Williams expresses concern that financial innovation driven by regulatory arbitrage is a permanent environmental feature.
“I say this in part to convey a concern that while perhaps the upsides to innovation in intermediation are far larger than I at times perceive them to be, the downsides emanating from instruments and maturity transformation that are more plainly about managing regulatory processes seems a permanent feature of the environment.”
Williams warns inconsistent risk management in Treasury repo could threaten market functioning if counterparties default.
“In the Treasury repo market, a lack of consistency and transparency in risk management practices could pose risks to market functioning if one or more counterparties were to default.”