What We're Reading in Financial Regulatory Reform, May 1

Good luck picking the winner of the Kentucky Derby this weekend. Here are some winning 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’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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“Reshaping the Financial Regulatory System: Long Delayed, Now Crucial”
By The Volcker Alliance

“The analysis in this report aims to inform serious consideration of an issue of fundamental importance that, if resolved, would help establish and maintain a stronger financial system and foster a vibrant economy. This report should also help inform policymakers about: (1) how the current regulatory framework allows risks to multiply in the financial system; and (2) possible approaches to creating a more robust and resilient regulatory framework.” Read the report. Read BPC’s support of the report.

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“The Two-Speed Economy”
By Global Markets Institute, Goldman Sachs Global Investment Research

“While perhaps not on a rule-by-rule basis, in the aggregate the cumulative effects of post-crisis regulations appear to have had a negative impact on the relative competitiveness of small businesses, reshaping the U.S. economy – and likely in ways that were unintended. Each new regulation was not meant to create negative outcomes: each was aimed instead at addressing other policy issues, such as ameliorating the risks of another financial crisis, protecting workers or providing greater access to healthcare. Whether the trade-offs created by the cumulative effects of new regulations are acceptable is both a political question and an economic one, but the issues we observe in this paper should be considered as part of any future evaluation of the aggregate effects of the new rules.” Read the report.

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“Tailoring Community Bank Regulation and Supervision”, Remarks at the Independent Community Bankers of America 2015 Washington Policy Summit, Washington, D.C.
By Governor Daniel K. Tarullo, Board of Governors, United States Federal Reserve Board

“Having just become chair of the Federal Financial Institutions Examination Council, I hope to make the required decennial review under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) a productive one. A productive exercise in this context will, among other things, be one that results in changes in the regulations and supervisory practices of the banking agencies so as to yield significant reduction in compliance costs for community banks. It should not be a merely bureaucratic exercise in formal fulfillment of a statutory requirement. There are numerous issues beyond those I’ve mentioned already that almost surely can be profitably addressed, including reporting requirements and examination practices.” Read the speech.

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“Examining Regulatory Burdens- Regulator Perspective”, Remarks before the Subcommittee on Financial Institutions and Consumer Credit, Committee on Financial Services, U.S. House of Representatives
By Doreen R. Eberley, Director, Division of Risk Management Supervision, Federal Deposit Insurance Corporation

“The FDIC considers the size, complexity, and risk profile of institutions during the rulemaking and supervisory guidance development processes and on an ongoing basis through feedback we receive from community bankers and other stakeholders. Where possible, we scale our regulations and policies according to these factors. The FDIC’s policy statement on the development and review of regulations includes a goal of minimizing regulatory burdens on the public and the banking industry. Additionally, all of our FILs have a prominent community bank applicability statement so community bankers can immediately determine whether the FIL is relevant to them.” Read the speech.

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Testimony at State of the Insurance Industry and Insurance Regulation hearing, U.S. Senate Committee on Banking, Housing, & Urban Affairs
By Mark Van Der Weide, Deputy Director, Division of Banking Supervision and Regulation,
Board of Governors of the Federal Reserve

“The Federal Reserve is investing significant time and effort into enhancing our understanding of the insurance industry and firms we supervise, and we are committed to tailoring our supervisory framework to the specific business lines, risk profiles, and systemic footprints of the insurance holding companies we oversee. Our supervisory efforts to date have focused on strengthening firms’ risk identification, measurement, and management; internal controls; and corporate governance. Our principal supervisory objectives for insurance holding companies are protecting the safety and soundness of the consolidated firms and their subsidiary depository institutions while mitigating any risks to financial stability.” Read the testimony.

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Federal Deposit Insurance Corporation Proposed New Rule Large Bank Deposit Insurance Determination Modernization
By Federal Register, Vol. 80, No. 81

“The FDIC is seeking comment on whether certain insured depository institutions that have a large number of deposit accounts, such as more than two million accounts should be required to undertake actions to ensure that, if one of these banks were to fail, depositors would have access to their FDIC-insured funds in a timely manner (usually within one business day of failure). Specifically, the FDIC is seeking comment on whether these banks should be required to: (1) Enhance their recordkeeping to maintain (and be able to provide the FDIC) substantially more accurate and complete data on each depositor’s ownership interest by right and capacity (such as single or joint ownership) for all or a large subset of the bank’s deposit accounts; and (2) develop and maintain the capability to calculate the insured and uninsured amounts for each depositor by deposit insurance capacity for all or a substantial subset of deposit accounts at the end of any business day.” Read the rule.

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“Hard Times”, Forthcoming British Journal of Sociology
By Danny Blanchflower, Bruce V. Rauner Professor of Economics, Department of Economics, Dartmouth College

“The UK has experienced the slowest recovery in 300 years and the third slowest in six hundred and fifty years behind, in order, the Black Death and the South Sea Bubble. It took five and a half years for the UK to restore lost output compared with approximately four years in the Great Depression. GDP in Q42014 was 3.5% above its starting level. This slow recovery is even more surprising given the fact that the UK’s population age 16 and over has risen 5.4% since the start of 2008. GDP per head in constant prices in the UK in 2014Q3 was still 1.8% below its starting level in 2008Q1. Employment is 1.2 million higher than it was in 2008, with half of this growth being in self-employment; there has also been a sharp rise in the numbers of temporary workers as well as the numbers on zero-hours contracts.” Read the article.

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“Millennials And The U.S. Economy: The Kids Are All Right (Or Soon Will Be)”, report by S&P Global Portal IQ, McGraw Hill Financial
By Joe Macguire

“The typical Class of 2014 college graduate with student debt will have to pay back a record high $33,000; when adjusted for inflation, this represents almost double the amount borrowers had to pay back 20 years ago. This increased burden comes at a time when wages have stagnated, with year-over-year wage gains at a weak 2% (effectively, a reduction in real terms). It also helps explain why the share of entrepreneurs under age 30–who simply don’t have the liquid capital to start new businesses–has hit a 24-year low. The Federal Reserve’s Survey of Consumer Finances showed the impact of the Great Recession across age groups, with all groups still in the red. The younger generations suffered the most, and still are, with net wealth for people ages 35-44 down a hefty 53% from the 2007 peak. Net wealth for people aged 18-34 is down a more modest 20.5% from 2007. Net wealth for that generation has been on the decline for almost 20 years, down 42.6% from its 1995 peak.” Read the report.