Banks with large wholesale funding operations should shine a brighter light on the maturity and collateral of their obligations in such short-term markets, a top Federal Reserve officials said on Wednesday.
Boston Fed President Eric Rosengren did not comment on U.S. monetary policy or the economy in a speech in Lima. Instead he argued more transparency is needed in the still-risky wholesale markets that were at the center of the 2008 financial crisis.
"Much greater disclosure on 'runnable' liabilities would utilize the power of markets to help curb unhealthy levels of reliance on such funding," Rosengren, among the Fed's leading financial regulators, said in prepared remarks to a forum on global banking standards.
"More detailed reporting requirements should include more disclosures on both the collateral composition and maturity structure of repurchase agreements," he said.
As banks such as Lehman Brothers teetered in 2008, short-term overnight funding markets dried up as investors sought to avoid counterparty risk. Citing a lack of new regulations focused on this area of Wall Street since then, Rosengren said it was now appropriate to require more disclosures from the firms.
More complete and timely reports from broker-dealers on collateral composition of repurchase transactions, haircuts, counterparties, and maturity structure of securities would assist investors and "might prevent management from taking risks that its investors may deem excessive," he said.