Regular readers know that the only way to monitor a bank is to have current - daily - information on the bank's individual assets and liabilities. By thinking about requiring it, the NY Fed has confirmed that this information is and can be made available to all market participants.
It is no surprise that the data is available on a daily basis. After all, it is tracked by banks using 21st century information technology.
Since before the beginning of the financial crisis in 2007, I have been saying that there is the need for the "Mother of all financial databases". At a minimum, this database would be global and have the current asset and liability-level data for the financial institutions in each country. The data would be made available for free to all market participants.
The Mother of all financial databases is feasible given the current state of 21st century information technology.
If the database existed, the NY Fed would be easily able to access the information that it would like.
The Federal Reserve Bank of New York may ask foreign lenders for more detailed daily reports on liquidity as the U.S. steps up monitoring of risks from Europe’s sovereign debt crisis, according to two people with knowledge of the matter.
Regulators held informal talks with some of the largest European lenders about producing a “fourth-generation daily liquidity” or 4G report, according to the people, who asked for anonymity because communications with central bankers are confidential. The reports may cover potential liabilities such as foreign-exchange swaps and credit-default swaps, said one person. The U.S. has already increased the number of examiners embedded in these banks, the person said....
“The Fed is trying to understand what the pressure points are in terms of liquidity and potential risks that are imposed by foreign banks to domestic institutions in our financial system,” said Kevin Petrasic, an attorney at the Washington- based law firm of Paul, Hastings, Janofsky & Walker LLC. “There is a little bit more sense of urgency as a result of what’s going on in Europe.”If the Fed needs this data to understand what is going on, don't the other market participants? Without this data, how exactly is JP Morgan suppose to manage its exposures by assessing the risk of other banks?
... U.S. banks are starting to provide a 4G report and they are being phased in this month, said Karen Shaw Petrou, managing partner of Washington-based Federal Financial Analytics Inc.
“The report requires rapid and in some cases daily data on a banks’ assets, liabilities and potential claims to measure the degree to which the bank could be caught in the classic borrow- short, lend-long squeeze,” Petrou said. “The 4G is one of the tools to reveal liquidity risk.”
The forms aren’t public, according to Petrou, and the New York Fed declined to provide a copy.This is a classic example of the regulators protecting their information monopoly. Clearly, this is data that market participants need for assessing the risk of each bank. However, the NY Fed is deliberately blocking its dissemination and subjecting the global financial system to financial instability.
... Regulators lack access to data on foreign institutions operating in the U.S. that would allow them to “make informed judgments about the adequacy of such firms’ capital and liquidity buffers,” William C. Dudley, president of the Federal Reserve Bank of New York, said in a Sept. 23 Washington speech.Mr. Dudley's statement describes why the "Mother of all financial databases" needs to be global.
Regulators in each country should be able to assess the performance of any financial institution doing business in their country. This is particularly true if those financial institutions are going to access any type of support from a country other than the country that hosts their headquarters.