

Iioor>4Ono 

~ 

~ 

....... 

OIher rub WI. ......... _ (...tiIm..,...,. rd.m.<n r.-.....,. .... i .......... ' COODpa'" "'In ..... ill ,.In owl., ....... 10 fi, .. ,o<il) rnponoibiU", 

~of--... .. """I;, __ of""""""""'''''roICa...:.! 

I fiuI .... -... tr<dit -. _ tIo:nlc.brloa at.,... -...... 

~_""I&'ltWur.dd<powlry ..... "'"""' ..... ,""OCC 

isautd • final ",I< .. rtmOY< "r....." .. "' ",di< " ""I> in tht OCC·, ",In r .. l--..us ," l<CUfII.a. ........... ol5ttinc> ..... "'""" Ioonlnpou! <quinln><y 

drpoool..pu-.l_ DmoIbot 2011, Iht fDlC,...,...,t "'_ .. pan. 

oflht FDIC'. ~!hat ......... pmhbI .. io1our.d ........ __ r ..... 

><quiri .. and "" .. n '''I! '1I"f COIpotI<t ""be 1«IIriIy .n .... ~ "" ... m' .... pr'o!Ir .. 

............. -.,-..... pttiocIic>Dylhtrnf ..... !hat Iht ..... Iw odoqu>tt 

..,...,. .. ...,.a 6Iw>ooI_ ..... lhr....-.y"" Iht pqmcd 

~r.of""_ ThtfDlC'.DKtmt.n-!011 S"'_IOIIlII!tnlwilhlht 

OCC', final rult ............ «p<!in, ptnniMiblt 'n.,,,,,,,,,,,," 

1.11 __ 

Sr<uon III 01<110 Dodd-Fnnt.An._h~""'c...nriI.oho 

prooioI<1 olw 0I1t at ..... ,on .... ,,,. .......... in oddir .......... ni .......... 

hoaoIo of r..ItnI .......... >hall II< ' .. indtpt<>dtnI...-. >f'SIOI'U<d by lhr 

~br .... ...!Ih""_· ..... _at""s...... .......... -.nc. nprniot.· On 5tpItmb«!!. !OIl. lht 1'rtso:ItnI., 'PP"' ..... rrko ........ Iht 

"Indtpmltn' ............. wu _n in and .... Itd ... Illtnlbtr of ,""Council b • 

.a-,. ......... s.... ob ...... tht iDoItpnodtnI ........ hao ~." oIIitt 

....... "'-'Y"'J"I'Odin""_at""'c...nriIlllllia_ ..... "" ...... "" at.!U601_ ~ WIlh _"*.,,pm;o<. Tht indtptndt .. 

......... Iw..., ICln~lyCOlll"llrd with OW< in,.n"" ,,,,.1Il00 , nd F..dtn.I 

......... s,.... oW!" """"'* '" dot ~ ""''''_ .D 01 ,II< 

.......,.~""--. .......... 
166 


TIlt FodenIm-... 00ict (110) ........ "'" T....-,. _ <IlOIIIiohtd ""'" 

Do<k\-frankMl wilh 'I><.w.:.ror • .-. O<h<n, 10 _ all .......... "'" 

inlU'llIC. ind.....,..I"d\ldillg "knUr)"'1 ...... orl'''' In ,I>< ,qui .. "", 01 

.......... 1haI could <*IIIilIw JO. ~ <riIiI in ""' ........... indlllU)' or"'" 

U.s. fiuDcial.,.... flO io...tJON.d .. ~ "*"".&no .... dt>dop 

Itdrnl policy .. ~ ""Pf<\I",aImIOIioul ... """", .......... iadud'" 

T<JI<n<nl;", tho Un'lCd s...... .. appropn3l<. in ,I>< Inl<f1lalion.ll A14O<i>1ioo 

.. I .............. (lA1S). I .. ...m.mc itr.1UIloorUo. flO<CIIIIUk> willi 5.dor2I.-, __ rqWaIon..1IId inI<mIH """'"" 

Thll p>~ 1R'". flO}oinod Ih< 1A15111d;" ~ ,nd 1M""" _mill ...... n 

.. whidl...,iodudo U.s.IP!<.........,rtpbIcn .. 1IItIIIbnt. ~ Ill< 

1A1S.~..,........."......t""1h< NaDonal_ .. ' ....... 

e:.I1'..-n (NAlC) ..... flO Mri willi a.r .......... ~ .. «b<r 

""'.,,.;.. ... ;Olm'l.,Ioo.' ''"I''''''''l'lnlli ... " ... u<h ... common fra.......,n. 

for~"""""""'octi>o Ift.uraD<tI"""fL Th.....p"'" 1A1S. flO 

1IId U.s. ............. ...,-. w ...,-ut:tOIIo/IonInoIf ........... 

i""' ...... ........--.'" ..... lop.1OIIIId 'W-k .. 1bt ~ioa 1IId 

............. pbal.,.....ic>IIy imporIan' in", ....... 

Ito..wa... JO itr. ........ ...,.......,for suptmIioa ... aHC ... iI • 

..... tir. ........... ~ ... l"'rtl.:!Oll ..... rtdoml-..r>l-.l 

mponsobIl"l"for _ 25 S1J!CI t1w"'l"l< in "",ille .. , roIu ...... ~,.. 

JIfOP'I"'J .... asuakr. 1M IiIlt iruonn<t ~ TIlt ......... ropt<U" 

.... ~.....,.waddrnotd._....--thalhM .... pubIiIb<d!or Ill< llfC .... SI.!lC pop.IIItIDn>. TIlt rcdml ......... <IrotIopcd 

..... "plemeNt<l'lp«ialiml .. ptrviIory >pfI<O><h .... tull"""mI ...... '''1OIJ' 

pi4an« thai rdItc .. 1bt riIkI >nd than<\<riI<D""'" ioclusnJ: nlll "f'I"O"dI _ .... -,·tCM ...... ~ ......... iIIwm>orr<plMon. 

I.,uranu "I"Won. ,h""-'P Ibt NAIC. C<Wtlinu< Mri on opdIlilII Ill< 

I .......... fm>nrill SoIorDq f......n.. T"","111< __ iIIIporwI< iaiuaUon 

........ Ibt.-.....dMri ...... ~-..........I_.~1td 

JO Iht o.cIopooa 0/ Ibt 0... 1111; 1IId SoIorDq _ (OlW ~ 

Jobnll.1I in Morell tOl! .... Ih< m"lI<d Cm!iI!or hllIIUrlI'I«".\Iodd La,,;.!aIe 

!OIl. u... .... ,. ... 1IIIt IqIIhm 1ft op«l<Ol .. 1inIIi..I< Ih< QUA _ 

laor .. ....w;,a, "'" 0lSA 6IiDc .............. 1bt \ ........... w....I. wIoidI 

will allow ......... --. -"'fi""'''1bt liw>cWd \ ........... laor '" ............ ' 

pr ............ ""' ....... , ... 

6.2.1 OI'fi-llle-c.:.untel" CerintMI Reloml 

Till< \,11 .. "", Dodd-f..w Ml .............................. "1"'-7 

In-' for lilt _""'""-fOTC) Iim<>liwn ............. The 

"1"'*""1""""'" "'" <Iom_ ... 1ortII ill Iht Do<k\-f"nk Ml is iNtndod 

.. ptOIIIOIt •• ....,. 0Ihn- ,,,,,,,, • ...:lI>n,," lIlId,n,lnd c..,lI1IIiiH ,Int,nc" ..... 

-'o!> ""'~ __ -..... 

....... ...a 

.. ""'_N'_Ihnt .. """","""","",,io .......... "'" ~ 

_ '111 'lac /I ..... _ 
167 


ThraTC ..... S(C ..... prIIpOIIr'd'" toos- 00 fiDalix_ ...... 

,...-oolhopoablic ................. ,....... ... ha«oopcod • 

......... pomii< ............. ......,..,.~~ ....... 

""""' ........... .,....,.II>lt,-'oIporb<IpOIII>. ..... __ ononI ..... 

oIlho pubIic;....uncs .......... oWf""", ... 1upIe r<pb1On, bolh......, 

ond in ...... bono/; ltId "Itnt'f tWf..min".tth ..... 'om d'M putfl<, 

1 .... SlC ..... CFTC h>oejoin'I,.. .... p'td ""'" rlUlhor dtfinllll ,I>< l<f .... , ..... 

·~.....,;·~IW>p ........... ·>ndbt .... odopltd 

6n>IjoioI rm....m...,. Iho _"Jwap <kola: ~ 1W>p ...... : 

....... ....., paniclpaIlt.. -...,.. .....,.,.-1W>p~. 

'" aIoI ...... 1ho CFTC _Iho Irdn.I bon""" agmcia '-d prIIpOIIr'd 

1lIIn ... capt>! wi '""I'" ~ ... -. """'" lhrir ....,... ... 

j.orit<I"'_' (b tho r.fTf. '"''''' _ dtaItn ltId .... _ POI\"'fIIlII<S; 

r", 1M I<dmI batt~i"l ~ C<1llin >O<IIti~ ,,,,,,,d .. lrn.ocI """" 

"'"II p>m<ipan"" .... ,), Tho I""'f"I'<'d ruin _lei im""", inlW '"&rJi" and 

~Uon ""'I'" '""'" .............. ~ ... hddbr ... llOinondtrndl 

....,q.~II·""rnpt'Cl .. capt>I~IhoWmI .. t...s 

...,x. ....... rc:pIaIory ............ __ .............. 

"""I'" mb ..... ftoooolerinlMou-uom ... -W.,.,. .. ........-

ia .... and~ ..... ThoCfTC_I""I"'"f'I!,..-..!"';_ 

roo _ ...... joriodicuon. 

Tho CfTCIw 0II0pltd ....... 1 final rub, i.dodlnf 1q'Of""l <tqIl'''''''''' Ie IW1p tba ~ for owapde>1<n. • .-..p patlidponl~.ocI .... p 

""""~ rm.. that .. "bI"" Iho JI<OC'" br"""'" Iho Oie will ....-

..... "' ......... wlItIhor!lot "'"P' an: """""" .. '" cJ&o:ar..s. and """""" ........ 

_ .....w.Isw_..p..y~ ... .....,dt ........ ...,. ......... 

ThoSlC 

~ 

... I""P""f'I ................. ~ .. '"""""'"""' ... IW2pO. >ndlw odiopo<d final ",In""" nubIilIllho JI<OC<I' br 

-.f1"h II .. SOC will ""-lKUriIf-baxd "~pllC !lrtmni .. _h<!htr lhr 1KU"lJ" 

-.t .... ps ... "'I",rod Ie '" ,1romI. 

Tho SEC ..... "'" CFTC an: CIIflIidtl''''I 1M IInKtWOI and .,.,.... m..,.., 

.. .t.. """"""'"' wiD baot ....... .....ry ""' .... .s.n...... ... uta"", 

_Thr .................... """"""'''f'I''''''dt .. ...,.......!lot .......... lojuc!012 ..... SlC....t.,.,. ....... 

<In<rilII"I"'" onI<r io _~ • ..,...,lhr ...... '""""""' dIO ~ 

.....,_ .. take oIft<L Th ord<rinc;, i1IItnd<d .. "'" ~ """ 

awltl putX ........ adoq ..... bioi ""'01< ....... tim< '" ...... ,ntO_pIiIn« 

_';,h ,be n.., rul<1 .pplObao IC lhem. 

Oo...,~IeotI.U.s."f\'...".., ... ~ .. pa<ld.'"'" 

compwol at ~ oIlhr BCIS, .... c-..... "" "'" Global 

r......w 51"-'" c-. ....... ",.,.... ..... S<ttI<mntI ........... "'" 

ItIcmaUoDaI 0rJ-ds...-....c-...s,;.." II> ckwIop""""-'l 

__ :0:-__ 
168 


IWI4ards for alIJIII-___ lIydt....cl ........ .,.. '"'" I""'P I00I._ 

~fino"'P"""'lIioourd. __ ...... JoIf!lllt 

12J f'rioIIIe fin"".. ~.., 0'Imi;I! 

Tdo 1\' ol "'" DocIcI-franl Act , ...... ~pp by,""" ............. 

'11> .... 10 "'" rqiItntiooI, rcporunJ. ond _;...pi", rtqui......,,, ol,'" 

! .......... , Aoj,., .... "" ol l940 (M,;,."Ac~. Th<>< pwrbiotI.1r< dniprd '" 

prom. "'" SIC ..w. .......... ""horirr""" pI'C"iowIr \lII"T"=I "'-'-' 

.......... 10..".",. t)'p<I olprMlt fIoIIda, iI>dud'"C * fundo llId ""'* 

"I""Jl"uIoitI.ond lilt.......,. .. rtquIff r=nI~....t If1IO'!IDC bf 

................. apitalfII ... 

s.<- 4/H and .o5ollllt DocIcI-fI1l6kAct.ooru. .... SEC ....... ' dou 

~ ~l_'" thnt P""'''' fIIncb 10 embIo "'" Coutri 10 

...... .,.. ...... n.k ..... '"'f"'''' P"' ",-~."t: ol,h< SEC llId CfTCfor 

im ....... 'act.;,.n '""'f< , .. ",md ,,"h bolo 'h< SIC ond O'TC. ,.... 

......... i .. pI<monttd ,/U. pro<;,.;w, i. O<IObn!llIl brotlopli"l' ",Ie IhIl 

""1"''''' mtIl" .......... ,., hcdc< funt!>. ""'''' "!""Jlundo. and hquod", 

lweb ...... ~ dou oqordinc thnt """"""",""" lbr .... ,...,... 

ollbrp;. .... I .... ..,. ..... u..s..""'.-.~_ 

....... """ ..... SlloO ...... prinIofuod ........... ....... 

_ p<fiodiallr&l<. _..,..,... .... IFor- Pfl. """"" /\oM .......... ... 

.... 1IIo ... lSI<rtd """ "'" ern: .. .-.ocliry pool optmOn .. ........, 

<ndi"ll .......... ...,.IIlisfr~risk~"''''''"' ........... ol'''''CFTC 

br ~Ii"l F", .. P\'>rilh "'" $£C. ,.... ~'" fihnpolf«m n, ...... m, prM'" 

fund oeM ..... wilb" biU"" '" ...,... in prM« fund:ul<!l. .... dut i. July !Ill! 

for liqtoiditylund "" ...... ond .. Auf'.'" !II11 for be<Ir< fund """""'. Smaller 

tiquodityfuad IIIod htdtt lund "" ......... ...0 .. pm .... <qallJ fund ott>io<n..;a 

1M: """""", .. bqm ~ For- Pfkor tile poriod ...... Dcc.-.. SL. !lilt 

10.......-. iD)IIIIt !IIII, "'" SEC odopwd. "* = ................... «TI.Oio 

."... olprinlr fwIlb, ito<Iodiof; ..... f ..... 1IIod prMlt "JUI'7f ......... ,..,.. 

""" "'" SIC. To ta/wK. "'" SlC'. >lility 10 """'" """ _.nd .... bIt 

,ho pIIb6c .. h<I«r ...... tho OCIMl""ol pm"" fund!, tho SEC 1fIl"I,eo ~ 

fund ad<i ..... to f'<""'d< book ptIbl~ lnlomat .... on Fonn AIl\'.boo.a.ho lund. 

Ihq.....,.. i:dud"'l inforlDlllon .... "'" ,_"" ol ...... hold br the 

_ and ~ olfund .......... pnorid<r> «+1Ud""", pn. \!rWn, 

......... .....,.,.,.,.., and ...tnm),lo.:\diboll, "'" $£C ....... .a ......... ,........ fIonl!of ____ For-~ ...... _ ",,--.ditno>, 

....-.-_ ""-JKtI<UIO. ~ ................. ,..,..,. 

rdi.d "" lilt I_MnlmAcl """"I"i'" kor P""" "" ....... whidl_ 

cIiamat..t. br "'" Dod,H",.1 Act. >Om,......<l .. rtp<tt """ "'" SECbr 

) ... ",h tIIlt ~ .........." _'" ~"imllOadop< atod ............ ' 

poIicin.nd "".;rdu ..... ,......" .w,,,,,, ollho Advi .. " Ac,.nd SEC 'u .... 

5.2.3 0I1It:t 01 FNnciaI RmwdI 

'IlI<1""J"III"I olw 0fIiJt ol .......... Itco<artb (OfI.l ...... aoppor. w 

c..u-llia ~""'c.o....cil'. P"'J'O'<'.aod -. 0I0d .. ouppon ... CouIlCiI', _ ........ 'Ill< on ........ a ..... OIod mtardI ........... kor 

• "",.oe,, __ 
169 


.. CouacilODd ....................... iI;, -""'I ..... 1Iooot ...... JO 

-C-1<pCIfUII( bomItno oM .......... ...".. ............... "' .... ......... .. on.,.... ... IhM..oI.-_r-il_0Dd_ ........ ....... 

The OFR PfO"idco d ... aM lI1JlysI,., ouppon ,t"" _k. mho< u. panic ....... 

In Council ""'in", Iro rtopOftM ., ~ from Cooncil ..... bm '" <11<". 

.,.aa '" ouf&. The OFR wiD hR <11< <>pI<II)' 10 ptOride in.dtplh, lore-

""'" rnca:do. .. well .. rapid "'""'" oJ ~ 51l.lJ>Cla1 ........ ;.00, .. 

<11< c..nciI', poIi<y""""-The on .... ""'. ~ 10 ...... 

... rtpCII1 ...................... ~_oJu.c..l 

.....,..".......br ...................... _ .................... a.. 

........ oJ ...... ,.... u dlrrm.t 10 6nuonal>UbildY.imn/lpIt .......... 

ODd Wk>m io .... fiIwIci>J ......... ODd fI'1"1d< .. onalyooo ...... Coo.nriI. 

C ........ >n<I .... ,.-

The OFR io -'-.... "';,b c...t.cillllmlbot....,.o.." "'I'P'"" on i .... nuioNl 

;'1Ii><M '" rstJbIioh • WI .... pobol 0I>DIhnI_ i6n1<ofriac portotO .. 

ru.-i>l1IUIU<_ Thool<pl ""'" JdmIiIirr (LfJI .... _1ot.1ocu<r 

............. brlJOdo .... 1M«< UId ...u. ponicipuu>oJ ..... ..,........ 

ODd.-pony ........... _.,... '" joIr ..... Oft,."w;.t>n;" .. 

...... r.pon JO Cooimo-ia rnntdI ... ~ wwt ...... nob .. 

&--w~. 

The Dodd-fnnk M. PfO"idn <ho, ,Ilt OrR _ld be ~ lIf. Difl'( .... 

>ppOin"d lIftho Prnodt .. ODd <OI'~raotd br "'" u.s. Snw<. In D«<1Obtr 2Gll. 

PTrudrnt <lbonoJ .-iII,l«Illchlnl B. ann...., ....... tho ,.,..Dion-." ol 

lht OF~ l'hII ............ d J'<I'II",,1IriI;n Ilo< s.n..... 

'" O""llo<po>t-nol,.... .... -.... SlC ... _ ............ nop"' ... 

rril<inlJO ~ .. .,...,....u. ~A>. "..."' .... ptoa1O. .... 

SEC _. """<pi ....... ;'Juw'l' MIG"' ..... pubIir...- 00 .... 

'"""" "' .... 1:.:1 """'u"' ....... 01<Il0:l;'<< h~lDdin" Of'd« row"", 

milrk,dJ." linl.qeo, and und,opbj'ed. '" "dart. "Iiqllod"~ The SlC C<W\un .... 

II> coalider 1M ..... r1lItd. Iro Ib< MIO con«pl _ and whothn acId ..... 1I 

,..ulIoort _ .... ott<Itd in 1hiI ...... 

Iemod>; llo<SEC ............................ 1lIUtcI1InI<Wf< ...... 

f"' ........ joIrMI!.Ilo<SlC.....,..,.. ...... .a.a.-.w ...... sao. .. .....,.pba .. <mIt • .......w.ItOI ..... oniLs.do.~_ 

tnil ~ i,.-................. bmodth "' .... io.fonawooo .... lItIk 

Ie .... bo>n lot ,"noill1n( •• ;1M>llp ....... MIl.".."..'" <qIOiry ruM 

."n",. InJu", MIt, "" SEC approood ,100 proposal' wbntll«d by 'M .. , ... 11 

..."riIieO .",hanrnand rl.~RA IIw art dtsis ..... '" odcIn" .1Ifltlfdiluty 

...... lilirr in ind~"Id"'] IOC\oIUI in "'" \InIodeo U.S. __ 0.... Iroru.u.. 

...-. '"1iIIoiH4>" UId "!iUdown" """"""'"' IhaI P'"'"""'CIIndes" 

......... ~..urn.~ ...... ol.optafint,.,... 

tr.I. The...-......... """*' ....... _ ..... ...-InJ1on ...... ""-'-_ .. - . 

11 ! !iil ' -"'cll- - 5 .. si 3 <:ssT' is - I J'III). Ifill Iii iii', Ii' .!IO. 

S"t I! II e; 

p .'!; t 

• i! • ! -
172 


ABS.~ofIto ...... r""" ..... tbadon ... ccmpIy..o Ito< 

........... '.,iom and warnnb.> ...... ill an ~t\dmyl"l "'"II(_ pool;", 

,,1ffaIml. 11>< ",,,", aloo~ .. <hal ~If rt<OJII""d owitlical """" ~""'ia __ "PfdmcIbo~_lnd 

nofo<t...... 

~ 

-m.._ MiIobIt .. --.. iII .. .u.so&nor in..,. '"""" 

I <rod~ r>I1nf iIou<d .. __ w'<h ""h oIfmnc. """""" 

IOSct,ion 9015. Ihe SEC..., odopItd fin>! ",10 in J>rnwy toll ...... "i"! on 

....... of AIS ~ u_ "'" s.a.r- An of 191:1 1O,..nor., ..... 1Il 

...... ~""'AlSlndlO<tio; .................... "'.ttof 

.......... U'"""""' ...... ""''''''''_''''''''''''''-''_(11 IIow tho 100 .. III tho pool difr.r m. Ito< .... UD<knmti"l (rit<ri1 di.do •• <I i. 

"'" P""P«''''' (!j ..... tIw. did ........ "'" d;,do,"" ~""'""nl ,rit<ri1 

but wm ioodood<oI io .... pool. and lSI til< ..... ttlw. .......... dt!mt>, ...... 

tba loom b<...-....! io "'" pool .... """'P """did __ <lor diocIoonI 

........., ...... s.ru:.. 94!(bj of"'" Dodd-F ...... An ......... "'" SEC 1O>tIop! "IuhtaoN '" 

................. of AM. •• __ .. """-......-..t ... 1ooIHe¥d ..... 

IfP'IioI ""' .... '*'-I "'" AM. if.., ..... art omwarlot __ 

illltpmdtntlr'" porfono due diJirtnt •. In April !!I1G, "'" SOC Iud I""f"'W'd 

sip,fIc.nt m""'" '" r .... "lard,". ,ht oIltn,,! p<O< .... d"' ... " .... and 

roponioclot ~ktd -u.. iId.Ii ... m ....... 10 Rttobti«! AB. 

A> "'" III iuApril toIO .......... .., ...... 01IIIiIt poaI-Ind d-' 

......-tht SlCbll""f"'W'd.., ............ lt2IItbnIued-*'d 

..... """'" r<prdinc 00 ..... ; ..... undorlri"l pool bt pro<id<d. tht 

Ii ... 1Il ... lIriIi_ lnd .. on onp"llwio. In-"'If tGll. ,ho SEC;""."d • 

................... ~~ .. --.thtApriltG10p-opoub 

~ ........... s.ru:.. 9oC!(bI IIltht DooW-f,.kAc\. 

In Stplc1nb<r !!Ill, 'ht SEC pr<JpOO«I ",,,", UM<r SctuotI6!1 III Ito< Dodd-Flank 

An tIw.......Jd prohibit~ ... ponicipafIU of, • .0.&5 lot I dooipatOli _paiod._ ...... _ocru. ............ ""'......Jd ................. io 

.1tIItCt1II coalIia 1Il-. 

6.2.7 Aur:i\SWIdns 

In .... bK,.... til< Public c-p.ny """'"""" o..n;p Ioo>r\I (PCNJII) 

bao'""f'eM ill -..I prqoao..btod ........ lnd pr""-aI ~ 

-.brda. no. I'CAOB pn>p>ood I ..... --.IIID4>td.lrbt.d hIta, "'" 

........tm<r.a ......... ountbrdI ttprdi" "",obno -w !nni><Iiom. 

iornIcIod "'''''''''''' ...... pro«dum in ..... ,hat 11M •• u-. b= UI<"d 

lO .... io_~~JK'IPO'<d ...... tund.rd.ad 

............. iooctdcdlO .......... ~""'quMty"Ib<=_ .... _ _ ............ """'I"""fO"""' ..... mro:pn>p>ood ... ... 

;l!1I:IU""" ountbrdI <hit _Id wr '" tht IUd .. of stCrtallln'f<l 1100 Inc! '" 

tht~-.....-...,~l<IIIiI<dlinmnol~and 

P"'P*"'I.......s-. .. ....-""' ......... ofpubk ....... oudia 

iII'...-.nctht ......... oflbo...tit .......... pannor"l .... in thtJlldit 

'"""" ODd tb< diodoourt of""'" ~ pubk"""""""'l firwlnd ""'" 

JI"'O"'''''''''''panlolhellllli. 

_ .","OCII __ 
174 


....... _ .......... r-c-;_ .................. ............,.Iorieolml 

_ 6JDoriaI ..... 1I'>IIIfrmd ..... an,.JoI1t1. !011;>nd ioo...! • 

......".oI ...... """...,.,no~_ ... DodII-f ..... ~An. .......... ... 

an.-.. ........ _IboI_ ..... the ............. ,..,._ 

.. 1IDIknuDcI1hr ...... lIOd nobol ........... finanaal produ<u and ocmcft. .. 

lhor CltI compa .. pn><I"' ...... "-ill< __ w, ......... f« ,hmo .. 11 .......... 

III< em ;'I>. ~' ~"'", to d,,;fy and ~" ... I; .. ' ''I.bOon ..... "'01> ... 

to mb:< W1D<'<CU>r)' bIInItns"" f"'O"'i6m 01 ""' ....... filWl<lll prodIocu 

... ~ 

Oao:oIlb<an·, ... ~-...-.~oI .... '-

dix ....... """' ...... Ihr T .... inl.oldiDcAn (TlU) ud ... tooI r..... 

s.u-... ~ An {lESPA) .... ..., lilt ""'""--... ...noI .. 

_ ..... :m:I .. .-bo.o ........ 1mdrn. Tl><DocId-FIU~""'~"" 

Nlml>kins ' UIhority for the toO"""'"' 10 Ihr cm. Tho cm ptopoord 

"1"10,,,,,,, , n<I .....t., di<t ... u .... ioJ"I)o2012. M p,all oIiu 'KroJw 8do... 

V"" Owr" iniri>~, Ih< em Jus....., """"1 p<OIOI)pt dio:ios." "" ... Ih>\ 

«111<"," ,n"""","", "'I"'r<d 10 be diKlootd .. ,,"","DOn...t.oapplylor ..... n 

.. poaItb>o<.-.", ..w..... ... <11111111~ ...... 

1 • .w-... 01I Mo btnt """"1""-"" Ior.-w,~ 

........... dnopod ...... i1._Ior"""-n .. ~_..! 

1m UOODItrd woth ........... Tho DocId-frW "" .......... nu IIId ..... irn <r<diIon. .......... Of.....,.... to..,.! Ihr~. prnod" 

"" ...... , for "",h billi", <JI'1l; <II< """""" '""" incko:!< onformwon otoo.o. 

1110 """",,,,', principal""" ..-.IIl,C\IIft1\I in"rnI ..... d;dt on whkh 1110 

............ ""'1' .... , ....... and. dot<ripbon 01...,. bit pI) ....... Im ...... 

........... Thotm pbo.o. io Ihr _ oI2OI! ... propooo ...... , iIo<Iudiol 

.ptopoordJor-. .. ..,....... ................. IIiId....nl ...... .......... rdaord........-._ .... DocId-f .. n~An. 

Tl>< DocI<I-FI1D~ An ................. llr<troru< J\IIId T ............ , .. proriIIo 

proItcUOnO CO""""""". tnrufot Nods co miptn,,1o<>trd in ......... 

UlllJ\I'Y ( .... itwu 1nIISItnI .• nd 1110 CfPB Iodoptrd ........... ' ... 

...... """" ..... P"'''''''"".I" CtM"1.1hr ,." rtqIUrn ..... "',"". tranIkr 

1""'''' todildoot •• COIIJII ..... tho "'1wIc< .... , r..... and lIIIOUIU co be 

......n..Ibf ... ~ ........... _ ................ ll1n*' Tho 

an aIoo ~ poM<...-.. whMn 1hr ........... I11 ..... "" 

hIRMIt.CItIIIf"~ .... b, ........ _ud ...... ""'"f'IU"1boI ,..,...Im _.anaut ........ oI_1fm11m pot,.... f..-Ihr 

.... ........-..n..IinaI ...... woth...,. .......... wiII ....... dJrn .. 

fobruory;, 2011 

Tho cm h .. '""""""'" 'Ulm) 1M' (CrtIin _01 .. ,;,in. incl\ld'"1 

,""""I< """""" .... 1""'''' tel .... , ... .,ndm. p:or<b) Imdon, ..... "b .... 

pan ......... d.. owkr! lor ...... fMO","", financill pn>do< .. or .......... 0.. 

I'riInwy Ii. 201!.1hr an pubIiob:d ito miIiaI propootd fill< IOdtlUoo btJ<r ~ iII .... _ "'"""" .. dt\ltcollo<tioa .......... The01l 

......... lboIiI. ... _..wu..I .............. criIen&lorlarp,......... 

_ '''''IOC'' __ 
175 


in ....... _ ........ -..,wIo<tq; .... ...,...".-.......... 

Ill ........ forcxll <1"--... 

Tho Fcdt<aIleo<n<. FDIC. ooc.ODd ~ '--ud <\owly""" .... CFI'B 

.. htIp ........ ~ , ........ <I .... crn·.uami .. , .. aad NItaW .. 

• ullloril .... Th<>t .. bribe> ..... irI<Iud<d .... ""..r ... <1 '..-wo ... fI ...... efl'B 

.nd .... ~, <I ioform!ion ...... ",10''''''''' «>Or\l",1tion ...-:oneil 

01 W'IIItnund'''I- For .. pm. dltern <Oft1U1u..n..ty wM dlt fcdml 

leo<n<. rotc' occ. oDd NCIM ..... rulom>lo"C pnxno ~ Iodp,.- ......-,.rilt<voctIni oM ...... .... pIIODd "'1"'_' 0I1lot Doddf .... ~ An roprdior: ...... a.-. 

U2 Ib'IpJI TrnKIDII IllllIkusing 

To XIV 01<10< Dodd-f ... kAn, tilt ')lonpse Itdono and AnU-~ 

Ltndi"CA<~' """"no ~ ........ dni(tItd .. proIt<, o, ... ,,,.m on 

"""'J'v tn.""';""'" )I • .,. 01 ,h<oe ....... ,... ...... ena<ted lIl1nC<'1Cl ..... ~ 

'" ,lot nu and tilt R£SI'A. frlor '" JuII' 21. toll."" rcdmJ a....... n, ............ for'<tolo_~ .... TlU«qui.-.....ODdIlUD .... 

~_"ESPA.Iu"""""""~InDIfomd, .. IlotOl'B 

.. ""'daoe-to ............ CfPI· • .tbum ....... ~-... 

..mcqdddosutt IWIdonh (x< I""_ItSl). .... pr-"-I topboon >It 

-""C"' ....... .....-...... ......,. .. ........t-.....,..u_ tIIt,.,..;c;"C<I~ ... ....,...,......"""""'I ......... hdI~ 

ouppItnotoII <10< an', n LA .nd USl'A rulnrWins. ema .. odd!,ionaI ....... 

~i"f opp<I, .. b ""'" bo ,,",","!s.ted on.n In,...,...,. b.,b. The em 

"P«" to i ..... 1'f"PO"lo to impltmon" numbtf oITd. XIV Mlui,...".."LI ill 

tilt .......... <ltoI2 and .. ~ .. h .. ........J ",Ieo!lf.JonowJ tol', indod,,,, ,lot 

ruladacriltd ill .... ~ ..... 

U .......... -.b"'Winc....-..u.l~· ....... io,.......t .. 

.u. • .-.loIt ...... _ ............................. aloiIiIy .. '"I"'l' 

-. ........ doot<knd ...... __ to zmmI. tIIt"abili<J .. 1tpI)" 

I/.lnd.ord em bo _ if tilt .... ~. 'o;.alifitd. -'I'",: .. dtbtd, """"' .... 

Dodd-FrvIk A« and br '<t"btoM. A Itnd<r _ ,maon prol.""OII. frID 

liobil.,. if. loaD ii, ·qualifot<l .... "qc.· The ern ~ mponIlbit for fi"'l~ 

• propostd NIt WI_ iIIU<d br .... r.d<flIl RtItroo in ).I.,. toll. The Doddr ..... kAn:oho .......... __ .. bo~lorftTU .. -... 

...... aad ...-. MUid _OIiOdOOOm «pr<Iinc ........ __ The 

r~ae...w;..".d.,.......t ......... "-........-. 

)I.m.to\l ...... llotcrnir.....,......."'~ .......... I • ..w._ .... DocI4-f .... t Ac' .. ,.... tilt I2DfI' 01 .......... "'" 1tt..q.a .. 1lot 

1"-o. ....... nd tq.o.,.l'fcota"", A« oM imp<>ott .......... .-....."" 

ho&l>«m """'PC<'" Th<>t Indudo< ~ "",nlthn~ oM od>tr proIt<"Ol'tl. 

for """"'pgt..mem. Ihtrt will bo f<qI'irrmmu<On«minl p""- 01 

..... lhly ............ dUd""" .. for h)t>rid odjusbbI< ..,. """'PI'~ Iorc.-pbr. ... 

i~_.I'"""P'<m:I .... oI~P"I"""'f_Db,>ndm'Otmolution. 

Thmabowillbo"",,""f'Wt-~~MOdquoli6c"'" 

"-'1'1" loao ~ """. bn*<n MOd 1ou. ...... aad.lormwa 

P"'J"""l.1lot """""' ........ bort ...... TIlt Dodd-F"",kAl1:oho _ ... 

--.~ .. -. 
177 


UA Gcwnwa_~ 

To I'aciIioaIt prudtnI ""'......-.. finlnriaI ...... UIiom arod .. aIip 

lilt io",rag or __ 111M> or.c! olht: emplorm wiIh lilt ~ IINkh ol 

Il>rir orpnlzwono. 5«000 ",oIlIIt Oo#f ..... kAn """'"' lilt FcdonI 

t...n.. FDIC, mr", sct.:A.. occ. MIll SEC .. ;.u.Jrprocri>< ..... or (IIIOIo1inc> Wi ......... cttWn ,_ fi~ ___ .. diodooo .. ilInr 

appropNlt f<.dtnl .......... lIIt 1INrtur< ollllt il\CMl~ "",,,,,, .. ,kin 

.......-olkmIl'f .. ""...,..,.j in>IIcilJ """' ..... ...tli<bI '" dn<r ...... 

_lIIt.....,......... ......... U)f"""d<:o .. ...-...aIIi<tf ......... 

dlltClOf. or ~ 1IwrlIoIdtr0l"," ~ &.-..1 .......... nil 

<omor.. «IIIIptn .. lion, 1m. orknefil>; or (2) "",lei Ind to M>I.ri.I.I finmnaI 

.. II>tbo.-ml fuwonaI .......... f.nhtr. 5«_ 956 rtqIoilI<O "'" 

If'fI'OP"'" WcnoI..p-. p.I)' .. ,...... rcpIIuonI orp5<lirln .... 

pn>/IibI..,.rypn or ~ parIIInII~ .. ..,./nIlu< 01 

""'h ...... """""" LIw lilt ..... Won d<tmn'" <"""""S<' inappr<lpf .... ,;v., 

".....".... ............. dlia:f. noopIoott. d ....... , or prio<ipaJ ~ 01 

"'"cootmI ........ _ .... ~.......,. ,,;.. Im.orbclltfia,or 

ih>I "",Id kod .. ......,w ~ ..... 0>1 koo '" lilt COI'<'I<'d lint. Tho ~ ...., 

....,.dd .. pot< add"ionolroqu''' ......... ,I>< payIIIm' 01111<""", <om""''''1ion 

.. attIII,.". oIf ...... 01 "" ............ r.-..J ............. 

laApril toll. tilt ....... pItiiIIwd I thtft1'>'l JI'OI'<"r<I ,.,. "']NbIic 

«III'UDt1II. fin<.' fi"""i>l in,UI"""""';o!l JI billion .. """" in 10lOI 

--.t .... 1> cootmIlinm;iaI instiIuboo) ~ k ~ .. 

fiIo"' ..... ..,...nII.~X<ItnI ................. tIIt _, .... ortllt_.,""~~......-St<-'.tIIt 

JI"OII"I"d .... _lei ptOIIib". cootrtd fifWlCiol in"".1ion from .. ubI~hi .. 

.. ~ .. ~~ion""""""",""<OuId1nd 

.. __ .... w .. arolul.-,...~ n.bbfJlf""d ... 

"""1'1 ~ pmoIII' {wh"h irdodo >II ............. emplorm. oIi ......... nd 

prin<iplI WWdd<n)..nth nl<1Oi>o "."'1"'" ... .,... I1nal1v. III< propooed ",I< 

~...- .arb ~ "'-0>1 _ ....... lIIopIsp«iIi< pobrin a<>d 

JIf'KI'd .... 1f'II'-.I bf .. bon .. bdp ........ and __ <OMpb;I_ nb 

....... 

5« .... ti! 0Ilh< Dodd.fnAl An "" ....... tilt SEC ""Ii!' no". d ...... lh< 

.. ~W<U .................. ~_ ............ lOptOhibr 

<I .. h,,, .. or • .,. "I"i<r..........,. or '" iulItf L!w dot> "",",,"plywilh new 

'_I""""tion <""".i' .... nd """!'<"....,., liMIt, '''l"in ........ I" J"'" !OI!, lh< SEC odopIod rule< "' ......... 5« .... t5! tIw. r.qw", """"I 

..... ohinp. ...... ~"""'isIIlis<inc IUIId>tdo dill ....... oaclo 

_kror.IiIl<d ___ .~""" .... "' .... k ...... ol"" 

boon! or dir .. "",.M til bo .ind<po .... ", .. Tho SEC..., IS ' .... w ... br 

!lot I)odd.FWlk An "'1IIopI-..IoddiUooool rule< ....,.... .. <OIponI< 

.-...-.......... """"""'" ~,IJb ............ ..... 

