Fed’s Rosengren Cites Lack Of Resolution Mechanisms

Boston Federal Reserve Bank president Eric Rosengren said yesterday that regulators around the world must work cooperatively to find ways to regulate large “systemically important” financial institutions and to resolve their failures when they become insolvent.

The global nature of today’s large financial firms and their growing use of derivatives makes it more complicated and yet more important to develop a better international regulatory framework, he argued.

Rosengren, in remarks prepared for delivery to the Institute of Regulation and Risk North Asia in Hong Kong, said the crisis of the past two years has “demonstrated the glaring absence of resolution powers in the United States — except in the case of banks — and demonstrated the limited ability of U.S. authorities to intervene in troubled non-depository financial institutions.”

Because of the lack of a resolution mechanism such as the type the Federal Deposit Insurance Corp. operates for banks, and because no last-minute merger partner could be found, Lehman Brothers was forced to file for bankruptcy last autumn, he noted. And U.S. bankruptcy law does not take into consideration the systemic consequences of such a failure, he added.

— Market News International

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