Happy Thanksgiving! As you gather with family and friends, we hope you enjoy this extended 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.
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.
The Clearing House held its annual conference in New York City from November 19-21. Below are two of the keynote remarks delivered at the conference.
“As The Clearing House and others move forward into the world of faster and even real-time payments, I have another admonition for you as well: as you go about this work, it is essential that the interests of consumers remain at the top of your minds. … So let me run through some of our thoughts on this front. First, faster payments should bring with them faster access to the funds that a consumer deposits. … Second, a faster payment system should include real-time access to information about the status of an account as well as protections from hair-trigger assessments of fees. … Third, faster payments must be accompanied by robust consumer protections with respect to fraudulent or otherwise unauthorized transactions and erroneous debits. … Fourth, and finally, a faster payment system should be accessible to all consumers and not just to the most privileged.” Read Director Cordray’s speech here.
“Designing and implementing a policy response in light of the vulnerabilities of short-term wholesale funding markets that were revealed in the 2007-09 crisis is an integral part of post-crisis reform. The key question is how to balance the important role these markets have come to play in funding economic activity with the need to contain the destabilizing risks of runs in these same markets. To get a better sense of the terms of this balancing effort, let me examine the implications, first, of relying completely on liquidity requirements to manage liquidity problems, and then of relying entirely on [lender-of-last-resort] LOLR liquidity from a central bank. The shortcomings associated with either of these one-dimensional approaches demonstrate why liquidity regulation and LOLR should be viewed as complements and not substitutes.” Read Governor Tarullo’s speech here.
“Enhancing Financial Stability by Improving Culture in the Financial Services Industry”: Remarks at the Workshop on Reforming Culture and Behavior in the Financial Services Industry, Federal Reserve Bank of New York
By William C. Dudley, president and chief executive officer, Federal Reserve Bank of New York
“To ensure the behavior that is required for a safe, sound and trusted financial system, we must also be effective in our role as regulators and supervisors. As part of this, we as supervisors must continually work to improve our own cultures to ensure that we can successively carry out our responsibilities. But it also requires good culture at the institutions that we supervise. Supervisors simply do not have sufficient ‘boots on the ground’ to ferret out all forms of bad behavior within a giant, global, financial institution. Moreover, regardless what supervisors want to do, a good culture cannot simply be mandated by regulation or imposed by supervision.” Read President Dudley’s speech here.
Introduced by Senator Jack Reed (D-RI)
“If the Governors of the Federal Reserve System are required to be confirmed by the Senate, then the President of the Federal Reserve Bank of New York, who played a central and perhaps more powerful role in overseeing taxpayer dollars during the financial crisis, should also be subject to the same public confirmation process. … More must be done to make this extremely powerful position truly accountable to taxpayers.” Read the press release here and the text of the bill here.
By the Government Accountability Office (GAO)
“This report examines (1) how FSOC oversees and manages the nonbank financial company determination process; (2) the extent to which FSOC has followed a systematic process for designating nonbank financial companies; (3) how the analysis and criteria used in FSOC’s determination process compare with methodologies proposed by international institutions and (4) the progress that the Federal Reserve has made in defining a supervision framework for designated nonbank financial companies.” Read the report here.
The G20 Leaders Summit met from November 15-16 to consider a variety of issues, including new proposals by the Financial Stability Board (FSB) designed to end the “too-big-to-fail” problem. Below are a selection of readings related to the FSB proposal and the Summit.
By the Financial Stability Board
“The FSB proposes to achieve the availability of adequate loss-absorbing capacity for [global systemically important banks] G-SIBs in resolution by setting a new minimum requirement for ‘total loss-absorbing capacity (TLAC)’ … The TLAC requirement should ensure adequate availability of loss-absorbing capacity in resolution. … By strengthening the credibility of authorities’ commitments to resolve G-SIBs without exposing taxpayers to loss, TLAC in conjunction with other measures should act to remove the implicit public subsidy from which G-SIBs currently benefit when they issue debt and incentivize creditors to better monitor G-SIBs’ risk taking. It should also help achieve a level playing field internationally, reducing G-SIBs’ funding cost advantage and ensuring they compete on a more equal footing within their home and foreign markets.” Read the consultative document here.
