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What We're Reading in Financial Regulatory Reform, June 12

Whether you are celebrating the new Triple Crown winner or planning a cookout, we hope you will check out 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.

Compiled by Aaron Klein, Justin Schardin and Olivia Weiss.

Time is Running Out for White House to Fill Financial Regulatory Posts
By Justin Schardin, Associate Director, Financial Regulatory Reform Initiative, Bipartisan Policy Center

“According to the Bipartisan Policy Center’s (BPC) Nominations Tracker, the seat on the CFTC has been vacant since August 2014, 307 days ago, while the two governorships on the Fed have been vacant for over a year, one for 455 days and the other for 379 days. There has not been a single nominee for the position of Fed vice chairman for supervision since it was created 1786 days ago. The vacancy on the FDIC just opened last week when Jeremiah Norton stepped down, although the term to which he had been confirmed had expired almost two years ago. BPC research in 2013 showed that the average length of time for a president to decide on a nomination was 240 days.” Read the blog post.

“Methodologies Relating to Stage 1 Thresholds”
By Financial Stability Oversight Council, Department of Treasury

“Stage 1 provides a mechanism for the Council, nonbank financial companies, market participants, and other members of the public to assess whether a nonbank financial company may be subject to further evaluation by the Council. … As announced in the Council’s Supplemental Procedures, below are additional details explaining how Stage 1 thresholds are calculated.” Read the document.

“What have we learned from the crises of the last 20 years?” Remarks at the International Monetary Conference, Toronto, Canada
By Vice Chairman Stanley Fischer, Board of Governors of the Federal Reserve System

“This morning I want to talk about major lessons learned from the economic crises of the last twenty years, many of them crises in which I was involved. … We should not make the mistake of believing that we have put an end to financial crises. We can strengthen the financial system, and reduce the frequency and the severity of financial crises. But we lack the capacity of imagining, anticipating and preventing all future financial sector problems and crises. That given, we need to build a financial system that is strong enough to withstand the type of financial crisis we continue to battle.” Read the remarks.

Letter to Mary Jo White, Chair, Securities and Exchange Commission
By Senator Elizabeth Warren (D-MA)

“First, under your leadership, the SEC has failed to finalize important Dodd-Frank rules requiring disclosure of the ration of CEO pay to the median worker. Second, the SEC has failed to curb the use of waivers for companies found to be in violation of securities law. Third, the agency has settled the vast majority of cases without requiring that companies admit guilt. And fourth, you have been unable to participate in numerous cases because of recusals related to your prior employment at a Wall Street defense firm.” Read the letter.

“From Country Banks to SIFIs: The 100-year Quest for Financial Stability”, Speech at Louisiana State University Graduate School of Banking, Baton Rouge, Louisiana
By Jeffrey M. Lacker, President, Federal Reserve Bank of Richmond

“The needed alterations to the structure and operations of large financial firms will be unpopular since they are likely to involve reductions in reliance on short-term funding and the adoption of more easily severable subsidiary structures. But I believe the changes that could result from living wills are feasible without sacrificing the inherent benefits large financial firms provide to the economy. The credibility of living wills would be compromised, in my view, by continuing to depend on government backstops in order to avoid needed changes.” Read the speech.

Remarks by Thomas J. Curry, Comptroller of the Currency, before the Prudential Bank Regulation Conference, Washington, D.C.
By Thomas J. Curry, Comptroller of the Currency

“The guidelines have two major components. The first sets forth the minimum standards
for the design and implementation of a covered bank’s risk governance framework, stipulating
that it should include well-defined risk management roles and responsibilities for what the
industry commonly refers to as the three lines of defense: front line units, independent risk
management, and internal audit. … The second component of our heightened standards guidelines pertains to the responsibilities of large banks’ boards of directors.” Read the speech.

“Macroprudential Policy in a Microprudential World”
By John C. Williams, President and Chief Executive Officer, Monetary policy, Business cycles, Learning, Federal Reserve Bank of San Francisco

“I am convinced that monetary policy should not be used to address risks to financial stability given the very real and sizable costs, not to mention that the potential benefits are anything but certain. That brings me to micro- and macroprudential regulatory and supervisory policies, which better address financial stability at less cost to other economic goals.” Read the report.

Remarks by Thomas J. Curry, Comptroller of the Currency before the BITS Emerging Payments Forum, Washington, D.C.
By Thomas J. Curry, Comptroller of the Currency

“The first question I often hear in these discussions is whether banks will still be relevant in the not too distant future, or whether new technologies and players will supplant traditional banks. … We hear it all the time that banks are unable to compete with aggressive newcomers for market share. But we’ve heard that before. … The tendency to underestimate the dynamism of the banking system should be resisted because banks have been the source of so many of the innovative products and technologies of recent years.” Read the speech.

2015 Article IV Consultation with the United States of America Concluding Statement of the IMF Mission
By International Monetary Fund

“Given the complexity of the U.S. regulatory system—including the number of agencies involved—the effectiveness of the FSOC in proactively identifying and addressing risks in a timely and assertive manner is critical. To underscore this goal, all the individual FSOC member agencies should have an explicit financial stability mandate. Each material threat identified in the FSOC Annual Reports should be accompanied by a list of specific follow-up actions with regular reporting of progress in tackling these risks….” Read the article.

Defining Larger Participants of the Automobile Financing Market and Defining Certain Automobile Leasing Activity as a Financial Product or Service
By the Consumer Financial Protection Bureau

“This final rule identifies a market for automobile financing and defines as larger participants of this market certain nonbank covered persons that will be subject to the Bureau’s supervisory authority. It also defines certain automobile leases as a “financial product or service” under section 1002(15)(A)(xi)(II) of the Dodd-Frank Act. Finally, this final rule makes certain technical corrections to existing larger-participant rules. …Under the Final Rule, a nonbank covered person that engages in automobile financing is a larger participant of the automobile financing market if it has at least 10,000 aggregate annual originations.” Read the final rule. Read BPC’s related blog post.

BPC Calls on Congress to Preserve and Strengthen Independent Funding for Financial Regulators
By Aaron Klein, Director, Financial Regulatory Reform Initiative, Bipartisan Policy Center

“Congress ought to strengthen regulators’ independence in a way that does not cost taxpayers a penny and also improves the quality of regulation,” said BPC Director Aaron Klein. “Legislation that moves the CFPB or any other financial regulator onto the congressional appropriations system is a step in the wrong direction. Both Democratic and Republican administrations and Congresses have understood the importance of having self-funded financial regulators. They have supported that idea through prior legislation that established both the CFPB and Federal Housing Finance Agency (FHFA) and placed them on level footing with all bank regulators with independent funding.’’ Read the statement.

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