In the aftermath of the Great Financial Crisis, regulatory authorities have undertaken a searching review of firms throughout the financial markets to identify those that could pose systemic risks. This review has extended to include firms not typically thought of as part of the financial sector, even broadly construed such as Commodity Trading Firms (CTFs).
Some regulators have questioned whether some of these firms are “too big to fail,” and hence pose a threat to the stability of the financial system, necessitating subjecting them to additional regulation akin to that imposed on banks.
This white paper explains the functions of these firms and evaluates whether they pose systemic risks that would justify subjecting them to regulations (notably capital requirements) similar to those imposed on other entities such as banks which are deemed to be systemically important.