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Financial Reform Must-Reads, June 10

Friday, June 10, 2016

We hope you enjoy these readings from the financial regulatory world.

Compiled by Justin Schardin, Dora Engle, and Kristofer Readling.


What we’re reading on insurance regulation

Capital Requirements for Supervised Institutions Significantly Engaged in Insurance Activities
By the Board of Governors of the Federal Reserve System

“The Board aims to develop regulatory capital frameworks for insurance depository institution holding companies and systemically important insurance companies that are consistent with the Board’s supervisory objectives and appropriately tailored to the business of insurance.” Read the advance notice of proposed rulemaking.


Federal Reserve Sends Three Clear Messages with Insurance Capital Proposal
By Justin Schardin, Acting Director, Bipartisan Policy Center

“The Federal Reserve Board has taken a big step toward proposing its first-ever capital requirements for the insurance companies it supervises. … We believe the Fed is sending three clear signals with the advance notice:

  1. It understands that insurance is different from banking.
  2. It understands that systemically important insurers are different from the other insurers it supervises.
  3. It is not afraid to use a different approach to insurance solvency regulation than other countries when it makes sense for the United States.

It is not afraid to use a different approach to insurance solvency regulation than other countries when it makes sense for the United States.” Read the analysis.


Developing Effective Resolution Strategies and Plans for Systemically Important Insurers
By the Financial Stability Board

“A resolution strategy should make it feasible to resolve an insurer while protecting vital economic functions, without severe systemic disruption or exposing taxpayers to loss, through mechanisms that make it possible for shareholders and unsecured creditors to absorb losses.” Read the report.


What we’re reading on Congress 

Remarks of Chairman Jeb Hensarling to the Economic Club of New York
By Rep. Jeb Hensarling (R-TX), Chairman of the House Financial Services Committee

“After most other recessions, the engines of growth returned, fueled by capital flows from U.S. banks and financial institutions. The difference this time is clear: it’s the inefficiencies thrown by Dodd-Frank into the capital flow fuel line. This is why ending and replacing the mistake of Dodd-Frank is the necessary start if we ever hope to restore real economic growth in America.” Read the speech. Read the executive summary. Read the response from Ranking Member Maxine Waters (D-CA).


What we’re reading on too big to fail

Ending too big to fail: Getting the job done
By Andrew Gracie, Executive Director, Resolution, Bank of England

“We have come a long way to making G-SIB resolution feasible and credible, and with implementation of the measures already agreed, and the tying of loose ends, the task will be complete. … TLAC is symptomatic of the distance travelled and represents a true game-changer.” Read the speech.


What we’re reading on anti-money laundering

Why Blockchain Could Bolster Anti-Money Laundering Efforts
By Kristofer Readling and Justin Schardin, BPC

“Regulators and Congress should fully explore the potential of blockchain to improve the current AML system. For instance, trial programs could be introduced similar to the United Kingdom’s Financial Conduct Authority’s Project Innovate, which attempts to create a regulatory sandbox to allow institutions to test new products and services under the supervision of regulators. Ultimately, Congress will have to decide how privacy concerns weigh against counter-terrorism efforts. However, it is clear that the current AML reporting rules could be substantially augmented by technological advances like blockchain.” Read the analysis.


What we’re reading on financial regulation

Remarks of Chairman Timothy Massad before the CCP12 Founding Conference and CCP Forum, Shanghai, China
By Timothy Massad, Chairman, Commodity Futures Trading Commission

“Some have raised concerns about whether this new emphasis on central clearing is creating new concentrations of risk within the financial system. … I believe that it is possible to devise good, pragmatic approaches to all of these concerns, and I believe we have already accomplished a great deal in that regard. So I would like to briefly highlight how far we’ve come, and then offer some thoughts on where we are going.” Read the speech.


Could less be more? The role of finance for the economy
By Dr. Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank

“For over three decades before the crisis, the simple answer was “more is better.” This mindset led us into the crisis, the consequences of which we are still witnessing today. To keep relying on more finance seems questionable. … I refer to this ideology as a “finance-led growth strategy”. I am convinced that we must overcome these intuitively appealing ideas and their ideological siblings.” Read the speech.


A “New Normal”? The Prospects for Long-Term Growth in the United States
By Aaron Steelman, director of publications, and John A. Weinberg, senior vice president and special advisor to the president, Federal Reserve Bank of Richmond

“[The authors] examine the claim that the U.S. economy has reached a ‘new normal’ of roughly 2 percent annual growth. This has been the average growth rate since the end of the Great Recession, considerably lower than the post-World War II average. Proponents of the new normal hypothesis argue, among other things, that innovation has slowed and is unlikely to improve. They also believe that demographic trends pose serious problems for U.S. fiscal policy and will exert a drag on the economy. Steelman and Weinberg concede that such issues are significant, but they argue that the prospects for innovations that improve standards of living are stronger than skeptics maintain. They also suggest there are policy areas that, if addressed thoughtfully, likely could yield improvements in economic performance.” Read the essay.


Breaking Down the Date: A Closer Look at Bond Fund AUM
By Barbara Novick, Vice Chairman, Joanne Medero, US Head of Government Relations & Public Policy, Alexis Rosenblum, Government Relations & Public Policy, and Rachel Barry, Government Relations & Public Policy, BlackRock

”Further, the redemption ‘liabilities’ of one bond fund are unrelated (from a legal or any other perspective) to the redemption liabilities of other funds. … [W]e recommend that policy makers focus on ensuring that all funds have robust liquidity risk management practices in place and consider incorporating stress testing of individual funds’ abilities to meet redemption requests across a wide range of market scenarios.” Read the white paper.


The views expressed in these articles do not necessarily represent the views of the initiative, its co-chairs, task force members or BPC.

KEYWORDS: FEDERAL RESERVE, JEB HENSARLING, MAXINE WATERS