Investment firms with more than $100 bn in assets under management may be ‘too big to fail’, according to regulators.
Fund managers with more than $100 bn may pose a threat to the stability of the global financial system and therefore require stricter capital and reporting requirements, according to a study published by the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO).
The organizations outline the criteria for too-big-to-fail investment managers as part of research meant to pinpoint the institutions that would significantly affect the global financial system and economy if they were to collapse. They do not identify specific institutions, however.
‘Today’s proposals are an essential first step toward addressing the risks to global financial stability and economic stability posed by the disorderly failure of financial institutions other than banks and insurers,’ says Mark Carney, who both heads the FSB and is governor of the Bank of England, in a press release. ‘They are integral to solving the problem of financial institutions that are too big to fail.’
According to the report, fund management firms would be considered too big to fail when they reach $100 bn in ‘balance sheet total assets’ while hedge funds would be considered too big to fail when they reach a ‘gross notional value’ of between $400 bn and $600 bn.
‘The FSB members also considered the possibility of setting additional materiality thresholds based on global activities,’ the organizations state in the report. But the FSB ‘decided to set materiality thresholds based only on size and invite views from the public on the practicality of setting additional thresholds based on global activity.’
The FSB and IOSCO are inviting comments before April 7 on their report, entitled ‘Assessment methodologies for identifying non-bank non-insurer global systemically important financial institutions.’
