“The sharp drop in the stock and commodities markets on Monday raised some critical questions for policymakers, touching on everything from whether asset managers are systemically risky to if the central bank would now delay raising interest rates.
“The upheaval was not necessarily unexpected, as several analysts and even Federal Reserve Board Chair Janet Yellen had warned in May that she was concerned that U.S. stocks were “generally quite high.”
“Still, the volatility underscored several pressing issues regulators are grappling with.”
“Dennis Kelleher, president and CEO of public advocacy group Better Markets, said that while it remained unclear as of Monday whether those funds would underperform, the risk of broad devaluation of emerging market funds is a kind of “proof of concept” for the Financial Stability Oversight Council’s argument that asset managers could pose systemic risk to the economy.
“You have the prospect for a very significant drop in prices and increase in volatility, and potentially a dramatic increase in investor redemptions within that sector,” Kelleher said. “This is exactly one of the issues that FSOC has been concerned about, and it’s exactly one of the [reasons] why FOSC was created. There is no doubt that FSOC is manning the battle stations today.”
Read the full American Banker article by John Heltman here.