Systemic Risk And Asset Management: Progressing From Ignorance To Confusion

Early this year, the Financial Stability Board (FSB)¹ and the International Organization of Securities Commissions (IOSCO)² issued a Consultative Document regarding Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions (the "Consultation"). The Consultation would include asset managers and investment funds among the potential global systemically important financial institutions (generally referred to as "G-SIFIs," with G-SIFIs that are not banks, insurance companies or subsidiaries of banks or insurance companies referred to as "NBNI G-SIFIs"). We found the Consultation's discussion of the possible global systemic risks posed by asset management firms confusing, but think this is an improvement over last year's report by the Office of Financial Research on Asset Management and Financial Stability (the "OFR Report"), which engaged in purely speculative assessments that ignored fundamental characteristics of