Happy Friday the thirteenth! As you stay indoors to escape the rain, we hope you enjoy these readings from the financial regulatory world.
What we’re reading on FSOC and macroprudential regulation
“Curbing Bad Apples Won’t Erase Contagion Risk”
By Justin Schardin, Acting Director, Financial Regulatory Reform Initiative, Bipartisan Policy Center
“More important, independent of the legal battle, FSOC’s designation authority as granted by Congress has several practical limitations. … These shortcomings reveal how systemic threats are more related to the risky activities and products across a range of companies of different sizes and complexity, rather than to a specific set of individual companies deemed the riskiest.” Read the op-ed in American Banker.
“Macroprudential policy: Implementation and effectiveness”
By Donald Kohn, External Member of the Financial Policy Committee, Bank of England and Robert S. Kerr Senior Fellow, Brookings
“One of the challenges of macro prudential policy is the absence of clear metrics on how well we are doing; we can measure risk and resilience in the financial sector but direct feedback on the degree of safety, the decline of procyclicality and amplification, must be inferred – unlike the inflation, output and unemployment metrics we get monthly for how effective monetary policy has been.” Read the speech.
“Market and Funding Liquidity: An Overview”
By William C. Dudley, President and CEO, Federal Reserve Bank of New York
“Capital and liquidity requirements play a role in preventing such a self-reinforcing negative dynamic. The central bank may also have an important role to play as the lender-of-last-resort. When and how the central bank intervenes―and what the appropriate preconditions should be to maintain market discipline and mitigate moral hazard―are important open questions.” Read the speech. For BPC’s take on this issue, see our paper, Responding to Systemic Risk: Restoring the Balance.
What we’re reading on financial regulation
“Help is on the Way,” remarks at the National Center for Policy Analysis
By Rep. Jeb Hensarling (R-TX), Chairman of the House Financial Services Committee
“The Republican plan will be based on the following principles: (1) economic growth must be restored through competitive, transparent, and innovative capital markets; (2) every American must have the opportunity to achieve financial independence; (3) consumers must not only be viciously protected from force, fraud, and deception, but also from the loss of economic liberty; (4) taxpayer bailouts of financial institutions must end, and no company can remain too big to fail; (5) systemic risk must be reduced through market discipline; (6) simplicity must replace complexity, because complexity can be gamed by the well-connected and abused by Washington bureaucrats. Both Wall Street and Washington must be held accountable. … In the weeks to come, we on the committee look forward to unveiling this legislation, receiving your feedback, and ultimately earning your support.” Read the speech.
“Developing Best Practices for Regulatory Data Collections”
By the Office of Financial Research
“Using best practices of industry and government can help regulators collect financial data that will answer immediate questions and potentially those in the future. Regulators need to think beyond project management, data storage management, and information technology practices and focus on the requirements for data collection.” Read the paper.
What we’re reading on fintech
“Opportunities and Challenges in Online Marketplace Lending”
By the U.S. Department of the Treasury
“Advances in technology and the availability of data are changing the way consumers and small businesses secure financing. Online marketplace lending has emerged as an industry offering faster credit for consumers and small businesses. Through this effort, Treasury took steps to understand the potential opportunities and risks presented by this evolving industry.” Read the white paper.
Letter to Treasury Secretary Lew regarding the impact of online marketplace lending on small businesses, consumers, and the broader U.S. economy
By a bipartisan group of 20 House Financial Services Committee members
“We believe that a regulatory framework that permits the healthy expansion of credit to small businesses from traditional financial institutions, financial technology (FinTech), and partnerships between the two will result in the greatest benefit to small business. … Given the impact online marketplace lenders have had on small business lending, and given that the industry is still in early stages of development, we urge the Department to encourage the evolution of this market without dampening or delaying innovation.” Read the letter.
What we’re reading on monetary policy
“The Role and Limitations of Monetary Policy”
By Neel Kashkari, President and CEO, Federal Reserve Bank of Minneapolis
“Fed watchers might conclude from these remarks that I am a so-called dove. But a year or two from now, if different economic conditions lead me to call for less accommodative policy, they might conclude that I have reversed myself and become a hawk. The truth is neither. The financial crisis taught me the limits of dogma. I learned humility and pragmatism the hard way.” Read the speech.
“Macroprudential regulation, credit spreads and the role of monetary policy,” Bank of England Staff Working Paper No. 599
By William J. Tayler, Developmental Lecturer, Lancaster University and Roy Zilberman, Developmental Lecturer, Lancaster University
“In the aftermath of the crisis, it is now clear that restrictions in lending, higher borrowing costs and financial regulation, all of which directly impact the credit markets, have translated into distortions in the wider economy. Subsequently, a growing number of research papers and policy discussions on the role of banking, credit risk and bank capital in the transmission of demand, supply and importantly financial shocks to the real economy have emerged in the past few years.” Read the paper.
What we’re reading on the Federal Reserve
Letter to Fed Chairwoman Yellen regarding the lack of diversity in the leadership of the Federal Reserve
By over 120 Democratic members of Congress
“We remain deeply concerned that the Federal Reserve has not yet fulfilled its statutory and moral obligation to ensure that its leadership reflects the composition of our diverse nation in terms of gender, race and ethnicity, economic background, and occupation, and we call on you to take steps to promptly begin to remedy this issue. … Given the critical linkage between monetary policy and the experiences of hardworking Americans, the importance of ensuring that such positions are filled by persons that reflect and represent the interests of our diverse country, cannot be understated.” Read the letter.
What we’re reading on insurance
“Insurers on the brink: Disrupt or be disrupted”
By Sam Friedman, Insurance Research Leader, Deloitte Center for Financial Services
“The bottom line is that insurers cannot afford to wait on the sidelines as disruptive trends in technology, the economy, and society threaten to negate the orthodoxies under which the industry has operated. If insurers don’t move more quickly and decisively to reshape the rapidly evolving ecosystem on their own terms, others will likely dictate those terms for them.” Read the report.
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 BPC.