1i1I'1lI mnd>td. «b"", II> optcifitd .<~,. pol;" ... uod """d ... bwt 

r"lui ...... "~ .boII, '"'«"'~ " ... "'''''', ... Ind """1"1'11 !",form •• «, 

........,;,. "' ... h .. ......,.. P"I' ....... a<>d......,..andd,_ brdci ... 

no... ,....-01 ... Dodd.fiUl An do ... "'*- ~dc:OlIineo. 

--.--~ .. -. 

i[ 1 

j [i it l .ninpi p ,.H.,. 

tltiillitJillli( It11ljj I j 
179 


1II~._Irin.c...IK'iI ....... ...,JI"IfIOI<'I 

................... ...,...,. ........ --..-wiII_ ... OfII'O"lUUIf .. 

............ -...II ...... c-II J<PI'lu'I tilt I""P"""I-""'-

Coomc:iI ....... ..iII ........ ,...,..... 6n<n!ouu';""..Jyallor....,_ 

........... !ha,"""""", >ad tilt propoood~ .... will proctri..,,,, 

;f>p]>fOl':d '" _·dunbol,"" c.o.nciI, ;ncl,"'"" ,"" .ffi"",,'" 1'01< ... "'" 

o..'rpmoo!. Upon. propoood dftnmm"ioo\.. <ornp>.,....,. rt<t""M' linn." 

"';!h< <k1<noowx.n willl><~...w...d onIr.r ..... ~ ,_d"rd, "'"' 

... tilt c..w.riI. indoo:tin( ,. air ......... _ "'!h< Owfprnon. Nt)' ina! 

__ wiI • .., .. juIb<>aI_, M>d .... c...nriI_ ..... 

• rq>OR .. toocr<-................... _-.... Smioot Ill ....... o."w.r,...J.Aa ... ""' ... "'.:II *""-

Al"'!h< 1I1I< ... 1hiI ..,...,. "'" CowociIlw "'" 0I1d0...,. ................... 

5«1 .... II!"''''' Dodd-rnn\ A<~ 

FirIIncIlIbke1JJtm\ies 

Tho Dodf:I.fr:lllIAl' ••. d ....... "'" c.....cil., ~n>", an f)lU II ......... 01'" 

irDpoNnI' if tilt c-iI ""'"'-- thai; ""'mlaft ....... ~ .. "'" 

r-.....u..c ....... f)(U ..... m ..... ...,...,.!h< riotol "I""'-1irpuUJ .. mdit,........,...... ............ _ ..... I.tu ... ~ 

........... ouhdity ... tIIt U.s. firIaIociaI_ 

DniBrw<d nru. wdI b«o....t;r<t .. tilt ht.pm.d !,n"' .. ula!""" 

"'l""""'" P""'''"'''' ... rlll< \'m, whd, promoI' ..... tiW. mati.""""""",, 

...r..., .... oound""" in<bImJ (OtId..ru"l Ih<it opmtio'" in _plilr.c. wilh 

~ tiW.~ M>ndard~ proridinl """'''''' .... ~. and ............. 

cIwlp ID ..... ndn. ptQ«du .... """ opmt-. tIw. taWd ... ......,. atroct 

1Ito ......... _ ... tbnr ....... M>d ............. <do:nIII.....-

>IId .............. prorioIOIII. r ... 11J1 .... ...,.... .... ,....--y ...... 

.. <'IWIOIIk..o_ othtrn......., ... ~ tbnr mp«II'O .... 

.....-1/2JIIhnh,~<kwIop ..................... ioooyJl<OlRlllO. 

>tid <ODSuIr. >lid coonIinau ill plano,,,, and """"" ................. To funhtr 

IU'<nlthtn ,." ........ , p""' ...... "'" F~ k<Itrvo &ard ...,. •• ,h .. ;,o. 

r<d<n.1 Rto<r... 11>01., 1""'_ ", .... nll.nd ......,,,,,,,,..me .. 10 """ ...... 

f)lU~ Addiuon>lIJ. \IlIdtr \IlI\III'&I ... "' ..... nm.m.unm, dnos ...... UIU. 

Cllllldp<ll<l'ltiallf(IUI ....... thoro:denl~\_D1 ........ . 

FoIoowinc .... ~ ... iulWoalndr ....... thocnom....-, ... 

,.--.durn'" 1Ito..-.... oIn1U."JoI1ti, !OIl. lito C-il""P"""l 

tho ................ iBo<W ... oIn1lh GO lobf!t !Olt AI iu)Wy 11. !lilt 

........ 

...,....... 

"'" 

........ 

C-~ r ... ......... 

1'1I1 01,,,,, """''-'''I' Dodd-rraol 

1Odni£n>« 

m 

rip Nih II ~ 

Tho NU.,,,,, ,"" Cooncil dnos ....... p<tform. nriny ... runn.o... in ,"" 

OlIN\, irKbI"" ,.clt>ratIOt and ............... aob, I<CW'1IIoI. anti tinM"... 

.........-_ ........... uunJ~and ... .....,....'" 

drat ... btz<.....,.ol .......... ~-w TMc-.. 

..... "'"' tllta-pltllOll oltllt nlV........- ptrI<ftI "' .. u..J ... 

--.~ .. -. 
180 


ol OW.;, • ...". __ .. Iho ~ ollho Dodd-fnnk Aa >lid 

,hollho dt~~lion ol tht .... oil ... wi" .... ill f<l<lfid< ... bo Iho" mp<t''''' .. rI.ru, Th< 11> ... for Iho (:.oomril" oInipabon drirtwllI'\aIlon io< <>rb 01. ...... 

....... ....,. ""f'O'WIl Olth • doo<d>od ... Appto>diI: A. 

Ul RIsk IbIIIao:InO 

On< 0I.1ho O>o,o:~'. "nlr>l]>Wpo>t1 i, Iho ,"'pnl ... ",ilk .. "", o(riok, 10 U,s. 

&n...naI aabibo~ To htip idtctify ,iob, ~ owl:« dMpIiat,...d ""f'OI'd 

.. <ID<II"'I .......... 1ho Cc-:iI fo<iIWn ~ ......... .--...-. ___ -.. ...................... otbor ........ 

I .......... ~..-, .... Cou",~ namin<d """r'''IlI...n... ""'~ >nd 

1InI<M>I ..... """"' .. ......,;.t~~ ""' __ do<"'-

lo .... oq>«l. Tho CooorociI..;a """"* .. _ poItIIlIlIlIwnu .. &o....t 

subilicr. """""" frooo .. OnnaI 1bo<to lit KrWl'llrol ............... 

To farilno< tlm nr);~,........ rI .. O>oncil., .. bhshnl .... Sranno: 

.... eo..a.. (SIIC).~pr-.nlfd""""'''I''''''J>I>ff .. 

"'P'"-1,~._>IId policy ....... TIIoSIC"""" .. . 

~ .. io< ooeml:>« "I"""J...w .. icInrufy >rid -'r" poItIIIoal ......... ,...,. 

.. ornd b<)oncI <hejuri1d~lion 01. 'ny_ "'nq, 

~CM~AeIoI 

in 0..._ 2011. <he O>oncil .... >otd. rtpon '" Cool"" on promp< 

<lI<Tf'tIift ...... (rCA). s.n.. IftW(~ 01. .. Dodd-fronl Aa ""'"" 

... eo..iI .. _.rtpon ... ...-.. ka .. ....,..... ..... ~ 

~Offioo (GAO) otudrOllI'CA mpumI br St<rion !O!W(ll 01.,,,, 

Dod'H .. nlA<~ Th< Councli ', "p." dIK ..... ,he ... ~'nll'CA I~ 

>lid ,he fitodinp >lid _","""1IOm o(,lo. f.M:J .. ..ty, Tht O>o",il', "1M'" 

.. biplipto _ a-Irarnod ",. .. -...w cr. """.-liDo> 

_ .. ka (h-.<aoId.tJm PCA. ........ addiaOllol...,. .. ..,.;;r.1ho I'CA 

(.-I; thai <OIIId bt "",.o:r..I, 

iIIOCIrt;ll kIIm 1_ MI/IIspI:nIlO l1li GAO's AIIp(wl'" h WCUA 

1o,...!Olt ... c:.u.;t r<btod ........... c.....vno .. ..-. ub:o. 

.. ...,..... ... c...o rtpon ... dot SCt!A" ............ 01.....,...... rn:diI 

un ..... """ iolpIomrn"' .... 0I.1'CA ... "'I"'m! br Iho NIDoIW Cr.d~ 

Union "'''''''"rOuilialion An Thr!<pot, disawt> .... find;' ... "d 

_ .......... 01. ..... CIoO....,.""" orliBof, sro"'..,;.";,, ..... robIt CO 

"'CI.O'.-. 

CO,~"Iltftl CajI1ijj 

s.. .... m.1<I 01. .... DocId-F"nk Aa ""I"",,1ho Caw>riI .... ..ty .... 1miIIi~, 

"-'u. <'GIl>. mol -... 0I..~",...t....,...- io<"""","l 

&o....t ........... ..,....u..t br"" ft.oItnI r....... >lid torre, iIItKaDro«lr<I 

bank hoIditoi <OmplII .... I. Jul!'2012.1ho (.o!,ncil """"ltd. rtpon 10 

Cone'''' "1',d,"CIho M ..... , .. '''I",m! brS«""" )I!; '~ The Council', rtpon 

. .. " .. ~,,-.,... 
181 


CIlIICWeo ............ ""f'CII_-.w_IOb< .. ...,.b 

,......_ ............ wI ............ "'" FtdoDIan..... ... oIhctballriol 

..,........1O.--.. """"dor ............ wI~oI...wint: 

""""'PI opal""" boIHn ~iD """..,......., ..... rn...-u. 

8.U R~ Coon.nation 

'" 0.., .... """ 01'''''' COWW:~, "'" T,.. .. "'1s.n ... ,.., ~ .-.quif«110 coon!in'l< 

, ....... "'Itmillnp under "'" Dodd-Fruk k~ 

To fariIat< dot;- noIooulo .... CJfOI .............. b ...... k<d 

......,.., .. docrW,.............""""' ........... ,...opIl<dio. 

.. .........,.-...l*flOdnoIoptlaoSr91:bpoohlic_ Tlw 

FtdoDI an...... FDIC. SEC, occ. MUD, wi rnr.~.......t.J-: NPl .. .IUr<h 

XI. 1011 ..... 1'"'1"*' ruln 10 iIIpInon:II tim rtqIW ...... wI ,..,._ 

."""fJnnI",p-m .. ~ KtuntI....", .. ,,1.<u. Tlw ....... 

"',.".,.,.,.. tlw """ .... ,.,...,;ocI r .. ,ho propo>«I ",It 1"",,)It~ 10. ton, 10 

"",,,,,I. ton. 

Tlw~oIdotc-il .. oho~lD~tho ............ 

6noI~ .............. thr\'oIdtrbl<. .. ....-.s..-6.u. Tlwa....,..r-_~ .. __ .................. dtt ....... ·-..k1O 

dnoIop '"I*-thai .... .......,.. wi prorido b ............ 2fIIIIiaUo-, 

...... .,;_ p<tOIibI<. Tlw f<dml knmt, FDIC, occ,wI SIC """'" pubIit <0lIl_"". propootd ",10 it> 0<1 ... tol I. >nd tho CFTC ~.-..... 

"" • ,lIb!tantiwlr idon'lttnl ~I'l inJ"'''ry'lOl!. Tlw com .... , pt""d , ...... 

Ftbrury l~, tolt b tho propootd ",It> ;"U<d bf "'" rnltnl R ........ FDIC, 

occ. wi SEC. wi ,100M "" ApilI6. !O12, b tho CfTC", propootd rulo. 

Tlw ChaJrptncoo 01"'" CooonriI ~ 10""""""'" "'" ~ 01 • 

. ~~ 

U.5 ~GI"c.a 

Tlw DocIUno..t "" ttqWU tho c-iI.,.-.....". ......... quanertr.la 

,ho bst:".... til< Cauat~ _ ]2 to ..... ' Tlw "'""'"'" llrirlCeo...dl ........ 

IO«th<r to 01""", wI .. alm '",",in( owktt dtot~ wi fil"llllOll 

"I"b""l'~ Th< eo..",U;' ", .... ;,tt<! 'Q o;md",,,,,, ill bto~"..." """nIy 

:and """""""",,, pn<1OIIIt ....... "'" cooMonti>! ~ wi .......... 

poIi<J; 

inilrsat>xt" 

"'" CaaDriI 

thr ....... 

...... 

01 

iulllmlllC' 

.. -xl. ~ 

10 "'" pttbIi< 

wiIIt 

__ 

tho CoItariI', 

poMibIt

~ 

. TIlt 

c-il1to:Id.potbIi< ...... "tb ................ tIaolMt,..... 

~""fJ' .... ....t.. .... CoomciI·.o.p.xiac-...- .oooopooodol ........ ~ ... CounciI-...IIII........d1O 

01",,,,,, thr Council·'.,.... ond to dim'! .... ~ 01'''''' ~wI .... lor 

odIer IutKtional """ ....... , Th< ooh<r full<lloo\al <OnllIIillm". O<plti,..:I 

...... nd "'" Council', "'roin,IW-r"'!p<II>Iibi~ti<s: (I) idon'lOf)i"C oonbut k 

fInan<W <OotpUi<>""" fi.oanrial owktt IIlilH> bdtoicn>-: t!l...u.c ..............,.,,......, iWrInaI~,..-;.s "IatUoc iqbI<otoII 

pruan..a1 ....... b ......... !'I........u.""" tIaorolC ... 

.......,.~........,.wI .................... pbot.......-b 

-----
182 


tImpM«I-.bW fi-..l In! -' dIr Jar .... aIle.;...:I (4) <GIIenu.: diu 

"'~~1WIIImIo. 

In .... bsI.,....dlrc...moJooICIpIod.~iIapInII<ui .... f ........ of 

w.r..tiooI Anolllip ...... • >CIopItII ""'"" prnudum kw.....mnk~....n.J 

co-pon,..lDd FJoIU ....... 1O pKIpOI<d q ........ 1In<I f'&""I iu""",,, 

~L Tht Cwncil.IIO<O<IIpli«! ",!h iI. 'nrupa .. ..., policy"", .0<'lIl0(11", iu 

buO ..... in .., ..... ond UUIplrtnI .. nn<f .............. pouiblo.' 

FiM:IIlIIe$UtII fIIId ~ 

s.n- 156 oflilt Dodd-f""kAn...,....a .... Trnmry ....... lilt app<O'QI 

of lilt c.u.riI. II> ___ ooflmd dIr on:.I!uoICft. ... o 

flpen!<' 

__ tilt 

-.>ltd 

<1pt1U<i 

.... 

~ 

h 

dIr 

OLA. 

c-ll0Dd 

To ;.pitmeDl!h1< 

Ilw FDIC. 

prorioioa 

~ 

.... .I .. )' fl. tol!. 

!he T .... ...,. ",1>«1. Mal 1\110 ,II .... ubliohn an .............. "htdlll< kw 

....... nn.1 Ml ......... , f""" bon. hoIlI,nl , ... "",its wj,h IOlll ."".oIKblrd 

.... to ~ »0 biltion .... , ...... and In in"";" fi""l Nt. <h.a, oppIin 10 """baI,' 

hand.! com"",its JUP<f""td t.r ,.,. r«lrt>lltete ..... Tht fi ... _nu 

."""" dIr noI<wiI!br ..... JulyfO.fOlr. 

U.6 SdIIQ 119 on.1lDiIII-frIIi AC1 

Smoon 119 of Ilw Dodd-f"'" An,...... .... /ht CoauoaI ...,. .... _lii.'Ii .. ~IO ....... ....,.;..ao.dIopule>>bc.I/ht 

...,.. ................ jutill!iction ....... p."iClll. .... We......mn. ~ncial 

nwpany,'" fi n&n<ial ><IMty ... producL (C<r";" «I!~""" pro«<l>011 ......... 

for ""~h 1nCIlht, dilpUte .... blIIiIm u JI'O"Idtd " ..... ,illl<)( of tilt },eLl'" 

...dudcdI- T • .w. . .., ....... ......,. baI ~ !he Coo.IociIlO ~. 

obopII<....so. s.a;"., 119. 

_ .. ,,"CCII __ 
183 


Potential Emerging Threats 

7.1 framework: lInats as I CooDnation 

of Shocks aIlII Vuklerabilities 

Epooodto oI.""-I .......... 1JJIIWI!' orio< ""'" 

..n.n. ......... ~ 1lDb'netn t, _..m.n 

participanu. <0<0 O>OIIly ...r"rtd \0 .. Iho<b, 

...... '...,,&na.InaI.,....~A 

.-:1.. ... patrmYlrdunt<noJl>bilayil!>pl2llf 

0. "'"' DIo< .. wbluodol ...... OIl • duod 

...." ...... ohon pcnod ohm... ""',n, hist...,. 

.......... ~t( ohocb ... ",.Itd dIa/IeQc<o 

... fi........J....., ................... .... 

pm \IubbIoi .. ...,.,l .... 1$ (1000) .... """"'" 

... tI.ta (!007). npid III<fnIn 10 in......, "" .. 

(l9HtdrWb .. ~dob«IiIr ...... . 

y.,,,,,,ill98t .. a-ia 1998). .. ...... 

opm.....w IlrtSI ia 6.-ia1 aarkna (lor tnmpIr. 

tho --nod "fboh moho oOI.,.IOIO~ Shocb 

caa aloo <fI<flt r.-. .. be ODCnI:GItd b!' ..... 

&ibn. aI.!pt<'i6t 6nt, iafrunIn_ ......... 

brnkdoowru .. ....n.. function' ...... CIGIt .. 

... 1'21 ............. (1 ... <1. ...... . 

SoI ....... ..--..... ... .....nIfolktt ... 

IU~ ullb< &twInol~ ...... rnl...-y, 

I~, if "" fi"'n/w 'l"<m ~ P"'l<IIiarly 

........... .,oboc .... b ....... dut .......... 

...... ..-....- _ of """'-'--.It 

fIIodi .. oiilliqwd -u.. sboo:l C<I<1ld 11M 

." ....... blb_1Iwt consoqutn< .. and Ill......,. 

..... _wiIlI~w.dtI~ 

ill rmml..." DOl t-whdI ..... "-llaot 

bal>",.1h<n> Ilw ~ _ at ..... III """...,. 

«1f"""I II!' ow:Md..,. .. po.ur< to..". jIOI<.lIal 

-,.ny"'""""bt.rioI.ol~ 

n.....-.., ......... oIcmb1J1f<1'1'"11ioaoooolol 

I<ad III dioonkrIr Iiof.uobuoo 01 ...... by:oll >ff<at<I 

fino" induclnf ...... in od><r ..... , ....... '"mby 

...-.. a<Id ~ .... <fIO<u "' .... iuiaI 

~. CrtU ","" .. !bt-"woa>l 

_ «IUId. II< dionlpl<d ............. P"" al 

" .. «OIIOIIIi< ""'irity. In ."rm>< ...... II>I1l 

........, ...... couIoI far <>=d .... orc-J dNp 

iaMKI ...... 

Giom .... inher .... dil&cUy in p<tdit1 ... ohoW, 

ptt!u", ,he ""'" "fIO<'WII~" of <Icfrnoo i ... 

_ ............... br......,... ",",,,*"utioa> 

bB<oa/IiriI:ooIapuJ_r;q..tio,_.-I 

nsk-... ..,..,...., pr><lim, .... """" ......... 

ond 1<!"b""1<O/1<mb.l'(Iiq offurtJ no ,110 

wmp...1inonnoI...t.ru' ........... wilbIWld 

oho<b brJII--.1ftOIt' iIlb---..I 

~,for...,."....",--.ppo 

,n lht m,\abilityof "" ... nd by produrinl 

~.",.".tnih.MdilOllalpoliq ......... 

.......... -. .......... of....v.. ... 

............. 0<dIde~ ....... , .... 

pbnn .... pro«durn for ordttIr liq ..... "'" or iDooIIenI ..... __ 

.. b>aaoI ......... ~ ............. 

... ......... ,mIit«1-.... arNI .......... 

w.. dili~ ... ....,.,., r,1WI<tI.I prod ..... 

• ...n.. aarI.tu ... be...to __ ~ il'pomi:it 

oudoot-<oa COOl....,.,.. .. 6..-..1_ ill. 

lle>:iloI. arNI 1iIDtlr=nn<r.}.A <UmpI<-w. 

be <h< .... urol book', "* "Itndcr oI"lall .. oort, 

........ ...t IIr"l'P"'F'ia"'''r.p.nk''P''''' LIot 

nol<L_ManL 

The ptobIi< polity fOOl io .... I ......... lin ... ,.. 

...n..~ .. _~...,<L""'''''' 

wls pnfoowd IIr fiIIontlll..n..a ""'"""'" 

~adr(rft<L~ .. unain LMoI" 

"st.. c..d" pn>'Iilion .. riol, bor,..,.. ... m"'"'itf ~aod 1M: Mrmcof&na.>cial 

IranoanionI .. all ......... <"-""' ....... 

I'IIlnrnbili" ... "'0lI'dinsI!', "'" pi of po.obIi< poIo<y 

is [(><1 .... '<c"Iatorr.nd ",~d"''''''''' lra...-'" 

1Iw....-.~<L..n.u. ...... or<lorn. 

.... ..,.... IIIteI .. II«<'pIOloIt-...tUk 

.......... tht fuu«,.. 'I"""""""""" ......... ""'~oI""" .. I«<IrIOII'I)' . 

Do:ubilinrot ...... If< -. bldJ' .. ornor 

whM .. .uuhM .......... IUIICIII<>I ......... 

iocbli"fl tho!< lrom lKh"""'si<>l dMIopmntt 

OIId!ioworiol .......... n-........,.""" be 

.... -.,..O<ICIIIT\III_apmoclol,......ro. 

_I~ ...... ...... " -
184 


• S:- .-=-

• 

o 

--

--

• 

• 

____ »I, 

---,-_ _ ... _-.. _-.- .. _-

.,.,... ..... proIifmuon ol~kd 

_1Id..I1Ir ...... -...dtho 

occun«I ..... """""-". ,..... 

SIlutnonI dwIp IhaI "'ClIt duttn& periocb 

ollow IObtiIirf cD to: poartInoWtr probieouII<. 

~na IUC~ ~ililf rpoodoI QllIo>d Ie> 

cornplactnq' .. lilt !WI ol nil; .,.,..,." lIId 

..... Ieod II> nII.Jot ~ 1II1<.w, olhp 

rn",",,- Tht f.U ;.pIaoon>olO\ldl """"lUll 

cMtcn ... ..my J«OI,u..,j .. ml ... 

Ia po<\I<'IIM". -.IW ........... -__ 

.... oI.,...... .. ...n..,..,."....r.iI ... tlnml-=:o:&' __ ID 

~"wlllWl""I"'ifu."" , milk, 

mar'u:I pon~""" ore bl.df .. unokrnl"'''' 

til< prnbabolitr<L ...... b and .. bo unp«",....d 

when I oboct ... 1I<yO«un, 

7.2 Areas 01 !\e9IIened Uncertainty 

n.... ... wwnoI~..-d. .... 

<unnII.-.:......-... 1udI 

IInI<IIIr>I rhlrIr hai ...... 1t'd ,be 1M! of 

"",,,.,....,. Atlro, ......... iI,be Il'Jjc<Ioo'J of 

I"""h, ..... prie .. ,.nd irutJI~ <two" 

reI"h,., f .... <IlfO ........... "S" ......... Tht ""rod"" ... old .. fw<I "'prttm«d • 

"",.6tan< """,un! <hao>c< tluIlIIi><mI ill • 

......... 01_.....,."' ..... _..1 

poIi<in.l....u., .... -.6<d -urr pc6<y 

.... --..I .................. ol~ 

,;.Ids am..".,.,"," _ fQ&rt U.l~ 

okhr:Iup .... _ ... ~bf·1uII 

C<IIII'CIJ<'Ktaf~f" .... !!lCIIUb. 

ou</I .. prod"' .... flrow'h, 

Thtfilllllrial ............. <>&iooIol!OOl$09 

dr.... ......... "<fW«<~ cIiIMnoc .. 

.......... 

_ 

JIf'OIP"U...."w. ....... -' ................... ......,.;... ... ro¥oprn<k~Iot_~ 

n....lltll<'lonI ....-.. ......... nbaI<d bf th< qrli<lI oIownI"", 1IId "r Ih< bol burdnu 

arising m,m bonk suppon pr'OIDIIII 

.IInnwt.iIt .... ,o .... """"",,", .. lanc.>I 

_ ..... ntd .......... ~ 

.... cn-....,.-.11 ............. ........ u.. Clprno«l .......... ..,.. t.<Jptao 
185 


~""" • .-.I.....woI)' 

.... bowElwopt.oIIiriaI ........ .;a ....... 

...... ionI...- oM .... mtIII ..... k ...... 

.... --.q<fwllt ... Ja<Ok. w.ut.t. 

"""'1'1""'" btl;... Ihat..,., _ .... COlI ..... 

""rtnC!' cannoI be ",1e<I ~ with IItrnd1 .. 

Itplltld «00 ""«Iui"' .... ln paniC\lbr, 

.... lhrtaI"'. br .. b.pof .... """ .... ca' ..... 

.... h i ~ riok-d>< .. thaI 

aWIpioroI ... "' ....... ';O be rtpPI. .... 

*'-.1000 ..... ,........,. 

DltffinpollDa"'U.s.~ ...... _ Mraoc<I NrO .... """,tria appnr .. be 

.... Ia.. ... 1.U.1.!.' •• nc!Uf),_. 

U,S. M." . .....,. ...... " I,,"'" (~\!r.J, ItId 

.... inl\lrln« 0Id"'lt)' ha~ in.Ltt<I eo""",,", 

woap «hn ~<IlWIlrin 

1tId ....... _ ......... Tb>o .......... 

~_..-r_ ............. 

...n ......... CIIIIII&-.«raId spil __ to 

U.s...t.o<> 1M ""'"""--

A ........ I.oy .. ""'onJ "'if< in«n«int: with 

"dbl flCIOtI n .... incmotd impOtlanu 

"'~i", l1li,1:.0<. in p:.boI"....u. o.nd 

.... rIobaI ~nancial ........ Tho: I""'Ih 

tn,jrnInnof ....-zu'I...t.cr._ ... 

{DIEoI, oootObI1 .... ,....,.u.t b • ...v.I 

~"'..-mioOoilla .. ~ 

"SoCI""'U.OIIIOIoIha><.~ .... 

.. f"I"'h lnd &rwonal..-titym .... L"'''''' 

Swa, In por'''''''' ""'" com ........ .... 

""'<rIli1IIf ...... tho heuh lnd r<iIIwInnI '" _ of ...... «OnOI'II~. indudin, «1<1( .... 

...... blnlinc and fuunIW subility, .... 

ouwinaIrIIiIy'" rqIOfIal rnI_!mIds; .... 

aWity"'poIi<)wWn "' ....... iaIb<toaary 

f"'<"'IUt:W .... pcoooilIiIirr'" ooriaI ....... 

Tht ""'fIIit-"' ...... _ "" .... U.1fWnciol __ ~ ...... ", .... 

..... '" tho LII U >I p:.boI proridtn '" capuI 

.... """.ributon., p,baIl"""l'. 

IJfICnUU!!)' io obo ....... tt<I in u.s. houoiJli 

......... Tht • pert"'" d<diDt;" """'" pm. 

1ItICtJa-arr!M~""""'U.s. 

rnI ..... .m.u,nh It_~ 

-.~ -.~ - ," - - _ ......... '. 

---_ ... -

--.. -~ .. ----... _____ -r_ 

_/fIIC _ ... __ ""*"''''_ 

::':':~:C'.~-----''''~'~ 

• 

..... ....-....,.-~JucIo -- --

~, ...... 
186 


a.ll.2.5 RealPr!ntt~_ 

-

" -

" 

" , .. ..:",.. ." 

" " " " 

" " " 

" 

" , '.' • • ---'- -- _,_ .... to._, ___ 

_ """0' '' ...... ..,... 

"..... of fumlosu .. O<I;'~,_ Additional 

mongogt .,.,.,."" pouii>It ... , ,1>0.,.., 

f~~,...,.. d".10 0n<mJ<d moouhlyM-"" 

"" hom<-tquiTf loan. Th< <IInrn' 1Iug .... 

,_'" ,n tilt """~n, lOt"" con"'lIl .. "h 

tilt hi~oricaIl""'_"""" p"lOfn~ wbnt 

rt3id<n,ilI ,n""""""l"fi'Kally """~ diopby 

IOlid S,...-'" dun~ rtCOI ....... IChor! 1.1.5), 

Whilt ,M«.rr """of ",biU .. tio<t in howrnr 

prien,.nd "'" ,., ..... lOr)' of rn..'ns ""'"'" 

"" oal< Iwrk<lined >ia;nifit>nlly,th<,....,.!l 

..... "... in tilt ma<n>t<O!'IOIII)' wn.... wi'" i< 

Ih< ris< offu"ho, decli ... ill".l esut( pric ... 

with oddiUonal ........ on bo:Ju>tl>oId and 

'""~"'ion>l ... Ian<.lh«u. 

In oddilion. th< <risio .. poocl drtp n.... in 

,ho """""" of""""", fill.,," lhI' r><ed Ie 

be rrlotn>ed.lU<h .. th< ,,,,,,flU,,,lfO<Ind 

!«Ilrili1>';"". ,ho: dtoigtt of g<r>«n",,"> 

'P"""",d ,n,.",non (GSU). ""d ,1>0 0I.mJ 

qu>lit,of,"""",~i<i", ~>n<l>nh. 

Financial i .... 1UIiom C<.",,"'" lOwort 

"'rcugIr Icpcy"""'gogt ........ nd.ppiy 

"",><m'M <<<<Iit ... ndafdo lO n<W ~ 

"''''ily C~ .. tht scan:iq'of prM'" <apU21 

in IlI<Iftpg< tnW.tu. ftdml p...-nmrn' 

"'PI"'" "",,,non .. (\om,",,,, ,1>0 prIl"ioion 

of midtn,"l monA'" W"ilt """' pros ..... 

Iw bml wcIe in ><Idm!inl monA' loan 

...".;.ing ODd fumburr:dlusn, .. ..,II:u 

PP' in p"""';"'" fo< homoownnt,la<k of 

unikorm ..me"'! ... ndu<Is wi,h 'J'!"OI"i>" .. ~rd, fur """umen, """ .. ling\< poin~ 

of"",1I<I. "",liml< 10< ..... p«rntial ><II ..... 

co,u<'1L><1'1C<S ro. d~ ho.....ownm ",d 

,htir ourroondin!<O<IlllWllitiel. Th< """,urat 

.nd <!,<Ucal probk"" of "" """~"! ~ .... ~< 

m>rtcs ""'''',u« ... lnm.bsh..,.of the ~"",,,I 

'l"'<'" lhI' ... u. ,he U.s. fflII'IOIII)' mor< 

JUOCtjIIiblt 10 od>tn< shock. for "'mp/<, ,1>0 

off", of > sIoo<Iown In <':<II"""~ Jf<"'''' <ou~ 

be ...... ilied by ,ho: mortc'~ matic~ It..!;": 

10 brge"",",n-n~ttd <l«hll<l in hom< pn«i 

"'''''' 

Aooth<r .... of",l«fUin'l' iI ,t.. filC.I poIi<y 

ou<loot. in "" Unit«! $u.'n.A "Umbet of 

funl j>Oliq is& .... ""'" bt addrm«l1l<M.lnd 
187 


...... "'!OI!. ioodud. .. "'pontiooo "' ... 

111 .... ~ ....... io!Olll MIII!OO$, 

ccpiBUoa "'porfCII ... <W, ~ '" 

"""*<I _ """" ...... bnriu, Ilo: a..Iact 

OInudAoC ...................... ,1IMI""'.-j 

....... ""'dtblctil"'l ..... "P"',AI .... 

"'" rut ",iii tho <kbt ,rilintdebatt in tho 

"' ..... "'!OII . ...n.toobtility...,"" ..... 

u tbt>t 6tcal dndliDn ........... h. pouiI>Ir 

......... 011 pvwIh. ram..r.or.. "'" ~ 

tMII.......,."'U.5.1iD1 poii;Y".-nD!' ~ .. _, ...... dot"""", 

"'" popuIIIoIa'" tholiUl!' pull .... hnkII 

...... pmdil ...... Tho ny in _lid lbeo< IooCtmlI imboIuI< ........ uaIIy win be r-"<d 

~ "",10\0., "1""""U"Il"" .nnltwr ......... 

'" on«rw,ul'ro. fi .. ",ill rurt.u and ... 

""-' 

~~MM~~,,; .. ;"'::' .. '"·'-----'::;i· 

• • 

• • 

... ",.",..,,,,_101',,, _"'.«,.IIDC_ ---..... --

";";-______ -' .. ""'oc:"';:·,,,-____ -,' 

-• 

• • 

11'1111<_ ..... ton,...... .... i"'r.....J • • 

I<I'ri '" KIbu" ..... "'fin>1>Cial ... ""u<ioou &nd 

... rt.l>~' Ill< fWl ,nr. t.htrt , .. tin ... to 

be In'1I "' ......... C<III«'In, Tho'il'''''' 

tin _ ,~ ralio a. dooorIntiallyowncol 

b&n~boW ............... {lHCIj .... IU 

pm: ... "' ...................... a.t:hrfi'" 

~"'!OI2.Ik.,pe.I<I'ri.~thort 

KI,... .. !Ow17.U~ tn<n-.l .......... 

"'" aho be ..... in ... btottc«>Jr:r (ID) 

indllllry, wllie. """", "'1IJ' d.di .. '" 

Itm'af' Ii_ to07. SUeIO "" m"lb r ..... 

t:hr filii Comprd><",;,~ C>pi<al An.1y>ro and 

1\tvItv (CCAl) dc.on~ .. l<d ... w,. ... lII 

copLlI. panonrlatlr ___ "OJ. bold bf 

t:hr IafIOII U.s. ......................... 1ht 

...... "'Ik "'-<iaI criIi>. [..., ... f "' ... 

19 &HCo 10M J*H.I<'" c:opocoI ...... thac ~ 

below _ or _ rtpb""l'''WIOIUDI >IWr 

incluch", all pwu.od apoul d"' .... ion~ 

Tho ",ltl'" BIle flUOdinf pmlilt hi, bttl 

IlItnl ... ...t "" ;",,.»«1 !di>n« on rott 

dtpoorllIO'" un ton"" ..... red\KtiooI in 

.....,..... wIroI<raIt IllDIIina (CIutIll.'~ 

and. rubowItiaI iocmo< io Iht fnctiooo '" 

...... 110M art ~ Irquod. nr... io-... 

1Iow<o<r,1IoM ..... Forodioc and IiIpoIiIJ 

• • 

• • 

• • 

• - ., .L--______ ~~~---~ 

....... -

---

Oor ___ _ 

'~;;.:~;;.--.-.. ~"';;."~.~--,--.;'";" 

• 

• 

• 

--~---

.. :- j;1: 

~: ---

_o.r __ 

__ 

-- ",om _ 
188 


---

-

-

• 

• 

,I 

- - --

• "" Floe ,, __ 

~...,. M obor>ftd ""'JIIi<-

.. Iho .................... ~""""'" 

- ~ ... I.....t~ro._ bnrUItilnAla( __ ... 1IIIdtr St<1ioo 

_ :!-I3oftht I)odd.r ... tlo(c,whKhi .. d!<dultd 

., ---" "'~,...~ ...... 

Doht. ind~.IO<' "'U"I' • Irss ... ,"",. view 

of U.s. 6....:ia1 "~~u<iono . Tho:...ntt 

_"-buJ'UII m<lio. ptoI«Iioo> OIl .... U 

brp U.s.lllCaurtod .. ""' .. .I.tIpot 

Mil ....... _ ....... <-.mo.boon oloo ...... 

.... ...tilin<. (Sot Ooon S.Lll,.ispIofoII 

loot< r ... ~.I WlIi", nodi! drbnk 

...., (CDS) .,..><1, "" tbn< BIle. ~ 

<omr tIown -....11>, ';n<. tb<1f put In 

NO'I't'\'Obor !Oll. Lhry rtm.>,n .bo<~ til< Intb 

<luI !"M,WI_ .od-!009 "'fOIIIb _id-

!Oll.~.""""""""""<l.lI><b'l' 

.. 

lllre..." 

dI<st, ... 

wdl 

__ 

below ....... book ....... <IIaIlmP"r ~ 

,.....u ........ _ .. .....,.oodlbr .... 

'n<tmlr> .. ___ lHCn",,"I' 

f"'"lh ioIatJdr6<po: ...... ~~ 

~<ou,,,iII(.om>. I. odd" ..... 'pp""'im>.tdy 

If 1'01«111 of alnnw~oIionl wJt"in th< 

ooaulItrrill bonkin( 1« .... ",II mnoin ... 

.... mlC'. probk1o book liac. _",i"l fo< 

~tpnumoflt'<ll;nl ....... 

ar...p io r..-..I ........ ..r:-un .... ... 1it.dy .. oul<tIIt_ ........ 1N 

",1n<r>hI< .. oMdJ..ln ...... ,..,.,IIIm_ ..... oubIt.,,(~1 iocn" .... in lh< """ ... " 

.. ...,. {0IIIn<~ briol , .. tn.11y <hr«!. whICh 

,..,........ 'Iip,finn! ~rp ~ impo<w<d 

.."..,......, of (Iftlil nob in lhoto III&Ittu. 

J. odd ...... "---"1rUIfI'U't"CI' .. ..,..-.""'bmI~lIr .... .,....-of.,.....,.-... {nIj. Tho 

...aiIabiIiIyoi"""'f.- .... T ..... ~ 

\\~.lhon""COS'pmord .. =-'7 

...rill '" "I"bon i. dtItnolnmc p.lttl'''' 

<I. .. posw .. to CM<1"""";':n d<bult risk 

dunn, tilt ptriod !tad, ... up '" the Crtd. 

d<b< ,....""",n,. in)Urdl !OIl. f'nallJ. iI io 

anucopaItd WI,,......... .. Till< \11 "'dot 

DooIoH""""'-'<I. ...,..,.....oiSW>pl ... to. 1ndnI .. ""IfI ____ ~:oad 
189 


~Sf.fs.tht""'M_. nu. ......... oIooaId upi6<-'!'<IIhanc. bolk 

In" lIIIi poot<nde ~J pr;c. ond 

..",. ... ~""<:lt"CWd.~ .. 

'"PI aw'I.tI p'rti<ipantL 1I1Iilo tht SEC ,nd 

crrc hM ""',.. fiNlilCd ",I<! m...n, to 

tho "1ulolion dSD". and ltCurit)'"l>:u<d S[f~ 

bctII ............... _ d<tai.kd~. 

"""""" rona ", .. blmbililf hal ....... 

~ '" the I.w.-. of qrtptioa 

""" ...... tof...,.,.......nooo-n"'lIf 

CIoboI. \Set s... D: II f CIokIIaalnpoty.! 