By Mark Carney, governor of the Bank of England and chair of the Financial Stability Board (FSB)
“The Brisbane Summit marked the point at which the post-crisis system of prudential regulation was settled. That system, built on safer, simpler and fairer foundations than the one that led to disaster is able to serve households and businesses right across the globe. That we have reached this point is a triumph of the optimists over the world-weary arguments of the pessimists. The mutual trust and co-operation that has allowed authorities to get to this point is a vivid reminder of what can be achieved when countries work together. … Having built that level of co-operation it would be a travesty to stop at the foundations. … So onto the foundations we must now build the pillars of diversity, trust and openness that will support a global financial system serving the global economy to its full potential.” Read Governor Carney’s speech here.
By Aaron Klein and Peter Ryan
The Group of Twenty (G20) Leaders’ summit in Brisbane, Australia will meet from November 15-16 to consider a variety of issues, including a proposal released by the Financial Stability Board (FSB) to put in place a new international failure resolution regime designed to address the too-big-to-fail challenge posed by the largest global banks. Here are several questions to consider ahead of the meeting:
- Why is an international resolution plan necessary to end too-big-to-fail?
- How much equity and new types of debt will banks have to issue?
- How will cross-border cooperation work?
- How quickly will these reforms be implemented?
Read the blog post here.
By Michael McRaith, director of the Federal Insurance Office, U.S. Department of the Treasury
“As the insurance sector evolves globally, the United States will continue to contribute constructively in support of that change and work in support of international standards that, when implemented, will benefit U.S. consumers and U.S. insurers. Working together, U.S. participants are already leading developments in international standard-setting activities. Absent the participation and leadership of U.S. participants, international standard-setting activities would continue without reflecting the unique features of the U.S. market and regulatory structure.” Read Director McRaith’s written statement here.
By the International Association of Insurance Supervisors (IAIS)
“The IAIS is participating in a global initiative, along with other standard setters, central banks and financial sector supervisors, and under the purview of the Financial Stability Board (FSB) and G20, to identify global systemically important financial institutions (G-SIFIs). The focus of IAIS analysis is in relation to potential global systemically important insurers (G-SIIs). To this end, the IAIS has developed an initial assessment methodology to identify any insurers whose distress or disorderly failure, because of their size, complexity and interconnectedness, would cause significant disruption to the global financial system and economic activity. … The IAIS has also developed a framework of policy measures for G-SIIs. In parallel to the work toward identifying potential G-SIIs, the IAIS has developed a framework for Macroprudential Policy and Surveillance (MPS) in insurance.” Read the IAIS supervisory materials here.
By Mark Wetjen, commissioner, Commodity Futures Trading Commission (CFTC)
“To conclude, there is regulatory fragmentation today, and those of us responsible for overseeing the derivatives markets should not be satisfied with it. It does appear to be largely rooted in the fact that there is currently more comprehensive regulation of the derivatives markets in certain locales, particularly the U.S., as other jurisdictions continue implementing G20 reforms. … Global parity must be achieved through agreement on policy objectives and outcomes, and perhaps even means to those outcomes where necessary, to protect the integrity of the markets and the formation of liquidity globally. These should be, and I believe will be, the defining hallmarks of the new era for derivatives markets.” Read Commissioner Wetjen’s speech here.
By Kara M. Stein, commissioner, Securities and Exchange Commission (SEC)
“I have covered a lot and want to leave you with three thoughts. First, we have the most vibrant financial markets in the world because they are so transparent. History has demonstrated time and time again that modest up-front costs that come from additional transparency are more than made up for by the added liquidity, reliability and competitive returns that come when markets function as they should. Second, transparency matters to both retail and institutional investors. Last, as we consider changes in transparency, for example in areas like ETFs, we must be cognizant of the broader effects on our markets and the entire financial system.” Read Commissioner Stein’s speech here.
“The Senate Banking Committee has a long history of bipartisan collaboration and compromise. With the strain of the financial crisis fading, we at the Bipartisan Policy Center’s (BPC) Financial Regulatory Reform Initiative look forward to continued growth in bipartisanship at the Committee. As the new Congress seeks ways to improve financial regulation, we believe there are more bipartisan areas of agreement than most suspect. Below are five financial regulatory reform issues that we believe are ripe for the Senate Banking Committee to tackle next year.” Read the blog post here.
KEYWORDS: CONSUMER FINANCIAL PROTECTION BUREAU (CFPB), DANIEL TARULLO, FEDERAL RESERVE SYSTEM, FINANCIAL STABILITY BOARD, G20, GOVERNMENT ACCOUNTABILITY OFFICE, JACK REED, RICHARD CORDRAY, WHAT WE'RE READING