FSOC - White Paper - Office of Financial Research: Asset Management and Financial Stability - September 2013
In September 2013, the Office of Financial Research submitted a study entitled “Asset Management and Financial Stability,” to the Financial Stability Oversight Council. The study is related to Section 113 of the Dodd-Frank Act, which requires the FSOC to determine whether asset management firms should be subject to enhanced prudential standards. The 32-page report describes:
- the activities of asset management firms and the funds they manage;
- the key factors that make the industry vulnerable to shocks:
- “reaching for yield” and herding behaviors;
- redemption risk in collective investment vehicles;
- leverage, which can amplify asset price movements and increase the potential for fire sales; and
- firms as sources of risk;
- the key channels through which shocks can be transmitted: exposures across funds and firms and the impacts of fire sales; and
- the data available to measure those activities, vulnerabilities, and channels, and the nature of the gaps in those data.
The paper also includes an appendix identifying and describing the various participant types - banks, insurance companies and dedicated asset management companies - and fund types - registered investment companies, private funds, bank common and collective investment funds, and separate accounts.