By Chris Cermak
WASHINGTON (MNI) – Bank of England Deputy Governor Paul Tucker
Saturday said the practice of rehypothecation by primary brokers had
fallen “under the radar” and suggested it may merit greater regulation
by financial authorities.
By using clients money and assets, rehypothecation by primary
brokerages means “in economic substance, they are banks,” Tucker said
at a Federal Reserve conference in Washington.
“This is a really significant issue that lies absolutely under the
radar. We have to think through what rehypothecation means, and what we
should do about it,” Tucker said.
Tucker was responding to a paper presented by Professor Darrell
Duffe of Stanford University’s Graduate School of Business, on progress
in overhauling financial regulations since the crisis.
Duffe, responding to Tucker’s concerns, said rehypothecation
“hasn’t received the attention that it should going into the crisis,”
despite consequences for the broader financial system.
Duffe noted existing SEC rules should have restricted the ability
of brokers to increase leverage too drastically through this “bank-like
operation,” but the rules “didn’t work and we still don’t know why.”
“This is very low hanging fruit in terms of research,” Duffe said.
“I don’t know exactly what to do yet because I don’t know what
happened.”
–Chris Cermak is a Washington reporter for Need to Know News
** MNI Washington Bureau: 202-371-2121 **
[TOPICS: M$U$$$,M$$BE$,MK$$$$]
