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What We're Reading in Financial Regulatory Reform, July 3

As we celebrate America’s 238th birthday this Fourth of July, we hope that you enjoy the following selection of readings and videos. 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. For more information on FRRI, including recent research and upcoming events, click here.

Compiled by Aaron Klein, Peter Ryan, Justin Schardin.

Testimony of Secretary Jack Lew before the House Financial Services Committee on the 2014 Annual Report of the Financial Stability Oversight Council

“Some also claim that the Council’s processes are opaque and its outcomes are predetermined, but that is simply wrong. The Council has voluntarily adopted a robust transparency policy and put in place a comprehensive, deliberative approach to its evaluation of risks, and it solicits public input and carefully considers all points of view.” Read Secretary Lew’s written testimony here and watch the video of the hearing here.

Testimony of Director Richard Cordray before the House Financial Services Committee on the Semi Annual Report of the Consumer Financial Protection Bureau

Rep. Randy Neugebauer (R-TX): “A lot of the financial institutions that you regulate have to issue privacy statements to people to let them know that, hey, we’ve got a lot of personal data on you, and here’s ours. Are you giving the American people a privacy statement about all of the data that you’re holding on them?”

CFPB Director Cordray: “Actually, what we’re trying to do is minimize the burden on industry of those annual privacy notices… In terms of what we’re doing, again, this is de-identified information. What industry does is something different. They’re interested in knowing ‘what are your spending habits are?’ ‘What do you do?’ They want all to know all about you. We don’t care to know. We want to know about the general pattern of consumers that are affected. The de-identified information we collect is a very different issue than the privacy issues associated with the collection of individual information.” Read Director Cordray’s written testimony here and watch the video of the hearing here.

“Stress Testing after Five Years.” Remarks to the Federal Reserve Third Annual Stress Test Modeling Symposium
By Daniel K. Tarullo, Governor, Board of Governors of the Federal Reserve System

“In short, we do not regard the supervisory stress test and [Comprehensive Capital Analysis and Review] CCAR as finished products. In fact, we should never regard them as finished products, since to do so would be to overlook changes in the real economy, financial innovations, and shifts in asset correlations across firms. But I think it fair to say that supervisory stress testing and the CCAR have already made important contributions to financial stability and, in the process, have led the way in transforming supervision of the nation’s largest financial firms.” Read the full speech here.

“The Economic Outlook and Implications for Monetary Policy.” Remarks to the New York Association for Business Economics
By William C. Dudley, President, Federal Reserve Bank of New York

“…changes in bank regulation may also imply a somewhat lower long-term equilibrium [federal funds] rate. Consider that, all else equal, higher capital requirements for banks imply somewhat wider intermediation margins. While higher capital requirements are essential in order to make the financial system more robust, this is likely to push down the long-term equilibrium federal funds rate somewhat.” Read the full speech here.

Letter to SEC Chair White Regarding Issuance of Waivers from Securities Laws to Institutions with Civil or Criminal Settlements or Enforcement Actions
By Senator Sherrod Brown (D-OH)

“These recent decisions imply that the SEC’s policy appears to make waivers the rule rather than the exception. I hope that the SEC will reconsider and revise a process that has now been questioned by the public, lawmakers, and a sitting SEC Commissioner. Removing privileges enjoyed by large firms will promote better behavior, increase accountability, and demonstrate to the financial markets that certain firms do not enjoy special treatment by virtue of their size.” Read the letter here.

“Shifting the Debate on Small-Dollar Credit” Op-ed in American Banker, June 17, 2014
By Aaron Klein

“We should refocus the discussion back on the consumer. Specifically, consumer groups, lenders and regulators should look at how to better distinguish between illiquid consumers who are short on cash but have sufficient means to pay these loans back and insolvent consumers who are headed toward bankruptcy and are unlikely to repay their loans. Moving the debate in this direction could lower costs to quality borrowers while simultaneously lowering costs to the industry. Profitable and socially responsible lending would be far more likely to occur if consumers can be accurately be categorized at a reasonable cost.” Read the article here.

“A Complex Portrait: An Examination of Small-Dollar Credit Consumers”
By Rob Levy, Manager, and Joshua Sledge, Analyst, Innovation and Research, Center for Financial Services Innovation

“We hope that the profile of [small-dollar credit] SDC consumers revealed here can serve as a valuable tool for advancing the credit dialogue and for remaking the small-dollar credit marketplace. Consumers need and deserve access to a variety of safe, affordable, high-quality loan products that can help them manage their financial lives without causing additional challenges or harm. In the best of circumstances, these products should help consumers turn a moment of crisis into an opportunity to improve their financial well-being. Keeping the needs, perspectives, and experiences of borrowers at the forefront of the dialogue on small-dollar credit is critical to moving the marketplace in a direction where such high-quality products go from aspiration to reality.” Read the full report here.

“Virtual Currencies: Emerging Regulatory, Law Enforcement, and Consumer Protection Challenges”
By the United States Government Accountability Office

“Bitcoin and other virtual currencies are technological innovations that provide users with certain benefits but also pose a number of risks. … For example, recent events suggest that consumer protection is an emerging risk, as by the loss or theft of bitcoins from exchanges and virtual wallet providers and consumer warnings issued by nonfederal and non-U.S. entities. However, federal interagency working groups addressing virtual currencies have thus far not emphasized consumer-protection issues, and participation by the federal government’s lead consumer financial protection agency, CFPB, has been limited.” Read the full report here.

Interview with Sean Rodriguez, Federal Reserve Bank of Chicago and Terry Roth, Federal Reserve Bank of Cleveland on Revamping the U.S. Payments System
By Tracy Kitten, Bank Info Security

“I think what we have seen throughout the world is an evolution toward faster payments options. We’ve been observing non-bank providers in our marketplace that have been, in essence, simulating or creating these real-time payment capabilities within some of their closed-loop networks. We’re seeing a lot of information that’s telling us that faster payments – a real-time payment capability – is likely something that would benefit the U.S. economy as a whole.” Listen to the full conversation here.

FSOC Minutes: A Step Forward, But More Disclosure Needed
By Aaron Klein and Peter Ryan

“Given the Federal Reserve’s success in boosting transparency, the FRRI [BPC’s Financial Regulatory Reform Initiative] believes that the FSOC can and should follow a similar model. By doing so, it will help to strengthen the FSOC’s legitimacy and help it better accomplish its critical mission of identifying and responding to threats to the financial system. Yesterday’s release of minutes was a positive step in that direction. More detail on the conversation that occurs at the closed door portion of FSOC will be an important metric of progress.” Read the full blog post here.

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