For ....... "'If"'P'<'D d.-fImob 

boo ....... thelp" ... "'.-.,......... 

.. foo_..run 1Oo'.!.If fJolW ......... 

rec.....-.-d 72 pmm. ""ho ....... Jthnt 

_nlS "'" ,,,"Ii,,, on U.s. I"",m ""tantn with'~. r.. _tho d tht "'nk''''''''f. tht!" 

loti ... of,'- lund. fat crillui w<.l. and 

't< j~U CPIO'td hund,"" of million, d dQfu" 

;" lho acI'<J'1< . .ltF Global (g.ton""" 

,t'"Idi",,,,, """"" ... hJn~ h .. ~ rttriftd 

a _h Iooon JI<'U"DC" "'.-.y. Tbr 

em hal \U<D"",," to ..,Iwtc. c..-. 

pntte< ............ diciot<I inpul on fIIrtho< 

--

I"iIWlCial rtfont oIJoru:m......,;al in 

..-... the"mtPond~d6 ..... ..J i<t'""'_ .... ...rtcu.~n. 

fflII ...... irutituciotu and ow\tu "",Id It< 

pnt<h-<4 .. bold. .... pni, .... odlUtap. 

A<cordin"" ... Inmbili .... could ,on,in ... 

".; ....... if"""'I"'''icipantl'booI< to 

_btIoi .... h"..".octioiIieotow.. 

""'''' of pmtntd PI"'" """""""':... 

I. "fI'Ial-. """' .. ~ • .-.,." 

""'" """"" .... bu<iaI..uru..:m oor 

ouItJo<t ...................... "'''' • .....,. Mnocnq n... could ooror, "'".,...".., if 

'Iipa,,,,ubood "' .... p>ni<'f-' ..... 10 

.. poooIlu """_ .. approa_ a ful .... 

................. the~ ,..olautrJ 

--. Tbr Dodd-ftukA<tpr-'eo 

........ i .... to 1611 .... sudt r<JUbtory PI". 

fat ...... pIr. t, ,",!wri",..........p d.n ..... p 

dukn IItId "'*" ..... 1" 1"'001"'." utd 

imp""illf ,...b..".., O'I=ight on nonblnk 

-~I"'I""". 
190 


• •• " .. rx" __ 

fio_ioI """paniet Ibo. ,,,,,1<1 """" •• hrt .. 1<1 

u.5.lolIICiaIltIbiIitJ. 

7.4 t:ootnilg Yl*lrnbiIi8s illhe 

A --- n~,"b<r of ,Iwonm'bct of~ <u""'. 

Ii".'''''''.,...... 0lIIIUn>< 10 ~ it 

~ ... ...,."of ..... b and <fnI< 

... f'Ol"lJaI .. ...."wyeb< ... .-

cftomof """ obxb. 

DiIfmn1.)'p<'ol.wnmbili<lrlcu ..... in 

fi1WlC411)'ll< .... rIn'. """" ""'...-.bih'><1 

>It w..m.t "" eb< ,ok ...... linonciIJ I)WIal ...,..,bc"-,I«..-p!t._.,..,. 

~ ......................... ... ."...........-1--1 ... .......... omi« olfiDlll<lol..ttu. ... 

""h ,t>II1fonutioo C2lnn ,eruin pcornuaI 

inMabilibto. ""h .. tho r'ok ill .. lhofHtrm 

do:bl...,. ....... n:.u.d .... or ..... .... 

I""'iIiIirf ol.IUIlOll. r.rw.n.l .... ..... 

$iooiIItIr.,.......u.ccrttlio. .. ri"'1~io 

.. iooporIulflmnioa ol6ftaonll"""'*-

1Iowo:><r._dqmol=lil ...... 

........ ltd willi """ Irndinc ~ IN>'O.IbIe. Thne 

IOIU of"ulnaaboillieo (211 b< mitl",I..:I by 

approfII1IIt,..t:U policy IlniCIU .... "'iud,,,, prw:\etIliaI~and ...... _""'" 

...-l""'~~"""'''''' """"---..onIaIf ................ and eb< ..... ofeb< <mtnI bank .. 1mdtr oflll< 

1tIOft, buc lhqanno!'" fully "".Uwrd. 

A otcond .",. O("'lnmbilily lrun 1_ 

~_u..-"'''''''''''''riok 

............. 1"'""""'. £uqIIeo 

...w ...... eb<por.oibiIilJtI..-

InIIr ~ ... h.p.pml \I1IId.ioJ 

..... 'I'OrI ....... ~ danttrof rvbt1'k'Cllli!f 

t... .. bn,.nd ' ................ n' <IrlI< .. ", ... 

in 

hrch¥t 

ft""""" Iht irutitutiont. 

IIIIpCfUIlft 

Suth 0(,.,...., ~ 

-_""" .. ~<'f"'II"'" 1ipdiI:J'~"",,,, •••• , ... 

1Uncluth. .. wdI .. ~lOOnsI;~ 
191 


·....0,-. llMrd <1 ... 01 ~ ~ ChIrI il} SIaI·Tn ""'*'-fIn:iIg IlIrgIII BID 

r-r-d "r"'" bob>Onl ........... d_ 

~.,6:wo< .. ,~_ 

""",lei Ind., uncItsInbI. ",Int ... ,..,. in "'" 

.,......Aa ...... ~bt .... ........,. 

"'_ ......... .,w.. ... adcbI-.In.t. 

in. loot inIrmI "'. ""';n'.IIII<1II in on tffon 

., ........ p.Id.""""""' ........ ~ 

bt "'" rpIIoom I'na,bt....-dru.. .. 

hishly C«Kmtrt1<d """"'1<1"1<11" 01 ...... 

duo<o.l<Jubt<Iry oaJIII1:O <011 br ....ruI .. 

~""" .... d~1U 

...... approprial< <Omp<ruarlon ropIariorr 

<lIII.s.o..&...r-I""""l"'I ........ ., 

w.. ................ ~ ........ irtO 

Mlp ""0'" o.h .. ""~"''' low. in oIowrIooS. _and ........ to_ 

rIrocipIiDe.,. .......... b>sio. 

Tb<to rim< I)'peo d....wnblitie> ...... 

-o,-"roiw::. p"' .... 0I...tn 

nrlMnbllilJ" .. 'P bt....,.iatrd wiIh ill rI>m 

.,.,.. lei nt)"'II ~~ 10 ...,. ,I.wifi<.aooor 

d'f"rilit ................. _mnII 

arbr<r2rJ. In tho foIIowI"IIO~'" dio<utr; 

rp«>&<~d.""'01""" 

lJp<>irr .......... --.nh"'" 

rulnmbili" .. <Iuoiti<d 00C00td, .... which 

<bantrnlrti<> ... _JllTd<*iIWlL 

fila RrIIr II WIIrIes* SbDlH ... fonIing 

-

~(IIIlII"""odr<rlllltkct 

~1)JIiaII!'''''_d'''''' 

porrilIirr 1roIdirlp>rrd-.nin~ 

...,. ohon-Itrm fordrn" ~ rhrough 

..,...-.aalpopor .... ........., ..... 

ImIII<rIdirrJ II'hiIt _<L 1IIononoo_ 

fundinJ .... <1«_ (Mr>!l (CIrln H.J. 

rliIpIo)ooI '-_____ l ""'>«r1atJ< 

allCa........,. rIrooo wiIh btr< aD.,......... ""'"""" to displ>r •• "b_",al dtp<ndm<t 

............ 

ICIrln 7 .•. 1~ Iboootr 

.,. ..... ........... 

-""-

irr St<t.. 

H. "'" U.s. bnnclrn.nd agmcito 01",""" 

bWJahontykMy"_1\mcIirrc 

rlrnlrrC'lrOtnorrd_..troIeoaI< 

-.~ bOPrro IOU." , -• 

;;; .-- " 

" 

" 

---

~~ 

" ~:--:_:- _= c_~"'~"=--:: ... ... 

1IfI;.1Iror"' _ __ 

. ...:." ........ _ 

_.'''_ EooPrroWQor _., __ 

'-~~--. 

",, 1~--_ 

_r __ .... _., 

'\'(I)<I"'''' .... -"- 1" 10 

" " 

_,",-0< ... _---
192 


_ '"1f50~11~_ 

~ In pncict, inIriIUlioM ,hal m,r ............ -..-................. ......... mdrit '*'IL to J-101J.1oIocxI(' 

1fMfod ................ bJ_-"_ 

thr"llrJ<~ Ianb: a....r.o.I .... Socho, aM MorJ .. 5unIor. )Urltt>.i11 IN: 

..... iwi"f tho i<npa<Ud'ht liawnlDda "" 

Ih<l< banlo' funclinr;.....o.Io. 

T1oiI......-d..m.... "" ........ 1\IDdioc b iIiqoIoI MWII<:lIl br.ocum d-.lJilily 

ifbonvwn _di/lRkytcllinc ..... 1ln 

.... "",,ohorwno_""~......, 

........ Th~d)""""""'IdIQr(.~ 

ooldl ~ .... ...:ic'f I'ifMaI< 

......... rn>m<i1'1ldmn1oruoc 0<pIM' 

~ kIop """"""" """-'1,.-.. pncn ..... ia __ Ihtw.. .... d. 

............. 01. __ 

Tho ",""","Irun wocial<d wnh ,he ... 01. 

IIIorwno fIuo:ImJb' ~ .... ""I'IN: 

~-""""I""'I~-- .. ''''....,..,,.rqo>mMand.1001F>.n.. 

,,;.,.nr..,..-rdia htMy"" iooIndof 

cmIf; ........... 1.-tho dtarioc ... u, 

io .. poonI IOd,.,...". ,homd.MId 

liqOldily~'pt>(licrldawtn 

parIIIOpOIIl>. and 1I<b. _hM_oo hrip 

......... onIerIr~d'~..,.. 

......... ""<mlioond.~_. 

CS« .... G:o.p.c ~io"" 

Tfi.hnylttpo~)/)lf, .. IN:"""'''' 

NNif,ho SI.OO ......... nb (SAY) ;, bdo<><d 

oon:<otd tho bqulcbIion .. 1uo d,he fond. 

(!ic< .... It :M-r WMbl Fa Illil ~ 

.. r-.AmI~ 

H Ih.sg.d T!1IIPi 

Uiptp«d .-..I lnIIi .... l»lbo<ome 

_in"l""l'and~""""and • 

......... oolOllttub'T....,. __ 

and Ioqoo ~ 15Hs...-M. .... 

l':~oIIIiI ip~ ~ 

• illi~ II>M IIopHpmI tndirt...-

nwlc11iq0ldily" -..w ........ cond ....... 

~. ""IowU< n~1'Ii<h tiquiclity .. 
193 


BOX G; OttGOIHG WLHERABIUTIES IN THE TRI-PARTY REPO MARKET 

1'MI~t...;ndnu:llbolw'li:stlay... "'~coIIIn, 1U:Il._~~ 

"lQI,ftycf"~nopo~;,~~ 

......... "1'**1.,..".cf P**I c:o'OgIOII. 

~ .. _ .. ..,t,pn::ons~ 

~c:t.QlllII"m;r\IIfi~~ 

~ket~pn:Ipt.taIIllgb'QW 

'*'....,.~ TlrIIII**_cf 

.......,.....,cf~~~ .. O:ud: 

1illwtt*al17j",*,,* ~ on ...... .,.....--_ .. --

"""""111 hod reI~ rISk 

~~cf,....,.11'a1* _ .. lId<cf .1I'CInInI~ .... ~ 

Iq.jdMoI cf I+pa1y JIIXI cdIWlIIl7j 

<l\!dIcw1 01. 00:iiI0JIi'9"". 

o-........ OII~cndiI.. ~ 

I+pa1y IIpO Ira:IIs "IIwId" -, dIV."....-,g hi 

cr CO'PQtIIII bards. I"IIdI;1Don. 'IOTIt lIrdn do 

cd..a. aA;.w: f"9lIl11 IIII:W>;I ~ rei 

n~~_Il'P8I.coIIIn, 

~b"'~_n.~e..-. 

destaIlImg (;)dIl: f.....,.,., do no! lull proIICIId c,o 

ht'-h¥'-npla. flII',,-.,/llilPCl"ldIl' 

1Ie* __ or'*"'price.....,l7j~ 

~~. """--' "' ..... II*'\'~ oWl> ....:lId In:i"G-1"IIIIbII\' is ., irIInIIIId I7t 

,.lIatlll .... .....,.,.,~IoI.Fs~~ 

~2a-1 ..... ,.~~AcII~ 

~ tIIIh¥" UIIIlII ~id:jand ~ 

~ ioI:PM"1g a<Wd. n-..... holy Il 

pJI bid< .... bO'Ig ....... '..,. nll.ttld ~ 

~~'OO~m:.I~_~ 

oIh ooIIIIrII-..... dIIIIIbizq;j ~a:ncIkn. 

~, ..... istl:) jlIQ)M$lII pD::e Il DIMfII 

IIndInm ~on~" h¥ IXU:I no! 

ll"lIlMf ..... al*'flllllitid:jdq"l 

h ~ bri; _ cas/1 \ij ,. ........ s ax:tItII ~ 01 . rnechlnilltn 10 bciIitIIt ordttly 

and _ cdIWlII ~ ... bo:nootr'IlCCWl. TI1dII IiquIdotion 0I 1 1Iebu!I8d deaIon coIol"" 

n no! IIIIIId ........ 1'Iau11111< for __ 1'Iau1 A ...... dilal.t01tl1lM 1IndIn'" bIkn 

.,.tfIIrmon. ~ ~ ttwi"v dt..... ddalnd QOIIIolr;II"IIwy\JlOJd.., IIIIk ~ 

I'Ii*IY repo book hllIndIn do no! ~ n. ~~. Tte resoArQ Iwge Id,mtd_ 

$11 doo lnIq nIICI isllOlldld by"'_ ... cWd dlpressll"al,...,...,. n..-__ '*"11 ~ iIpfty &'III _ "'OI!)iIIId ~""""1Ms 

I'ro..cJlmn~~ lhs.-tldCIPIII 

Tl"itil.~~_ntioosol",*,,* "-"'I n....,,~i"IIInIII~IorPDiln~ 

-. "'*"11 bri ... c:o*':01"- ..... t. bIiIn:e __ by"'-'; U:IIIJnIj-. 

~.oon~_and"''' ~1--.:I!PI"Il ThnillW'lWllttl:) 

I >*bins a ...... ~ df*1; ~ ""'*'" ~ n pIII;e 1l ...... I!ndn ... bllbII 

~ GMJIa i"ltDte;poue Il cI8ai!n.... 1l1q.JdaQ" ~ 011 c:IaIdedlle* ~ 

~bria:d::l'-'SIOI'CI~illhl" ___ n ......... IiItw:lo .. molh 

d.""*"~odQ\llly.Il .... bft .. ~ 

~nmlllll"OO~Cl'dand~ 

on -.p::aoelllhl dIoiIIr~ <XJIIInI. 

'-nsl...........-~ Scrr.dIIII!n .....,...,dIpIndInI on sI"aHwm nopolnlq 

and n h!or.t1 ~ Il "*,,,,!IIk. 01 pa1a./a' 

~ ..... oI~bc:inoM"IiIll.--

_I~""""""H" _ 
194 


BOX H: MONEY MARKET FUND RESI'ONSiS TO EUAO AREA UNCERTAINTY 

~ tom flln:eon IhcrHIrm trong eM bt 

~ ",,~JlI«;oien'IIWII1rrtn1f"" 

tniI __ r.u:. .. prO'IOJIId 10 ........ m 

.... --..IIIrIIt~ ... ~ ... ondln.-'d.,~'" _ ... ~V)d $1 

p"' .... ....,.lTIJCIIl<ebri.lIIII:IoIU.~ ..... 

t..OOa lie pronJlO ...... 1I5 --. '-II' r.:.wr.. 

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fiNtrcraliNIiI_wltho~ ... 

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naIlonol bonIm. Corutqutn'lr. d"ri1II tht 

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br "'" InttlN<ionlI )oIonoury Fond (l~tFl 

wi ,lit F.-..I5<abiIitv BoW (FSB) 10 

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in ""' .. trIltIn tN, 11M tno!itio<t>Iir 

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• pItaI ... aI.....,. tdn!clIi« (UJi u.. 

.. "",,6caftI P"'J'nI"' "'" 1111,.... . ... Iud,,. "'" owItIiIh_ cI. "'" CFTt 

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Il<oo:lf<h (OFR). ntabliWd in Tille I "'tlw 

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~"'fi __ w ..... , ...tdmlDllJti<> 

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ltLlllagi/llll\J$t III ' lfl'llinlaest "'-

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db!. .. ___ JItIoh. lI ... iI< tnan>td ruI. 

tokio(. """ po!'ibI< , ....... ioAon _11>.Il10 

for <>pan,,,,,,,,!, poIi<;".lUCh ",><10 for 

rJdd bohm<:t "",,,,,,,,~ .. rill; 

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........ oI~-....IliahiIiooo.f ... 

<:WIIpIt. the ........... y.dd fortifo ......... 

in ""''C ... it 0111)' _"" 1.1 ptrttn,. 

pout" W~ ,he .. inlm.," yidd nr<'d<d to 

.. "n" .. poIW:)'hokItt .......... mill ...... iJuurrnwdt. rdatiIdy.....n ........ 01 mot. 

Ht.Ic< fIInIk .... ..,. hoot ... _ 10 

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tb< ~....t Ihat -.Id <rgtt ...... 

porou<. In >ddiloOll. -,. _ fund<...,. 

hM >II i"'tn';"''' inc ...... ,he" ,;,t. pr",It •• 

~iftht k>wintrml. ..... dol'lOlp""'idt 

1I>fficieIIt)'idd 1O.-.1.hc1r"proo<L 

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cunau). blr...u ... 1IOI .. 1IiIIo. ..... 0I _ ..... --.dwdt~ 

"",~btbonot I!~ .......... 

01 .... pmua b ~ >lid <OIJ>OIW bond • 

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_ ""fllllll ............ 01· .......... 

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i ;, IIIililtIr Ihat finlIIciIJ 1Ubilirf.....Jd k 

..t..ndyaffmt4. ~ ....... ""'-

iII_ .... t1IIIId ....... _1'oI 

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_...u~~.<tdi"""""lTIIfI:ets.,. 

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"""......"u. n- np«illtr rul!l<r1bl<.....Jd 

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201 


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orc io .. ro ... 'upplyin til< agg"P"'. As 

• _~,..,.,. mast.. participoo~ mu~ b< 

.. po!«! to in~ ,," rill. 

MoriI Hazilld Issut$ fQ' Urge. COr!ljlIeJ: 

fil1OllCllll1slJMions 

lIehavioral v.lner.bili .... of Iso"". , ... plu 

fin>n<iJJ in~i["lion, Wlid ioc~ ><ith lhe 

tomPloritf :ind .. " of tI.,,< in""",,,,,,,, The", 

,'ulocn.bili<in "'''u' hcuLH< ,n <lIpt<!I!ion 

ofl""<"'mtn\ "'PP"'" <OII1d I"n<nl< ""'"' 

rilk "IJ", br instilutionltl\lll'rc ptrt'i>"«i 

" 100 l>i« 0< \00 tompl .. to fail, Indud. 

""'''I' "btmrn in ... pm xlion> "kit \If 

r""'"'''''''' ,u,!>oriI'" du,i", tho =m1 ,risis 

., <>ide,." that II>< publ;': I«tor pI'O'I'idn 'n 

i .. pI;.:il l u, •• n ... to b,!< complror fin'n<i,l 

in~ilutionL Su<h bclitf', ihide>p<<ld, 

could I<,d to in<,.,>«1 eon<<II"'"iO<\ in 

fin.n<;'1 ""'0«, ,nd !,nl<r ri>I; "lJn! bjo 

tho>< i"~ilution, detmtd prot«l«l . .. til< 

impli<ill""<"' .... nl , ... """. rt<i.,:e. !IWtrI 

di>cipline, The mull ,wid b< bightr CI'I'enlI 

risk io fuunci>.1 ",.,kel> with ""nu"od 

rilk "'1Ugt1!l.n~ 

I.ugt fin,nci>.1 inililU""'" con,i""" to h>vo 

• h .... <1<1'" of open.lion>.! ,omphily.nd 

in"'{Q"rlKttd ...... These complrorilin .... f 

lOfi«1 ,he divtl>< lill<> ollm" ....... :ind 

10<11'01" in wh"b ,hco< firm> optn", bul 

Iud to I<JaI ",,"MOl with >Clivil;" 'f"<od 

"'~, hundrtdo, and in """. ca .... lhowand~ 

oI,.t..>!ilrn,,, ICII." 1.4.1), l.bst.. 

p>rti<ijwll> rould br:1 .. ", tNllbe tompIniry 

and i.torc""nt<ttd .... ofll>< .. ''''''p.>"''' 

«>II1d makt lhrnI hanlt< '" mol>< and indLlC< 

fu"be, likelihood of I"""""'tnl'upp"'" 

in a llRSl ,m'i""'mtnl Su<h b<1i<fr «>II1d 

'her<for< promO!< ,"olinuod moral hazird 

]>t<>bl<"" for ,uch «>mph fin>w ,nUl"", 

In :uldition, 11><", maf """in"" to b< 

prn<ption. lhlt IO!!I< i.,,"ution, m:oy 

ru ..... op<ciaI "" . ..... nl bjo ,,"'" of lheir 

Ii", Su<b bcll<{, rouId br: <ucrrbattd 

bjovr'''' <On<,ntn.tion in II>< fi.ancial 

omoitt, ind""'l" The finanew ind""'1 

OIarI7.U Cool.I'NrdIi~ 20\2 

- . ~ .- _ . - - - -- .w ~ 

_.- " O' M • 

- M •• • 

-- - ~ • 

-- m. ~ • 

-- .. .. "...,..,,, 
202 


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hal bfwm. inotUingly <O"''"''tr:lled for 

d«>de~. 1m><! .. 11.>0<<<1,. 1>''' '" IUCh 

1rgiII><;~ dev<iopm .. " .. oM Ritg\t-~ .. I 

Intm"", B.")"n~ 2nd Bf1II(hinf f.fficin>cy 

Mt fA 199-1 "",,"nin, '"lOnul< brnKhi"~, 

,nd ,he Gn.mID-L<><h.Blilty ,,«, .n"' ..... in 1999, thaullowtd .1Ii1;".,." ", .... , 

"",,"'<K;'I banI.>, in"""'''t"' banl.J,.nd 

;n",,,ute< """'pan .... Thi. ,,.nd w,,,inuod 

throuJh ,he C'I'isi> (Cb.n 1.UI in p>t1 doe 

to ><q";~ti"'" of I,ili", 5""., AI oftht 

fi", qua" .. 012012. Ihr 10 1''1''11 bank> 

h<1d 52 p<l'<"" of indu>try ....... ""lth 

approximltdy 4) I"',""m ofGDP, «Impa r«l 

wilh 4~ p<r<"" of iDdu,,1)' W<U, w"nh 

.ppro>;III1,rly 40 P<1'«I" orCDP .. 1M one! 

of!005. ~'O\wit""'lI<lin~ 'hi< "ond I"""rd. 

1' .... , <OII« ", .. ,ion, Ih< I),S. banlif18 1)1'''' 

ronW", .""irK''''ly b eon<<n,r,ued <h'n 

lh>' or_ d<v<1optd CO\!nui<>. 

n... """"I h.m<l probl< .... " paniolll' 

add,OU<d bf nislnl "pi .... ''''Iw,....,." .. , 

An >ddioiorul import'"' priority;' to d ... 1op 

'mlibk 'nd "","" faiJ= mol.,,,,, 

J"O'td", .. for "''V ,ompl .. i."j,.oiorn--

pro«dUr<1 'hat would allow 1M inlli,,,,iott to 

... liquid"'" or mlruc.uftd, .. "!'J"<'IIri .... "';,h minimal d,m>c< "' 1M M'''''''.,. 

whoIo. Th< !'DIe ~ o",hor\ztd '0 " ....... 

wt. ;n filliDl nn.,..;'1 (tIIIlpa .... und<T 

1M Dodd-Fnnk A" and h .. <Ie\~lop<d. 

""""'ion " ... ,,!yl« sIKh fimu thal";l1 

promott finmtill ".bil or by !II,m!ll ,ria, <OIl"""" and r<qu"inl ",coo"tablity by 

fortin, til< finn'- wr<hol<len.nd rrnllt"" 

tobnrlo' .... 

Th< "t<lu "u'nl.go"' ..... "l'I"''' to h>I~ 

mogni .. d thal til< D(>d,H"nk Act limit, 

til< .bi1itr of tOe lI"'"'",.",t t. proriI:Io 

"lr><J<\lin1'Y ,upper! <0 wr<holdcn 

, nd ,rtditon orb!)t "",,pk. fin,,,,,,1 

i."it"'ion!.. TI", r..:ognition "n I>< ><to in 

til< rtductd uplifi tl>< m>i« ""n! >golldn 

inrorpomt into 'Oelo>l!-",nn ... ting> for 

a numb« orwc< [,,,,,,,,,I ino"'utions. 

... nr or "'Inch 110", bu. down!ndcd .. 
203 


-rN' 1ItpIM ..... 1IIIII<d ... milk 

(Qan 1.4.J)."-"rr, ........ otrlll ... 

• ~ oriII ...... b do< wr IIul.o, 

typICIIIy 1 .. !.-hn r... btJt bon~ Iidd"'l 

, ... ,....itt .... ! .. , """lin r...lutt bon~ 

1\IbIod ....... , In 1dd.i1.,.,. Ih<r< Ii nidtn« Ill" 

N,l:.tHIorMd ind",wn 01 ,...:I;' qualil) 

otnd to be' ~ ilia. ,ht 1<0<1 •• ssitntd bf 

..... " .,.... ... ICkat1 U.'l. ilOilo l:l1Ul" 

.,..;.. 'l'JIIC'llrsq>en "phf"lIIIlrb 

.................. """" "PiifI> also...,.... 

do< IIIorHcno none> IhII hdp &<.. ... .. 

__ ....... ...:I..tIoInok fUlOlli .. . 

Vumtnbilil ......... wbm. MaDeW 

;'"oI".ioo.·, fWldi", oood<J dept .... i. pus 

on ,he b<lW,"" , .... v-rn ..... , ll f'«"'\d' 

.uppott. ,at,,", ilia" onIJ on .... ;",n._ .. ,..."b 01 ......... "'.,., and ill ponfoI .... 

~r--------' ... :: .. :c .... ::,,--------, ... , • 

~, 

'-

J-------, 

......... Lzr-~rl-~ __ .. ,..., 

--. 

- ... "'-... - "====------, .... -

c:Jero-o_"..,. ---......... . . 

.., .. "...-

• 

-~ 

-

• 

• 

----. __ .-.__ as-
204 


Appendix A 

Designation 01 Systemicaltt Important Filancial Market Util~ ies 

o.July 18, fOJ!, .... rllWldal $ubiblyo.m.p CouocU (Coowil) ~ 

.... r......ci>l...n.o UIiIiueo (fWl'oI .. .,.....nDr..,..,... ........ Tolt \111 

<I'" Dodd-f'flIIk II ... Sum Iri:no "'" c:oo.u-~ Aa ..... All). 

Tht~!')Iu.""" 

n.. 0e0riII( 1l00000 hr-ec..p...yw.c. ~ ... thr 

.... d. ....... ",......" .... ClnrintIIoul<I ....... ~~ 

s,..rm (Cltll'Sl 

CLS !bn.lllltml(JOlla/ (CLS Ibn. or US) 

0Uac0 Wtn:antile E><hanc<.1D<.1OI[j 

TIl< Ilq>ooiIory rn. r.ca.p.., (DTCI 

r ..... I'-~ CorponI>oo (ftCC) 

!CEa.. CftdiI u.c Ino-~ 

N-....J s.a..ana.....eo.por..... (S!iCC) 

Tho apr.. Onrootc.orpo.-. (OOC) 

Till< I'll! pro<iQtIlout Ip«ir.: faclO<'l .... Cwn<iI ,""" ... to ;"10<011 ...... ...,., 

whm drtmrIini"l whaoo.n I)4U it, or;' liWy 10 bKoMt. ')'I" .. nlly 

i.,pomnt.' Thnr fxIon .... 100 in<orpont<d ~"h _ . drWll"""'idcd in 

"'" Council', '"I"btG» r<pnI"'C .... ~ nlU~'n.. ro- sp«ifI< 

f><I<In ... tAl .... 'W"P'" -.rJ' ...... or..--...... proc.....cl 1Ir .... 

f'ljU;III 

~ 

........... .,.,....d .... f)lU"' .. ~IQ ... 

inw,oiop" __ , oro<lo<r""""" "' .... f)iU """ o<Io<r 

nlU ... ~ cInnnJ. .. ..w..... ><tio-lo<I;""" (D) .... <fftc, thai .... 

flit.ut 01 "' . di.upI>oa ...... fMU -'d u.. OIl criIraI owtn., bn<1lI 

irutiI_ or Iho btoadtr ~nanciall)'l"'" rolf \'111 also "'1"""'1'1< Coo",,! 

1O .. t. inlO~ ..,y .. hoT I ...... ,hal dl< Council6<tm •• 1"JI"'I9ri> ... 

TIl< Council bot ..... ""' .... Iour liInIt,fitd r.c.on I""""d<d OIl 'I'"I'Ol'fi'" 

botiIix -IIIC ............... >DOl thus Iht CounciIdid OOI .. pIriI\' rrty ... 

...... - Tt...>pp<ndiI p<orida ......... d. _ f)lU ........... ~ or .. 

.,..........,...- bosod ... dw facIon Iiot«i ...... Exh f)lU ... <Md .10\"" on M'l'2t !Olt.........,. iI ""' .... COUOCU hod P"'f""<'I ill ........... wi 

prond.i", iI nh ,lit ...... !OI>On&k lor .... CounciI~ dttt<m,n.I'1OO'I J'<O'icInI 

in lh~ >pp<nd'" Th~ avpmd .. cion """ ............ mel .... ...,. <o<>lidtntW 

dau <hot ..... pan""'" c...r.c,)',..w,.a. th>uch ,urh Nlllfidtntial dll> 

...... intblod in .... M.,-!t ........ ,., taCh Fl4U. Th< unlo ... h hod XI u,. 

.......... lI<>nnIiltlorr~..a .... P""P"""I~ol .... 

c......oI ...... c-;J', """"*" fiDclmpclbn, " ... !')IU mponI<'d--" -'

. 
205 


'--"~dlrc-ilbM............trOOlCd"'t-or ... 

......-.. "'1oIowiDc nll/I _ ..... -..,...<InmbtoI hm: 

A. Tbt CIeariIg IbJse PaymenIJ Coo1Jany' U.t. 

0aI;r1p00n ~ IIII! 0ea.i:J<J IIDust f'IrmInb ~ LLt. 

l'>pntouCo •• D<1awm <Ofpontion." "'" kpl pmon that opmt .. CIUPS • 

..tid> ~ .... ltibttral '1""" .......... for tho ""<pO>< of"",,,"",nl p>f*'" 

.-.iu5!~ ~.~as'P<'"""',,,,,......,... 

-tibI<nI 

~_ 

OJ"'"' ...... parpoot io """"'""'...,.... ..... w..n...l .... *'-ornlC ... _ .. T"'VIIL' 

CHIPS;' ... aaq.....--IJ'I<'"" ,.,. tJouor.d s.at.. for ........ 

... "'" U.s. dot .... parm<nI> ~ ~ ,ho day. J.uvnIu< 

I'"l"""""t 'J>I'"l'IS pIay.1:cy '*"' fi......r.lll!arl.<b..,. proridi", • linn, for 

bonll to d...,h,'l' ~'Mlit;atlon, r<l.l<d ,. impor"., fi".", .. 1 nwkr< "''''tin ""h as ttIO<I<"/ .. rt.I ond (OaI""'rtial tnru><1 ..... hyaooo" ltltio:d 

..,.""h.,....".. art or ... hiP in.u....1Id f«II"I"t 1<"<\1". rdioblo • ....t ,t-CIdY 

............. For ........ ' ... bon).' ........ ~Wt,.,- ......... trttIrl ............. ..,..... ..... For.-J """"'-'«>rpOnlIDOI 

..,_iubarll .. _I~,.,-1pd .. ouMcriti<II 

parm<nI> toiu~ 

~ 1'"J"I<"'I .... 1ed.,.., CHIPS oftn Itprnm "'" U.s. ........ ,;o,. 

ot"ansr.n btrwrn U.s. """'"1'"'''' boob.1Id I<Jmp bonb opm""1 in 

"'" Unit«! Stot ... ""h as.".... '''''''''K' 1IId f.urodoUlr U"l.""Iion~ Cl!lPS 

tnfIic alao incb:Ie< on .",.,...;'" ...... or P"I""""" fer tnmO<tKW .... h ...... ......,.01......,..,..... ~>rId po)""""1SIOciaotd Wlh-'>l 

,,",,-bank -. aM ........... tnaPc\IODL 

Tho 5!OIIPS porooponts"" U.s. ~ lomb, romp btWJ ...... o/Iir:B 

in ... Uoud St>Ift, >rid .... ,...... bonket. TIo:o< ~ .......... _ 

01 .... b'l'" bonb to .... -..o<\I!..,. .......... nd iO<bl< bonl"-iMlts or 

n fioanrial irout ....... ,,,,,socImd to be poblI 'l"' .... nIIy im""' ..... rt""';.! 

1"""",ionI \If ,,," Finoncial Subillly &oord.' I'>rllcip .... obo .. no:! >ftd .... ,.. 

I"Y""""""" CHIPS .. behalf olthouw>d. of""""""",, inW:\inl'larJ< ....... <I.......,..,.....bonb.U.s.~ __ b • 

...t.unuoI pct«IUI< ot oII.:ok ..... Fonypotti.;'f""" ... ~ 

......... "'" tI..a.d s..u.. 

An iIIIponon<"""'" otCHIPS;, ...... <aII bib<troDflDrl ...a...nn,- DOl 

,.,..".. b I<tIIom<nI. whICh ,.....CHIPS totrttlr ia d>iIr ..... ot 

p»"'""" with . frxtion <l.fundi",.}. d~ toa lll'S <OIOId th<r<fo« 11m 

• r .. tip~ <ff«' "" .... hquoli', l1«li. cI porU<ip>nll. 

I'IrtIap>ntsdo "'" boormdo nsI: wnhln CHIPS. as """do ...... ttnd mdn 

OI .................. ~ n..,-tIo. ............... liqul<tilrrilL ...... 

,..-....... ito ... aups 'f"M' art ... ponmmIOI trttIr. pono;..,... .., ............ .o.rdurq ... ...,. ........... <I. ... rIar.,.,-....,. 

_ .. " .. o~" ...... _ 

t,I' gl.... nti1 . ;)! Ii Jil 01 . 

i it Hi Ji" C •• a, 1 

1.<1 HI . - Q nJfj'" r 

i ,d· ' ... if Iii' Ii · I 

I! i'" if' 

<'i" .t H1Hd S-!!l6]1 _!'r'I' " l: if I ! ii 

I , , 0" q •• 

• hii 

t' i P i g , i' ! !i !i .' !I !i . 5! j' - , , 

f • r H Iii :i" •• p Uit' J i. ?;i I " i 

tH 

PHUH 

ll'l' 

'1 tl rtU[B I ri unfH It ",r;;c 

lHijH 

.! ftF 

••• 

Hfpt t···t· igS gl! [," F 

I P " 1 a c:: oil !HH {flH i, 

FWP .lot. 

tt •. pi 'il1 dNf !:lJ tl liI tH h l·'ji.i 11:11[1. !ti .1. !.f 

>i "'1 gr.! .! u, I. • 9 >1 •• Q:; -. n·Pji llri if HHi 

I· I<;'i'll 

'- - II • 

J 

_ 

!i" • I .,11 jI ill!. I :t t if 

P1 J tnu;: " ill II -.' 

• I I f, 

U.t

tH'11 r d qi t ,'1 q 

H! "'! i OE . = !i = i;}.iJIi,IJli'r 

h= j"1 i i i' Ii, 

ir2,1! 1 -if 

.. 

tit", mn H II • -=q. 

t • H"il1 111·[ltl 11111:1 ·j!HH! I"'tl' 

'If ' .. - 'lJ tI, H!g[J{ !"j'tr' H.i" r HlPb 

l1"

Ii:' "'!'H dUpJ n 1 'H. i 
208 


~ 

~ ol,..ruc;,-. ... """ ol~ aups oruo'<l';.......,. 

wido. -a ..... olponiapulu:oa--..,.. rdaI>od!' IarJo 

,...-.ol ....... "' .... ""'_....ap .... OIId ... .....t.r ..... r.r 

CHIPS ~ furtbrr ~ wido • ..n ............ "''''''''''"'' .. r<pmtIIUIO( • 

.... ..,"' .... fOlld .. , 

Ab"""sh no !)lU, cIoptOll OIl (1IIPSdi ... lIy, 'M panicipaI> .. ,hOlltoct an<! 

........... _ ruu. ..... CIIIPS and <OIIlJi>w <II< _ f.ndi"l .... at .. 

...... 01 .... _ ...... partq» ... 1Iynlut ill as Bank. DTC, F1cc, "'"SeC, 

OlE. JC[ Cbr CrodII. and occ. n..liqoud..,p<ObItMI auot<Iby I ~ 

.. OOPS ... ohmfon~oflta .... ~ .......... "'(IIIPS 

paru<pm>"..,._FXlI~c.....n.tr.,.,...... .............. _ 

_ ""'""!)to. 0I0>1 ...... ..,..wd ..... 11< ..... CHIPSauid be 4""'1*'l 

l~indi ... "'liakClIlPS ....... "'IO"' ..... !)IO' .. dJlOrDltll~ 

, ... <in •• 'M .... , ......... , 0CI~'it .... bill .100 '" ..... hird.pany, IIMO!'I'Im 'hOi .rc 

lilt ori(ino.ton .,. brntr.ciarin '" p»'mm .. 1t1lle<I ..... allPS. Pani';" .... 

.... I ...;onr,ol ...... onps tnI6< by"""-'" beh.>lf ol_ 01 

........ "'llurd-pmy.-n.t...p..olt/ut6op>n1c-..in<lro* 

.......... t.r.donolOIIPS,..,......... ... r..w....aI ..... .,.-. ..... 

~."".,.-Ir.-ol .......... ond_ol"-.-n. 

............. OlIPSauid """'. tnod<r ....... OIl boch .... ina.;ial1J1lnI 

...t .... ruI..-,. ........ be""'-"-<CIIISIdtn<ioa '" 011"' .... d,,'fC' po.n;ripontI. 

fD) EIfec1 tIIat lllliaitn 01 Of ~ 10 OII'S 'II'OIJd hnt 01'1 ctrticaI markets. 

