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Response to the ANPR for Part 704

April 3, 2009

Below is an excerpt from our response to the ANPR for Part 704.  We encourage you to read the full nine-page version, which can be downloaded here.  Your thoughts and comments are appreciated.

Overview

It is apparent that the corporates with expanded investment authority are experiencing greater risk.  However, the range of risk varies in those with similar expanded authority levels as does the extent of the burden they are placing on the industry.  Such variance points to decision making with respect to risk management, each corporate’s appetite for risk and timely action of risk mitigation—a point we explore more in-depth later.   Unfortunately, healthy corporates with more conservative risk management strategies and processes may, in the end, cease to exist because of the actions, or lack thereof, taken by others.

If there continues to be a corporate structure, we recommend that the following decision drivers be used in determining how the system should be restructured.  Corporates should be:

  • Focused on providing support services only when viable alternatives are not available in the broader market for the masses of NPCUs
  • Made to pose as little systemic risk to the industry as possible
  • Designed to be not-for-profit

With these decision drivers in mind, we have formulated our recommendation for the restructuring of the corporate system.  Our recommendation is to separate Payment Systems/Operational Support Services and Liquidity/Investment Services into two businesses.  We believe institutional firewalls will not be adequate in an effort to limit systemic risks.

Comments
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    Great post!

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