Financial Reform Must-Reads, November 13

In honor of Veteran’s Day, let’s take a moment to thank our veterans and those who serve on behalf of our country. It’s been a busy few weeks at the Bipartisan Policy Center and we hope you enjoy these readings from the financial regulatory world. As always, the views expressed in these articles do not necessarily represent the views of the initiative, its co-chairs, task force members or BPC.

Compiled by Aaron Klein, Justin Schardin, Kristofer Readling and Olivia Weiss.

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Global Insurance Regulatory Issues: Implications for U.S. Policy and Regulation
By the Bipartisan Policy Center

“The far-reaching impacts of the global financial crisis of 2007-2008 triggered a robust debate about the proper structure and practices of financial regulation. … This paper is laid out in three sections. The first section gives a background of some of the major world, U.S., and EU actors in global insurance negotiations and their main efforts since the financial crisis. The second section summarizes key issues these actors and other policymakers are trying to hash out and what they mean. Finally, the third section presents several recommendations from the Bipartisan Policy Center’s Insurance Task Force.” Read the report. Watch the release event.

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“Proposed law would increase risk of another financial crisis,” Op-ed, CNBC
By Patrick Pinschmidt, Deputy Assistant Secretary for the Financial Stability Oversight Council, U.S. Department of Treasury

“Unfortunately, there is legislation pending in both houses of Congress that would heavily tip the scales back in Wall Street’s favor and leave our country vulnerable to another crisis. These changes would take the council’s methodical process and mire it in a series of protracted, bureaucratic steps that would require the council to spend as many as four years studying a company before it could take any action. Some of these proposals would also raise the standard for action by the council to a dangerously high threshold, all but ensuring inaction despite the risk to financial stability.” Read the op-ed.

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“Open Letter to Peter Hancock, Chief Executive Officer of AIG”
By Carl Icahn, Chairman, Icahn Enterprises L.P.

“Additionally, ‘Because of AIG’s size and interconnectedness’ the Financial Stability Oversight Council (“FSOC”) has deemed AIG a non-bank SIFI, subjecting the company to Federal Reserve oversight and increased capital requirements. We believe you must acknowledge that enhanced regulation is intended to be a tax on size, designed to approximate the cost that large companies impose on the financial system. The regulators have made clear that the best outcome is for SIFI’s to shrink and “reduce their systemic footprint.” If nothing is done, returns and AIG’s competitive position will continue to suffer as the SIFI regulation, including its costs and capital requirements, is fully implemented.” Read the letter.

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What we’re reading on financial regulation

“Investigation Finds That Repeal of Dodd-Frank Provision Now Allows Banks to Keep Nearly $10 Trillion in Risky Trades on Books,” Letter to CFTC and SEC
By Senator Elizabeth Warren (D-MA) and Representative Elijah E. Cummings (D-MD), Ranking Member of the House Committee on Oversight and Government Reform

“In December 2014, Congress repealed key Dodd-Frank provisions limiting taxpayer-backed banks’ swaps holdings. Through a nearly year-long investigation, we have learned that this change will allow giant, Federal Deposit Insurance Corporation (FDIC)-insured banks to keep an estimated $10 trillion in risky swaps on their books. … We write today to urge that you act quickly to mitigate the risks posed by uncleared swap activities by imposing strong margin requirements for swaps between bank affiliates and other entities under your agencies’ authority.” Read the letter.

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“Shared Responsibility for the Regulation of International Banks,” Remarks at “The Future of Large and Internationally Active Banks” 18th Annual International Banking Conference, Sponsored by the Federal Reserve Bank of Chicago and the World Bank
By Daniel K. Tarullo, Member, Board of Governors of the Federal Reserve System

“The relative opaqueness of bank balance sheets makes capital, liquidity, and other common banking regulations difficult to monitor effectively. This argues for complementing fairly complex regulation that seeks to track the often-complex activities of large banks with simpler regulations, such as the leverage ratio and a standardized risk-weighted capital floor. But it also argues for existing international fora such as the Basel Committee and the FSB to provide effective monitoring mechanisms. … More regular sharing of information and assessments among home and key host jurisdictions both formally and informally should be high on our shared agenda.” Read the speech.

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What we’re reading from the CFPB

“Supervisory Highlights,” Issue 9, Fall 2015
By the Consumer Financial Protection Bureau

“In this ninth edition of Supervisory Highlights, the Bureau shares recent supervisory observations in the areas of consumer reporting, debt collection, mortgage origination, mortgage servicing, student loan servicing, and fair lending. … Recent supervisory resolutions have resulted in restitution of approximately $107 million to more than 238,000 consumers. Other corrective actions have included, among other things, correction of information submitted to consumer reporting agencies (CRAs), creation and implementation of new policies and procedures, and cessation of particular deceptive practices.” Read the report.

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What we’re reading on fintech

“Disruptive innovation in financial markets,” Remarks at the Organisation for Economic Cooperation and Development, Paris, France
By Mary Starks, Director of Competition, Financial Conduct Authority

“There are two primary ways in which the PSR will achieve its innovation objective. First by removing barriers to competitive innovation – ensuring challengers can access payments infrastructure so their businesses can move money. And second, by ensuring collaboration delivers good results for all users of the payments system. Where collaboration is needed to facilitate innovation, for example regarding messaging standards, it is important these decisions are taken with the needs of all users, including challengers, in view.” Read the speech.

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What we’re reading on anti-money laundering

“Unintended Consequences of Anti–Money Laundering Policies for Poor Countries,” Working Report, Center for Global Development
By a CGD Working Group, Chaired by Clay Lowery, Visiting Fellow and Vijaya Ramachandran, Senior Fellow

“In this report we catalogue extensive suggestive evidence of some of the unintended consequences of AML/CFT and sanctions enforcement. … Some of the analysis and recommendations that follow may well be relevant for the intended consequences of AML/CFT but this is not the focus of the report. Rather, we are looking at the impact of AML/CFT on three areas of relevance for poor countries—remittances, correspondent banking and humanitarian aid.” Read the report.

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What we’re reading on marijuana banking

Marijuana Legalization: Raising Novel Banking Questions
By Aaron Klein, Director, and Kris Readling, Policy Analyst, Bipartisan Policy Center

“Amid the ongoing debate about marijuana policy in America, banks are becoming wedged between states that have legalized marijuana and federal law under which marijuana is illegal. … This creates a difficult environment for banks, the payment industry, and their regulators. While data is scarce, it appears that regional Federal Reserve banks are taking different approaches to marijuana banking, with different consequences for businesses operating in those states.” Read the blog post.

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Forget rates, the Fed needs to weigh in on pot
By Aaron Klein, Director of the Financial Regulatory Reform Initiative, Bipartisan Policy Center

“Currently, a total of 25 states allow some form of legal marijuana. … Yet banks face a growing discrepancy in serving marijuana businesses. Some bank regulators are trying to cut off access to the payment system for banks that have marijuana businesses as customers, while others are allowing it. That means bank regulators affect whether marijuana can be a viable commercial business.” Read the op-ed.