IrIn:iII ilsIiMioIIs, 01l1li brOIIIIr finftiII iJ$Iem 

WorbI.ff_ol. fallDrtoi. to.t-~ .. ,100 1--'-"'1 '" 

0llPS. Th<tr .... ""' ."..ol ........ CUPS""'.....w ""'" """--. 

.a..a. ... criII<.aI...tm.n..-.aI """'_ ......... tnod<r 6rwo:1.d 

"..... r ..... ad...,..,. o;r...,..t " .... ,..,. ol_.,. -. portq>IlI8 .. 

...u. ~ par;,. ......... 01 .... cbrauld __ ...tnt \IiIboo doIbn 

ol ~ _10 ... 11< ..... (IIII'S. """"I ~...,.*'ttbtb lor ...... 

porutipanlUnd """ ,,,,,,,,,,", Iia i. tho day. Secood, I d;s.llpdon origm<I 

1Iy an op<ntionIl....,t.l<-m ""h Clnps ,ouI<! ""'" "'.,""0I1y h;p.r """""'" 

olpaymtnll ...... ..,llt .... CHII'S. An optriIllonil diinf'''''' ""'kloloo"" 

elf paniaf:anu' ...,... ...... f.neII ill ,lit ailPS >«OIIIIl,"obicI> auld be I 

~_1Iy ........ ol .... d>J. 

TlItr<pat ... 01'" ,..,-1tIlloI ......... ol .... .., .......... ... 

arinlaKd .. ....t..""""-........ _ol ............ ,. ... 

..........." 1Iy ~ <Iotiol "'" d.ay. If_or ..... paniapl ... fadod III 

.. ,t:... "'I"lftd 1'"1"0 • ""' .... "' .... day,. part"'" oI.-...,..... .. _kI 

""' ... 11< ..... CIUPS. A" ~ lilt po,,;c .... nu and ""'It <llJI(IdI<n •• ptCl;"I 

(01'fC<M'- ...,-n~ _kI nt«I '" ""'''' ""'" up ......... ",(IIIPS.OII 

DIII>kI.~. be. t;'I'"d.y.......,.U. bIt III "'" day. 

la .... castol .. .......-.......... aIlPS.~ __ "'" 

Iftw.. F"""'s.mc ......... ~ lbftrabilily .. ., .. ...wdrpo.ct -'. 
209 


.... ~ parucip>nI', ...... II> r..twitt, iIrIcmoI 'l"eIO""""'" aJ>d .. .... 

.. ...sen. ......"Iiqoudin'. 10 ,,",101M, do. ..ailabiIirrolliqlnd"l' ... ... 1Ior __ tlw_~,""",_oa"II>:odaiouI 

.....,. .. order "'..-lb:>r OllIS In&. AI • ..u.-m, 1h>I_.......d 

Iiquobty d<fo1nd <OIIId <mit ........... for pol'licipanu '" ""'" "";'01 

Wr ... 'pnr.,.,....,." ... ' f<dwln until "'erfinl tt<ei'w<d b"" incomillf 

~". Ddajod ... _ d,boo< ... lping p"rmm" , ... Id in ,utn dtbf 

,ho _10 ..... doll downum .. po)1IIO!>t ... I"", on Ibooe londo, hktly<> •• nl 

1iquodiIJ'I""'*m"'sprtod. 

Wtnool ............ dionopIloo "' .... IlIU, DtpeoduIc .. iu ...... . 

~ diIJupcioa .. OllIS ...... _ pan;cipuIIwDooa ...... .. 

lilt iom-.aUclrllJDifi<>al_oI....,. _ iD "'" OllIS "-

Al~"""" Cootoodomioa (I), ",".u.. 0If11nd1 hold .. "'" OllIS 

0«0\IIII riJn lI<>dily ~ "'" 400, with "'" f.nd ...... rotd 10 partlripon" 

11 """""' .. ,I>< tnd 01 d>y. A di""""" th1l "...,..",0<1 C!lI PS ffOfn m>killl 

J>llOIIlI1I "'" end ""'" dor (lOU1d , ....... nillr .... liquidilf Ihon>c<t for 

paruop>"" 11. ""'" 01 dor"""" 1"II"d"'", funo:lizoi ~ lUI" be lou 

__ nu. io paninabtIJ!IIIt for lilt ...... 0I0UPS pot1l<IpODI> tNt 

.... "-...,,. "'.-ndaJ'mdo. r.... mknl ~ a..k. Thnt """"""""'"""'''''"'''''0Id.,...... ..... f<d_aJ>d...,..~ ........ diotusoed pmicuoh.litpdicydtdaon ........... ead 01"'" t....... 

.,. f'Iortbtr.IiqwdiIy'" """" ... rt.to _ li~b< osp<ciaIIrtip ....... 

tho Itmt<d ... rta """'-'<>ono '"'........w.. fado ... 01« dKrupcion .. cmlS. 

\\"1IhouI th" lundin, Iu< in ,lit d>y. prri< .... nu .ugh, no! bt obit to ..... Ihrir 

P"Y"<'" obIifltion • ......;do olC/UPS <If mM fed<nl b ....... ktOWI' bob"" 

~,·..rn .......... rftJlli ........... 

1.Iookt...tMr"'"""""-.~100l1PS-'<I~ .........-"'" 

u-iJl.,.-..a.n.c ............. .r_-ww.ktNt"""b< 

........ I"'J'"""" _ ..... CHII'$.Al cIiK-.d ....... Coouodmuoa 1M 

ClIIPS ... tIn.~.....nobott .. "",U..s~~....tn. 

f""""'-.• ",no6can! por, .... 01""' ........ ol P"l-'" ................ 

CHIPS io ItIIl 0< ~ on btMlf ol (lilt olthw<>nds olthud-plfl!' ,uotomcn. 

In lI<Id~ion .. disnJp<i", "'itd-jw1)' , ............. dixu"",lUIdrr CooIoIdm' .... 

(C).. diotupuoo to CHIPS. 2lIo Indirt<tlydisropl """" flotU. in ,ho U.1 

fnIuItW_ """"P "'" dwIncI ol ohuod parti<ip:Im. 

..... 

~ """""".,.....IUdo .. CHIPS p!If'",,"* ill "'-001 .......... 

'" JII'I"IIioI. _ f« boW .. <bodY"" ~ObIiPIiOItO robIod 10 

.... !.lnlIin>ft!l1l..n... ........... Ollrs ... p&rU<lIluIy b.IJ'" .,... ..... 1Iliac 

SI.6Irdlicn OIIl'1'm!< ad>y ............... lIipdXiIllI pm ........ ol""' ...... 

ol"'" U.S. doIb, b~'" P'l""'", ... rl.ot. A disruption .. Cl llrs"",)d 

oipift<>ntly in<t< ... "'" """" .. 0I.11M"U.ied po)mmIr III "'" Ollrs qunoo, 

dior"opI "'" oIJiIiIrol~""""""" tbnr O IIPS tnIIk. ODd ~ 

..... "'" po)- """ fuadiJIc 1"'-.... auPS ........... hq\IIdOlJ 

<IiInIpIio»o aI'foaiacall,......... ........... 2! pobaI ~ IooporwII 

.....-. Mol pot<oOlI1IIr..,....t .. tbnr.-n ""'" toOlllor IlIlJoaJ>d 
210 


!be~""""'.,..... n.~oncIrJpn4"""''''''''<OoId ..... di/IicuI! .. .....,. ............. poni<Warty if!be cIionopboa ......... 

011" '"<so .. !be ""","".!be ours _ >ad ......... * """01 • ., 

.... oImd)' ......... -~ 

T:Ii,"I into o:onsi&n,ion LIlt "",illn .... "'" >.tid P""I*lion 0IllrJ<..u.: 

paymen .. <hI, ... ll< ..... CIIlPS.1Iw inn,as<d liquidi" ffq"iJt<l .. rtf<IUt< ,hot< 

pay!IIMI ....... ,1< owidt oIatlPS. and LIlt rnl .. othrr !)IV. arid oIoorutrnm 

fiaaBcialimI_""""""""'-iaI ............ 'h>lfdy""""""~ 

......... it~ .... _olllwc...-il ....... bibtol ........... .. 

OUPSteooIoI...- ....... ol ........ IiqaodoIy,.-...... ......, 

&auon.I_ .. twW .. 1bmtJr .......... !be ouhiIirJ ol!be r...-;.d 

.".... ol .... UualSUIn. for .... _ ...... brH ..... c-iI .... 

dnmI>uI<oI <hi, h)......co ohoWd be dtoip>"" ... ~..,....... 

!)IV pursuan, .. TOIl< 1'111 ol .... "n. 

8. ClS Bank International 

~ 01 a.s s.k1Wmllilllll 

a.s ~.1rpI ~ dIan.mI",!be &oanI ole-.-. olllw fflIrnI 

an..... S!-..... dot .... Act.~ • ...tiIaI<nI __ ........... 

'-P...m.cr(I'X}nn._-c"~_""",,,. 

TIotrd:or<. a.s ~ _dot dotIi_ ol!)lV ...... io TOIl< Vln ol!be An' 

n.. FX man.. io .... 01 lilt Iu'ceM an<! moo' liqWd p.b>I fin.new owtcu 

"ilh an ........ '11"1 ... doil)'~ otUlod ofM ,,;ilion V,S,lIoIlaf oqu"~l<n' 

IlISDt~'Tho! FX ouotn pbyo. P"""l iaomoalional ...... '" kin .. ,,,,", w 

rtbrio< ru.. 01 • .....-..,..".01 ... ~id.' .......... .....w b.>ou.c .,.....and~~.,.."""_a.c-olru 

~ do: FX ouotn ........ '-' ........ of ___ .,. 6Aaroct 

1IWI!>'ieo,.-nI "*tW.and Ianbnc.....,....... 

Tho! FX .ann iI In ~ (OTt) _.ilII P*dIdiIprntd 

p>rti<ipan .. ,ha, conn"," 10<11 tradl"l ,.,. .... into. hquid, pobal""rttt. 1M 

,I" ... 1>"", trOdin( «.'m.rr Ioa.It<! in .... VnOl<ol Kinpotn, LIlt Uni«<i 

SU ... , >ad pParl mpKliod)'. ahhoo.och' .......... of orhe'''''''''''''' .... """ ..... amm. Dt.oo .. !be d..,... of -v. paru<ipNHs. LIlt rx 101M io 

...,.:r..-..nn WIlh ............. of o;nooHooodn-.............. Tho! lh ... 

...,.. iIu!nuamI> "' ... FX _orr .... lof>anI. .. FX ....... ...... 

<OIIttuody_ .......... .-IJt4 pcraM olFX ~.li>'t)' no.. 

""""","", ... ~""","",,"ponol"">IIorHmI~-r 

owt.t. ......... cnticaIIyiq>onanl ~NnoIi .. ""Iot • ....x 

..nt!rof parti<ip>nu. s.".,.,. .. "'" iI lho pri=ry riok in .... FX ouotn.o<I is 

.1:.ey"",,,.ol..,...,,,ilrioI.. 

w ~ io .... KIlt ..okkIu.....,. ... ,.,.,.",."...." ru kio<l. oftmnt: I>o<h 

liquidirfuriop and _, "'" 1DIlipuon ...... aD ..... turno>ti<>. and 

*0111)'_ ..... 0f0'*0"" apollal_ ...... IoII!be ................ ' W __ ........ .....,. ..... olW_USDL.."...........6S 

_ .• 
211 


,.....olfX...t.nxUnlyilas~ __ ~ Tho 

as IW IJ>I<"I bIJ ........... 01--. in<WiIIc ....,.olllor bftnI 

booW. ........... ....,........_~~bodo'--

>nellomp. 'I1Itoop as aw. """" ............. ar. ""'" .. ...-. .... 

,.lIlem<n1 riot. Ul th< fX ~ thraucI' th< .... ,,~..........,-.. 

(1'\'1') ... , ......... 'eLS &nk io.r.o ..... \w lIId u... ......... ol .. ~ F),IU • 

.. .. "k mu~kun<II )' M'rr'I<'r" Oowo. Amoo" 0100 ]>0'<",;'1 .11«1>,' f"lu" 

01 or dion.lptiorl to th< fun<tiorl'"c 01 as &nk ",uld oubsnn"ally inc ..... 

,...,1CipUI,' ~ilynokand """""""" ",.,r1Dlll1tl1ltmrnl ..... -.: 

........,... .. th< fX..n.t. 

....".01 '-1nIpor-. 

Aj~...etary'" of II1I'UeIin proce$$eII tlfClS an 

a.s &ar!k""'" • upi6cam and IDcnaoitIt *""'" """ ... 01 .. ....., ill 

tho rx ........ Th......p .. -... CU II.Inl .... ;r.-. .. tymfut ..... lInom 

mk.nd JIK""d<s l\Ibst>,ntlll!iqui<l.y ... i".. th~ ill.1t """,Mmnl "" 

Iundint- 11th< """"'"' and ........ ..uitd bf US Bulk COfItIlI'" to p. CLS 

&ar!k~ roI< .. th< rx .oM. and NskI parUClpllU>' rtliID« <II> a.s &ar!l., oriI 

I:t<ooaot .......... 1IpIfiu<I<. 

s.w.--.-. uti ...... as &ar!k ......... dat:. -.... t, ..... 

61,....." fX ~ 1/;tIdf" dipIo .......... and ptI>IkIi. 1ft 1'011, 

CU 1W..,tk<l"" ...... tbilrr-....... "'I2O.6OIIlIIInand .......... 

OU"P" dill!.w. 014,77 tnllioo lISOC bt addition. thnqh '""P ............. 

CLS &nk otitic-ted, """I1II,taI ''''''''lit ",II< ... Ikmom riot. _ioIo<I wlllt 

the ~ dailrl"'" Idu ...... ,W, In toll. as Bulk ... tW, put. daily 

I"'" """"'"" 1~7.m oi:b; 01111> ........ 1lnI<nI, ...... <Lor, Mortb 19,:lOOS, 

u.s Iaol..w.d 'PP"".-.Iy Ill! IriIhooo usor.. 

l.toll.us. ....... _orukd.WIW-.d ... ........ 

_ "' ......... daiIy,....IfIIltaInI ......... !lor ..... 1QIfP< 

tbi)t .................. btodtliuoll.us..tto..d ................ ..-.. ... 

oipl><ml*""" " ........... 'W<P< doi/f ...... ..w..t in toll 01 CI.S knL 

In toll, the """' ....... "<aI"''' ''''n,."" ....... <1«1 "CLS &nk inc"""'" bf 

4.7 ""' .... and IH ""' ................... r-fOIO. Sin/:. fOO'!. tht ......... " 

,ra:tA<IiOaI pro<.....t ltrW &ar!k lw rrown.' OIIIIIJIOIII"I 0IlDalI _" 

Hpnuno. oridt us. dollar""""';" ................ ....,.,..... ......... 

.... ol~JI'fO'III.bt..wu.._.'III17.!lor ...... ol...--l'fOO"W"Iltr 

a.s IW boo rrown.' ~ ....... _"'7.3 pm<III. ..... th< ...... 

"U.s. doIar "'-<tIOOO ........ " • ....,.,..... ........ _01 U ""' ... I. 

~,(r.,.100'1 throup fOIO, th< ""oI"r.1luo olth< fX ~ I .... ". _pou'" "'01>01 "''' "1.7 "",en!. 

fuodi"" !oj..,.,... fu'" ood de""" tb<it Ill.w..:u,frn<)' >«01.1111,>1 CI.$ 8artk 

""""ch 17 rc:a).uftIO """..me-(ITGS) """"" tnW:\uIc ... FtdtnJ 

--'-"', r_ r ....... s.mc.1or U.s. dollar ~ fond .... oman .... ....tabotnI ... -._,.......~ ........ .-.....Lootdrt .. 
212 


-"_tbr~~<liu--"CLS BarIl,..... ........ ... tbrir _ ....... po)'iII ..... fioo:.«-~ ........ , 

fit ... ap;anol as Bd 10 b CIIIIIItIpartie 

~ CL'l Bonklw. "** rioI: ........". framrwort. iI io ..... >pOOOd 

..... ilicaro mel;' >nd liqIlidirr riak, 

C«dil npon ..... CL.5 Bani ...,. .. rtnII mdit., ill --.. III .... knI of 

1\a;moI-adjwI<d Ihon pooiI.ioM. _h .... oaIbIenb:d "" • ......w. loot: 

,--. >II1II <2pP<d ..... "Il"'P'< Ihon pogoioII_ ~ b ndI 

..w.... .... ~...,.~ .... basod .... _oftxh 

_ .. a.a.IiqIIId"'IIOI ....................... • 

a...dOll .... ASJ'I.b ... hWl~_.Q.li ..... I ..... _,........t 

melit "'jIOOUlt,. in .... billion. ofUSDE.· n.o..p do<>< .. poaII ... .... 

t'.,II.ttnli,od by "il'tW~ Ionr p::>Oi ....... D. mul! r:I ......... "",harij;' 

12k oohtility. CLS !.ank ""l' u.. in,.ffocitno liquidity >nd "'111" ~"'"'w Ioact. 

..toch iI ....,.,Jd.Iloo::a!t .... ~ mrnIbrn. 

~_Ia"'''''''''''''.'''''''''''_biIo''I'''J'''''' 

cwmoty~ ........ """'''''''''' ",,!be aid r:I .... ,.,.". ....... as Bank will • .....,..,..., .... faiIio( _, ........... Ion(,--. 

b!benumq~ .. foIfiaajlanl'.~oI>Iic_""rnul 

as Bank Iw<llltainod <QUI;"od li ... r:lIiquod_y." ... tho 17 ~ IhD 

>t. digibk ror ... In ... U,s. dollar ~idity io fJO'O"Idod """""'P of U.s. 

<Itposi«<)' inot'd:Woru, ... h r:I-.1I~h io.bo . l<IiIcmonllll<lllbor. 

1a .... <2>< 01 ........... """" faibu ...... pooI;.1iqW<bIy iMtCLS 

a..k -u.t...,...... r... ...... 1Itfd IiqIIIdiqr JI""'den;, ~ .. Ilk 

__ ASI't. P'roooiod 1h>I .. cwmotyllaimao Oft ooJki<Io. ........ 

-'" nIk, OJ r,w .• .......,.,; ..... ofbqoud"r- 11<...",... .. 

cuopineP"l"""'''' .... ."...,...'''rrmtf ..... if .... biIior ...... •• liquodi<f pt<II'III<t in tho ~ """"""" n-.... ifQ.S a.nk~ CIImIIC)' 

!wl'tllll .... iruuffin .......... sicn±fnn1d<prm>iXIn in tho ..... of "'" 

,..",btn· long ?Of"lo'" .. 1&1I~ ........ hI< 01 th<if shan pooidonI, CLS !.a.k·. 

liqu>rIirf -. rMfacHd its ..... inod liqIud"l'H .... >nd CLS!.ank...,. rncur 

Iinlnr:w los><>. Fon .... "'Iho ..... thai iIoliqgidity proo'odm .... ur:rwiIIinf 

Of.nabIo .. """'* .... ~~. w aw..;ll rrtdir: .. atrmcd 

..-...w ;. .. aIomIaIt C\II1tIIn, ....... iIo .... -orrdoooot ......... 

"'1"')'0'0 Of _-..." W !.anI. oIombJ....".. ~ nol .. iIo 

..-...w_poI<..wIf ...... iII~~ .. U.s._ ..... 

~-

C)~, rm.~ \II' ott. ilterlCllons 01 as 8ari wttII DttIer 

Altls or P'JIl*II, dPrilg. 01 MIIIImInI KIMties 

u.s BW ... _ "";'II)'io hrchlY<On<ftIIn ...... ......,. iIolarca ............ 

I. add"-. Q.S aw. io hiPII' ~ WIllI • ...... 01.,..... FloW • 

... 1J>d<...,........ r-~1IId .... , ........... __ .-

_ ..• 
213 


JIOICIUII for • .mr..-." W IanlIO oprnd roa<h<r poru<ip'a. rxll<, 

...&u. >lid ~ "'" U.s.IiIIlDnaI.,...... 

c-..r..;. 01 putidf>ul>ud ~oItioriac- Th< .... 01 ........... 

........ Iorru Ba.nk ~ hJchl10011CtNmC<! -. "'" Iuf<I' oIiu6S ........ 

furth<r, thlf1l..pm)''''okmt., ... ~''l' io hilflly<OflC<n,,,,,td "-.. '1"'"1' 

oI .. m\>m, Si.K< "'" Vil ... oIi.~r",lio<I, ... tltd in O.s a..nk io h""", 

.-rnu-.t<d, a disruption 1O ..... 1>rr: IIIC'IIIb<o _Id lao< .liJnilltant ........ 

.. "'" riob _IorW aw "'" r...... (D) S>r tbe ilopaa oil failll .. to 1'"1' 

Ior- Of __ participuItII."-'or, "'" __ 01 "'" Iarr FX oo:mn 

,...,...... ill CI.s a..k.-... that. otptIi< .... 1""I'I""'- 01 ... FX _ 

io .......... as aw ........... " ............ fnaam. 

I. !011.:t7 oIru a...k·, 6S.......tIc<> ..... 1tIioo in ~ ~ OIl 

bol»lf olth...! 1" ...... 'hOUSh .I>.~" """"' .... """"",notf"d""""l' 

lOw inllilu60nL In aa ........ thir<l .... "l' Inn""Uom'<pm<nI """",,,'m .. '" II 

pct<enI 01"'" agr<pIt .... ""ltd lor as a..l:.ln addi ...... ht th ... """' 

U.5.-lwtd rhW-partf wni<o prorirIm ,"""",,,," __ m... 48 pct<enI 01"""' 

tblrd-ponyoctMr· 

~oI"""'I1IU ......... ..,....... .. a.slul.a.5 

aw ....... _ ... ?_ for Th< Wartbomr T"", CoepaItr~ T ..... 

'nb"matal W.r ........ m"1, .tUdI •• tubiodilryolIJTtC. .. -..II .. "'" 

OlE. ICE Ow Eutopt. [urn, ond LOI.Oron>rt. Spt<,fin!lr. 0.5 lLank ... 1ln 

IX 

~ 

fUlu-m.t<d pafII1<ft~ fot ,ht CIt and It[ Ow [wop<. and ,rtdil 

,.,.......n .. for TIll'. Eo, .. , and Lei Ul",mn. Sadttnt .. "CU 

a..k ptOridoo ~aI >nil fundinl,lli<im:ieo b tht1< HIU, and onok 

~ Th<1iolwill!.""'TlWilponinlatly--... ... ilaIlow>~ 

IorOTC<mIit ............ "'"'*' ... c:okuIaIroI >ad bibImIIr......t ...... ~ ..... dittnIf ""-'td .............. a.s a..t.. 

~EllldIllalIlle .. ~II .... IIa.sBriMdd .... CIIIaI~ 

hntif ~ « .. troa' hal SJSIIII 

A fldurt 01« ~ dOorpoon to as Sank ot1!'lir,"finntly irIcruIt 

1tIIkm<n' rUI; and liquidity ............ in 'ht FX rrw\rt In ,y,n. tht1< 

.............. ....,,_. IX...n.. "''''"it!' and "'" lIowofl""", In U.s. &lid 

b,;p SnaMalIlWi:ttl..:l .... 1>roooI<r..........,.. 

)I""" tIT .... 01. failaRoi. JOIIs«nodiorapliror. ..... foKtioooioCoi 

Wa...l:.lnatltlO:ioa .. ,........,. ........... cmliIrioklO ............ 

.... __ • failurtol or -..-~ .. W aw...,. modl in I 

~ 1O~ ... ~and thrrri:n~ .. oJK ... 'm!ilntl 

to .... rx owt.n. a.n.... ru a..k io ,10<" p!Iral ...... i-au"rtncy ... lkmenI 

Iy>l<m th>t ,litoi ... ", rx ... ,l<Iotn\ rUt. "'''''' aD "'*" <umncia.1 /a,,,, .. of Of Ionr-<mo dtSnlpbort to W a..k -":I ,<qui ....... bm ..... tI. rx 

InrUa<\>ODO tItrouc'> _ ... ., ... tInDnto....,.......... iDcbIinc bilotml 

r-tmlemeoI.lW!<nI_1tIIl<-. >ltd _-...a:-.c.A __ .. _ ... l'..w.....,........,n>uId_ • ..-......J_ 

oI_ntt .. ""'FX-tt1dai!y.A> ................ -.w-...,. _ ",,'IOCII __ 
214 


npmtn« a ,oQdc" incrtu< ill >C1lltn>m, risk 1Iw ""Y"Inifi<lIU!y<=«i 

(()Un'"P""I'I<ltI<mrn, limi::< >C1 byWir iIIl<mlI ,min riI),~, 

flllKtion and m:l)' ha~ lOoudIknl)' and dm<i<2Il)' r«lLK< ""'ir lr>din! .ru. .. , 

10 II>!' uncitr prucInu ""' ........ "Y .... ll<m<o, bmiu. A""""ti>t/)'. IIItIIlbm 

...:JukI nmI .. roll«! Wr """n" <I coIla!n'aI f ..... ""'n"'l""';"« II<ttpI 

si(!lifi<anll)' hieber 10><1>" eownrrp>r<yo:rtdi' rW; ,hac m:l)'.=«Ilh<ir C2fIll>l 

A ruluction ill ~f ~ _01 mh". "'" fk",o<lfun,h bel"""n CLS 

Sank panicipanll. inWiing """'..,it wi fort,," bank>, i"""""",,,1 ''''''pan .... and IlOIIlllwlrial~. and """lei impair fX .... rkt:! liquicli!)', .... fX 

i""","",,,,, at< typitallycoruiclo>ed put of"'" ohort-«rm in'ernation>IlDIlr'I<J' 

mark!. a ruluction ofFX nwt.IliquKlity_IeI...-iowIy di~ ,,,,...bot<Ic1 

funding _kll. .... . muh. "'" irnpoc'of. fai"',. of« lotog.ltfl'Il disnrplion 

IOCLS IWIk owl<! b< I<k in U.s, wi r~ fu ... "w 1Dlrkn .... ,..n AI in 

"'" btoadtr tcOI'IOm)'. Fun ...... ill "'" abstna of PVP >C111,""<nL' fai"',.. of 

'n FX "'a ... ' porticipan' """lei ""P'* "",n""P""~ .. ",nifi<>nt cr«lit '''' 

1Iw rould bd .. additional f.ilum d..« an"""'" d. confidrncc in. OIhe, 

FX mark, ~lI. In oddihon, 11K .... CLS IWIk 1<100 <nrua<tioru 

bodI dirta!)' wi indirt<tly 10< thous>n<b of iru.tilu<iom, inWiinf ........ 

im<1<m<nl<1llllpllli<>. and nortli"",,,w <CII"poralioou. ,he I"ai"',. of OS 

IWIk « • disrupcion d. it< ........... , 1<fYi< .. 00IlIcI ha~ • oippIing ""poe, OIl 

in,.,."atioouI trod< "';,h od,..,.,.lt(~ tff«~ OIl "'" rnI.."...,..., and 

U.s. 6nanti&l oWiliIy. 

!n ,he oboon« d.CLS Bonkand mullil .. ,nol n<I fundin!in "'" FX mark~ 

meml>< .. _lei I>< .-.quirt<! lO prooid< odditionlllliquiclily to rnmpl<l< 

.. lIItm<nl,lh<r-dIr ,"" ...... ngliquiclilydtmand.OII IDlrkn pmkipanll. .... ""h 

fundin! 1lUf0000r in "' ...... "",rtn ,ondo",,, and "'lui,.. '""II to 1>l1 •• nd 

ohttnatiYo >OIIf<tI" liquidity u ohor1 DOC,,", Ih<rt ,,,,,lei be "",ilit .. , .... iclily 

diuup<iom to Iinm<W mat\tII, In puUcutar. ~fI« "'" U.S, doIbr "'""""" r", , oubountial ptftt'lugt <I...ultmtnl nIu< " CLS Ibnl, d<m1nd, 10< additional 

U.s. doIln llquidlty mrr be """"nUl! and conlel "'" • ",n,!kant i",poe' OIl 

major U.S,·bud banb and Ibc U.S, Iinm<W '1""'10. AIIwlti,,! Iha, """,be .. 

........ ., bilmral (I"OSI1<I1Icmm, ill "'" abotnot ofCLS Ibnl, llquidily....m 

....,."Jd ""' ...... ....,,"ntiaUy. _ pro<idm!.1IOIhtt in"n .... lOr ''"''' ...... 

<leLS !lonk '" oij;ni!kanllyr«luc' Ibcir tndln,.ru.ityand "'" Ba.- offund, 

btl ....... as !lonk ponicipanll. 

In addition "'0 reduction In FX 10m... >Ctirity and 'n I....,...... in liquodi,y 

dmwIds. Ibc abttnu ofas!look _lei «qUi" 1Iw """.p','p ... , ....... " 

Ofrnl!""'""abs<orb .. additional II=«< do"" """me of795,ooo ....... A 

kId"'n iac ..... in ohe """"" of "",,·PI'P tnruaetioou. ",-""" mrr muh 

in im_1< opm<ioolll ,haJlcrlg<> d ..... apo<ity <OnllJtilltl, P"""",wl)' 

pm~I"iI", ';pii!kant """ ... offX """",Iiono f""" l<l1lin, In . UlD<Iy 

falhion and thmbr ....-.i"C !iquidilyrisk.1l'IOt'I P""'icipao" and Ihfir 

coun ....... rtios. further. to "'" """", thou f,iluft <I .. diotuption ,. ,he 

functioning ofas !look .-..lIhlln "",,·P\'P ... Il<m<n~ "'" ,,!<von! RTGS 

I)" .... _1eI .. ptrion<. ,oddfn i"" ....... in ""' ........ and ,:oJ ... of 

i""n><tionol<llltd, In "'" Unilt<l s.. ... , fortumplt. ,he ftdwi,. lUnd> Strric< 

......." , .• 
215 


.nd CUIPS l1li)' br mjUir«l .. aboorb • ...,ili<'n'amotIn,ln oM ...... 1 u.s. 

doll., p» .... , aairilyd.lly. 

CLS Bonk .110 p""ide> I<w.m.", 01 poytntIII> .. tl,,,, \0 ,redit 6ni>..u... ,nd f)( 

IUtum lor mukipl< t"}Ili>. both domali< lind Iorcip 1"htO< /)IU. bnxfn from 

fundlnJ <ffieicnrioo lind J.tnichKh,ougiI pro«IIinl by ""Ii", at (l5 Bonk >nd, 

in tho >bon ....... tht ahson« otCLS Bonk wwId Ix di.....,.,... \0 IheI< F)olU, • 

.. thq"",,1d 11m \0 r<fWl< P"JU'<"" <lin 'Ilt .. IMt!, RTCS I)WI'I'II. 8w:d on 

d ... compiled by ,lie 1"<dmI R...,... BoanI. tho Us.-b:Hod membmot(l5 Bonk 

'rulIo ...... bm"'....raJ o!htr /)IU~ In tht .... , that CLS Bonk ~ UfI.>bIo .. """'*" ><IlI<mom.nd th<s. m<mbm III< IIJUbI< .. obuin lirndy ""1rnIrnt 01 

thti, MmtI'I' in .. ",c';or" 'h~ .ittrnath .......... n' lIT.ngtm< ..... liquo:lity 

disruptionl '"'-I" I>< tnrumilt«! \0 o!htr try OID.and mar\no. 

Fif...,..., •• lotwt ....... d1naptlon 10'''' FMU. In tht ..... "" lhat.n "P'"",oonaI. 

... .to<. '" funcli"~ ..... '" ,,,,,It> in, dton<..,. diltuplioo to CLS Bonk. 

CLS Bank wwId I>< rtqIIln:d \0 dtf« IOniew-,". luIIII)' I>< ahIo '" e<>mpI<t< 

I<llIttoctlt II<fort lht end oflht 1tUitn>tn, dar. Sou.lc-m<nt. howove<. ~ l>e->riIr 

dop<ndm'on lht ,Io.i"l ...... o(lht RTGS.,.,..... UI<d '" ,....,oft< f"ods '" 

and f""" n><mbm. muhi-<wrtllC)' II«CIIUI" at CLS Bon. ><0:1...,. r"l.o. .. 

.. ~ of tho "I"'"'linl bounof «tUin RTGS >yII<rIII on .m~h Cl.5 Bon. 

i> d<p<to:I<nc forthc-r. CLS Bonk '''r...,I1)".,.; ...... 'hat tht Iarp lint!< 

1tlIIn:rJnt, ..... "" pqin fallu,.. roo """,of iu >w<r" impac< ... lht 

.... I<mrnt 0(1nrU><"liOrla< CLS Bank) _Id tnult in Jlisnifnn' ~ 

ot .... nlXlion'"'" ... ~i,,«- A>. """"" n><mbm wwId nrnI ", ... tIe th<s. ,....,...Iioru on • """" PI'P bam _ 0/ a.s Banl. lhtttt!f I ......... ng lht 

...... n'oI .. "nn.:r. risk in tht FX ... .to< oi(nirontlf. ln. porirl failurt 

~, .. cion. 1Ioonn".",,,,,,", """"ben _Id ,..c&. ad<liliorW pay-in "lb. ~"~h. 

If ... ~ """Id oi(niliclntly reduce tho: ...... ofUI .... '1ed ""''''''ion> a< CLS Bollk. 

In tht ....... ot,!utt <iog!e ... rnb<f dtfou~. CLS 1Ia!t, ",,,Id """ ad<l~ionaJ 

parin uu. .. "", ,II< .. .min, """.1><,. ",fund oMi' ..... 1 liquidity" A> ,,,,h 

fund,,,, l1li)'0«\11 in .. mo«! awI:rc cotIdilioru 1IId Tt<jui .. >«<SI '" Iarg. ond 

al/trnlln. _ 0( liqu>1ity a< sbon noti<o. thm could br lifnilinnt liqoidiry 

dUrupricns \0 fi ..... ilI mut.lO. Further ... ,-,:oddition>1 fundi", will ""ur 

in U.s. doihn ""'" U.s. '"'"Ito" .... ,Iw:d (btI_" ~ ..... and 6 un. IT), tht 

UnpocI 011 tht finanrilll)"l .... afth< Unit«! Swrscould be ll'IOf"<"""'" 

Tho p<>lliqllidiry that Cl.S Bat11. <wid rtqIIi,.. from iu o:mmlll«lliqoKlil) 

prv>-idon ~ oqun'llon! '" tht mnimum ASP!.. """"·idod!1w ., <ll<rtIlC)' 

I>&ir<u" "" ",IT"",,,! to mill(>'< owUI r"IIt.. (l.'; Bonl·, ".,,,oat«! lino of 

liqoidiry>hould bt .. ffiritn,IorCIS Bon, ","'JSfy its p»OOIobIiptiono In 

tht ~ .. """Y . ....." JI",1>cc fal"~ """"'" ~ .liquKl., prOOd<r in 

tht rtqIIir«l <I1fmIC.")". I~. if additional .-...nbtn fail '" fully ulisfy tht 

oMlUonal P"f'n <illI that r...am.o thtorigin>i pari" falktr<. then Cl.S Bonk·, 

liq"idiry....o..lII>y=«<i i""""mllt«! liquidilflineo.A!. "",h. a.s 8>n' m.,-

Il< on'" "' ........ p»'OIII obIiplioN, in who:h (21< it """'-"l ,..,. .. <qui"I-aItn, 

Im<JWIl in ... :Wmal< <I1fmIC.")" and tnnsftr its liquidi,!, risk '" its n><mbm. 

_ """oe" • ....., ...... 
216 


'"""" CLS l\anlillho "* pwi nwfti..turrm<ylltltl<mtt!l'l"""' 01 ill lind. offtring 

boIh liquidityoaring> and Kltlement riIt. miliga"",:I<nm alloujorcurrm<in. 

A f.,Iu .. " orlont<""" disruption .. CLS lI>nk """Id ""~ n<g>tM df«u on 

boIh iullltlllb<n:md Ih< FX mrict. ltS"hine in lip1ilic1tll <redit,liquidily. 

and op<I2IionlI dioruptioD>. n.... dfO<!l ...... 1d bUly spiU ..... in .. U.S..od 

pow fin.nti.l nwteu," the rx nurte, ~ o:rilOI '" 1II«Iinf~ 

fundin( ..... ' ol pot..l fin>ncioI instilutiono. Futlhcf.!'\'P.....",.,'" in "'" FX 

awktt C(IIltin ... to he ~ t.,.,mir>I banks, ma:t.n rquWon..oo:I O<h<f 

authorities in onIa .. ..0.",. ICldement riIk. Should ,he V""th in "'" ru.... 

..... ><JIumnl<ltl<d brCLS IIonk ptnist. porlul"d .. to "'" conti.oed IfOWIh of 

!he rx mm..:md ,he loclwioo ol>ddillorul ponicipal11>, 1<1<1m><nlcunmcirs, 

and I<IlImItnl..-. as 1Iln.1<illwuOle an ..... "..... domi""" role in ,he 

rx nwtet.ln !he >bien« ol~ ............ 1ITOl'lg<m<nll oIIm", both 

.. ttI.m<nt rilk "' ........ and Iiquld'rr"';ngo """"'. ~,"ibr ... of F).: ~~" 

and cumn<its. CLS Bank', .. puISion >riU t<du« 0'I..mi riIk but...,,,, •• ,,,,,,,,,, lh< rill! :wocial<d with • p<ttnb>J d......,..,. .. or f.ilu ... 0( CLS a..,l.. 

!l.ued on !he oigt\ifocanl ........ "id --. <i1'X mule, ><tioity OCItlod .. u.s 

Ron •• tho: .. l<II>iYc nn-a oifi!WICial and nonfinonnal irutlllllioru "'" d<pmd 

on CLS II>nk, th< d<prnd<n<. of otbtrcriti<al mu."" as a.",.,effta Itlllml<1\t, and ,lit bel; of 1Uborit"''' oII<ring both I<Illrn>ml riot rnitiption and 

liquidity .... inr.!he Council has ......... ioed dw CLS Ban'shou!d he ~ 

... .,.,.mbllyiml'ofUllt fl,tU pu,.... .. ., ink VllI .hl>< Me 

C. OIieago Mercantile Exchange, Inc. 

Descrip!Ioo of a'Iicago MeftarTIie ~ lie. 

OlE is •• ubsidiarJ' orCME Group. In<. [OlE GIwp),' public ,ompony. C.\tE. 

thrwCh it> U.s. dtuing divisioo ((..\lE Clnri"fl, prvride> ti<ari,,!...,.m 

'-"""'g lu,,,,,, """"""""" merdwlI> (-.hi<h ore induck<I in the dofinit"", of 

financial instill",on in 5t<tioo 8(l'ot the Ac\l ..... ~ r .. 1Ift> '(J"".i>sioa ...... Iwru FC.\l~ and CU>t<iIll<It. n....~. OIE ...... I>!he dtlinilion orF).1U 

"'()UlinT~I<V1I1." 

