Global regulators should not be adopting increasingly strict regulations without considering the impact on the entire framework. Problems identified in the letter also concern the United States, since U.S. financial institutions are finding it impractical to enter into repurchase agreements, even with respect to government securities, in light of current leverage ratio requirements.

Governor Tarullo's argument seems to be that, in one way or another, every participant in the financial markets is a bank; it is either regulated or shifts in the shadows. When he asks which agency should regulate all of these banks and shadow banks, the question practically answers itself: who better than the Federal Reserve?

Because mutual funds are the primary means by which retail investors access the securities market directly, the cost impact of these rules largely will fall on such investors, since it will reduce the returns they receive on their holdings of mutual funds. Accordingly, the regulators should consider the following questions: (i) are the costs appropriate, (ii) are the quantitative tests that are imposed by the regulations good measures of risk, or are they so crudely constructed that they end…

It appears that the actions of the New York Department of Financial Services ("NYDFS") comprised a crucial part of the unfolding events. The report concludes that the NYDFS effectively pressured U.S. federal regulators to move more quickly than they had desired. That is disquieting. AML regulation is a matter of federal interest. Something must be very wrong when New York regulators act in ways that are inconsistent with federal regulatory priorities. This concern prompts serious…