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Financial Reform Must-Reads, May 27

Friday, May 27, 2016

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As you celebrate Memorial Day Weekend with friends and family, 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

“Insurance Companies and the Role of the Federal Reserve,” remarks at the National Association of Insurance Commissioner’s International Insurance Forum
By Daniel K. Tarullo, Member, Board of Governors of the Federal Reserve

“The foregoing considerations suggest that we should distinguish between insurance companies that we oversee solely because they own an insured depository institution and those that have been designated as systemically important by the FSOC. This is precisely the path we are taking with regard to our supervision of these firms. For the former group, our supervisory efforts to date have focused on ensuring that the companies have strong internal controls and effective corporate governance, as well as satisfactory risk identification, measurement, and management. For firms designated as systemically important, our supervision has additionally emphasized capital and liquidity planning and positions, management of core business lines, and recovery and resolution planning.” Read the speech.

What we’re reading on too big to fail

The Second Symposium on Ending Too Big to Fail, May 16
Hosted by the Federal Reserve Bank of Minneapolis

”The second symposium will focus on proposals that seek to address the TBTF problem in two ways: taxing leverage in the financial system and enhancements/alternatives to DFA resolution. Presenters include John H. Cochrane of Stanford University and John Bovenzi of the Bipartisan Policy Center.”

  • Panel 1: Taxing leverage in the financial system featuring panelists John H. Cochrane, Michael Hasenstab, Michael Keen, Donald Marron, and Thomas Philippon. Watch the panel.
  • Keynote lunch: Why I changed my mind on Glass Steagall by Luigi Zingales. Watch the keynote.
  • Panel 2: Exploring alternatives to the Dodd-Frank Act’s resolution framework featuring panelists John Bovenzi, Ben S. Bernanke, J. Christopher Flowers, Richard J. Herring, and David A. Skeel. Watch the panel.

What we’re reading on fintech

Letter to Comptroller General Gene Dodaro requesting study of electronic payment regulations
By Senators Tom Carper (D-DE), Chris Coons (D-DE), and Gary Peters (D-MI)

“The payments industry includes banks, credit unions, credit card networks, payments processors, merchants, payment network operators, telecommunications companies and technology innovators, among others. These companies are overseen by a disparate group of regulators including federal bank regulators, state regulators, and other federal agencies. … [W]e are seeking to better understand current regulations and ongoing efforts at the state and federal levels related to mobile payments.” Read the letter.

Letter to Comptroller General Gene Dodaro seeking a study of the impacts of regulations on fintech
By 10 bipartisan members of the U.S. House of Representatives

“It is rare for a heavily regulated industry like financial services to move at the ‘speed of the Internet,’ but that’s exactly what’s happening with the rapid change brought about by fintech innovators. While this change is exciting and presents great benefits for consumers, Congress and federal regulators have an obligation to be educated and aware of how the transformation of financial services comports with established rules and regulations.” Read the letter (subscription required).

“Risks in Faster Payments”
By Julius Weyman, Vice President, Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta

“Pursuit of a purely faster mechanism that envisions world monetary systems continuing to be based on the things they’ve been based on for centuries could cause us to overlook or miss the next evolution of money. It would have been of little use to invest in improving the systems for speeding the exchange of cowrie shells or yap stones as the turn was made toward paper money and banking. To get this right, it may be just as important to be concerned with what will be exchanged in the future as it may be to worry about improving the system(s) for facilitating exchange as we understand it now. The more flexible and agile the underpinning system(s) and the more there is an eye to what is happening that could change the game, the better.” Read the working paper.

What we’re reading on financial regulation and monetary policy

“International Evidence on the Use and Effectiveness of Macroprudential Policies”
By Ozge Akinci, Economist, Research and Statistics Group, Federal Reserve Bank of New York

“In recent years, policymakers in advanced and emerging economies have employed a variety of macroprudential policy tools—targeted rules or requirements that enhance the stability of the financial system as a whole by addressing the interconnectedness of individual financial institutions and their common exposure to economic risk factors. … Our estimates suggest that macroprudential tightening can significantly reduce credit growth and house price appreciation.” Read the blog post.

“Overview and Assessment of the Methodology Used to Calibrate the U.S. GSIB Capital Surcharge”
By The Clearing House

“While the methodology is reasonable in principle, we identify two material shortcomings in its implementation that call into question the appropriateness of the surcharges it produces. … First, the methodology does not estimate the systemic losses that would occur if each GSIB were to fail. … Second, although the methodology does estimate empirically the relationship between capital levels and the odds of failure, the estimate is very sensitive to the number of banks included and the time period used in the calibration exercise.” Read the research note.

“Square Pegs and Round Holes: The Effectiveness of Monetary Policy and Macroprudential Regulation in the Post-Crisis Regulatory Regime”
By Federal Financial Analytics, Inc.

“Reflecting all these developments, global regulators governed by the Financial Stability Board (FSB) have launched an effort to assess the cumulative impact of all of the new rules, focusing in particular on market illiquidity. The European Commission has also launched a consultation designed to identify any cumulative regulatory effects with potentially adverse impact on liquidity, market integrity, consumer protection, systemic risk, and monetary-policy execution. Although some in Congress have called for a comparable U.S. effort, none has yet been undertaken. It is the goal of this study to promote such a review and indeed to encourage it by providing analytical insights based on prior studies and publicly-available data.” Read the paper.

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