OlE il.",. of!he lui'" centr>l «Krn"rput!' <l<>rinC ...... 'ic .. prooidtn in 

!he -W. ,1<ari"l96 ptfml' ot,he trW« 1lWi.<, [Of U.S. MUT<>, "P'io .... 

on r .. u .... and romlDO<!ity optioou." c.\l[cl<o.n all "",,,.,,:!. tr>d<d '"' !II< 

dt>ignm<l con,ract ",.ohl> (OC\l,)" .......... by OlE Croup. .. ",..,. ,he {lllago 

M<rnntil< !'.ldti/lgt (OlE DOl). &oord otTr>d< oflh< QlyotCllic>go.lnc. 

(CBOT).!he NcwYOfk M=>nol< f...:h>nt< "'MEX). and !he Commodity 

E><t>antt. loc (COMEX). In :odditiorl. C.\lE o/kn d .. ri"! ......... for ,I>< p:.bol 

OTC owtn "''''''!h, ..",. ... C).IE ClwPort. 

OlE p!'O'I'ides =(nI <OIln!<rp>l1J d .. ri"l ...... i<es for ["' ..... <lpIiom •• nd 

_po "'" an b<.1<11 by owtn partitip>nt> for ......... , orpurpoon. I"r<>d",,, 

d ... r<d byCME ""'" fi'om rom_it, [.,urn, ,,"~h.r< ...... '101 to ~ 

d~ ,nd liquidity for ,I>< O1'Id<d)i"l commoditin. to inl<ml tal< .. "", 

rIRS).nd ",uityindtx """t>C". which can b<....r .. hedgno< H,n"" ... n!> lop_A . 
217 


,hem .. "", C.\It <I .... the 4r!nt and ""'" hquid I",u", 'OOlr><U bu.d M 

the Stond1r<ll< """". (Sl-fl500 lndu, Eunxlolbf, U.s. Trmu'l' "",umi<!, 

,rw! on<rJY proc!"'u, .. -..dl .. IRS. OlE Fu"";o." .. the ,".nral "",n,tIJIl'IY 

'" mm.,l parti<ipuI~ one! d<an • I.&'V "umb<r d t~"""tion, ....,.."....t .". 

signi6nnt <>:>l1.&t<nJ, As • cmrrn WW1l<fJW\l, 01 E nand> bot...." ill "",m'om 

for ....-yin .... """ d.attd, "";"!l"lhe .. I.". "'mrJ' buy«..,d the buy« to 

"""'1 oelln-. In offrc~ M<IlIli<n """,ito .. OlE', <ltd;. For ach other', cmI .. 

Whilo lhe purpoo< of the "",meu "",ltd .". C.\IE CUI "''Y, .U ""h conln<l> 

ioitially .. poIO the pani<ipanu on i>olh lid<> d lhe wnln<l1O ,rtdi, riot. 

fir , ... ~nlOtl"l! 10 .. ,h """'l<fJW\l <hal''''' ocr... lido dlhe C{IIIlr><l will 

Ii< fulfin.d. OlE .. ~ ... <tt\~ """'itrpl'IY 10 m~ip<o ""h rUb. OlE 

<ono<~ martin From uch dn.cioorine mem'om 10 oINt ,Ii< ri<b<lf. ,loan"J 

m<m!J<r', c.>!ttr>CU ,nd .... ""'1'" ofb .. ,.,...n d <o<h rtI<IIlbc-r\conlr><<>' 

0.. """y. C\!,. ,Ir", ""', ...... with • ""''''''I ...... in , .... ,rillion, <If U.S 

Golla" ,tid mainwns<Oll ... raldepo,i" ...... ging in the biUion, of U.s. dollan. 

ArIalysi$ of Srstenic: mp:,rtara 

AI AggtegaU IJO'"ttary value of trarosacIiorG processed by CME 

N.mb<'of' ......... i .... proc<fO<d. dtutd OJ 1t"1..!.lo :!OIl, Ol[ dtattd an 

»=1:' daily JI"" """me in the milliM. ofFuw .... and opUo<II "",lr><U ond 

......,. daily notional """",nU in the million, dU.S, dollars for OTC CDS and 

ore usn IRS; in tilt million. <If .. roo I'or OTe """ lRS;.nd in the milt;..,. 

dpound ...m"JI'orOTe CSP IRS. OlEdemd . pnk dailrl"'" _ in 

lhe mill;"" of <IlIIlr><~one! P"~ daily ootiMat,,,,,,,,n,, in lhe billion! dU.s, 

dolI&n ofOTC CDS ond OTC USC IRS, in ,ho bill;"" d euro> ofOTe""" IRS. 

and in lhe boll;"" of pound ... rline ofOTe CBr IRS, 

I·u... of lnllA<bo<IO~, durtd Of SOItt..!.ln :!OIl, OlE ,iru<d 

"",,,'aClS wi\h an......,. dailr""" -o:..at ...... in til< ui!l;"" of U.S. doIWl 

,nd ....... '" daily ~"'" no<ionaI ~ in lhe mi.llion!of U.s. GoIlandOTC 

CDS; mill ..... oru,S. dollan ofOTe usn IRS; miUion.d euroo orOTC .... 

IRS: and million, dpw"'" >!..-tins ofOTeCBI' IRS, Tho p'u daily""" nIuo 

orthe ,onlr><U OlE ,loami .... in ,ho trill ..... orU.s. dollar> I'orMu .... UId 

op<ion~ billions dU.S. doIhn I'or OTC CDS, billion! IllUS. GoIlan FOf 0Te 

USC IRS. billions of tufOlI'or OTC .. to IRS, and billion> III pwod >!..-tin! For 

OTCGBP1RS. 

1',1 .. of Oih<, 6 .. ociaIlIovs. ForalllillOd dorlva,iI-.., """opt <I .. rtd OIe IRS 

and demd OTC COS,lhe.....-.g< daily lIootd luoo. (r> .... ~ dailynrim:>n 

martin pIw 'h>n~ In .....-.g< daily ioltial ""'TnJ in:lOll .... in lh< billion. 

IllUS. dcOlan, w~h. pnk in tho billion.d U.S. dollan on AuS""!. 2011. Tho 

p'.k daily.,.,.., in ............. in the ",ill;"', dU.S. dollu. MAug"" 2S. :!Oil. 

8) ~ expijSI.n 01 CME 10 its COIIIlerparties 

Crtdi, "'I"'""f'OS. Tho period""" 'W'P'< \"lluo of.n coIIa ..... 1 posted "of 

0.. ....... ,." :1011, .... in lhe billions dU.S. doIIan. On 0.. ....... 30, :!OU, 

,ho mtIIlb<r I""'l>l'flund "'jUimtl<ltl .. "", .II'h .... S ..... 'l'fund> .... U.S 

billion. OlE dnign.otd capital om;m tho I""'nIY fWlds .... $300.0 mmion, 

_ .. ,,"OCJI. __ 

-

l ," • 'l! -! tP'!· ;:- 1'1. .Iii" IlH 1\ ,. ;:; go § -;;-1 = Ii' i iN! QQ! - [ .• 11 .; , '" §' 5- <"> 1 i i f -";:; aa.a .f:Si ' - '-1 ,:;:.

- 'r H:;:1 ! • 'I . , • .; t ; s. . 31 i '" . '" r.:: e:]. s- - .. A.. = " iI";:lS< i. . IJ-h 19: } h[ J" i! I; • j H' a. Hl ;: , j . {"f" 

-'8 .- fa . ii. > I! 5 i 2. t 

[ t d •• j- :;:1'Hi SH"II,S li f' !=!=}!l if.8:":!gll1, 1<.e:1I, if" ; oil "'- '. t ,-"0" ; I ... "':! i I' :8 · , .. .:i --,J: .i 2, t J i!" 1 HF fi g. 8" = ." .. [ .. ' H,! I ill, Q s'-1 . 11 '. •• 1 J'"t i p,tJ ,. . !}! i J ,n e f" q "1; •• - • °fH!H 9[1 :ols,;,S: P. -1'I! • ,In- l"'l" nE - . iJ . f ii. '11' . iI":! "j H t t :i II, I . - 2 , . - a S. 3 • • 1 t ;:"!'" .,. • • 8: ,,' <iii .- ." t . " 'i 5- s :! - <:; [ i! ;::;t" 1 " lhl , < , , [E · , .. .", oil'S' :' yo \I • !<" !i U 

I 

• 

0- - . 1 s· i' 2, g,O:; 1 t ,- 5 ' ...: Ii ,. 'Et" fU 11' lj' g:" l!f - · i. • • i , , if __ R. ,q-t [i.} 5' _ 1l ' op i- 2<[t ! ' .81 F if ,$ 0-- i ' , . - . HhJ I:l ;:: .- q 3 ii' a,., i":l f l1! , rn 'n P "oil t: - iI •• - , j 

. fit ..., .\1 r - If !I, , - -., qr t ' , 2 g [ '-<f .. ,. h'- - ," J s·"; P !If i • !-- i. [ H t ,"' !.f t i;; 2 i"'" '" H II' i - .. [ 9. ;;: 8 ":I its-If]'!: • • " 2 5: " I - • 3 g li'r H 1d :.- .... ... .q. 'i "" i ;;- 1 ' • 2' i 2"; l . - Q .n •. I .. = .l! S· " " i" [ f it [ if g r e: !( !( g n if ":I .. - - - . li' i <> g c: '" I!. , , "r in. i!::s- '. , I- .!f < I 0_ f - . .1. l I • i • • .; - '/2 l L Ii. j( _. !l: . , t;; if Q _ r , a. it B • • 5' fi f , , - • I • , nq L .. " I ..• • •• 1- , < 5 1 , . - .. ! - i." 

, " ;;; • ;< '" !I-!-
220 


Oruin;.ou ... mI",. th< <OW ond opmtioI'lal riW 01 <I<>n"l ,nd ... ,ltmto, "'"""I mu~ipI< m>.<i<, panirip>..~ bf m~iptinl ooo.'''P'''Yrisl1<ltli"~ 

Of ".."i"l panicipln,.· obIipuon" Of P"""'d'''I o<h<r d .... i"! I'm.., Of 

.rrtl1grn>n>~ th>,mullJ>.li", Of 'r>"lfor,mli, risk among panicipan'" CM! 

hou ... OIl< oI,ho brJ<>l ,lnr1T1J11ouon-. 

TIlt prim,ry lriW'rof, dd ... ~ bf OtE .....Jd b., dd,uh bf "". Of IIIOf< 

tlnrin! momb." with .. lr>O«Iin,ryloo ... In "" ... 01 OtEi ""bul' "'''''''''''. 

1111,1< Io<h, M,ul, COIJId <OIIC<~>hIy ..... 1' from tircumlUnt .. Iot>l'o 

"""" memb<n. _""I,uk KonIDo """Id mor, jiWr b< wooaI«I with , 

d;,n,pcioo 10 th< "",ktu"..... &<"Orally. indtOling K'rurio< ""h .. hisloriGrJir 

.. "~""lin.ry ooIatilitr. "ll<1l'I< ,han", 10 normal pritt '''''.1>, ...... and ><Ill. 

,edt>uioo, in lOqu\ditf. 

An .1rmu,,,,, '. 01. d<f.uh bfCMf. _Id ho .IoHu", bj' .... 01 .. 

""Ie ..... , bank>, in particutor it> ronctntrotioo baM b<nuo<' ,ub.wnill 

portlOl\ oIOtE', finantiolmourm ... ...n .. 1"- 01. ill m<rnl><n .... 00 

<IepotiI ><lib Ih<>< bank n.u.. Oflhoo< fi"'ntw tnout<n .,:to '0 IUddo"Iy 

bttome """,,,,lobIt. C\I E', opo .. 1ioos would ho ><I>"",Iy oifKttd 10 , 

«I<'lIiokrobl<"'<rIl 

I" addition •• OlE d<f:mll.".,.Jd muh If{)!ll • lailu", 10 ,"",",,," 'rontrally 

_nd f,n'OOal tondition. ,oth ... lailu", (0 ,"""".lin ,ullid"" "pi!>! oroth<r 

IilWl<w """,,«'I >gar"" ib fCD<n.I bwi".,. risk .. "aiM .... ruk 01 ...... 

""". tI •• ri"l """,b., dtf",1u, 

.... d,1C\Wr:d pm..,.,..,.. it.....,..ld ho imp,..uinl in Ih< short ltrII'I. for anc<h<r 

d .. ringhoust to lObsI~ult fO!' eM!, MO«<II'<""'''' ,f....., tn...ruon, >OW< 

r<pI>r:td orr. bitottnl bud, if 'M marU' had """'" ~1K't tho IndtI """ 

...... i,ttd 10 C\lE, ~"",,,leu _ tht orilin>1 "",""".,.,.Iin """,Id molU" 

,II< qinal bili'ml'nrua<' ..... In addition, it cookI ho diffi,,,l, 01' im_ibIt 

10 "'.''''0 th< <Jri!in>1 ,ruuaottioru bitoltr>11y iflhty .~" m><Ie orr • ,rad'"g 

pIa,form, a.nu.. m"~,l>!t .. 1 IItlli,,! """' .. til< "1""'''< D., <lnnog_', 

mombtn to.ar:h OIbI1, tht ........ iOI oIposi'''''' ,..."Iu"l I""". C.\IE 

dtf,.b """Id immediately in, ...... 'Q'"lltrparty ri>k, _hl<h C<IUId h ... ..no... 

""""'I""1K<I1Or ,""rUI participon ... iotAA:!;"Z .. p""'''' IOc,ed~ ri .... iItd 

demiItd IOrtol,,",r:ti. 

fur,lItrmono ... "i"l J>I'I"'dt<. maHer ho .. r., in th>' Ih< mlrJi" rtqu,rttllO 

<<IIb,.,..1iz< "'" "pow'" of , ?O"foho ;, ~ntr>l1y o:no.ller tho.o <oIto,m,Ii!in! 

ito in<ImdIW oompo<><n ... b«auIt Ih< pr~ .. oI,ho portfolio', """P"""''' 

.'" of"" <orrtlutd, Ctntnl """""'J>OI n<t1lng II """" powtrful, as ""h 

IlItiIIbtr',oOj;g'1ioN to "'''1",11<, """,b<r atn ho ntll«I1nd ofIstt." 

,~" in th< bil> .. r1I m.rUI, il A _', .... , to ... """u. <'1-•• long "pol"" 10 B. A _Id ')'pK'.I~' ."," ''''''0 1I' ..... ,ion ~,"'. short "pow'" to .nothor 

cwnK'l'pafly,'''' C, Thi' """Id o(f ... A',1IIOrltt riok, but would ~ A ,,;,h 

<rodit "'" '" ""h orB iItd C, In • ,Ie,rod mltkr., Of A has ,Ie,mI. """""Uoo 

,,;,h .Iong "P""'''' and omtn '0100 'hred """ .... 'ion >rith an off ... It"ll 

-'- -".t,,'- e 5 

.f'l 

.. !l :.l 

11 _. !tl if §. i 

tPH 

, .'" q'H 

, !I -it. , 

t!. f 

"'1 r I\: I! 

, ,1 • it 

.. .. 

! i \ i ' 

Ir " 

, .lh 

:: 

lin 

- . 

qn.n"· ,.... I! (I Ii 11 "t B 

. • } iil.3 ; . "' 

HPHiH 

! 

'. g l,t ihg o· 5 

a 

., 

-•. " -I! 

,[.Jqn "ii 

n-ni' ! 

.' , .. ,.,!d hi. ''''.''1 

'"!JoIj e'..;:f5l,1f 

l:i 1:- ,'.0' i • ' ·4 

S"il§!,!. i: 

if t IpT!ii 

h r' [l i <. 

§ E I! !'i 

i-Ji"Jfr 

9 '" S 

:i. J §: 

'1' - .; 

, -. i, "''' 

t 

-

j ; . II- 4- ;.. 

t..: 

- > , 

!Ii. 

l' , I. • • , , r 

h 

n 

p"!"? if 

"1 !"<'l < I HU ['<it i ",._litl , i"t'\ Ii. lO!. H' oii Ii: s. I l5: • H! ". • t 

Hp r i hl'HI -; Hi . ; if -I". , 'I! - .. -, -• 
222 


m<mbrn.nd th<i, ,,,,,,,,,,,," and <wldjtopardi" tht ordnly fun<lion,ns d 

0Ih0r oco. .. 01 ,I>: U.S. firuno:w m>rlc,,:u a "",*" 

"""'" Thr d>." ""';"'"«1 '" II>: Gwr>dl indb,. thll DIE proc ..... a sipilion, 

"""",. dhipdolb,...~1ut tr •• """"." "" • d>.ily bo!.i, For<rithl U,s. 

owt..t>. ~ Mo:no!<r. ~ io qu<>tion.bl< wh«I>:, 6nd i "l! ........ "u"' For CoIl K', 

prodo<u ~. viable ohon....,., oohruon, Arrordillllr,"'" II>: II>orttst cilluptioo 

dOlE <wid Oil/up! <I •• nn8 For. ,metydfutur .. and .pnoru tr1n>o<tioo. 

aod could rl!.ctMtJ fr< ... ,I>: fUiurn .nd optioru mltittt.1h<rrb)' <~tin, 

l;quidily.nd <r-.dn probi<mt in "'" U.S. fuiurnllllJl. .... Tho: loss of , .. ",I 

_"ttrplrtr <Inri,,! in tht prod",u CME dnn would ilKru<t collateral 

<Iomu>tI. "'p"""ntil.liy, Ittulto", in. cotrapondi,,! dnin of liq<OOitf. 

A (;.\IF. hilu", """Id.ho h>v<.n .. II ..... ""F"" onl"" diocOYnj', -.t.kh 

"",Id, in ' ..... Ioad to in<1F.n.", owt.." aod. oombttd i",ru<t in liquidity 

prtoIN ...... fin.lly, th< cotI,~ dfccld. C\lE W)u,. """Id impot< .. ..mal 

6,,.t~"1 ""'" "" C\t~-.d • .",,! "", .. brn . ,01 0Ih0r ",.rk<! p.rtid~n" (ouch 

.. ,uowm<n) and "",Id Ioo.l to i",.-....,j liquiclily&cmaodt and ,rtdit problem> 

"""" r",",",w "',,;'u'ionl."'f'<cWIy'- that Oft 11<,;" in ,lit ~", ...... nd 

opuon' =rUt>. 1I'ha< thno fi!tll'ol:'ial ",Mitutioru "'11<';'" '" multip!< U.s. 

... r\:.ru, ,hi .. """p,n of!«1-.1d _. broodor imp'" and,,, ,lit ... ,u" 

.. p<rinK. fT<""'" """. _Id ~1:rIy load to ioe,."", dnn>nd b ,«d". 

whICh would, in tum. bUly I .. d to Ins liquid"" Thuo. tht Gwoeil 1><1 ..... ,hat 

• lis" i m., ditruplion or bilur< of OlE ,,,,,Id h>v< • m>joe .m.n. impor' 

on tht U.S, filWlCW IlllI'Iru. tho ;"'»11<' .{whlCh would I>< .. orcrb>ttd "" 

tho ~ .. il<d AU""" d dnrillf alttrn.""" <umnu,- ""ilablo For lho pro<iO<" 

d",.-.d '" C,\tE, Act<>rding!y •• fail." 01 dioruptioo dC-\I£ -.Id lik<ly h .. . 

~"ilion, ddri ... ntal dk<, on tho liquiclilyd'ho f",urn aod optioru ... rk ... 

<kill''''' ........... ""kb irdud< l>rs< IinanriaI inlti,u<iocs,.nd <>the<..me. 

particip:onI1. which.."..)d, in ,um.1ilclr th ... "" "'" ... biliIJ dlht broad« U.s. 

financw "*"" foc tho: ....... , 1<1 OUt "".,Iht Gwncilho, dtIo-rm,noci tho, (M[ """'Id I>< 

tklipattd .. U!,.,.",><>Ily ,mporun' Hm 1""""'" to rolo VIII dlht Ace 

0" The Oepository 1M! Company 

~ of TIle Deposi!ory Trust Company 

DTC ~ ,n f")(U .. ddincd in Till< I'm d Iht A<l bouu>o it ~ OC"!,,,,"'"' ' 

muM>tmll)"",,, b Iht 1""1""" d doarillf.nd ""Iillf 1<C.rn.. tnruIk"""' 

lIDOCIIllinanriai "'''''", .... and b«"""" firwrialln"i,,,uoruaod OTe· 

OTC ....... litho: contnl 1OtUriti<s dc-positolJ' (CSDl For wbotalltWly all 

<OrJ"""" ."d municipal dobt and "I"ity >«uritit1 av>ibb!o For 'f1ilin! in 

the Uni,..! StottS. DTC iI. whoIIr """"" oubsidilrydDTCc.nd ~ g<n<t>lly 

admin~""d .. on indWl~ Ulilio,,,,, on >1-«><1 bolU. 
223 


OTC prIl'I'ideod<posilory..rom:tnd .......... icing fur • .ro. "'nv of imlrity 

typn , ... h as """"1 m.tI:.<! ,nlln1fTl<nt> M~I('), <quoin, .. ,mnt>. ""'to. 

rorp<nl< """ tnd ..,.... muni<ip>1 bond!, ~mrotnt ltCumin, ....... ked 

ltC.riI ... (,I.IIS). and ooIb.tmli«-d roortpV OOiigalioru. 01C', ""tociia( 

.. r>ices i",tude !he smktP'''II. rm><d ktpin~ root. mIrJ' "'mi<r. and pltda. 

of r«urilin ..... g iu panOdpanl. ore rubrt>J\ ... 11y dimin>.~ the ph)W1 

_ ... nlof r«uritirt by prariclin~ bcd-t"tltr)"<kIi>orin ofltCUriUn . .mich 

",nm the ownership of ItCUrit", d«tr<Jnnuy """'" !Jrok<T<la.im "" 

bclWI of thr Mn<rICW """'" of,be l«IU"it .... In :orIrI~"'" to p«>«W"I booLtn"l"""''''''' i,.dudinc Ii>:»< Ir.Ido> <karN th""'giI til< l'SCC. OTC prooide> 

......, .. to r«urnitt mum, ""h .. ..ain,ain,nc 'Ufttn' ""nmbip T«<Inh.nd 

d;"ributin~ i'"f"'<"u tolhartholdm. In !Oil. OlC ""int,med autody.nd 

,", •• "ship ruord, fur ....,.".imlldy $$9.5 trillion in ~ 

nTC h>, 'l'III1,,11 "....;.,. """,h.n • ..! 7! ~",ir<d """"'" """,btn. OTC 

mmbtn i",h..!r U.s. btoI:.e-HI<>lm, U.s. ond IIO<I-U.S. but ..... truSlrornpa";" 

(tndudi",. trW ''''pany II><inc limittel ~n). _U.S. CSIh, U.s. 

IO"t"'rotn.-.poruortd tnl<tpri><1 (CSEs) .• nd FRBW. OlC dim, participanu 

include -'" ofohe Iat!e" pnt< in Ih< world lry ...... r:itt. ond .dlld< oIIil ..... 

of1l of ,he ~ fur""ia1 ""'ino"" ~ ,. be p:.bally .,.. ... ici.lly 

impotu" •. " Tnrdeo thai OTC ... ,... roo- NSCC.rt .... l1l«I "" mo« th2lI50 

tr>r!ing ' ....... ~fI(lud;n~ ail U.s. ltCuritiel excbutgn ltId 01,.,..,11;'-' rnd,"Il 

IJ"'<DUI ond with othtr domatie and I"ortign dt>ri"ll 'Vr><;'" 

Analysisol Systenie ~ 

.AJ Aggregate 1IIOrIeWY. oI!rinsactions ~ Ifrtrr..9i ore In !Oil, orc proe<lS<d million. of~nlrJoecuritiel<i<lntriel and .. ,rIed 

",nraction> with. rubrt>J\tial ,u". " ....... dWyp>U voIu ....... 804.50! 

<kiM.- oodtn, parm .. " orden. and plod"" with.n .......... <hit)" , ..... 

rnn>a<tion ..us.. of appro:r:imlldy1573 bill;"'. Th. pe:r.i d>ily p>U numbn of 

",n ... tiom poomoe<Ilry ore in I'CII ..... U\ min"'" ""JUflt!!l. !Oil. In !On. 

til< ....... ge <hi.,. vou ,-.Ju,e of ",n!>COOn' J>"'«IS<d lry OTC .. ~, $573 billion, 

$.!~ billion of "'" "",I bei"l MMlr .od $23.4 bill"'" ollhe """I bei"!",h,,, 

I«Irrit .... The pe:r.i d>i1yp>U ,'1Iut oltt1nsa"""". proense<llry ore in !OIl 

.... "1"'1 to sm.s billion on "Uflw, n. !Oil. 

Tht ...... 'IIf"PIC ,red" bab.rr<. pUll to participatlU ... ~uh of"'" d.,.-. 

I<tti<m<ntactivity", the er.d-d-<by~ OTC-I>SCC "',ltroen, .... <quai 10 $32.8 bill;'" in :!GII."';!h >]><>k aa"l''' ,redil b:ob.n<. 1'"11OOt1 of 

S1,u binion "" Augurll. toll. Tht..molt d.ilynlu< o/"I<hnlul<d P'l_n~ 

of dMtknd ond I"''''ipal and ;n«f<l1 (1'&1) payrrwnud ... on DTC-digrble 

1tCUri!'" in !Oil nr SUll billion. Tht peak dailyvalu< of""" 1'&1 P'l-menu in 

2O1l "'" 141.0 billion. 

8) ~ upoart OIl Ole to ib coonterparIies 

OTt ir the ",,,nJ J«\rntits deposi1O<j' fur til< UnJt<d Stall1 . od i, ~pOI"ibIe 

fur ,he ..r'ke<)ro"l, <UIIIldy, and «Iu,n ownmhip rtCO<d>of SM.I trilhon of 

..... titi .... ofDe<e-mber ,I. 1'C1l.'" ofIl« ... bn $l. 2011. lOUi """ribtrlion, 

10 ore', putiopa"tr fund "",,1«1 appro:r:,rnatdy Sl.16 bill"",. Tht paltinpanu 

_ .. ,,'socu __ 
224 


fuod;' ,,-.ll>blt to«tuft paniClpanu' obIip<iof> •• od muin liobitit ... o(DTC. 

Ihould thq occur. ""h .. """" • panicipam f>ih to perlorm "'Iuoted ~I 

Of >«Uritindc1i'1<ryobligotioru. DTC'. porticipo"U fund 'upp<MU the d • ......, • 

• nd ","""'nl 0( o,ubmnUal poniof> o(.u <:OrJKI'>" and II'IlInicipal dtbo., 

"Iuily >«uriOO, AIlS • ..m."gt-lraded fundo (rTF.l. and )l Mb ..... ilable r... 

U>dilill in the United Stat<s 

DTC <lIl<tld. intnday 'mli' to iu panidp."u br allowing them to "- "" 

fund. debi, balanc ...... In,h htIp> to f><ilita" the I<ll!nntno """ .... Thne "" 

ckbiu Of< upped "0 ", .. imum 0($1.8 billiof> ptr Itgal ... tity and $j billion ptr 

aflil .. ted Wnityo(~ipal1u. nUOIIIh the ",ioo.a pro<e»tO doo<ribed he". 

DTC "'Iu, .... 11 """1><1",,,, to b< fuUrrollotmlitt<! 'of iu pmid" .. u and 

Ih<rrl= {~\~h>t at Risk (I~Jl "'" to.mto ........ ..,.,.. 

nw.', liquittiry """"""".., limnrd to. rommitted.lt'tllmI Ii"" 0( <mlit . nd 

tho wht< 0( ....... hdd in ,t.. fIOtIi<ip>nu fund-inrludinc <.ruin 011<1, 0(,1It 

dcfauhlf1 ~iputl t..itt in >nticipation of I<ltimttnc DTC~ lirIt of' ...... 

.... bliWd..-itl1 0 SJ'ndic>te 0('1 bonb, toUI<d $1.9 bilbon .. ofDc<tmbtr JI, 

2011. ore.1so lIIIin .. ined uncommitted , .... ~ liM< toWing ClftSl!lO milliof> 

with 0 pmicipant to IlII'P"" Canadian .... tltmtnt during 2(l11. Furtht.-,' $50 

milliort ohared """",,mi,ted credit Ii,.. with 1o.>CC:lI'Id rotc ;, nuintOintd willi 

• panicipant to "'PI"'" pottmiaI shon-<mnop","ilill "'" roquirtmtnu. In 2(l11. 

the pn\; liquid"r<llpo>lll< to'lins\< affibated farnilyof "'"~ ..... $j 

billion. wItXh;, the .... itnum ... debt, ~mit pmrtitted for "'1p>rtit:ipon, bmity. 

DTC ru~ rtqttir< .och <>poou, .. \0 be fully coi~ized in .. ,b i"\UIX<. 

Clllelationslip$, Inter~ or otI'Iei II!era:Iilns or OTe willi OWl FMIJ$ or 

payment, d~ or senIemerlt ~ 

DIC· ....... ..,.,. Ind the <"~, IIIlri.<t """'utt for>t<t.tnu.. tnd,nl 

and <I<:Irin,""""" siCniftCant "U,rdep<!IIIcnr< bctwm:l mc and ,"he. 

nt U~ .... tl<m ... 1 bon ... dnri", tnmbm, <tedi, f><ihq' kndtn. CUll<tdilns. 

"",bon!",,""'""".,..,"i", .. tilieo. and pri<ing ,=Ion. fat ... mple.l\SCCwhich pro<idu,ltu>n«.l<tIk""" .. ond annal "",nl<rpartr><r<i<n for """,Iy 

all broktr.-.,Ur tqllilr >lid corporm and ",uoiopal Gtbt tt>dn txC(IJted 

on mojo< U.s. ncbong<> and..oo tqttity tnc!iog l't""........li<I "" >II inttrface 

with DTC to .... '" obligation> .... the book .... ''Y ........... ' of >«Uritin. 

n"OIIgho.n the...,.. the <Itbiu and , .... iU in. DTC participant· ..... '!nntno 

""""n'lI' netted 10 QIruln<, at 'ny time, ,he ... <Itbit bola"", «11<1 credit 

bllln« for ,t.. >«CIIn" At tn<ktf.<!ay .... tkmrnt. DTC 00<1 NSCC ott tit< 

.... tl<m .. , bol1llcn of eoch DIC JWricipant that ~ alIo. m""btr 0( NSCC. 

DTC "",i\lUln. ,.btiorultipo with • numbtr 0( """'" intorllllionally irnporunt 

ntU, ... ~II. !n I"'nicubr, DTClw .. tabliohed the Canodw>unl. """. 

with CDS Cleann, and o.po.itory Snrirn, !nc.(CDS, 1",_), wh~h rn>hIn 

DTC participanu to<ln< and ... do two ca\<piosd...curitieo , ... "",,\ioru: (I) 

~ Canodiao doIlar1tCUnu.. , .... .....".,..-ith I"'n"'panuo(CDS. 

Inc. and l!l int .... OTC Clftadi>n doIbr >t<uritin ",n""lion. with otMr DTC 

participuIII. DTC also lw .... bliobtrl oocoun .... ..., "",,-U.S eso., II1mely 

ctea .... rnm &ok At in Gtr-olanyand SIS Stplnt.,s«do At in ~O<I. 
225 


Non-U.$, CSD! with OTC"""",1Ib indud<: (l) CRIST Nornu'l«' LJd. (.n 

affiliI.« ofEuI1Xbr) in "'" U.K. and I .. bnd; (I) C>jo <I< \IaIom. SA in 

AIgmtina; (1) T<I A .... Stotk beNngt Clnlin, lious< (T...sECH) in !s.ut; 

(4) Mon« Tiwli. S.p.A. in lair. (5) J.pan So<uron Il<pooito<yCtnltr.ln<~ 

(6) c.nlnl DtposiIorr (Ftt.) LId. in Sinppor<: and (7) non, lonz So<uritl<l 

Ooarinl Company !.imitrd. In >cIdition, BMH BOVESPA in 1I .. ",i! and CDS. 

Inc. ""~ pledgt< _u" DTC in "'*'" .. ..rn.. U.S. _;.., ,00Ial .... 1 

., OTt. Nrubly. bowt.tt. lho 1M! of actilily byCSO prt"ipan~" DTC;, 

i""II.if",,", in rom~ 10 0<>Ul OTC aclivity. 

OTC ha, oho form«! ... 1a"""shIP with Omgto. ""ich J""I"idn pobr.l trW 

eonfi,m>lJoo and lIiOd< ..... ,hinc ')1I<m. "'" i"""u",,,,01 U">ICIes. TncI<I by 

irutj, .. ional i","",,""art .ffirmtd in Omgt ••• tnok eonnnn","" and II ...... 

""Idling I)1ttm~ wi ,ho cornPMtd tnok clruil< ... "",n pw«l ... dirt<lly 

'0 rrrr:; .... , .......... ,.,...., fur .",d"mnu art .... I ... '1 .• ~m ... ~·mml/T<rripr:. 

~'(DVP/R\'i') basi, 

Dl ENecllhat1he laln 01 or ~ \0 DTe would I\I¥e 01'1 CfiIiea[ martel$, 

Ii1anciaI instiMms.!t1tle broader fWwrI;ia[ syslelll 

Tho imrnnlim r:lftcu of.loilu .. of Of' dJSl1.pu"n to"'" functioning of OTC 

..,..w i.dLJdt. major distuplion "'"'" """'"" for .. hh OTC is lho mural 

l<OI.itieI <I<poJitory ...... n II fil\1llCiallow! for """" or DTC', putlr:'Plil1U. A 

disn.ql<ion to DTC" • ..mc.. """ld fintlnd .. coarpk-t< 0< pm..J di>fuptio<t of 

li lipi5c .. ,.n>O<ull in ,,..., """""ion,..1u< ICItIrd by OTC .nd to dMtl<nd, 

inte<nt, and ,main p.-iocipal P')' ... n~ modo on. d>ily i»,;" Such I d ..... ption 

limilarly"""ld _plttdy", p"twly dtsrupt "" >Ck!ition.1 JUS billion 

~.wly ",,, ... rl<m<n, obi«""".lhaI ~OCC'. ConlinLIQIII S<t s..Iltmtn, 

.,,..... in~N<tI" DTC on b<half of!'sec.o<I il> ...... bm. Tho awt<u would 

ho impktt<l fwtbtrby'. \n.Ibility IOactnlO< tndt __ Of all of the $39,5 

trillion in 1<0100.. fur .. 1'I;eh OTC acl> .. CIIO<Odi>"- Tho """""" of OTC. 

I<ffi<ts could ,Iso dtby or 1""'<11' P')-mrnI of divicknd •• priocipal •• nd inttml 

to im"ton 'haI .... n 1«Ilritios..mc.d by DTC. Ifa fai.n" Ofdistuption .... 

trigg.rod by I000<o to ore • .-I000<o mlglu ho "'"rod by >nd <1 .... SImI to 

ot.het- mUs, ""h .. !'sec. with "";eh it NS l """'1"'nntt< agm .... ,!I. 

In addi,ion, • f,ilutt or • dimlpti<m to u.. functioni"! d OTC would lil.olf 

<mili in ","ilicon, spillo<tr.ff«u on u.. mI of the U,S. _y. ft<i1lCinJ the 

,_ of ,ft<i~ .,<lilabk gtt><raIly. rodllCinJ Ih.,:otu. of ..... "'hoId .... 'III!' and 

corpon."' ""' .... ~ o/fu'i"l the fmlnei", ac,;.i,;'" of 00<1""""""" da"bili~"I 

U.s.......,. m.M fuoth, >nd ~ the .. ~ilabilit)' oflO<'llft<i ««Iii. 

...... 

OTC pia» on imponartt .... in finmc:ial awt<u in pmicu1u 1>«..". II hold> in 

.. cuotndr ......... tiaIIy >II """"""'''' deb< and oquiIy I<OIriIia .,~ilabao ktr .min! 

_ " ","00" __ 
226 


iolbtu....dSt-.~.faiMn:or ....... .. 1bt~tI 

""-

Du«drand..........,. aIJm .. ......- doi!ar ..... tlfinanciaI-.. 

beId in <IIOI(Idy and ...... m.I doi!ar ...... ,nd """ ... tI financial 

~,;"cqu;,yanddtt. ... ,1.tu; 

Impose mlI<riaI dirt<! k>uot on I"rtil:opan~ and <hrir<ulllllDrn for 

whomOTC ...... <UWodian, 

Cawtliquidily or cmIiI probImu """"" ""'" its &iIIo't or dinpc ... 

.. ~ qooidJy and brood"'.-oc fuoanCJaI inooitoaono ..... ocher 

--

Hooo~ ... ....... oIImo .. us. ....... .....,.anddtt. 

..tm,1ia.aoo<i.I-....tlh< ........ IiroI.n<iaI ......... 

... ..t.-oaI ...... ,....-.. ~ ... ...,.,.. riol th-. 

....., .... m<I.~ .. ~""'I!"""""_1iroI.n<iaI 

__ .......... -'oIo..s.~. w.-. obt ..-,.tlohr 

financi>l.,..... 

Aaor<Iinc!r. it u obt __ ""he Co.mriI ,hal. raw.. d or. dilruptoon 

.. OTCcould innt ... ,lit "'" tI".,fnno Iiqotdity poobk",ul't<.odi"ll 

"""'" S ..... w UISIJIuolon, or .... ,ktu and ,he,..". oh,,,,.., ,Iso ...... h'yoflht 

fi .. "'w"....... dobt Uru1<d 5u10\. for u.. "'_ .. , "'" 11m. u.. Council 

Iw &urmll\td ..... OTe """'k! be ..... ttd ".~ imporwI' OIU 

,........,.",TlkVlllolu..An. 

