What We're Reading in Financial Regulatory Reform, May 15

Whether you’re preparing for the upcoming holiday weekend or watching the Preakness, we hope you enjoy our latest selection of 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 the Bipartisan Policy Center (BPC).

BPC’s Financial Regulatory Reform Initiative highlights news articles, papers and other important work which illuminate current and new thinking within financial regulation. We circulate these articles to provide a full view of cutting edge ideas, reactions and positions.

Compiled by Aaron Klein, Eric Dash, Justin Schardin and Olivia Weiss.

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Discussion Draft of the Financial Regulatory Improvement Act of 2015
By Senator Richard Shelby (R-AL), Chairman, Senate Committee on Banking, Housing, and Urban Affairs

Chairman Richard Shelby released a discussion draft of the Financial Regulatory Improvement Act of 2015 to continue reforms made by the Dodd-Frank Act. Shelby’s draft is intended to initiate a conversation with all members of the Committee who are scheduled to consider the bill and any potential amendments next Thursday. Read the draft here. Read the draft summary here.

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“BPC Calls Financial Reform Proposal ‘An Important Step’ with Room for Bipartisan Improvements”
By Aaron Klein, Director, Financial Regulatory Reform Initiative, Bipartisan Policy Center

“While the draft legislation is a good starting point, we believe that it can be improved. BPC has proposed several additional ideas to provide regulatory relief for small and regional banks, hold the Federal Reserve and Consumer Financial Protection Bureau (CFPB) more accountable, and improve international regulatory coordination. We believe these ideas can garner bipartisan support and hope that lawmakers will give them serious consideration with a full and robust amendment process that allows all members of the Committee to express their views.” Read the statement here.

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“Why CFPB Should Regulate Car Loans Regardless of Where the Loan Originates”
By Aaron Klein, Director, Financial Regulatory Reform Initiative, Bipartisan Policy Center

“Under the current system, if a consumer receives a loan directly from a bank or credit union, the transaction is governed by rules established by the Consumer Financial Protection Bureau (CFPB) and enforced by the bureau—and possibly the primary regulator of that institution as well. However, if a consumer is offered the loan from their auto dealership, whereby the dealership finance officer is essentially acting as a broker in what’s known as in-direct auto lending, then an entirely different set of rules and enforcements apply.” Read the blog post here.

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“A Progress Report on the Resolution of Systemically Important Financial Institutions” Remarks at Peterson Institute for International Economics, Washington, D.C.
By Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation

“In the United States, the statutory mandate for the FDIC is clear: Use the living will process to bring about real-time changes in the structure and operations of firms to facilitate orderly resolution under bankruptcy. And, if necessary, be prepared to use the powers available under the Orderly Liquidation Authority to manage the orderly failure of a firm. And to be clear, if the FDIC had to use the Orderly Liquidation Authority, it would result in the following consequences for the firm: shareholders would lose their investments, unsecured creditors would suffer losses in accordance with the losses of the firm, culpable management would be replaced, and the firm would be wound down and liquidated in an orderly manner at no cost to taxpayers.” Read the speech here.

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Reed & Rounds Urge SEC to Update Insider Trading Rules
By Senator Jack Reed (D-RI) and Senator Mike Rounds (R-SD)

“A recent decision by the highest federal court in New York, the U.S. Court of Appeals for the Second Circuit, in the case of United States v. Newman, limits prosecutors’ ability to pursue insider trading cases and may jeopardize prior convictions. In the wake of this ruling, U.S. Senators Jack Reed (D-RI) and Mike Rounds (R-SD), both of whom serve on the Senate Banking Committee, are seeking to improve the fairness of our securities markets and crack down on unlawful insider trading. Today, the senators sent a bipartisan letter urging the U.S. Securities and Exchange Commission (SEC) to use its existing authorities to strengthen insider trading rules to resolve the damaging discrepancy left in the decision’s wake.” Read the press release and letter here.

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“The Growth Consequences of Dodd-Frank”
By Douglas Holtz-Eakin, President, American Action Forum

“Collecting results, the impact on economic growth is a decline in the per capital growth rate of 0.059 percentage points annually. Is this a big deal? Consider lowering the growth rate in the Congressional Budget Office baseline projections by exactly this amount between 2016 and 2025. The lower rate of economic growth translates into a total loss of $895 billion in GDP or $3,346 for every member of the working age (16 and older) population over those 10 years.” Read the report here.

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AFR Response to American Action Forum Study on Costs of Dodd-Frank Act
By Americans for Financial Reform

“The American Action Forum has released a study claiming that the Dodd-Frank Act will reduce total U.S. economic output by $895 billion between 2016 and 2025.1 But the study has multiple significant flaws.” Read the response here.

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“Developments in the Regulation of Global Insurers: A Primer”
By Andy Winkler, Director of Housing Finance Policy, American Action Forum

“Since the financial crisis, both domestic and international regulators have advanced efforts to revise capital standards and streamline the fragmented international regulatory environment facing large and globally active insurance companies, so-called internationally active insurance groups (IAIGs) and a smaller set of global systemically important insurers (G-SIIs). Given that these “global insurers” and their many subsidiaries serve customers in countries around the world, spanning multiple regulatory jurisdictions, some see value to financial stability in restructuring their supervision; others say that these efforts have intrinsic merit in an increasingly globalized marketplace irrespective of the financial crisis and its implications. This paper briefly highlights the policy issues raised by these regulatory initiatives and explores the potential impacts on the insurance industry and American consumers.” Read the primer here.

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“Regulation and Supervision of Community Banks”, Remarks at the Annual Community Bankers Conference sponsored by the Federal Reserve Bank of New York, New York, New York
By Jerome H. Powell, Governor, Board of Governors of the Federal Reserve System

“Banks of different sizes serve different functions, and both large and small banks are needed to meet the funding needs of a healthy economy. The Federal Reserve does not use a one-size-fits-all approach to regulation and supervision and is committed to continually reevaluating and improving oversight to meet the complementary goals of bank soundness, financial stability, and economic growth. The risks and vulnerabilities of community banks differ substantially from those of larger banks, and an explicit tailoring of regulation and supervision for community banks is appropriate.” Read the speech here.