~GI' Filel-=- C\eIIIII t:.p::rUoa 

ncc;. ... f)l.U uddiDnl in _1I03\6)(AI oIlht Ioc, be<-. is ......... 

or.,........ • .ulbItnI_1or Ibt ,..,.. oI<irana(.nd It..., I«w .... ona...n_ ...... ! ..... 1lI i .... "' .... :wI bmoofto fina",1lI 

in" ... """.nd FICC.. 

ncc pIayo. promi ...... roW U\ Iht r>ltd 'IX .... man., .. Iht..,., d.orirJc 

'1""'1' in "'" UoUd Su, .. o<u",,,. ".,,,1 <OUlllOfpor1f (CCI') and JIfO"'dtI 

olli(nifi<>ru ,10.,."... and ... ~....., .. for """ I<Itk<I U.S, r",_'1 

ond 

(!oIBSl-"""-

'C""'-'l'..ouu. 

no:: 

and 

io • ......, 

""' ............... ___ I>bcI 

Hal)' 

"""I...,.a.:Lod. olOTCC ond ilr-r2llf ~ 

-.........d ..... ~IIliIiIy ..... __ 

nccio ........ d_~""'c-.-s.....r.;.,O"_(FICCI 

CSD) alldlolorTp&< a.ct.od s.an... Oirioiooo (FICCI)(BSI)). net. proo>Iioc 

dranoc.......". adil'lortel pormadlht '''''' __ ..n.t. ncu 

GSO 1""'*><I<2nq....-. ... -ar-<rnni """"""l'" 

..... " ... and.r--doradt.....-.. (I) u.s. TIt""'l'boIIo.-. -. Tmsury ;,,11>1 ............ \I'd __ [tIP$).1DII s.p...... TradUoJ of 

hp<mllnlOTftl and /'ri"'1plI SKu';';" (STRJP$): and m FrdtnI...., 

noc ... bond~ and ....... wpon ,""n,;" thll .... 1>ooWn«y. fcdwilt .Iiribk. 

and """""""f'!" !)o<Lod. (.oIlt<'~Jy. U.S. J<"'fnOlOn, ,0<1 ...,..,.....mo ... l, 
227 


ncc;cso acctpt. I:JurotIl ,ransaction>, .. pu ....... >nd ....... "1"",.mI 

r....urylW< .... puodwn itt .......... ,ypnofU.S. ~n",.n, IOC.';';", In 

2O!!. "'" ,wo dMoiool, ,Ioar<d tn""''"'''' ",'-I at S1.1 qLl>drillion "". ~ 

bu>oand $64.8 'rill"'" on . ~"'" ba>io. ,<>p«u..ty, 

nCC/MBSD iI "'" Mly trntnliud,~ focilily in , .... ",,".,.mo .. !ab<1 MBS 

m.uttt- HCC/MIIS!l prorid<I dnrin(.1It1Un(. ... <Inn<rII, risk ''''1I0£<III0"'' and f""II rrotif><Olioo! .. ...us to "'*" "'.,..." puticip>.n" tndins: irs pu>- ,h"""" MIlS moe<! by "'" Ginn;' M", (CNMA). ft«!4;. "'oc •• nd "nn;' M .. 

FlCC/MBSD also ptO< ..... option ...... Ior"to-b....,""",",.d· tn.n"""ion~ 

On Apri I 2, !!lIt nCC/M IISD began ptOIid,nK "ntnl ""'"""J>OI'J 1<fVi< ... nd 

• gU>nlll« of t ..... """pIoIion fu. MBS. 

IIoth flC(;JGSD .. d nCC/MSSD "". rtb""""'ipo with 0>0ft dWl 100 

p>n;,;p.n .. rlCCJGSO', ... m""" ;",~.t. , ... n"""" .... jot bMU, .. nd 

dnl<n. ..... U ... ~'idt rug< of ,n"ties ,hat ,rad< U.S. p"".m.,,, l«II';'i<>. 

flCCIGSD~ di ... , 0Demh<rs i",lud< ...... of"" btgtll bon .. in ,he WOIid by 

.... , oUt and ,ndw.!e .ffilu.",of 2S of "" !'l fi •• ncial i"",[.""", wnsid<ted ,. 

I>< p.baUy ~ itnporun'~ FlCC/MSSO', put." gtntn.llyincb!< 

,I>< roll ... i"" W ban .. and truSl<Omp>lIia, (b) dt-alm. (tl "'tt,-dnl« broI.<n, 

(sI) (O'Itfn .... '><Wri' ... issum, «) ~ ~"""'putin. and (0 

1Ul,,!~1<ml i ............ ' f'OOIs. 

A distinguish~ ,h>r>ct<ristit or rlee;. "'" wid< rang< of riI .. it 1act'J .nd it> lbili,!,'" snan>gt ,t.o.. "Iko, .... . ca. Flee flKe> ,r<diI rill., liquidity .uk, 

""""'r0tld i"""llItn, rUb, lIId op'''''ional risk. FICC ...... <OIlIbirwion of 

riI). """'V1lIt.' tooIl to ...... of ....... ri ... to en", .. "an m«I~' obIifltiom. 

That t<>OIa incb!< II) membenhip ,tand.rd. wi,h ttg.rd .. fi,tat>claI ,<10111'«' 

:rnd op<"' .... 11 "'~. (!j collet' .... or ooIlatml dopoon. '" m ... clnri"l 

fund "'I"ITemrn" ,ru:I m,n-<O""""'" P'fl"enu in ,I>< roo. of .... ,.m,.nd 

(3) cI,,.. "",.nd lou allo<otion pro<<<Ium d<!ij;n.d .. lacili .... >It orderly 

liquidation in the .... , ofa memberdef1ult 

Another ,mporUnl ro"ure of nee ~ that it LIStS ",.I';b[m] ... tin~ thrtqh 

which HCClCSD ,nd f1CC,1).1BSJ)Ol' ohio '" reduce olpifltantly the,..ru" ~ 

oocurilieo ,nd P'Y"""" "'" .. w,1>< ... h,.god ... h <by, A dmuption .. ncc 

could thrn-for< hN' mukiplict eff«l "" the liquidity nttd. ~por1i<ipanu. 

AroaIysIs rI! Systenic: kJtiatara 

Al Wega!e ~'I3luI! ot transactions ~ IhIMh FK:C 

1.2011, f1Cc,tGSD ptO<tU<d +O.~ .. ill ........ ...,tion. in U,S, C""<""""nl and 

ogm:y><W,iti ..... )rth $1.1 quadrillion M • grou bo>i~ Tbrwgh ","Irilateral 

,,<uilll, flCClCSD ledoml the valu< or fisw>cial oblifllion> "'1"'''''1 

I<Ulnnrnl in !Oil I""" HI quadrillion '" S230 1IiIb .... In !!l1l, FICC,IMBSD 

~ MBS ...... !action, wor,h WO"imol<ly $6U trillion, whir:h th"""" 

m"hilat<nl ,,<ui"l .... rtductd in I'lI1ue to" triO .... , 

On .. .....-age <byin 2011, FICC,IGSD d .. led 120.780 purdl>Seo and ..... 

of U,S, ~ l«llrilieo. ~.]56 'OP:> ..... """""",..,d l.m ccr .. po 

• .." 'Joe II ...... ..,... 
228 


~wludliII"""-'~lOt!.m"''''''''''daiIr· 

n..pW<biIrr-............. for_ ...... CM<pIn_~1 

......... >ncIsaIto. ..... 1:Y ..,o~a.d I,e6GO"..,o __ 

~ hoi: 'U'<P< ..,1Cd obIipoom ..... !S.464 OIIJoIrft.!OIl. 

DaiIr tndi,......,.. II flCC/MasD iMfop:lIO,}56.-.pamtIOln .. !OIl. 

n.. daily!"", ""-"<OIIIJ*I'<'I oi<b .. !1CO'MasD pta""" .. 30.m on 

O<tobc<6,!Oll. 

I. !OIl. II>< --,. daily (fOOI.u.. ....... <OIIIpUf'd "" FlCCICSD .... 

1'8n7 billion for..alDol,......... .. u.s.,.....,....1OCUt'IIin. 11.71ri1lioa 

for..,...ud Si9Ii biIlioa for ocr..,.. ~ n..-.,. olaiIf ......... __ ill ........ C2!Opia _ S9tI \IiIIIiIa for FICCICSD.>ncIIIIo ....... 

Wrfuodooaly_lfOS) .... II'ObillioL n..daiIy,.... ....... ..a 

ud JMdwa .. U.s.,-rn ............... iII!011 pnUdllIUIriIIioa"" 

A",_ g, !OIL Ibr ",,",.t><! W "'I'" .... n...-' ... ~ ,ho do~ I""" "' .... 01 

I...:!M pnktd ,,11.9 lrillion.nd sa Ifill .... mpcn...ty. non. ptauo«.ntd 

on ""'cUS! S. !OIl, one! Sq:o<trn!ot1', !OIl, rnpt<~, no. pr.' touI" ""Ltd 

]r2n-.oru ill !OIl for J1CCI'CSlI .... sm.! Ioillioa ... )Wr:ll, toll, ond ros 

pnl:td" SU billion ......... 10. toll. F1CC1l1asD a.pamI. 011 ........ 

S!lH IoiIion -m" ~..o <lor- 2011. flCC/MasD' ~ 

........ por ..... pralaIlI S'988.! bdIioa ... Onoloo< 6, 2011. 

OO: .. 'C51l'! pnl: ...... ill cIaiIy MKoIdr>rioc fIm:I drpoIolI. toll tqIIIItd 

1M biDion on """'" 10. toll Tho ....... " daily IODI .. 1""".",,11"'0""""'" 

d<bf. .... 10.5 billion, >rod I.nd, 0II1f "'_ drlM .. p .. ktd II $lJ billion on 

""'c .... 10, !OIl. FICC/.IlBSD·' ...... daily '''''' m>rt.uHourlto <11>"" fer 

!011,i"dlldi .. m....,iII~dailfinibol ............ SHbollion,one! 'lI 

daiIy_ -ro (ooaR1O ~ pralaIll 51Q.! biD.,. 011 JanuatJ-6, !Oil. 

1II~~qlFO:ItIls~ 

1n2ll11,1lI':O'CSD~.-...-_""'~ SIU bIIlio;o>._ 

fICCIlIBStl-.......l. ponqoo.o fuool dooI-.d f7J biIIia no .... 

.. .-fwICIo pralaI "m.o to.lI;oa Ie.- F1CC1CSDOII.lWth H, toll one! SIH 

billion fOr FICCI~asD 011 Mwth H. toll. Tho: ... "" oWtyV.lm" .. " .. II. 

99 pn<"" «XI1idtn<t"1 lot F1CCJGS1) in toll woo S6.t bill"", no. .... '11" 

\'aIlb- !1CC/MBSlJ in !Oil .... 1M billion. AU oh"" ~ In til< "'" 

flUId. _1Idd ill wIt...:l ill U.s, ,.,..,.._ond .....,,-o«urlio:l. 

ncc,.'GSD bao....,. ..... ..,.......,. ......... --....daiIr-

...,.........~ ..... dot<WN ........ _rJOCIlIlSD.'" """'tall.. 2011. had 1iqIrodotr .... ...t,.b cIaiIy r..b ltII~oloIipuoru. 

.. ir dicI_. """,.,<ftllraltwtlIapany until o'.priI tolt.I1CCIGSD·, 

liquodllyrnowt .. in<IIoIt "'" 1oIloo-int: II) "'" <>Ill pan;.., 01"'" dnti", 

fund; (t) III< mit WI_1d be obi",..,.! bf ..,,..;'" "'to '<pO tnnla(lXono 

Ulloa tho: ditil*...,...ndn ponIoa .. ,II< <Inri~ flUId (T........, "".riun. "I""1~....,.......t """'" U.s. ~ one! mtIIn U.s.lfM<1/ 

G5l~IO<III'<ItIj;"""mtho:aobth.al~be~"' ......... 

inooltpOO .... ""' ........ ondtrfruoc tnIIIOCtioM oloal ~ haw limo 

~ 10" dtfa ............... had iI_d.&ulotd. J • ...u-. FlCCICSD 

_ .• 
229 


"",ld ,r«'ivt fund, ffOfll '" ''''''"'''''''''''''' >r<I ~ruttY~" if do ~IT<> pro><d inwfficitnr. ",,,,.,,, looser ..... mi'" I""" .... rnb<T', 

dthu~. nCClGSOdooo not mlirrl>.in • .,.commiut<lli .... of mdh. 

In :!Oil. I1CC/GSO', puk liqlrodi,y .. posurt "" ~"I:1e "",n,erparty U>U1t<11m 

bill.,.,. In :!OIl. I1CC/MIISO', pul.liquidMr<lJ'O'Ur< "" ~nllt ""'"'<fJ'>"Y 

toulod m biTIion. Th" •• par.rt 'oBI "Gwr«I to bo OOI<'IftIby "'" l<1tlrnint, 

obtiplion> of oth<r I'lCCJMBSD panici",n" OI,b"",," .... ofth< nCC/MIISD 

"",i<t",n" fund- for ,II< rn' md.d Dt<mroo 'I. :!Oil. FICC/GSO Iuod an 

...ng< of110.6 triUion in liquidi,y""""" ... ""i<h .... oomprOOl of".; brllion 

in""" ond $.9 billion in U.s. T'''''''1'.nd >8t"'Y I«IImies. flCClMBSD Iuod 

an ..-...g< ofSll bollion in liquid"" ,,,,,,,m in :!(lU. ofwhICh " .5 billion 'oBI 

in ,"", ,nd ".6 biTIion wa, in U.s. T,,""'l'ond.~ >«uritJts. 

t) ReIaIion\hips, ~, 01 ok< ilterl(\(ln$ 01 ACe IfI'I1l1 0Ih$r FMl/s 01 

payment, dearilg. 01 dtroent!lctiYitie$ 

flCC/GSO has formed rtlaboruhipl with oth<r _ patbcipanr' '" m;,igoo: 

"'" ri>ko ar,mdinl: ,II< pootnl;.! d<fardtof. m .. 11>1 parli<ipa"" FICC/GSO Iw 

OIt>bIi!bod. ''''''"'''''Iininc ... '"'W' .... , with C.\lE •• nd nee Iw .... bh>h<d 

• m"hilaltr>! m>U1U>nntr "" ......... witb both til< ocr: and FICC •• flilw .. , 

NSCC.nd OTC, "''''''' «rUin obtiplloru of. <»rnmorr dmukin, rnm'\b<, 

to "'" ""mt ol.,..;bh!t rnour«> of"'" mmrb<r. IlCClCSO Iw.!so Iorm<d 

...... iotIOhip with "'YPC, • US. futurndnrinc <Ilfpontion, '" .llowpn' 

clnrinc mcmbo:" '0 '''''''''''''l,n «rUin ~tion. d •• ,..! .. FICC/CSO wiolr 

,ert>in p",'tion><bmI>l NYl'C in ,..,.. pol' m"'lin portfolio. 

F1CC/GSD Iw only ...,d ... ,;"I: banb,JI'M"'l" O"".nd II>nt ofSNYork 

Mellon. Thne ...,.ntru.o Ill< criticaUyimporunr to FlCC fur GO' "po! and 

>«urityl<1tlrnl<.1, processi"" nCC{(.So abo rei"'"" fRB.W, bGth '" wue 

U.s. T'.....,.,l«Urili<> and '" coIlm.nd ~ mo'(in depooib. hym<Ilu ",.nd 

Ii1lrrr I'lCCJMBSD Ill< mod< "'!lTC'. ~«run,,' rRBSY. 

In ><kIil"",. nee. parmt fOfIIjlUly, OTCC. ~ "'_ificam....,... .. ., 

FlCC putIUlIIt to. rtnYf opttm<n~ ,,,,Iud;nl i-n,mW .udi!. corpon" 

"""ntIln"'tion>.<orpor>t< and rqulatorycompl;"nct. ucc"''' omic ... 

fi!l.locc, ldllllniltrarior, ......... >nd Iq.t I<fl'i<n. 

D) EIfItt t!IIt IhI! IJiItn o! Of ~ 10 ACC'IIOIJd !lave 00 aiti:aI marI\eb, 

fNrUI mriIutions, Of !he IroiIder I'IIuiII system 

A failu ... of or. dMrption '" "'" IW>Ctiooin!ofIlCClCSO...,.,Jd b< brood and 

"'Of<. r,,," -. {wid co .... > cornpktc or partial disruption of the ......... liol 

numbe. and .oJ"" r;ilnrua<bom'ypnlly ptndinl '" 1>< {bmI and .. ult<I 

,hrougil flCC/Gs.D in, !...,..;.y1Oltlrn>tr\t <y<1t. Additionaltr. FICClGSD 

IIIOIDb<n "",ld ril« ~"""i>l1ooser "111>1 '" tl><"""!" ... ...tue oftnrua<'iom 

,,,,rnII«<Iby !'!CctGs.D -. ,ho ......tal I«tJmr<nt<J<lt. d ... '0 ,II< full 01 

partioJ .Imn<. of ,iI< FICClCSD trW luor.n .... These porent;.! kmn_1d 

bo """",,"n<ltd bf liquidity p"""'.-..due '" l\ lust l '''''pont}' hm,"'""," 

, ... mber'. olrilil'f '" ", ... coIb ..... 1 ,n ,ho ,Ieonng ond pani<ipant f.nd~ ,\0 

_ .. ""00" ...... _ 

a' .I iff i· J - !i. l' 

r-l i. 

:to gI • - .. s 90 rtl 

.. ' !HI i,j , , lrl 

, ... J 

.. , 

. ,; 

, -

ga. 

H 

• • ::! ! 

"';:: Lt 

H 

2 

if B' 

. , . ' i:l 

t 

I 

-

c 
231 


F. ICE Oear Cred~ llC 

DescrIption 01 ICE Clear COOt LlC 

ICE CI<u Cmlit;,. Dtllwatt li",iI«j liililily<Olllpany and an indi= 

,"t>sidiaryofIIlI«<'\lIIIi""ntal !Mhang<, I ..... Dtbwlre 'orpo!'>,iotI, ICE CInr 

Cmli, ~ ,m,1>! COIln'orpar\I d,mng..mr .. to dir«t puti<ip'nu 'h" on: fi •• n,w ill5lit"""",." wdl .. to indiroc,lIWkrI parli<ipant> lcu"<>m<nl. 

Thmk>ro, ICI Om Gmt;';' on fl,IU ..... "'" ia role VIII oIlh< Ace" 

ICI 0<1, Cmlit ,Ie .... majoriII oflh< CDS ptOd", .. in lh< Unil«! SuI .. "'" 

"" 'IiP>Ie for '1<>rinI by. "n,,'" ,otIlIlttJI>r'l'. IC[ CI<u Cmlh CW=11)' 

,lean 46 Nonh ~""""'" CDS """r"U lInd<. Con""",). IS2 ,;np .... .,. 

rottIpo<l<'flu " S .. '" ~mtricon CDS COOIn<!> iSingie-Nam. Cootr><u). and 

fwr forcirn ~ CDS ''''''''''' (Soot,..;~" C .. tu'acu).~ Sp,dfO<>lI)', ICE 

n,.., end ir d .. " .u of til< oct;'" North ~mtricon CDS indi«1 for tho h'<>' 

and ll).y<:u "" ..... ~ for «IUin ~nanci>1s-<ho ""'" liquid U.S .inti< 

n ...... in ,II< CDS ... rUt. Oflho ptOdlKt>!ha, ... >«tpt«i for <Inrirt« by ICI 

Cl<uCmli\. .. of o.crmbtr 31. !!l!1, ICE Clear Crrdil ,Ie .... d 'pp.",,,mO\dy66 

pera .. " of1ll brl2mtl tnodtI """" both lh< bo.r)<r and tho oeller ". Ie! CInr 

Crodi, <Inri". participan,," In oddi\ion, ICE CIeIrCrod~ ~ cw",II)' ,hr only 

d ... inpous. _Id>oid< "'"dn" Ior'ti!In ""'rti!n CDS. $( ... !IlO9. Ie! CInr 

Crodit Ius d,artd"..... 300,000 CDS "o",."io .. .mo..!'>OliorW 1..Jue;' '" lh< 

trilliotl, "U.S, don .... • 

ICE 0. .. Cmli, Ius , tQtlI on) <l<arinc mtmbr". 14 ofwItXh "" finiUlCill 

or banking grwp .. nd 90f -.hich Ir, "",,"U.S. dornicH,<I.1C£ CInr Cmlit". 

<kmna mcmben inch>:!e ...... of '1I<!art<>' financial i .. ,i""i .... lbign.ltd .. 

C-SIFI, br tho IInIn<ial S!abih~' 80atrl 

Irr<>pt<''''' oi..me.hrr, CDS is b<ing wtd to bedg< rhl 0< 13k< on .. ""'.,,'" 

,..wn "'dit ... rl.ru,:u' bil,..r>I cootnc' beI .... n ''''' mlrk< parti<ipan ... 

,CDS ern'" ,rod" and liquid~, risI:. "pol.'" brt .... n tht "","""panico to 

tho CDS coo,,,,,. Fo< ,,,,, ... Elyd .. rod CDS co",ne", ICE 0. .. Cr.d" rod", .. 

1hm rill> b!t,.,.,;,S:U' «",nl <OIInl'''''rty, imtrp<»inc itstIfbrt""", tht 

'wo oric'~ \ili,enJ ""'""rpartin. A<!d;'ionall)'.ICE a. .. Crrdit im~ 

marI.n '''nIp>'''''I' and fu",,""'inK br nubli"'i", """'It daily ... tlrmen' 

prien for til< CDS ,rttIn ,t.., ~,Iean. which perindic>11y it> mtmll< ... ... 

r<q"irod to ",nd behm<l:u -.II .. """,,,o:inc,nd ,..,..-tinl optn ?"'ilion, 

''''''''I during members. 

Analy;$ 01 S'f$t!fric ~ 

AI Aggregm frU1tarJ nhie oI!ri!lSactions PI~ by IIJ' ~ CrU1 

N ... beI 01 t ....... t .... pn>«>tOd,dtatN or .. ttl .... In 2011. Ie! Clear Cmli' 

<I,md an »<nze doily ~ I'OiuIl'l< of821 1nde> Co<uneu, 1.14; Single-Namr 

Contnc'" and 391 Soot,..;!" Contnc ... let 0." Gmt;, ,I<artd • peak d.ily 

~ """ .... "7.m I..,.. Contnct>. 14.7011 Sint\t-:<''tme Contneu, and s:MO 

.so..mgn Contnc ... 

• ""'$QCII-....,... 
232 


v"'"' of ~~. dt>t<d '" ... "I«I.In 2011. leI CInr CmI~ 

d .... d ""',,.,,,..;!h ... ....-.go daily """ notional ,~ .. in ,ho billion. Ii 

dollar, in ncb oil ..... Co.nn",. Sin~.~.,... Co,,,",,,,,.nd Soot ... gn 

c..n,,. ... The po.k daily""" 1lOIional...tun oIlM ,..,tnCU ICI CIea,Cmlu 

d .. rtd ..... in ,ho hundrtd billion doIl>r .. ngo f(:.-.och of I ..... Cortll'l<ll. 

Si,,!I<-~ ..... Con,rxu. and ~ Cort,,. ... 

\'111« of .. II« Iio.ooci>lllowo. for >II Ii>«d derinti>a. lbc: """'I" dU!y flow 01 

funo:b ("""!" daily ...n._.tn ,-alUatiCOl plus <h>ngo in "'O<>g< dailymttlil 

margin) .... in ,ho Oldlioraof dollm fur milial1!WJin and in lht IIlIndrnl million 

<IoIlar rnI!" fur >djustod ...n_rte<. and kif >II inrr>d>:yf«> [odju>I<d ..... 

~ opr .... , r... """"'" plus cr.dit <>rnI). The pru.daily/bwoffuntll~ ... 

..... , billior! <IoIlm fur ",itiaI at2lJin.nd in lbc: buN!r<do of mill ..... d doIlm 

fur>djwtod lIWk_ond.>II int/Oday r... (odjuII<d lIWk~ 

upfmo1'k<. ""'P"" r!<K<W<I. "'"" ~_ -n.. f>"-k ob.i, ....... n .. "", .... '" lbc: 

hundmls dbilliMlfur uch oflndn Cort ..... "ond~ ..... Cootncu,.nd 

'" ......... d billiMl <I doilm """" • Soomign c:.:..n: ... 

B) .egalt ~ ot a Clear COOt 10 ilsOOll1te1parties 

Ctedil .. poo""". Durin! :!OIl. "'" ""'''!''~,. of let a.., Cmli", (IW'In'y 

rurt<! was in ,h .. billion, of U.s. doIlm, ..-i!h • po.k ~'" ofbillio<1J ofU,S. doIlm, 

h;, .nticip>1t<i , .... foIkooing .... implrm<n"'ion d. d .. ri"l'rqui"""",, for 

.... p'. oonl1ll.oo- ond "I"" in"' .... will Iip,finI"ly inc ............ ""'lin 

M d<p<:>vt ,nd "J'O'U,,";ll inc' .... propo<1ion>lly. 

Uquidi<y ....... n:d. The.....-.go _n, d liquidity ....... !ttI (incbl~ on, cash ond U_s. T, .... 'Y.nd >grn<y tIOItS) " let ClnrCmlu .... billion>of U.S. 

doIl> .... ..-i!h. pnk . moun' in ,ho billion.of U.S, doIlan. A. ofD«o-mhor 'I. 

:!Ill!, 1M "",I" ... dli .... of cr.du f""" ban .. orothtn .... mit1io<1J d <IoIl"'_ 

Liquidity .. """' .... The....-rog< >gr<pl< doily<lolla.,...,.. of P')'OU" "rICE 

On, Cmlit to dt2ring ............... in 'h< millioru ofU.s.doIW>..ilh. pn' 

in th< miUion. oru,$. doll ..... The peak liqwdi'l' nttd ";,h. <il1lll< cwn""w'y 

.... m lht million><lU.S, doll ..... 

CI ReIatiorJsIfps, illerllependencia, 01 oIfIef interactions o! ICE Clear Cr~ with 

otfIer FMUs 01 paym!I1l, eI!aring, 01 ~ actMIies 

P. t<i<iputo. ICI CIea. Cmlit h ... touI of'l/ doari"l rnombon,~ 14 d ",,~h 

:m: filWltUJ or bankingf""'P' ..... 9 d ,<In<h. rr "",..u.S. doooidl<ri. ICE a... 

O«!;t'. <",.nn! manbcn inch.w:l< """" or .... Wv<t ba"~i"l.nd broto~ 

r,,,,,, '" lht_1IL 

Otb..- rnu~ ICE Ow Cmlil don '"" h"~ lIIl'.-.btiono/llpt with odIcf rnu~ 

o<h<r Ilwt ill .ffilia .. rrbtioruhlp<. 

r .... ;.! pl."r ...... ICE Qn, Cttdit'lnrs OTt <W2f" (>11._ CDS 

.... "'tions.rr .... ~«! bilaIrn!l)) ,nd thmti>r< don "'" h>,~. m,'""'''';p 

with ,,,,. trOdi", pla'forn~ H,..,... ..... ~ it ap«t«l!lw IC£ Ow CmI,,";l! -'

. 
233 


t..gin dnring tnn""' ...... n«UI<d 011 DC).h or ""I' <lI<'CUtion [""lIil><> .,,~ 

tile """,,,,,,,,,,,,,,.,\1 arCDS trOdi", through , .. h .. n .... 

Ollln .. , .......... ;.. ptO'i.!t< •. ICE CI<ar Cr<dit Ill<> Th< Clnring 

Corpor2tiooI fur li«1I .. ro •• nd ... ~, ..me ...... ICE fur 1«:bllOloCl' ",d 

"""'!" .... tltl"im. 

A><rOCt dailJo nIu< 01_"'" o<b<I '~""'''';'h u,. 6auoci&1 insti, ........ 

ICE <hi Cftdil doeo no! h= 011)' _ with wWIili>,cd ...., I .. an<i>! i""itLO ...... 

oth<r <h>n iuclcari", m<mbm. ItItltmtnI bank>. >tid """ """'~ 

A .. ,,£< daily ,~Iu. of ".<1 ...... o<b<I tnn ... ';"" 011 ky trOdi", pl>tlorms. 

ICI Cln,Cftdi, emOTe""l"'''' thtr<fu« tIon no! lim '1<l>tlOllohip 

with'D)" trOdinX pWfurm~ 

A .... " daily ... 1,.. of...,.., .. P<O''idtd.nd 0Ibtr tn...mon. wilh ""' ... 

.. , .... al ",ric< ~ DOt coptuf<'d. let On, Europe u ... ICE o. .. er.d~ 

lor t«:h"'*'cY otId m.n"ll ..... nt .... -i< .. 

OJ fI!td 1haI~ talrl 01 or disr.1D K::E ae. Cr«iIlOIlIM hlYt 0II1;1itica1 

rnirlrts. finR:iaI ilsIib..ttilns, or ~ Iroada' ffm:iaI ~tem 

Role of ICE a.... er..:!i, ia ,be .. uhI ottVtd.ln ~ll. of the ~ Am<rJCUl 

Ind<lt one! Single·s-. CDS owt.t CDS prndLocll 11 ... ICE CItu Cudit ompll 

fur<!nring, ICE CItu Crtdit d .. f<'d ~1IW<Iy66 p .. nflt orall bi4tml 

""'"' where both the ...,.. .... the .. 11o,.rt ICE o. .. Crtdil aw;", 

p>nidpanu. It is >Iso the OIIlyd .. ringhowt """"oOdt that <It." ro...~n 

""...-.is:nCDS. 

"'",iU\>ility or .. \mi' ..... Cu,,""tIy. "" ..... , DCOoclo .. tht br .... ih or 

produ<II de1~ \If ICE CIea, c...til. AcC<ltlling!y. it is impn.cti<.blt to .. ~ 

,hat""" "",lei ""'tin .. d •• rin! ICE 0. ... Crt.fu', CDS prod", .. im"""' .... lyo.-

,n the Ihon tmO foIlowi",. dioroption diCE CItu Crtd,,', opm<lOII~ 

Coo.rn! .. ,ioa \ofprocluct ')"p<. ICE ClcarCrtdj, is cumruIy,'" only 

d .. ringhowt"lll'ldwid< that d .. " fcrtogn """"'lIn CDS. In addi,ion, ICE 

o. .. Crtd" clo", .lIoft ... 1<1;'" North Anlnican CDS i ....... fur , ... 5-r<''' .... 1O-)nr troon, ........... forcmoin filWl<i>lo--<h< _liquid U.s. ~nllt 

....... in , ... CDS nw\;et. 

....... iaJ Dou/)le<ri<o. On D«emb<, 30, :!Oll. ICE 0.., Crtdll had in th< 

billiDmof u.s. doIII" in wh and ..... equi>..!ntu .... in , ... bill""" dU.S. 

don ... ," poc-rn"""""'urities. 

ICE 0. .. Crtdit r<dLo:"'Y"""''' rut in the CDS m.,u, in , numbtrol'W1J'. 

Firs .. ICE o..r CmIi, IawmCOUnt<1P"'1' r'ok <>pooul<l >mOIIIl "",u, 

porticipon .. through the"""';"-' orCDS""""" ... Strond, let OtarCrtdu 

Iawm ..... ~"Ii hood or. defwh It.dinS to. financial """"ion of Ik&.u~ 

><roM major CDS """'''rpor .... "" moinLoiDi", """""oiaJ fi,WICioII<IOIIl<" 

to ..... C' the d<hu~ orill ,.., latgoltcbri", .,.",hen. Th"d, ICE 0.., 

_ .. " FS OC" __ 
234 


CJUli, JUluces ,JUlit, !iqwd;,y. >nd optr1"',,,1 rill. by racili""fI£ 11 .. """,Iy 

S<llItmm, oflf>Ck.rtbltd 1")'"""" obIipio'" 10: Cka, CffiIil is""" of .... 

Iarg<!! de>f<H of COS "'",",bon,~. 

Thr primary triggtr of adtfall1l by 10: On, CffiIiI """kll>< .ddwll 1If""" 

or """" < "'orifl£ III<IObm ""'" ."raordinll')' IosIes in "' ... of let Onr 

CffiIi,', dcf,uh .. lOll=. lI'11il< ""h. dcf .. l,rould «IfI(rivabIy n:ouh r""" 

<irrum,,,!I<U Io<alto ~ ...... bors.' ddoul( ocrnori<>W<ltIId l!IO:n lil.dyl>< 

""",,,,ltd with • do.ruption ...... moli:.ru mon: !<" .... IIy. indud,n! K<fI'no. 

""h ... m ......... ,;lity, .. 1mD< chong<> to nonnaI pritt COI'fdalion>. >nd 

K ... ItdUCI""" in "quodII}', ICE CI<orCr<dit may b< """, .. pok<I to ""h 

cim" ... w><n!han ocht,ctn<r>l COUII"'I"'Ue!. 1>«, ... i< la. "(lI,Iie, .. 

"P""''' to cr.mt rI<f>.k.wapo. ><hid! hM jumfK'HltflUh riskAn .1 ............ '"tV' of. dri,.b by ICE Cl<arCrrdil """"" b< .lailu .. 

Of'l'lCIlItmm, book or_ oflCE Onr Cc<dit"<Mmigh' , .. tnt «pO 

""""apartn .... ""'. ,uM'n'io! portion of IC[ Onr ~~'. firanrill 

mourtel ... 0<1 d<poU' with .,.,h <om;". 1'11 .... il ,boot r",ooci>! ,""",r<tO ""'" 

to IUdQn\Iy _ u .... :oibbl<, ICE Clnrc..dit·, opmtioru """Id I>< .(h ..... 1y 

afIec!t<l'o HO<Ioid<nbIo ""mlC In odd";",,, '" ICECbrCrtdil rI<f>.b rouId 

mull Irom. roi"", to maintain. J<II<f'lI,.. ... rod financial <IlIIlI,"". ""b .. 

• foiJur. .. _M>in .. rrocien< <>pO"" or ",bee finanriol r<JO<IIC<ll$oinSi its 

J<II<f'l btuir><>.r rilk or opinst lht rill:. of .... or ...... <Iooring ..... b<r ddoulu, 

An let On,Crrdi, /o.i"''"' Of' do.ruption itt tho lune"""ing ofiu <I<orifl£ 

ltIYic ... _Id ~ ... an tho ;"'<0«1"" "",of,1>< domilW1( ,bri", 

pIotfurns lot ,I>< <JUli, dcfauh prod",,, II , ...... , Thil dioIupliorl """Id litdy 

up"'" let CI< .. Cmi~·, de>ring """,b<r. and od>ec rrwUt I"rudpants 

to croO" "od liojuichty'iw. Th< "",iOC.nI m''lin cltposilS held by IC~ 

CkorCmiil <wid I<ad to. period .m.r<irr a/I",ltd rnlilies "'0) I>< unabio .. 

"""". Of in, wont 0. .. .........,""""" loot. <ht co/lo.tt,..J (hoy 1""'«1 ""'" 

<ht de>rinpouse. Funhecmorc. ,flCE Otu Cmiit <lots .... "" ... ffi<ienl 

t'uw><iaI rtIOluttS '" w<sly'" ",,","ion' .. surririnJ rrwUt pani<ip.lnts, 

<ht abiliIJ of ~ pani<ipanu to .... , othtr finaocilJ obIipion< rould I>< 

-.xIy impa<ltd, An ICE CI<or er.dI 1>Ihlr< "" di1fUption of ilS .... >«1 rould 

rlim:tJy P"'" <rod. atod liquidi,yrili: 10 Olh<r financial rrwUt inr~,ruc, ...... whkh ,,,,Iud< ~ 0111<, ,kori"~"""'" ''''tOO ...... IlL'!" <r>cIt 

"posi'orits. and ...... =tion facilru... Sin« ""II)' of let 0." Crtd~ '. 

d •• ri"1 Ul<mb<n." C.SlfI~. do.ruption "" flliln" '<KI1d indir«lIy po>< <roOn 

."d I"uidity "' .... '0 ~ m.;or mon., in ,II< Uniltd Suk-o, ""'1' "",iliar" 

rrwU! pu,;cipanl io <ht Uni!t<l Suk-o. and III ",nif".,,, financial rrwU! 

inf""""tum in tho U.iltd S ...... 

In ,1>< .. "" of", let Ckar er.di,loilu" . ~ il "nlil.1)' in (II< short lrnD lh>' 

•• ub!litult could "to •• ," let Cl<ar Cr<d~', ' .... ring "P"",ions. M"" ....... 

•• ,,~ pa";cip"'" """Id 10m to poll ,ubl!an(lIlly"""" colr>'tnl to ,n", 

into '"",",lion! io, bil1t<ral 'pac, .nd oWin tho ..,...I<m 0( prOI<'Ction 

or .. posur. ,ha. oM)'-.ld Ih""'th lCI CI<a, Crtdic ror .. amp!<, in 

.... bib,.,.,,1 mark<!. if" widon", ",,"Ir.liu. c.z.. along "POS"" 10 B. A 

. ...-.• 
235 


_lei typo<>lly<n«r into ......... ,ion with. ""'" <XP"""< to ooothtf 

"",n«rpmy, .,,_ C. !hi> """lei offittA', nurkt nit.. Do, _lei ...... A with 

,,..!i, riot. to ",h ofB lnd C!hill A """ld nttd to ,001a"",li ... Tunh<"""",. 

,II< M"'1in «<Iuir<d towl",..,.li",!he <Xl""u" of. """folio i> !tnt",11y 

ImalItT!han <oI1a«ralirin!"' ind~'ld .. 1 """""""''' 11«>_ til< pric .. of 

the ponfulio', """""",n" ilJ< of"", totrtl.ted. Ct.,raj toUn!t1PU1) "",uns 

i> ...... p<I\""CIful ... u,h m<mb<,..oIiIig'tion.to ""1011'" ....,bt'<>n 

bt ""ted .. <11'1< ponfolio ,hOI;' oe!l«llnd offi<c· n,.", could .1", bt In 

i""""'" in til< numbtr lnd "f"""IC of un<olI>,.",li«<l ,,,,nlOCtion, (, ..... ,i'" 

,,,,,,.,. n""",m fro<n further f>ilum) and .Ik< ....... in !ht toul nUMbt, of 

Inruactiom, Thio _1eI1ilt1)- h~ I <loI.tcrio>u impacl OIl til< finon<;.1 ><tivily 

w, , ...... to thost "" ..... rio,", 

In odd""",. any di>ruption in 111< dun", of these prod",,, _ld liUly imp<d< 

til< pric. <I,""""l''''''-'"'' , .. , .. I '''''"'ffJ''''I" rlo-.";ot. which wooId mul' in 

• <10< ....... 0< "'" ofliquidity for thts< prod ... ,. and lead ", ... ..u. op>cily, ~. 

ogrtI ... npow'" to counltrJ""in WIIltf CDS <OI'I1I1<U cwld bt hidden 

,n opaqu< man.... until ,II< b>.nkrupt<)' of. majorCDS m>rkt poru<tpam i. 

iMMi" • .,,_ Tho ,irculIllliDtCl of...:h 'n tvtnt. which fif"",d promill<llllJ in 

til< =n, U.s. finanrial <,;,;,., rouId II»< add.ioN! """"l"""<lOO til< ahllity 

ofU,S, financial instil,"""" to obuin cm1il. &nJ; i<ndi", rouId r;..", unul 

wth ti ... "DUoUI poni<ipan'" CDS OII""""",n bt >d<qu>t<1y pn«<Ilnd 

it bt<ome> <Ie" ... ..u. P'rtiripa." ,rt able to iloIlO< _ 'rul obIip""" '" I 

IlI«I«!financial.",;""' ....... 

Turlhtnntn, n<.lI,.lly_1d prite di"",~ and liquidilyb< impacted b)"'''''' 'n 

..... " Do< tIlOft oloc WIlIIld lik'" be a nogal;'" impact on Onyf«ll\OolIC ><'~il)' 

,hat prt'UPI""" !he pro<O<l"'" ofh<dJinl ><tivi,~ Allu .... for e:umpl<. d"'" 

4". U,S. t.-d fi...oo.l in"itUlion (FIl) h<dr«!ru """","f< '" !he """"'''''''' 

A ""pan'" boocb k p"f<lw<d b)" IIuyins CDS Jlf<"«'ion from >OOtbcr fi",nciaI 

inoti<Lltioo •• nd!he ,r><l< ..... !h<n " .. ,..!" ICE CInt Cted",llanyof ICE 

CI<-a. C,..!it·, "'t",b.", dtf .. k ,nd ICE 0...- Cr<dit dot> "'" hM. and an"", 

<>bu, •• ,uflXien< finanri>l rtfOIUC<I '" nuin"", optf.tion~!hu CDS JIfO"'<""" 

"""ld 1\0 ionV'" bt.m.-.. II <OflIO<I""" A ><ffl !h<n to ItIddmlydtfaul<. Fll 

0>Uld haI'O llarge Ioso on !he """""""" ~ bond>; a ""'!haL but for ICE Our 

Cr<di!', faiNrt, <lIould ~ '-n h<dr«! b)" "'" CDS, .... posit.,.., """" to!ht 

bilattnl DW'«I.lnd art 00-... «<1 ..... Ied. and ..-pi"'«\. optn,ional riIb..,d 

<osu _Id I;kly irlcrn>e, thettbr dtmuill,!: "'" numbtr of ..tiable and rtodiIr 

I'"1ilabIe hcdj:ins opporIumll<t. Ai •• <1 ..... fi .. ocW i""""oo.,, lnd O<h<r 

markt< pani<ipanu mar r«\"", theit ;,,, ......... ,>«iritito, whiCh 0>Uld further 

...... "'" U.s. r1!WlCw .... b:u, 

In addi""'.n ICE 0... er.dit Wlur< or dikuptioo _ld po>< alUMwttill 

od'm< imP"" to !he CDS ....... for III< prod"'u , .... rtd b)" ICE 0... Cffilic 

.It.oU, panicip>nll """ld hWy .. p<ner>« IUbtunti>l "",<nai",~ "",,011. 

and poosiblyOlUrT>' "'" ofthri. CDS posilion, .,ICE CInt Cted,t ).!ar\.e-t 

pon;cipo"" _Id onlong« bt abk _ CDS to fIIlnI£' mdit rut. ""_ 

i","";"! bib".-.J "",n«rpl"~<r«Ii' riot. This.;" 'urn, ;, li101y '" ""'" 

• "",01 ronlldcn« in !ht CDS..me. in 1 ...... 1, For hold,,, of"'" dtb<oI" 

_ ,." "00"-'-'_ 
236 


,..rm,,,,,,, ... oo lO CDS, ,boot p>,,~tp>n" mar "" fore«l '0 l<lliarg. .~"" 

or.<curitico II p<>lrntiaUI' IitN.lk prie .. iflllcit CDS pr<I< .. ..", «.." lO .. III. 

M .. ta pmi< ..... " w, tnnoact.itIo...,.,..rm,,,,,,, omit) l!>d ... CDS lO h«I8" 

credi, rill; otay"" Comd to mI"". or ,taO< financW.oo 0Ihtt tnn ... tioou with 

.-rntititf. Banko« OIht, ...,. ofinde>: CDS .. b<va<!-I>a1<d.lIIKrot<OnoIIIO< 

hodgtIto ,.-.dit ,ill; m>ynffll to quiclly odll«"ritieo or .-.doc, lend"" >cti>"ir) 

in ordtr lO"""piywith capi<>l ""I""""''''' in Iht _ olCDS It<<lgil\ll """'f .... M>rt<I jW"bcipanu u... III< ..,.".,..;p CDS to btd8" dim:, "'POO"" 

to ,hoi< """nlrits. indi"", .. poow .. to .. tiIit< cIootioci)«l in ,hoot """n'n.. or 

<PImIII <Outlll)" rill: mar"" forted to qui<kJyodll«uriti<> aM mI",.« , .... 

fitwlCW IUld oth<r ......... tiom .,th .-.. tit .... All of tht>< .Ike" "'1""'0<'" 

Iht ,""".,tilI rill; of ,,'II"Cion from. disrup<"" ill ,he CDS ... ,ka. 

Fin.olly.1ht <OIIU(ion .If .. , oi on ICE an. Cmlit dtf .. 1t.. ifi' wm lOlao~ 

,uffi<it.n, """" ... ". '" m,ho 'i.....,.~" for .... .t.-«>rn ...... oblic.tion>. 

<OUld .... .mydOrupt opmt'ion' II 0Ihtr dOlrill~ t>ta"" oi, crisis 

oi conIid<oct th" illl<mlpl> Iht ordnt)' func,,,,,i"l oi,he ..... ltt >nd/ .. 

t>tauo< of tho imp><t ,hal ,he looo oifund> "",,101 h...- "" .... II"'Y·' .bil.,. 

1« wil~lI~ot1>j to pay (I) l000i:>-.1 '" OIher DCCh, (2) mn.U<d <diatml 

r<qUimn<11U f« o/f""ill!OIII-<Ji.tht """'<J' position>. (!) drpooiu in ptruioo 

fund <»It "'countS. or (4) bonk fiOWlcin! ,hllfl<l. f.>ornulily. lhe f';lu.,. oilCI 

Clear Crtd~ would at.« tIIO<JI'IO<jS U""'''''"ty obo<.n "'" ,~ ... oiin"",1td 

tnn ... tiom ...... 11 .. "'" fi...oo.J posi'""" oiiu drori", """""' ... and thrir 

""""""" lnd "",ldjtop>rd". tho ordtrly funrtiooin~ oi <luring m<!!lbon, 

0Ihtr DCOo.1Uld "'" U.s. M>n<ill."..m" ... wboI<. 

fta...t Oft iu 'OY"" oflht i,,!«m,rion '" fonh 10m. ,h. "",neil mopi ... 

"'" ICE On, Crt<iit ,u',,"'1y ,km. 'p«i!ic nil!' or,he toW credi, 

d<rivltM> ",."tol" ICE 0<>, C.-.di,.I", h .. a mtntb<rohip oi!7 dOlri", 

""'1Ithm. inclu<!i., H [" .. new Of bonk,,,, I"wf>I. ,\uoldingly. """,..,."d 

.. ,_ly ,he .rr .. " of • flilur< Of dillupl"'" ol ICE Onr Cr.di' rould be 

,oruoirr«l lO ,Ifffi. finite numhtr 0/ Iht ....nd., Iartn< Sn.,..;.1 ,""i'u"""~ 

.. ,h or wbich hal, """", ... It,. immod",,, "" ... lO ,ho bil ...... 1 m>'t.u for 

CDS produc".nd ,~riotts tKhe, "'." .... of emli, and liquodity in ,ho ... n, or 

,och. f.il ... or diJruptlon. 

H"....,..... Iht immt<!iI. .. Iwoi. d<>rl"f pIItfa-m f« ""'" oi,he prod"",. 

d.",d by ICE OnrCrtdi' "",,101 df .. tivtlrload to lllt:aot 'l<n>por>l)" 

disnoption oilht CDS m."" b ,hoso prod"", .. 1ht muket inf""""," .. 

throogh whith pooibon ...... ubllohed, mllittain<d .• nd <Ios<d .," _Id he 

""",. Th~. """hoT wnh ,he illt"ltUtd .lob.nd ooou in Iht bil>ttral NrI:ou, 

"",,101 <mit K"'" """r ... tII r .00., ,ho <>p>city 01 oImdy ,mined Ntt.<,. '" 

"""",mod.l< lrrfonticipa[ed =f""'din! liquidi,!, notd~ whKh _Id likly 

!tad lO in<Kaocd emil, ond liquidi,!, probkrru b.".,.... ~u. /u thtIe 

rioi.o , nd 'OIl< 1."',. ... inWtutioM '"l)',edLlCO thrir """","",,, .. tiviti<o duo to 

• Iaol oi ,.It.hit and rndilyMiiabit h«igi"l "I'I">""n";". whith could furthoT 

...... Iht U.S. finlncioI .... to ... 

-, .• 
237 


Morto<-n, undc1 ",In r=ntly promulgmd br ,II< CtiC· and <qu,,~Itn, ruln 

btinfroruidcrtd br tht SEC pu ...... n' to tht Ac,. ICE Om Cmlit will hl.tly II< 

'"'Iui .. d to u~ il> ..,.b<nhip boot ., ,,,dud< ,wn .. financial imtiluhoru 

>nd pcrm~ tho d' ... , i""""' ...... d.~ Iinm for tho fin, limo. Thtl< 

n<W "l"1I,0<)' lUodlrd. viII aU<> .... k m n""""""" fin>n<io! ... ,';,u"",,' 

bcinr '"'I"ired to cIo ... tr>d<s with other fin>n<iol i"""uuo,,, ~hcn dearinl iI 

ol&m! b)' "'" 0< ~ FMUs and therobyincIe ... thtir pr><th! "I""IC< on 

ICEC\e.,. Credit in a....,rl<r consiM<n, ... "h ,he policy d, ... tion ... abful>ed b)' 

tht Acl Th .... and eop«Wly"l"'" w.. n<W IWldanb w.i"8 <ff«~ a rat"'", 

... dOntption d. ICE o..rCrt<!i, """Id nocoowilyint<JMo a _ ....... n' 

o(the fiMnCial rommwuty and ...... ...;dor i"""",on the fuw>cwl)1I<m 0( 

til< United SU, .. ,IwI"""Id .... bmt """in ,he ...... ,pos<. These ...... 

w>ItsprTad <If .. 1> reinforte til< Co\utcil', oonclusion that • fai lu" 0< di>ntp<ion 

to the lun<tioni"8o( ICE o...r Crt<!it """Id """" orin<rfiS< the riI); 0( 

I ... ldily ..... ,...!;, ~ '[""Mint: ""'.'1: fin.nri>1 itlllit.oo", or m.rktI 

and th<rtbf th.mrn the .ubilily 0( tho fi"""ial "1"'''' 0( tho UniI«I Suteo. 

....., 

Tht do",,...;....d bf ,II< Cwn<il ;Mic"" 'hit ICE CI<1I Cmlit f""«"<' hish" 

dotl1l'~~h te ' ......... ,""" on • d...,.1wi> foraitical t·,s. finan<w """,",," and 

bokbl"s< ,,,,,,,,nl> 0( coIla",ra1 on depooil Coupi<d with til< "n"l'" "',,,.. 

of CDS and the ,,"n<Jantjum~uI' ",k wi ha, to II< Dllnag«I. ..... 11 

.. the Ill< and n"",, of leI A. .. O«li(. d,,>ringmtnlbon,. tisnili<an' 

ditnoptlon "'0< faiIurt aliCE C\ell Crtdit «<lid cr,'''' i""abOlity;" the U,S. 

CDS.nd .... rilieo tDlrktI .. 1Ior<o>tr., .... '" ,urrontly no oubstit"tt nco. r ... 

"''''1' O(ICE CIoar Cudit) ptodU<I>. The ..... of "ntrtI """'''''p''''ydurinK 

in tilt p.oducl> ICE C\eat Credit de .... _Id incrfiS< oolllt,lll ok .... "'" 

nf>Otl"n<ialJr, "'"~;"8 in. e<>r=ponding dr>in ofliquldi"" 

An ICE Ow Cr<dillailure could abo lim: 1Il ltd""" i"""", Oft price di",-.y • 

... I"ch "",Id. in ,orn, load 10 in<fficitnt .... rtru and a oombttd innnK ,n 

liquldilr problem<. ',n.lIy. ,II< <oo1>f'oon ill«,o( ... ICI CIta, Crtd;IIaiIu« 

"",Id impooe .... "rUl Iinln<iaIIossa on ICE Clear Crtdi'~d'1nnc IlI<nlbon 

and other lIWkt p""icipanl> (oudt ai_en) ohatcould \tad 10 intrtaltd 

liquidilyde .... "'h and cmIit probI<rn< ......... financial ... ~""tio ... II .... " the>e 

financW i ... "u<ions are "tn. in tm>Itipk U.s. ... rku. do;' <oo1>f'oon <Ifoc, 

_Id ha\>e. brooder imf"'t attd. .. ,II< martou ."per;rnc. k""'inc~ ..... 

_Id tildrlt>d to ,,,,rwtd d<mand for<tt<lit, wh~h ...,.,Jd, in lurn.lil.tly 

lnd to leu bquidily, Thor.11I< Co.m61 bdio:>t1,h .. a Ms",fu:lIll di>ruptiooo< 

lal"'" o(lCI CI<1I Credit ,,,,,lei """' ...... .."..,... ,mpac' on tht 1Uhil0j' al 

lhe U.s. 6n1"d.1 m.,.l.ru, tht impac' o(which _Id lte n>«l'bl.,ed br the I><l 

0( clnring al""na';'" currmtly .... ilable 10< mart)' 0( tht prod"'" durn! b)' 

ICE Om Credit. M:o<dinK'l' •• Iaihtr< o<dis"'ptioll aliCE Cltar Cred,,_1d 

hkdy h> .. 'li(nifKlIIldetri"te,,,.1 efIec,on the liquidity o(tho ..... po owtru 

ond impooe II(Oir.canl fitwlCiallossa on d."",,! memlten. """h incltode I>rt< 

finin<ial inotitllliofu.nd other nwt.<t pu1ic"""u, .'hkh """Id, on 'urn. j,keJr 

th"' • ..., the ~abilitro( tht b<oadtr U,s. finan<ial.,."rn, 

. .. .. >toe" .. '"'..,... 
238 


For tht ",.""' .... "'" hm, lho eo.""il hudottnniO<d th;.1 IC[ an, Crtdi, 

lhoull "" designl,,<I ... .,.....,ically ;mportlll' BlU 1"''''WlI '" ,"I< VIII '" 

rho .\cl_ 

G, Iiatiooal Securities CIeari1g CofpofaliOn 

~ 01 Nalional ~ Clearing Ca!Mntioo 

NSCC io. nlU ..... <MIl in TIIit 1111 ""he A<, btuu..- i, ~ Of opm"" 

muhila<ml.,....., fur tht I""P"" of ,,,.m!.nd ..,lIi"!l«aritieo onn""tion> 

""""'~ fin>n<ilI iAAi,1lIi..-I> >nil """"'''' firwlcill """",tion> aDd 1\5CC.. 

NSCC pIoyI. promi ..... ' roI. in pr<>o>IinJclnran«, ... ,10 ...... ond CCP 

I<rVicn for f1t>r\r aU broIn-<O-broter "IWty.nd corpor>" >tid ,."n~ipal _,00.. n«u«<i on...;or U.s, uc~.nd ",hoI <qW\f tndirtg _ .... . 

NSCC ~,"'-'I.,. ......... d .. o.1;".., ofDll:f:.oo1 ~ V"""11y Mminiu<t<d .. .. 

,nd~ utility"" ." 01-<011 baoio. 

NSCC prtl"ideo 'It>nni. oeuIemenl, riok Dllrugm><nI, «nrnJ ""'","""', 

1<rVicn>tld 'fU>'Ull« of """pitt"" fOr m,.wly aD broIn~ trarko 

;"""";"1 eIl""f I«llrib<o, oorpont< >tid ","niripal ddt 1«Urities. .l.mcr'c>n 

dtpo;Itory r=ipu VoDRlJ, m~ >tid "n~"""""'" II ..... (UtTs). a.m..c.: >tid .,,,\lanmt ~O«U" III"""" KSCC'. Contin..,." K .. s.ru.rn.nr 

(eNS) 'fI""'o under~tidl aU tI~",,"p'red and rt<OtCIe<! '''"''''''''''' fur 

• particul>r 1."l<me01 ..... m nn«<i bJ iosa< in ....... M.,..,. (buy) ... "'" 

1b:)n (Idl) JIOIiIion NSCC~ rho I<Illem<nI of IDltCbrd trIIdts .nd, as 

• ca, io .... 1tpI """""'I"" ",.0 of .. memb<n'1l<I1<IIknItnt obIiptio<>s. 

NSCC.(X:PI<rVicn 1«Iu<. ia....",......' o>ou>tId rUb:osoori>«<i WlIh It<UriIin 

rr.nsfm. In 2011, ~"SCC,"" • groalwio,d<1m! 20.9 billion eIl""f. o:q>O<11e.,.;1 

mwti<ip>I bOI\d,MlR, m,'od UtTtrIIdts -m 1:12OJ Ifill ........ grew baoio, 

~"SCC hu 187 full .. ,,'ic. _mho" >tid ~7 flmile<! 1<rIi<. rII<rI\bm, KSCC 

II'I<II\btn «><><ill of rtgi~<t<d ~ ... bonk .... !rust"""P'"'" 

(i""ludin! .!nUI <OIIIJ"'II' h»ing limited powm) ,h ..... 1D<IIIbm of,,,,, 

FrdenI R.><n~ Syst<m or ,r<....,...,.ucd and <u,.i ... d bJ ... Ie ... f«Iml 

,uthorities hRin! IUpm'i>ion """ "'"Dor ~ ,Ie>ring.grncin. NSCC 

diru, members "",tude """" of .... "'l"" lwtlJ in rho world bJ ..... Ii,..nd 

"",Jude allil ..... of!4 ofrho 'l9 fi!11Dci:J imlitutiono COI'IIodtred 10 "" llobally 

.,...,. n11y imporutll," T nodes thll NSCC d ..... nd ... 00 b- ill ... mho" ... 

• =«1 on""" tIw! 50 lrOdinl,.." .... fur ~tich iI po>rirI<1l<r1i< .. (Including 

,II U,S.l«arit", .. dWls<S and >l!mI.u.. moding 'ysrom') >nil with other 

dom<>u<.Oil fonign dnnn! .. nc .... 

"'di~'"luishinl ,Iur"l<fiou< ofl'SCC is ,II< Wlde ""'v of rill> it focn and 

,I> abilitylO m>n>gt ,1Ios< risks. A •• ca, NSCC f>cn <ltdi, rilk, hqurdity rill, 

'll>lO<I:r."d ",,,,,,,,,n, riob,lInd "I""',ronal ruL 1'SCC""" combi ... """ 

ofrill man>g<nl<nl tools 10 mit",,, """" of ,hese rUb l<I "''''''' it can ..... 

.. oblilotions. n.... tools "",tude (I) ....... bmhip ... od"d. with rq>'" to 

filUllcial .. ""''''' and op<r>tion>l '>p><ity. If) <Olio,,",,, of <OI1at<11ldopooi<l 

10 ...... ''''ri''ll I.nd requ,,.., .... ,,, and m~ par=u in the form 

...... " .• 

- • n.i f . _ , . , . , , "' 
240 


TIlt ,,,,,,,,,,,of I. rod> "..u.bI< '" ~"SCC under lho commill«l ,!'tIlil I"ilily 

;, lirnil«l "'" on!)' tIt' .... cwmll".. ci .... fo<ility. i)ul.,,,, tit' lho ''''''''n' ci 

....u .. ~ 'Q I'SCC to pi«lcr at coIblCnl '" l<ndm 'upponin; lho b<ility. 

~'SCC;,."" !t<fI'i!'tll '" eonoribo« "" ,. 25 pm'n,d ill f<Ul1'I<d <un"", 

in u......" ,he do>rinS fund.oo orh<T ro/blCnl ~ "'" ,uffic .. ", "'",..,.. 

loti. I'SCC', mlill«l .. ming>""'" SI!I ",ilIOon .. Qfn.. ....... 31. :!Ilil. Fat 

:!Ilil. u.. >=ov <biIJ """",n, ci1'SCC', l;quid", ....... 'm hdd in aoh.oo 

U.s. r,....ul)' and ..,....,.0«Uriu<0 .... $4.1 bin.,.. Tht pt.k ,moum <illl<h 

l;quidity r<1QUr«' .... $7.9 bill ..... 

C) ReiaIiortslWps, ilterdependellcies, or otfief inIer~ oj NSCC """ otfief FMUs 

or ~ cIwing, or stttIemenI ~ 

I'SCC', CNS '1'''''' ,,1'000 ..... ","rlo« wi<h ito affili", OTC foIlh< boot-

""I)' ~I oIbe .. fi<i>l qwnenhip oIl«urilio1 throup I<CWi!i<o ,"""n~ 

""ahlw...! >t orc '" ... d. "bhp, ...... C.1'S ""'" poWon' 6.<. OOIiJa"""' 

'" "'1;"') "" comp"'" >pinlt momb",,' DTC >IT ... n" to dtttnn, .. iowt 

... ibbilny. If """,nu.. ."' .... ilohIt. ,hoy ... 1<1",lm«l from .... ~'SCC 

""",w', ocroun' at OTC '" 1'SCC', ><COull, 01 DTC. Tht 01l"'0100n oIC1'S lon, P"'i'''''' Q-<. OOIig>tiom to..mo.) ",..am", NSCC 1l'ItI'rlben .. p<ocnotd 

in.n onI<r ddrnnincd by ... !pith .. boih in", u.. 'I" ..... S«uritieo ... 

, u,OIn2licaDy .1I0c ..... '" ~'SCC rn<mlo<r>'lonz pooiticI<I>" lho I«uri,;" "" 

l'f«i»td1ly~;Cc. 

Th~ .... d.,.. u.. d<bib and <m:Ii .. in. OTC participan", ... il<mtn, 

occoun' ....... ,«1 10 e>lcul>l ...... , lim<. u.. "" d<bn babnct '" nO! ,!'tIli, 

babnc< foI .... OCtOlln" AI rnd-of.day ... .-,. OlC and NSCC fI,,, ,he 

1<IIkm<n' bo!onc .. of "'" OTC parti<ipanl !h" io aho ........... 01 "SCc. .\.F, ... 

rnd-of-daJ """"Ii -.ith ~"SCC t>"" ),"""'" .. ' ....... ndont ... n~. Drc rrporu 

6n:ol6", ... 1or "'" OTt parti<ipon<. Ik<>tII< taCh UTt panicipon, _ '<I,k 

lh"""". ·Sttilinl Ibn),; ...... i& I "roIJ.up" foo ."h s"cling BanI. ""ich ;, • 

........ bolonec payabk- I""" '" '" IIl<h Sncli"l Banl hym<!lu Ill< madt '" ,nd 

lrom DTC', _" fRII~,,{ lh~ ,he FedmlllmN: s."""a] Selllrn>eni 

Stt-vic. Sro< ..... hym<!l,,", mad< 10 arullrom NSCC on lh< ~"iOnaI 

Senlomm' Sro<'" 'hrnugh tht FRl\.W ",b-ocrounl 0I0Te DTC Jtld ~SCC ... 

>110 panico "'. "..ti"I: <onln<1 .00 limi,... <rooo-~"'rln'Y ag,....,..,.L 

CDS Otaring...t o.p""""1Stnim I",. (CDS. I",,), ,lit C:Lnacli>n "",tn1 

"""'nlito d.po5I""1 aruI c<ntn1 COIIn"'J>O''Y. i, • rull .. "i« ..... be, 01 NSCC, 

,,~dl ". panicip>n, dOTe. This "Ja(ion\h,p onohIt1 CDS. I",. particip;lnll 

'" cltu>Dd 1<1110 orc 1IOd<1...u. U.s. brokt' ..... 1tn lhrwgh 'poruorod 

"""""" ooain ....... by CDS, Inc. W"" DTC...t :o.:SCC.oo .."i<!n lhem '" 

tht pmiq .. 01 dir«t membership in bo<h "'l:onil.o"""~ H.....,.", COS, I"" 

pani<ipanll ... __ nofOTC>Dd I'SCC ond ,hom"" _1000 OrIly ,. 

ens. Inc. ior,atiJbction 01 duran«.nd 1<I'1omm, obIip.m.. Th .... if. CDS. 

Inc. parti<opan< <Imultl on ito OOIipllOO '" UTC or I'SCC. CDS.I ... ~ "'low..! 

'" fIlM <hi, OOIip .... CDS, Inc. mttip'" ito "'I"""'" '" p""'n".''''''' by 

"'Iuirinr p'rticipan" ,. commil coIlIlet>110 CDS.Inc. in IUDOOIItI"1"~-.Itn' ,. 

!hoot r<qUir<d II> ooIwral by NSCCand OTC. 

, ....... , . 

-

, t!. -51 ! • f. 

•• ' '.1 

IS: I; >! .... 

oil 11 

H'i , . , , 

if j "' .. 

.1''"1 . , 

q .. ! 

.. 

J1. f§ 

, .. - . , 

" ·1""" ai §"[",,7. ,lh Ii qp-jd 

- f 

j t" 

I • 

; -'--1'·" ',; ... 

!ltHHrl d- -." SC" 

... p'!'. H 

,. ] w:a f 'I ' 1",1. ! 

" f! [R,. II ,. J • R 

, ' . 

'" H '" R 

" , I ' 'I ' !l- 5 <i H l [1 

'" d is. co j! HiF 

li'l 

i ' iH 

HI 

""1 ii:t 'i .... iI i'i 

_ ,.' .... I ill 

,p •• , n"! HHU 'Hi 

"'g" 

'-'Z'i.,!H;H'U ,,<I -fi.'I,q·",·., "'O-! 

";p [" i 
242 


....... "sec p4y1." import>n, roI. in linanrill owttu duo: '" <be h;v. l'""" 

oobonal ,~t..: du.. ....,.. SSCC <10m and the eff"im<;'" ~ prorid<> ~ 

muhihtenll1<tlm, oitrodn.o<I J'>I1'I"'n ... man.! ill fI><!llb<n. In panl<uhr. 

bt<," .. NSCC clnn and .. ru.. rin ... ty all broI.<r·to-broI.tr "IUity and 

«I<J>O'11t >tid ,"""~ipol dcbo.ltCUf .... \DlIsa<tio'" in the Unit ... Slo,,, and 

"PP"''' """" """50 Indio, mill<> For ..n~h;' pr<I"idc1..me:.. lindudinK 011 

U.S. lOC.rities ..w.""' ..... oItrrnotM tndinS 'l"'tnlI)." f.ilu", <It diltuplion 

to"'" fun<tiO<'link ofNSCC<ould: 

Dim;tIy.r>;! "'S'tMty tff.<"n """"""" doIl..- <>lue and """"'" ol 

fiOlooal ........:6oru m«Juityand _ ~ 

Impoo< DWtriaI dim:! .,..., on );sec cou""",",*, and ,lUI< 

newdomando lor liquiditJond """md~ p«ibIrna~ fi".,><W 

;notituriott. and """'" ,~ .... If ... ~~h man'" r,.. ,mi. no- t<ruid.,., 

Ca"", liquidityOl , ..... , p<o/lIrnIJ ~ from .. bi .... '" di1rupl ... 

to .pm<! qu;ctly and broadly amon( finmcial institu!ionI.od .. 00 

mari<u;.nd 

H:M ", .. ul>tiYe I><ptM e!f«,..., U.s. _ oquity.nd debt 

nwim, fitwrid inwr_ and oho bnrad<r financial"..em ,I\ao 

... subsunri>l in u..il oom fishI and 10 ........ ",,,.ot< 1 riol th>I. 

liquidi,!, and , ....... pr<JbIrnD .. ptrim<td could spmd """"I 5nancW 

irutituboou and oIh<f awW l/Id, thorrlor<, Ihrn,," the .wilil)''' the 

rm-w,!,,= 

.'.cco<dingly. ~ ;, th< ..........", of o.ht Council (hal I llilurt of or • d!StUp!ion '" 

l'SCC<oo1d iorn ... th< riIk of urifK>n. liquidity problem> "",,><line ,monK 

~II>"'W ill>lilu""", or mark<u and ""...".Ih,"'rn tho mbih', oft'" finanrw 

"".m ohh< Unil<d Sal<>. f<I< III< ItUOll'''' out ....... th< Council d«er.,i..". 

"'" NSCC should be deYcnll<d .. 'l)1!<mi<>lly iInpofwI' rMU 1"'''''''"' 10 

TIlIeVlllofth<kL 

H. The Options Clearing Corporation 

~o! The Optionsl;learil; C«pinOOn 

The Optiono Onrlnl CorJo<>li<:a (0CCl "on FMU .. <l</inc<l in Tid. VII1 

01. tht Ac, t.«o ... it"""'l\<1 or op<rIt<>, ",,,1,1,,,,,,, 'l""" lor <t .. p"rpos< 

of durinl and .. ,dinl ..... riI ... trm»<tioou "''''''~ fin.>D<'" In,"'uoionl and 

b<,,, .. ,, fin.>n<iaI inllitU"orll ,"d occ.~ 

ace" oht p<<<!ornIN.n' <lnrin, orpnl .. oion lor U.S. option! mui.< ... OCC 

f""""od .... <ltarinc "",,,,ben with <ltarin& and ... 110"""" I<fYi<n thai <lim .. .,. 

'M need lor individual """"trpOrU<1 to biht<ruly<x<hlng. option pr<mmlDl 

and col1«, and .wno.ln ..... in "" a cW~· bull. n.... _-I", i ......... 

th< >p<t<I.nd <rl>:itncy of lIadine and ... d< .... nl while miUlq m<tObm' 

op<r.>t ...... <xponoa. Addilion>lly, oce ><~ as • Wlu,1 "",ntt1'pOltj' for <main 

option> and oth<r d<rivati ... tIImfort rtdu<inc <r<dil ti&l; for iu """,,'0«>. 
243 


OCC's<io>n<t ........................ .-..~IrOdon,""'" 

rnaiI_OCCcunmdJ'1w 1IfIP""'-q I!O ckvinJ ............... 

........ _«""'IarJ<tI. ...... ..tm.pha.ill_~ 

boW, brot.tf.dnIcn" hII .... _....u.nu. ................... ""'" ~fulIds.OCC' ........... intJ..dt_d ..... ~baWinllor-'d 

br .......... and ilK_ oflili1,.,. of 11 of IIor 29 fin,ncial in~""'iono "",lidtrtel 

10 be (Iobally.yst<m"ally impo<WII.· 

Tho prim>oT..mc..1hao OCCJlfO"'dn .. bIt .. "'" tIelrUt >DOI..w...-

tI' ope-.""'" hilum. Tho 'JP<'tI' optiou<kutd iIKW< "-OIl ....... 

incbm,CIImIKJ."""'~""""'P"f"""", o<t-.I for ~9S ,..,..,.tI'oouI <io>n<t ___ OCC io ............... 

OOIw. .... for.-'op;o.....,.-.<>pIioDI.>DOI....p-l_~ ... 

IioodOll U.s. achanp. 

1I'IItn OCC a<<<pu . , ..... for dnrin" iI bm>rnto .«n,n.) "",n,.".",. For ,I>< 

lttJUa<bQn and.....mor. ~ ...... rrtdi, riV. ftSIIki", r""" ..... '''''IOC''''' 

i'IanOCC~ ..... ""'_ ....... ~broolltct ..... '1'n 

<OII&ItnI hom ............ wi br.....".... cI<uuot; f....t 1Iownn, •• 

... <OpOIOII1O _ riIl-.lll;' 11< -, ... 1iquodaIt coa.....I .. ...u .. -"I ....................... It dot -"'>doIoc _ .. <>1cubor....,.. alb. 

MIfY$iI GI SysIenit irIIp:IrIwa 

W~IIII!I!WJ'llkllGI~~J1n.91 ace 

oct alooc\n,teI IIOCk lend,,,, ,r;l/UaC1 ... , ''''"''''!. KlCaI d1.3 billion Wr .. 

in toll. TIl< doIbr,w. and ....... of option< ......... bQn, h,ndltd brOCC 

inrluod<>""""'..n,. all d ..... "",",.option< InIk<I "" U.s. ...... achangn. 

1a.I~OCCcbr<d ........ d.oiI!"rr-_dl&I ..... ....... 

-xu. 15t.Ol»r..m a.noca" nwo- _ .......... no. pnl; 

U/)'C-..... forOCCiatoll_~41~1IliIIUo."..,. 

""""""" m.oot Iio<o ... a.noca wi 111.3 __ -' .... ohatn. 0CC's 

-. morIIt>ornd Of"" .... mo lot toll _ w.; million "I"'""' ""","""..-.I 

960.000 r",.", """""' ... O1iIyop<1l in ...... p .. ktel ............ , ... t..,.!86 

10m"" option <On1l"llC,,,,n ......... 19. fOU and 1.2 million fUl .... ""'''VU on 

Doc ....... 16otoU 

I. :!OI1.Ilor ....... cbilrc-.u.. d po-... ~ brOCC IoU S5.11S 

billion for .... .-ra<a""'" Sit biIh<IO lot IOOd. _ ~ Tho pnI. 

U/)'C-..u:dpmruwo~""""'toll_Sto.JbiIIioniotope-. 

-.no wi 511 billion for _k .... tr>noa<Uam, ........... Tho ........ 

.xionaI>ah>o« opn ........ for """"'" cInmI brOCC .. lOll ... , "., 

lIillion butd .. ~da ... 

OCC proceu<d an.....-ac< d S1.t billion in .wlydWl!" in inlllal and ,."ation 

....p p»1D<DI> ia toll."""' ..... pt>1:. doiIrialllal and \2fIWDrI ....... 

por-=~brOCC_S!t1 biIIiooa ... """",a. 2011. 
244 


fBlAWegm 1IjICIIIR«1XC 10 It! ~ 

AldDtumbtr ll.!OI1. OCC hdoI $1'U biIIiofI ill -va""" "" botIaIt 

", ill dnnac ........ "7.3 biIiom",..-...........t.'" aoIo ... oaw. 

"""'"'lJil'l1O<IIfiueo",,,,,*,, .. 0I>IJlD" OCC .... ~~ 119 biIIioa 

d "'~h C<I<UdItd"..., .... irda opiooo....,.".. dtpoW""~ ~ lieu 

"0WJin. II> "Doc ...... '1. !OIl. ace aloo .wnw....!. do>rins fuod lor 

option. and fill"'" do .. i .. >cum, lOUlinc 52.9 billion. All" I~ roIhlrral in 

Ih< 'Inrinc rood wu hdoI in ,ho for .. " em and Us. T' .. "'I}'ltaIri .... 

Lo !011.1be ....... 1II"P'...,. ...... " ooiII«nI (afItr IwmiIJ pooled III 

OCC .... $89.1 biIli<oL OCC' .................. 9'1 pntt1II 0IIII60Irta 1rw:I _ 

_ ..... 5lI ....... !OII .... dIe ..... ~r...,..tIOb<~ 

nil OCC IO.-r IhM .. I*U" .... sru billioot. The doily ......... d!be 

OCC <lnric(fW "!OI! .... SU biBioG, ........ .....uunc »U billioa in 

......... I~ ........... .,jd ... ~~III""'tTd\atIfI'lill .... nIu<" option j»SitioIII.od "",k.nd indu. option con,ncu MId in <K_ 

in Jic\I""'"'1iB. The ..... coilJImJ ~ m;o lor OCC duri .. 2011 

.... m pe!ttIII \IoIcd "" !be ~ d ~ coIIaImI ~ ind.ocIinc.,.... 

.-nllodd;.,.....,-'........:d-ro~ ... ~ 

.... d.ou."",. I~ ptrio4. The....,... ............ ", coIbttnl ~ 

e..u .... ) ,...t.,OCC pralcoIaI sIn' _ ... ~ t. 2011.1. 1011 ..... 

pnl \'aI. .... ~' bilIioa. die pnI; coIIaIcral,.,............ _ S63J .......... 

.... poW. d<ari .. fund roqw...- _IH biIIioa. 

occ:. liquidity mout<n in<hocIt .... &I.uW"! ... ..,.,.~ ,oIlIleral. !be ...." 

ill "'" d.arinc fund. ancl. Sl hoi .... l«llred Ii .. ",,«<lit. II The _"l 01 

fund. miI>bIt ., OCC undorr "'" ...... l<d I<CUtf<I ,n:dio; fxilily io <ONlnU>ed _....,."tht....ml ... oI .... fxiliIy,bo.o;>Ioo""III<_", ........... 

OCCna pIod&tll coIIaooDllOlmdon"'PP"""'C .... &riLoJ. -.. io ...... 

10 III< IO<IIfiueo ill OCC', dtanoc F.noI. 0CC'0 ¥-I po ........... r • 

... ·~doanoii ........ ·...p. .... <kandCf....t.,...IO ... 

........",1iqIAdioy"" putpOt<O 01...".. obIipIom ......... 01 (I) .... 

d</.II.Ik or ""I"""i<" 01. dnrinl_ or"" X""" tUrn "OCC io 

"",J>«Ii,oro <hmwJth .. (!) Iht &'i"'" ol "" blnk Of ",,<kIri .. Of1"'i,,,,,,,,, 

III p<rlorm ""obIopuon.-d 10 OCC. In additiotl. OCC m.,..,.. ""h....u 

10 borrow .. otbtn<io< obum 'u .... til ..... "" ....... dn....,inod to be 

rnoonabI< ""iu a.u...... W .......... ' \"n Owr-. ... Prt<odnu 01111< 

eorpor-.,. """-M' __ (iododq. wiIlI<M w....-. pIedcinc oudo 

...... ooc--rb "-~ ......... IO rf5m rrpwdooot.1O<IIfiueo 

lnI4iIIc. ...... .......nooo.j. OCC "*' prvn<k ...... -. .......... 

...... ""'~oI ................... OCCoball,.-ptl)'...-,."'" 

_ ord<rIr""" pnocunIIIo • .a d .... ,Inn", 1DtIIIbt<~ IDrpo. 

F .. 2011. the "'''''I' """",nl "oce, liIJu"'ny ...... rw btJd in wh and 

IJ.S. T .. ....".ond >gtn<)' ....... "'" $I! billion, .... th< pni. _ oIhq"id 

raou= ..... WA hilIioon. The "".k ~idtty .. poow< OCC .. ptnet>ted 

nil • ..,., ~omotmI_ Srpomsbcr 19. 1011 ........ "'" ex,-. 

..ted"bilIioa.OCC"_prvn<k~ ~ .......... pn~ 

apIIIIII" ,,~""""""""""" ........ 0120!!. 

_ .• 
245 


ICI ~ _depeDdeQs. Of"" iIIIInctionslll OCClllttl,.,. fIIlJI; 

_II'JII'I!III. cbi'I:I. Of seI1IIrIIIIIIldMIiII OCC' • .....-0Dd ... _-tet __ 1iootd...-1ndq 

and 'Iouiac ..... oipd< ....... dtpcndc ... bmom. occ. 0Ihn nlU~ 

orion-ton .... ' ........ 1IWII'Ibm. mdio bori!ity IrDdrn. <uIII>diln~ 

..m.ncn. ~""I e.l"oo, or4 pri<i"l 1'tIIIIon. 

occ ••• "" ........ "'" ... '.......,..;" "4_,1,,,. • ..m. ,ho CI[ and to: 

a..r U.s. OCCd.....,.1IICo>btn _ theoc ~ ~""., rnbot 

Iht bnorfitI otllCl...,..... ...... Iht......u.ODd fooom...n..u. ...... 

.. biIlioftoot ..... ot .... ddnrIpouttlllllJU' ........-OCC" • 

...... .arp_ioIOILu,.aIO ..... ~ .. .....-

_""""".......,.SUbiIIi<& 

orrKI"..,. ..... "",kilo"""L '.-..: .... ..,.......-""" DTC, ncc.ODd 

NSCC. which ptCI"ida ro. tho w'inc ot midoal dotMu, p"" .. d, from 

• dtillllti"llD<lllbo-r ~ theoc druinJ >«Iri<I i.tII< ..... ' t1w .... 

dtannpo.... iI in an ...... ,.......nd _her is ill .lI>onfoU poI'Iiooo. 

La 0ISdiIi0G. OCC ... IIlliru .. ...-willi SSCC "'-r-mo Iht .... 

pn>IiI ...... -.II,.. rn.1ht..u-. otorrtiord_ ~ Of'- ot 

l_oIriIuIaooi ....... ·n.. .............. ·~IO,.....1ht 

....-otlht~......u. ..... Iht<UftJO< ...... _ol ... 

.-. bJ IIIIIipunJ ~ .. rp. ft<!W''''''''' 

DTC,Ln" ....... """" ... ~1OtJ; JI'OI'idos..mc...,OCCd ..... i'" 

1III'1'IIbm, indLoilinc Iht .blli.., .. piodw< coIlo .... 1 held in DTC I«OUn"., 

OCC lor <IIilatmJ pu"..... Tho _ Pft'~I<n' lana ot co!4,. ......... 1\Itd 

~pIrdrod .. OCCiotbol __ .DTC>ho~Iht~ """'"" _.........u.. ....... __ to be <SO<Iftd,. bodo Iht ~ 

~ -I""P'" _Iht AQS IlIrkc Loon pbaiJta. 

R E!Itd 'NI1be '*' III Of IIIrI¢on .OCC"*' II1IIl1li ertQI.-bII. 

r...c. iIIIiIuIiIIIIs, 11''' broII:IIr InBiII sysIn 

Sbould IhtR bo. foilu .. ot ... dilltlpUDlO CO tho fuoctioni", otocc, lilt 

i."""d;'« <lIt<u <OUId be ..... if<lltllin .... 1".......,. forms. Tho fino ~ dlrt<1 

fin>nrill ...... pll<ed ... dwin' ... """"' ..... ~ be >lie ... tempenriIr 

'-.,>«nO....po coLbIenIODd dnri", fond depooiu. Add.il_U,.. thm 

<lIUId.be • ......,... ... ponuld ....... ol ... SUlrillioaio ........ -.l 

.. ot ............. _ .... ~OCC;, ... ODdr-.. ...a ... _ 

d«rt:ut io ............... .,.io Iht...n..u _dido OCCio ... .. 

d. ....... dar .... "'oonI""ilDlldranocdd6ciaxy .. OCC' ......... . 

AI ot!lettm/:lft 31, 1011. OCC held nu biIIioa in ~ d<pow ... brboIf 

otic> d .. ri"l""""""", 5U \IiIlioo in ,Inti", fund cIrpoMU. and $19 WIIiooI 

in oquitylfld indn option """",~" K«i'\ed in Ji<.u ot"" .. i •. A fal"' .. 

ot ... dionlption., Iht fllllllloni"8 otOCC<OUld ""'""",iI!' Iim~ pIIu<ipantl' 

""'"" 10 thooe drp>W" the *'" ICnO mol p<I8ibIr ....... in ...... otlht SII 

loiIIioool_<Iepooiu. 

_ """O~II __ 
246 


tn addil ..... in ,he ...... OCC is no long« mibble .. an i ...... rand *o",nlO<, 

"",ion, ,1<-.ffiI:tnd .<I!Ird 'hroop OCC 0I1f .... ~ to b< rtpb<ed, to <be .. 1<.' 

pnclicable, indlldmK throop CI'lIC'Iinl into ........."Ion> in the uO<!erl),,,! 

in...,...",." .. , wi,h an Mngt .. placa'n<m nluo ol1pllt<l>irrwdy SB lrittion.ln 

Iht ....... ,uch. disruption ...,. to <><cw, .. nl=<nt ol"'''Yfutur< tn.nl><!lOn. 

in opooru eonln<U =Ily,i<u<d br OCC <0111<1 be ""'ui ..... to 0<tII. {loll' 

bibl<r>f bu.. bttWffil the ponin to the re!p«tiYt lransaclion> in • d.>ily Mngt 

amounlo!$5.9~ bil1lon. n....".. ~!rU< olllOd Joan ~ with:llt 

"'""'!l' d.>ily I""" nru. ofSI! billion. 

In addition •• hihl", or disruption to tht fll"'''''';''! ofOCC"",,1d likely ..... h 

in ~",itnnt>pilloo<r <lr" .. "" tho f<II. oftht U,S, <ronoIII)", .. d ..... '" tho 

amounl of , ......... ~;1abIe £enmlly. d ...... ;"'....,. away from "''''' produclive 

U"". dioruptint; tilt 1IIlrt<!. fi:o" J«uribo>:tnd I ........ Ilndorljing optiomdar.d 

brOCC: ...... uci'" tho .... tu. olh<w<hold ...;""' ......... "'i"l: tho ,biJit, 01 

rorpontioru '" 111< oprioru ,"!lWI.>g< riW. 

"""'" OCC is tht ..... ,karin! .gtrt<y proriIIing durn>« and .. "1< ..... 1 omi<n lOr 

U ,s. ·Iiotod op<ioN. A f>ihl .. or diYup<1on of OCC <0111<1: 

Diro<<ly Illd ",!1IMlY alht "I"iJ\rmt _ .oIuc Illd roIunI< d 

financialln.nS><tioN in ""'""~ and fu,", .. =iru; 

l...,.,..mattriaJdirma..."" OCC"",.....,....u..Illd<t<"2l< 

DCW drnwlIb lOr IiquidIlJ .... o<w cr<dit probItm> >mOot« fin>neiaJ 

irutn ............ othtn """ rtIr"" op<ionI",.rtou lOr <'ok ........... 1 

Illdothor~ 

c.w.liquidityor<r<d.il po>bIt:mo ~from" f:ailur< or diIrupbon 

.. opond ",,~kly and broadly ''''''''1 fi,»n<iat ina .. ,,,,,, ond ""'" 

""""w 

H~ <u!'I'I'Illat.i n<g>!M df<I:\I "" U.S, <Iomes<i< option> and fUlu,," 

=zUu. fin>neiaJ """,utiom, and the lItoad<r fuun<iIJ """" that 

... IUbswttW in tholr own rip. and ........... ., <Ttl!< • ri>I; that 

liquo<Iity and <mIi. probItm> txptritnctd "",Id Ipft>d arnoII;'I fWnciaJ 

iruU:""""ond other nwI<1o. 

Arrordingiy, it is Iht .......... , oflhe eo.n,il,hat. f>it"" of or . di.",I''''''' to 

OCC ,ooid inu<..., the rill. ollicnil'ocan< IiqWdi"or ,rtd~ p<ObIem> .p/ .. dm. 

''''''''' ~norritI in,,;,uborll or "",rtcu and th<rtb)' th, .. "," the "abtlityof II>< 

financi>J 1f'1<" ofll>< United SU .... for Iht "''''''''' ><, out h<r<. tho Coondl 

Iw d<"""in<d <hat otC<hould bt dnlgn...., ... ')'SIern",,11y imper"nl F).IU 

punuanltoTnl<V!lI orth<N:" 
247 


Glossary 

_ .. -

---- AWW ... _IIr ............. _ 

mo ... _oI ...... ~ • ..,.;toI_ .. rIIl 

A""'·_*"lIJ_·,..,-IIrItllrJl 

"IIO'Itin" __ ~~. 

S/!O'I4PdotII ...... DlllllUllyol",lImOlpIlll ._or .... _ ...... _IIDIe.-. - .... -. ..... ~- .-

_._Setuity!ABSl A .... _ ... II __ lIlIIdcboclll 

..u,lOCIllad.-.lo..-ord"'lIIIIlIII 

_~_"'''~111_'''''', 

AltGlsoarity, __ III ........ iI\IIIIIaO .. 1IIIiI 

.... ...."lIlltkltl_ 

... __ .. ..-....... _-

ilIlIiPQilll .. ~..,_ItIOIIr,~ _ _ """"*"III_ ... IIIII.,q ..... 

. _- 8IdciOlldilg~[8Iq 11>1 __ l1li*"<1 .. __ ...... _ 

_ WII""*""'IIIII __ IIrIlt __ iI 

_,;" .. &otl1aldil9c-.,AtloIl956. 

-_ .. 

lbt8llll~0II~~(BC8SI~ 

lfII! ___ 

ill~"IC3S~ Iap/III_.,.. 

___ .... _C/lilll.I<:wO,"8IIIIlil 

2QOI," BellS..,.,. _ CCIIIIIIdIQaIq_ IiIIoI_C-V-OolColllo' __ _ 

CIpjtIIS-III: _~'_b~ 

_"."IIro_'''iIIIIIl~1JII_ a1IiI,lIOlIC8S.,....., ___ .... ~ 

I\'!TMIlII!n~_toll_1. 

~_"lIofon9l-._ .... U.t 

_ ....... ...,.... ........ ,..ofDljo'V.5.noJo; .-,.lbt_ .... _<lralglIOOt_ .. _ 

"U.s.~_IIII_M.IOII"'iBporI_ 

....... ,. 
248 


--

CIoIfi¥~ .. 

--

CIoIrif __ 

---

--

_ .. 

Ao...,IIOt~IfI)IQIOIIII"'_"_MII _ __ tr_..,-. 

"'1liI! .... ___ .. _~" 

·~_._ .. ~"IftfJ ... .., .. _II...,. .... JpItiIoII .... _lJ --A_*"IIOt ___ IIIOI..-oI __ u:II .. _ ....... ,, __ ~ 

_'''-'.IIIIIl>/!0101'''''''''W __ 

_ R_ 

M __ ",*", ___ III 

-",poJ-c_or __ dgtIIDao 

...~lbtifllllglllo$_Ior_~ 

_ .oaIpIoII _ _ ....... lIIIItKO<OO;nI .. 

lIIt ....... ,III_<I*,1IIOdIorfo;p:uIlIII)' 

_~~.,.,.,. .... ......,.,r 

~"' .. ~.,.. 

NI_II!ftoc.,-_...,.",_ 

_lIIII 

~1III1!ItedI~_WllP01lOlllJT1I!Qeng _____ _. 

A/JIIO<I .... _II<WIl:/.CIIOI .. _1toI 

I~*"''' ..... _ ... ~'''''' .. - ~1110_ .. ~"_"",*",110 

to..",..... .. _lItohllll_dCllll 

iIInI!I._._,-*,III'~"'" _EICIl_""''''''_IWiIoIo!-. 

--~-... ~-twIJiIg .... •• _IIXI,," 

A_IfII!~ ___ "" 

--=1\rII1III~_"""_N"'fDIC, __ 10_"""",,_ 

r:-t:IoI ..... _ '''''''''IfII!~coIIlnII!Jdll! 'jIOOItI_ 

SoaIkJPlBSI """1IIII1fII!_~""_0II" 

_ "" 'SOC 11> __ 

~,,--

SIIorl· ... ...-rtr1J\liOlllUII"rn ... _ 

--
249 


~ ..... 6IotoI 

-- -. ........... 111 ___ ... -

**~ TlOICooBitIN ..... GiotIIIfilllrlClli S'*" ... _III!o1!01!''''' ...... ~_oI_ 

" ___ .IIlrlIlIIlIt--.gollllt 

_~~ __ tI,"""~ 

'-"""IaocIIooiIIIIIIISlllllllyol __ 

IbtComillM .. 1IlI6I»IIF-.dIIS)IIIaI __ 1IIt 

_oI .. BI5_8Wi>iIllll __ 

A-..ool ___ 1I!' 1IIt IllS NlIOU 

_"'~11111~_'-' 

~NI" __ ""'I1111""""_""""' _ _ .... ____ c.nIl\JlOSil1 .. 

~_oI111C11_. ...... NIo.~ .. 

_~oIIIIlIIt_. 

A __ -__ II __ I0111'_ 

II_ ~II"'_IOIII' "'_~11IJI(iIt<I 

CIdt ...... II-. ... OIII ....... ~ 

~_ .. I110 ""'-"*'~1OII! 

-. ....... _--.11111~.." 

..... -.IIIII __ IiI<'I""'-I1flIIe .... 

.. -..,.....,_r-o~1It 

1IfQesI~_ 

_ .. AI2I~IIDo:l!'> __ ,..., .... A_ ........ "" ..... ~ __ 

.....,II,..._III101,_ . ...,otI!IiI _ __ M....,._~oobII...,"'-'II 

1IIII_lOIao:1i1 .... ~!olnI!'_,.",.. 

... n~lI!' ""iCII.. 

l

_b'. holoi_1IIII_1IlIoratnol ___ ..... "...1IIII ~""*"'" 

.... OoD!_~(III'1j l _ lo llll-" ........ _111 •• ~ 

__ .~Nlis_ •• _ 

_.1IIII_ ~_II_ 

lIIO_oI ', to:n'*>olt 

l~pIo! _lIIt_oIl111"""' _ 

_ ill\IICIIIIOI. 
250 


--

--

l __ "'Io""'~II __ __ IIopIby __ IIIiI;I_, 

_-. .... w ____ "'" 

--

A ___ ~..,..._IIfCol9mnl 

_011_01 ___ .... 

=~<JeddIO...., __ oInni 

--'~nlnnI_~nI 011.-" -.. ThlFn ~S!*'"."" lIrilOll ___ la .. .-sw. .... ..-..alll ... 

Fncm./IIiIIioisu .... 

_1iIIIodII~ M*-,DOl!M~ __ ~ 

_c-!fFfC! -...1IIII"""'_IDrIlll..,..~_ .. __ IIf .. _-... .. HIIt. .. HClIo\, 

.. oct,WNcm, Tho fftC-. __ 

---

---

"""",...".",--"". ____ 1111 

SIIIIt-.~(SlQ_" .,q_1III 

!l.C_~n."Coofn:aolSl>!o1ll<* 

SoponIIn,1I>I_c.d .. SIIIISIIIagI ...... 

n1llo __ IIStmo.M UoiaoStw>lo;n 

A ....... ""'_IJ"III_""'~IIf'" 

foIenIl'Ieser1o_'" '"'" pdl:\wltltI..., .. _ 

1IIII_"'_~"'tI!f_~ ... _oIW-. 

A**"" __ "*'~IIf"f«Ia"' 

~_IIII'-jIdjporIUallia\Iili._. 

__ 

AtOm A_oI.-. __ ... -'~UIa;~IIf" IilIlao:Coo'pcnb. 

___ A_.,.-_~ __ 

~ .. OPIIIIDi'oI .. O)'SlOI._IDr .. _ .. 

............... ,, ___ '"~~~-. f-.dII_~tI 

1IIIl1II ___ IlJOpllCr1n_"" 

~1IInI,0I_" __ 

_ .. "'SQ," ..... ..,... 
251 


___ """Ul SiIjotIlOunIiI_,NCIOIkI.ftaMAII_ .. fllll 

1O-..,_ .... _OfO!*Un . _1yI"oIo IDr .. _".-.... __ Of __ -'" 

-- ---,,--.,,-.., ,"---MOIII .. .... _. 

NIt 11_....,..1*fod. TIl ""'" ,..1IIh _ ___ "~ltf111_ .. ~))" 

h-.v)'lllr;liI_olIo"lfIO_,..ilw1id! 

•• 

_,"-'--'_l1li1I"11III 

1fIOl"'''",''llInlDrhpo:<#&lO''''''''''' 

~IDrMn"""""'''"*,,IO''''"'''' ...... ..a1lll1 ... 1III-'noo"_cm.II_ 

-...... ,~ 

1)PI1I ____ lyh IllaOD.., crU111 .. 

,....-"*IIII_lMlIooI. 

~ A~_ ....... ___ Iy""M 

11111 •• "","", __ _ 

__ ~!GO'l Thr __ "Wt'lIII_dotI.~ 

.. tQI .... lll1lo11l/OOO1tf111"'*"'~_. 

""""J"s 1IOrOIrI1IOII1Ig'!I*iIc !*iOl 

ThrlAfllll1e<1JffInt ''' ___ 10 1ffllOlol'II'' 

-...,Cr<I!I1ISIrO 0I'I$II<l1JStIIicIIy ..... _1III1""""'*' 

6MnIII{I;'2OI _II_klflo!on .... ......" 

_DotIISrnielIIaIII N1_lIlM,.II_~II~~ 

_ OetII~I'JIIiIIII"'eotiadl req<Rl 

~ .. -.... .... ..,-* 

_RlltRillc ....... ~1I __ .. 

11_ 

_" .. 

...... 

ioMW'I" 111 .. .. ~ 

-,.,... ... _-"""'" tfII1--,il19l~_TlleIAlS_ 

fOI1I_~,_""''-'1I'P''I1I 

~----. 
252 


iInIrIIIIiaooIs.<1AII 

__ ~ 

~""'_01 

""1SIl.\asr..., ____ 

___ ~ 

1O 

1ioIIIfr1lllMll1All_lo;Iioil!:s"'aI:d~ 

_~Ion! A __ ,.II_lIII"-._. _~admoa __ 

t.1lla.w!IDIIIIIQ~ 1II/1Id1lltllo!_(IIICI,*flln lflofRl.IIC.M 8HC>.I:JIII __ oII5IIO_ .... n 

r1C!bIlo"-'_mJ,IfIo __ $I5a 

_BtD-n_~_1IO!InakIoiI1Il 

1III~_""'Dtr1C!bllO"""'oIliIo. 

M~oI._~_IJIO."" _ 

_ kr.~porti<oollJlOjIIltIIIIOlI'i:I. 

Tllamlo" .. _oI ... IO"' ... oI .. -. 1)IicIIr~ ... ~IIIiIIII • ...,. __ 

0DIIII0lI<iIg1lll~oI'''''' 

lO

TIIa_II'_""I"'II""'''''_~'*''* "iIeo:I~ ___ 

A_._._....,.~_ ..... ...... IO'-I .... ·M-. 

1iII;_1_"_f!IOOII~fo" 

...... ~ ... " ... """IlIOJIIIIIIioI""'" -"""''''''' ....... --~ ... AlI'''''_ '''' lfIIIill<o*eilll! ... 10_. _ _ 

__ nPllO_Nl9IMalyra1lo:lSllO:l-_ .lUIfoll\llClll!' ____ -. 

_oIlI!piI.~_._lI9f!lialO 

.. _- ....... _StcII'tr!ll6Sl M __ soadJ_II"~oI"", _M .. -"'_~_ ...... _"'~~"".-JfDI"""""," 

• "" >iOC II ... ..,..,... 
253 


--

--

---"" 

--

--- -'"',.., 

A_III1W .... for.,.._1II 

"*<IiI; 1M IIsG1I:o:rOog mIMO "'" ...... SonItors 

.... --.-.......--

--

__ II!_ .... <OIIIIIoI,kaI __ 

..... ,IJ .... ~OCiIlf ... 

11ypl1l __ IIII __ -' 

_"'"",,~_!fId)'''IorIloCk",,ioIeIi;Q 

.lIIIiamot ... _ .... IJIo_._"" "'-~lI"_""t.I. 

lnillOlilillOlllCfllllllillOllioluldIlOSK •• 

-"'~_I1I/IIi~ 

l_<l1'dIIg1llll_ .. _ .. ~-... 

~_·_-'~IlOIIitdIy .. _ 

.... ~trIoJ!lOke."""""'_ 

..-. .. _lIIIII.oIW:r1 ...... IoIoIIiIr-,oIIII 

.... ..,.."'"~ ..... IfIo-.~_ 

~~II--I111 .. ...,-""'*' .. _~Mllfbollo ..... InII_--. l __ ""f" __ lIreoo,...U __ 1IlI 

..... _-"'"1111*1 ... _ .. - n_IfIo __ .... __ oI~, _1IIII....-..... rtp01I,I'CAOII __ 

l1li_01 __ 

CIoodIIM __ iI'I'lbIh~ __ ..... 

_I-.to)bt ....... __ """'" 

_1lI1<1*1!!III.1!OOI .. _IOI'lY ....... -II-...... "'-~ 

f«dQlllf'lr __ "",",. l.., .. ~1111 raIo 

.. ,.-01 ' __ '_",,111-"9 _ 

_ 1 •• 1111_,..., .... "" ... 011 __ 

iIlfllvtl.,.,.. .... pr_.,. 

G!o .... , • 
254 


.... 

TlII __ .. __ 

.aeliIrriIII_.·_,_,.IIlI ..... _ "-'dllmoga,MllIIIO .... """,.I1111-. .. 

~dilllllci!_~ ~~~ 

A..-~._ .. ""'''IIIO_d. _iIItiIo1Ioo""""",MII. __ _ 

~~iRII<I A~ ... _OOIIO'1J ..... .....,.._1O'IJ -.,..q.~."",~.-

611!~ .. fWIII"""" Dri:o. 

_1fIIl • .-,. __ 19Ii'It1/llQfit:l 

RooiIooIIII~·_ 

--A.....,.IIIItIl __ bf.fIOIII" __ 

So:on)'(IIIIJSl "'-'''''''PlI_IIIII_.,-lIIOIn_ 

--

-

~"'''--''--

l -.gImOQllllllll-.Df' __ .1I'II'iOo 

• __ d .... ,_"'_TlII 

_""'f ___ I01_ .. 

.,,"'_IIIOlnd1lllq-. 

"'_d .... _"'1IlI~d __ ~NI~iOIII\IoI<O_IdII.PlJIIIa 

--- n.o.....,._OI_ .... _IO'IJ. __ 

'1!*iIOI '" MIIInM o:cI\aIgIb' ~ 1II 11l11iJ11d 

~.-

A_ttISICIIDII~_..w.. ..... lIO'II'9'_ 

n .. .., ...... """""*'_.IIIOfIOIII .- ~()pi!noo ... ~1!IIIIIIIfIt~ .... its_ 

ISfIOI II!"...-;,gMII~"""MII_iII-""IfIS 

Slm-T .. _"""", 

--

la9I _IIIDrI-InIWllo*ll~~ 

.... __ Mnl!lGll_._ 

-~-Iqo-"", .... ,..,. -.. -_.--.- _ .. II '10C 11. __ 
255 


~CCIIIII_ ~1Ir1$l1l$l,_!rolI"*-l'101IIJ2OO9,""1O 

~iSCM'l 

_~

_ ...... _"u.s.lllllklloilq~.., 

l00 __ .. __ 

...... - ICMQI"~~ .. FiOinI,.,..,.,occ, 

~'" 

opwllilglOll_rII'G1I,"'III/ GNlIJ_IO"IIR"""""'*" __ 

lOll ~ 

noo."'*'IIIO,.W!IaIIIIOlI_ ........... ~ 

~ ..... IIIIIOQ1itto1Dr--'_"'-'" 

-"'111/~.-- I_~__ ~...,..,Ml)ctoOorlOO3 D! .. FDJ;tnu;t.1 

...... [lLGP) _ ... _ .. _-,,, ....... 

-'II1' MftI(j __ 101-*'I_W Il1' 

DoIC_ ~lIIIIkdll>olils.n.~lIo:l!wo-==" ........... __ _ 

'''- 

AfedorII-"'fIIIdog __ N1 ____ _ 

I.OIIIFdlIIWl ""IO ... ,...IO_~._·_"'" 

... _ .. _ .. __ • 

~ .. ao:tt_"-,,,,_ _MIl_ 1I1'~1!It __ _P<1 D! '1IIlI!r" 

.. oo .... _ .. ..". 

1!It_~1DrA8S .... __ n.~ 

.III**'I1I2OOl 

A _-"'11111""","" """,,"lII!_ 

~.crtOI,_...., .... _ __ .llIIIIkbtlt1Jll1~<IIiII!'~ 

..,1II\oIoIJ .... 1O~ ..... ..,_1TIO:1pI! ~m.-IfIoo_iIoItIg IIIo_.I .... 

iIItl,l .... --..IIfM;IW .... _ 

~1IlII1!It.",.,.... ___ .. _ ...... 

__ It1In ~lIItIrIJdIII __ 

.. .."._"""".*""*-" ..... 1 

--

• __ .-Io~ lfW1Ii'O'II-.~ ... 

donI; ... otII •• ......,IO_ .. ~ 

,,-.. ,.........-- ... --.. .. ""'~.- ~ .. ~ 

... ~ .. s.~,. __ ~_" 

IInIIII'tmllO_tlIdaJJ_"I"!-""",-" 

""""" . 
256 


--

_ " "'lOt" ...... ..,.., 

A ___ 1I_1III __ ,_ 

~1Ie~ __ k!"2OlI,D'IIQ 

.. nI,.;I! ~ __ .. p,r<IIIot._"'IIII\1O_ _ _ 

r-'-' .. _OMdIl_"'_" .... b ....... . .... _ 

Aant...,pq 1111 '*UoIiiI_booIIllllillllllltIIIi 

...... -
257 


Abbreviations 

~ 

__ '-dII'" 

~ ....,._s.on,. 

~ _DoposiIxy!locefl!! 

., """",*,,~~1'rWIIII 

~ 

--... ~ 

__ 01~~ 

.. -~- .... .w....SIIo1_ ... 

~ .lsoI~\IIdIr ___ 

'" ~.-

~ 

1riIIIIo __ 

~ _~"'~s.r-

• -- '" _01_~ 

• -~- ~ 

~-- m Sort.IOr ...... ~ 

~ _ 11 ..... -

~ - ~ 

---

~Iut/OIOdct 

... ,-CIPIII,...,.I1111""'" 

........ -. • 
258 


"' -....., 

• CrificMlO!~ 

~ 

--... .. en--f'lIIrIciII"'-.... 

om ~_T __ 

~ 

tlonIg __ ~$fI*I 

'" (fIC ~~ 

., (Uk*._ 

.. e-<iII~_So:dy 

., 

~ 

--- -./iIr>1iI9I .... 

~ 

_M_ 

• -... .. 

~ 

---

c-.:;aI ~ '*' 1$1 

= ~OfI""'-nl~s-,-

" -~- ~ tnII_~ 

• ". .. ~ 

--- "' ~tuiIg~ 

"' U.£.~ .. _ 

'" ~TIIIrI~ 

". Doponry inIII ... 0IIrIIi toIpnlUo 

- "" fSOC /I _ ......... 
259 


•• DoIII_ ...... 

'" -~- W 

~ ---

--~ 

"" bropeoo _s-. fdty 

- ~_10011_"" 

~ 

EooIrM __ 

~ EIr'IU1-"_ 

ow w..1_fuIII 

• 

~ 

--

--- "" 

_1oIaiIII!Iio!I __ 

~ 

,~ 

---

F«I01IOopoIi!_~ 

'" F«I01I __ t.--taIdI 

'" -""',. .. '*lllIItIq_ 

~. 

-.... -~ 

~ ~_i:loIr"O~ 

'" ~-- OM --'~/QI>;dJ 

• --- "" --... '" -"'- ...... ~, ... • 
260 


,. --- ,- _-..s-.ot .... "* 

,. _Senta~ 

~ _S\olIII!ybd 

,~ _s-,OoorJlglCe-

" FoniJI ~ 

n" Fngo~PriIIBrNs 

,. 1lII6IIqoalIOMyAlM:t-. ... lM:inIlId: -. 

,~ Gi:W!'~~e. 

~ _~0Ib 

W 

~ 

---

--- " --- ~ 

... --

_1bI 

• 

~ 

--... _- ~ 

~--

~ 

.~ 

--- GIoCIIrs,.-..,tq)(I1IO!--

- -'*'---~ 

- -~--1'ropII 

~ "'-"*I 

M u.s, __ oI"'WIMI~ 

- "" fSOC 11 __ 
261 


~ 1IInIIOooI_ .. _ ...... 

~ _.I<aar!Iq ~ b"d 

0 - ... 

'" __ ~s-dI 

~ _~fWIII 

~ _~ .. _C-liDOI 

~ 

~ 

---

_ ..... ~ _SWapsIOOl __ 

n -- " 1.tgII~-- ". ~_OIIo'OlPollf 

'''' .~01111~~ 

'00 lqor"~(Ipo:*-

,IT -_ ... •• 

.~ 

---

~--- ~ .- - --- "" _Laue 

"' _LaILit 

•• _\Wlu.e 

- -_ ... ~ 

... -- -~- • 
262 


~ 

~ 

---

--

'" --... '" --,,_-. 

•• *-- - __ OI!coocl* ""-C!I 

'" 

_Credl __ 

a ~-

H --,,~ ....... ~ 

ft 

---

-""""""'~ 

~ --CIoo'rIojCqnlion 

.. .... ""_CU"J ~ 0IIc0 .... ~ oIl111C1trJoq 

~ 1'oI~ CIoRIg~"""_ '-'" II 

.. OIIco<l __ 

•• Obr~T_1'IttIlI<I 

~ O!WI!~~ 

- Owob."'~_ 

"~ O' ... ·IMIIII 

"" *OInrm..-

~ l'IioI:iIIII""'_ 

~ 

--- - _~~00ItIIflt1oaril 

- "" '$0< "_"' ...... 
263 


~ 

~ 

--- ,.....Iar __ ~ 

M -- - ___ fooJDo_ 

~ billed _1b'IMoI 

"" 

1IIoI1 __ lnIII 

.. -- - 1\aI~~_Act 

- ~ ....... a-S«\rJfr 

~ -.-

"" RNlTIIIIoGrllSl~ 

~ II*·IIII"I.U_ 

W ~ 

~ ~C>!IIIII_"'" 

~ _alE",cw SWIPI b:a1ioo fdy 

- __ --,nl~lIIrI:et$_ 

•• 

Socu1IoI __ Act 

'" ---~- ~ s.M9'aI",",HIidIo;~ 

"" _loMOIbr~~ 

~ 

~ 

---

$yslooicAisOC-UO 

~ SdI-~~ 

.. ,,_. • 
264 


,. SIo<\l .. sn;C-ood ___ 

,- ... Trt:~'oI~iIIO' ... IfI4"""*SoarttIeI 

,. Tr ___ 

", In l$ooI._ SmtTIiIIlfMf-,. 

,m ---1'nIpo w Troe _1.oo*!g1<! 

'" !r-'~$oafiIIa 

~ IrQ ....... _ 

.. ~~-1'r1pI 

• TrIIle~ 

" ~_I"" 

~ ." .. - u.s.~fllq'aAn 

.. IJ.$,ODII'~ 

• ..... _- ~ 

_ ... "" .,...1tItO_Q)IgIlIII 

.. --~ .~ 

m --- -.. 

- .. WDrIIS_oI~ 

m b." 
265 


JOles on the Data 

[mpc:u oIhrrwiS< indi<lI<d, dIU riled in 'h" """'" ... ot -'"If 6, toll. 

bary 01 c.um Gooeomen1 oata S/m:es 

p,..,~ I~ C"""fW'l' I'trionowo:< Itt"'"" (BlICI'R): ktpM oCw....a.J in"' ........ I'f"'IumI f<>r 0tI<'CI 

.......... l hokI.ioIc ............. 1Dd poIIIiohod 1It' ... redonl RttmoorR!OIM: IIpon III awUt "'tiritJfor p"""", ........ '" U.s. pmo""" "'"""" pubIisb<d bylll< 

-,~ 

n Y-9C; ConodoUttd fi""",,1 ot>t< ..... "" ...... ~'" bonk hoIdi'li """J'I.Il'" publuh<d by tb< 

Ff'dtI:oI Root ..... 

kadIJIIic f'Ipen Cillllil flis ~ 

0:>ptI;wI. ADm.ll. A.mc&ne w... ... and .I(~hori '01')1 ...... .".. Tn.hny -..po)l ..... brin !he tolO 

~-"""'_"" f.'_r"'SiII""!010.N .. m. 

B«h,)oIO<\I1I L.A""""" .11 .. "n,ln<i J ...... lItAnd[n'O. "S<uIom<nt Uquidil,lIICI.\IOMUtJ Pdiq 

I~Laoomr"""tb<r""",ioICriooo,·"""~"""lWr"'t:-""_I!. 

Ihn:h!o11.No..I . 

... 

......... _Cl20I!~IIoIaauLl:AI ...... maw<l.IIted .... ,....-

iMon<yS"eI"'U mod< .... ibble for ... lor i~NeI >Ubo<rib<nand P"", oil o<h<n pIo ... <on~' 

iMcntyNa '" lUbscripIiotI infor .... ..... 

• )lut....w. .. _ .. pmood .. ..,tir<I. .... ......" ............... ~ .......... 

--. III bo oIou>rod by..q.-. ttl ... produrUlIId....mtkt<1ilod hrma.0IId &oII_"""'OQ)' II< 

IiohIo lor...,. inacaI ................ "' ......... htma. 

C tol t •. \t1rt~ Croop tim;..,j, All """. rtt<nt<I. Any un.L>Ihorittd "", ddtloou,., rrproduuion or 

c!iu<foinwon, in luU .. in put. in..,. ..... ia or ""...,......,.. witIIout til< prioor .......... pmailoioot of),l.,u 

Group U .. iIcd ilw'cLIy~. 
266 


List of Charts 

O'a1Ul Oqe Ilfa1~t:\'.I1IeSII:f\:W:l 

awtU2 (}qeft"'~~~ " • 

OWIH3 ......... • 

cr .. HH PIiIat fbs'IO!II1S • 

O",W.5 Nt!IOqeft¥~ "" OWIH~ --" • 

Ci'11'14t7 lbFOOlPa'loXllli:llR3! • ~'H1J Ltrq-TO"II~ V 

0'11141.1 ~QwwaOdMrl!lD!i:l '() Nt!I_ V 

0'\Yt 41.2 FfIroII RIIos tI ttrJiwaj Ccm:nIo'f._ V 

C'a1.UJ ib'lIlsu'tetll'~m. • 

!MIll.! -"'- • 

o.tH.5 Sri; b'I!S! t.U>;i ~n EltIrn • 

(lwt1,2j ~Ccr.aa! Ib'lI OIIUPa • 

CllltH.1 1tIlIm~&_r.&I!Lon • ,.,m ""' ...... • 

""OM ..... -

• 

C/Io<1I2.1O ItJw\D'lII 0I0l WII!I Doel l) Net WirII .. o..t42.11 !til ~ t,tiJWliIltn:Ir.lrae ~ ~ 

0.H2.12 8P:.~I.ri'I;Sla'GI1tI'llOs:wll " DIrt':!.13 SilIlI&sres.:."twbtr~Qd " 010112.14 fbatd:liRltr1Jd(8ine ~ 

~Ul$ SlwedOltss' EIIil'I'nltwiltl fINIfzr. " • 

0.112.16 ~0i(l5e"lt:t1'illl ~ 

cr-U2.11 ~fI'8liII~~ . 

cr. H2.la ~Co'llI!8'CldIW; • 

0WI12,I9 ~M'l),rtdfl!o:tonCCIIdt.llrlldl • 

(lWIl2.20 I)dCrd~~I:IJOec)!SaJt • 

Qoa141.21 _.", > OWlUI II!!CI!tI~. l'W!:tndW' • 

a.\U2 ttMli.IQlaa,. s..;u • 

a.tHJ f«IQ O!tt ~ Dr h PIdt- • 

cta1UI ... ()AftiI'll~t.llttli ~SF\tfcDlll •• 

OW\U5 Oqeft S.nll.oclIc-nm.DItI •• 

OW\4..1S OqeftSlll ill fMle ,. 

OWlUI OqenldillfMlt • 

""Ole..,,, • 
267 


a.tUS ~Etnl~~~ • 

a.tU9 ~"'~BolIrecrm • a.t • .110 N5nlllUJ fIni>ldl.!Jlg-T'I!IUn n . • a.tUl ."',, .. • 

o.tH2 ~MiJIlIEun:me:ifU~ • 

o.tH3 fllDAItlGlJ'&'oo'Il • 

a.t44. Bll.Q,o:t)'i'r\M;IYj~ • 

ClIJ1H5 E1Jo.il:III'~f,;_DiIIIi 

a.tU,6 blSQlR 1om/I;!lJsII'lhj " " Clwtu/ ~ r.Ia1lIEun:me:iGlJ' ()MI • 

ClwtH8 NII~fI'IroIIfI:IoIt)M:!_ 

a.tH9 Cl'qt n ial 0Qse SGW r...;.,g " o.t11.1 _DI:IIlI:UWj~~fIIII< " " a.t51.2 

0'8'I~1,3 

"" 

f<ni;,1I~lIu.s 

.. 

f\lh!0ltI " 

,.,,, S&PEl:'Jw:V!B!IIUS i:ltt Fir1t)~ " 

,.,,, S&P~IIu.s!li!l:tIllld.(JI!G*i " O'8'I~U Ewl<elll).l\IJ Yl\Il !"V~:lIt)GrTII\il!(:j " 

OWlS,) " G'!tce.!Ion;!! Ilo:rc I'ra nI Ill> • 

OWlS! ~ ClilED8'l}! • CIwt~).5 )l).l\IJ~!li!I:t1'll:l! " Clwt516 Emqn;_BolI svm 

a.t~11 Pra I)qa n Stio.2d Eo.Us hi::es " 

a.t5,)8 ...... " " o.t5H US.CO'I03I!BolI~1im! 

o.t~110 " u.s Cl*fm'l;l! '-

ctvIHll " """" , cr.t~112 fn~J1ri::esnl'lll.eIlOlC>l'.o • CIwt~113 ~ltIIIf!laI i:ltttlADli'lJ , 

0.1511. l8Ve 6rt Ho#1g CQ.TcIrIr ld; Stu::n • 

0.15,115 ..... "'- o.t~116 ~!lIiXI!IS\Sf/'I:r1-In'lltdaslllifWll " • 

o.t\.111 ~'lll.elltJe~1oInl , 

a.tH18 To-mJFIefn~~ • 

a.t51l9 

0815120 

"-'''''--

I'UdSe:wl!s(JIl,ca1 " • 

C!wt5121 SeoneIlntVl¥I~ • 

C!wt51,Z' IiIIo'8'PotSaiesflm!l'!Qh:keI • 

a.t5123 ~.Nlr;lDefUI • a.t~'2j loIo"W~nlmd:aJe • 

- ""'IOC" __ 
268 


o.tS.\.Z5 

08t5.12E --

~OdScotI!l.r.vw~ " o.t5127 ........ " • 0WtS128 -- • 0Wt5.129 ... ,"" ~ 

O\IIISl3) GSE NIl: I'tOlI! n Losses ~ 

OWIS.2.1 1t/NJIs!JC 1'1'1-TalI'oxne 

o.tsn Oqe n T. 1 C\mr>:vl ¥:Is b /(I;nQa! U S Ks " 

." o.t~2.J (lqtnr.1C\mr>:vl_b19I.¥\J!S1Ks 

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Endnotes 

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272 


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273 


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-. 
274