TOP OF THE AGENDA
Banks Have Not Forgotten the Lessons of the Crisis
Last week, The New York Times published an editorial that posed the question “Condemned to Repeat the History of Bank Failures?” and answered it “yes” because “…the lessons of the crisis already appear to be fading.” No one, especially the banking industry, has forgotten the lessons from the crisis. Further, the characterization of “weakened” regulations is misleading, and the editorial includes multiple false assertions that stand in the way of good public policy and so deserve a response.
Federal Reserve Releases Additional Information on Stress Testing
On March 28, the Federal Reserve Board released additional information on its stress testing program. The additional information consists of: ranges of loss rates, projected using the Federal Reserve’s models, for loans that are grouped by distinct risk characteristics; portfolios of hypothetical loans with loss rates projected by the Federal Reserve’s models; and enhanced descriptions of the Federal Reserve’s models.
The loss rate information provided is for the models used for corporate loans and credit cards, which the Fed notes accounted for roughly half of total projected loan losses in the 2018 stress tests. The release also states that they plan to provide similar information on two additional models next year.
House Committee Approves Cannabis Banking Bill
The House Financial Services Committee by a vote of 45-15 approved the SAFE Banking Act that would shield banks from federal regulatory penalties if they service cannabis companies that comply with state law. The bill was passed with bipartisan support of 11 Republicans on the committee as lawmakers debated whether Congress should consider the legality of marijuana more broadly. Related bills have been introduced in the Senate, however Banking Committee Chairman Mike Crapo (R-ID) has been silent on the issue.
The committee also approved by a vote of 34-26 the Consumer First Act that would restore the supervisory and enforcement powers of the Office of Fair Lending and Equal Opportunity at the Consumer Financial Protection Bureau. It also mandates the consumer complaint database remain transparent and publicly accessible.
Quarles Outlines FSB Priorities for 2019
In a March 28 speech at the European Central Bank, Federal Reserve Vice Chair for Supervision Randal Quarles outlined the three top priorities for this year for the Financial Stability Board (FSB), which he heads. He highlighted the FSB’s focus on fintech, saying that the Board would consider the potential effects of both the growth in decentralized fintechs and the entry of large technology firms into financial services. Quarles also said that the FSB would concentrate on nonbank financial intermediation, particularly with regard to its potential for systemic risk, as well as evaluating the effects of too-big-to-fail reforms.
Carolyn Rogers Named Basel Committee Secretary General
On March 22, the Basel Committee announced the appointment of Carolyn Rogers as its next Secretary General for a three-year initial term beginning August 14, 2019, during which she will also chair the Committee’s Policy Development Group. She comes to the role from the Canadian Office of the Superintendent of Financial Institutions, where she served as Assistant Secretary and representative to the Committee.
FDIC Announces Nick Podsiadly as General Counsel
On March 26, Federal Deposit Insurance Corporation (FDIC) Chairman Jelena McWilliams named Nick Posiadly as the agency’s General Counsel following Charles Yi’s announcement of his intention to resign from the role earlier this month. Posiadly, who most recently held positions at Fifth Third Bancorp, Regions, and the American Bankers Association, will begin April 8.
Should the World Worry about America’s Corporate-Debt Mountain?
A recent article in the Economist analyzed the growth in leveraged lending the risks it does or does not present. Despite comparisons, “the leveraged-loan market does not really look like the subprime markets of the mid 2000s,” the Economist reported. The collateralized loan obligations “pool fewer debts, their issuers know more about the debtors and their analysts monitor the debts after they are bought.” Further, the Economist points out the prognosis “would still not be too bad” since America’s banks “are not disturbingly exposed to leveraged loans.”
House Committee Holds Fair Housing Act Hearing
On April 2, the House Financial Services Committee will convene a hearing at 10 am entitled, “The Fair Housing Act: Reviewing Efforts to Eliminate Discrimination and Promote Opportunity in Housing.”
House Subcommittee Hearing on Affordable Housing
The House Financial Services Subcommittee on Housing, Community Development and Insurance will hold a hearing on April 2 at 2 pm on affordable housing in Rural America.
Senate Banking Committee Hearing on ESG Investing
The Senate Banking, Housing and Urban Affairs Committee will hold a hearing on April 2 at 10 am on “Application of Environmental, Social, and Governance Principles in Investing and the Role of Asset Managers, Proxy Advisors, and Other Intermediaries.”
House Subcommittee Hearing on Executive Accountability
The House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will convene a hearing on April 3 at 2 pm entitled, “Putting Investors First: Reviewing Proposals to Hold Executives Accountable.”
House Subcommittee Hearing on CRA’s Impact
The House Financial Services Subcommittee on Consumer Protection and Financial Institutions will hold a hearing on April 9 at 10 am entitled, “The Community Reinvestment Act: Assessing the Law’s Impact on Discrimination and Redlining.”
House Committee Hearing with Treasury Secretary
The House Financial Services Committee will hold a hearing on April 9 at 2 pm with Treasury Secretary Steven Mnuchin on his annual testimony on the state of the international financial system.
Fed’s Quarles Delivers Remarks at Financial Regulation Forum
The Antonin Scalia Law School’s Financial Services Regulation Law Concentration and the Law & Economics Center’s Program on Financial Regulation & Technology are hosting a forum with Federal Reserve Board Vice Chair for Supervision Randal Quarles on April 9 at 5 pm at the Law School.
House Committee Hearing with GSIB Bank CEOs
On April 10 at 9 am, the House Financial Services Committee will convene a hearing entitled, “Holding Megabanks Accountable: A Review of Global Systemically Important Banks 10 years after the Financial Crisis.”
Financial Regulation Conference with Policymakers
The Antonin Scalia Law School’s Financial Services Regulation Law Concentration will host its first full day public policy conference on the Future of Financial Regulation on May 16. Craig Phillips, Counselor to the Secretary of the Treasury, will be the opening keynote speaker and SEC Commissioner Hester Peirce will be the luncheon speaker. Full agenda to come.
SIFMA and BPI Host Prudential Regulation Conference
The Securities Industry and Financial Markets Association (SIFMA) and BPI will host the 6th Annual Prudential Regulation Conference on June 4 in Washington DC. This year’s conference will assess how the post-crisis prudential regulatory framework is affecting capital markets, including market liquidity, capital formation and innovation.
November 19-21: The Clearing House + BPI 2019 Annual Conference
The Clearing House and BPI will host the 2019 Annual Conference from November 19 to 21. The event provides a forum for the industry’s leaders to examine the changing dynamics of the bank regulatory and payments landscapes with two and half days of high-level keynote speakers, in-depth expert panels, and networking. Register today.
The Pierre, New York
Stress Testing Networks: The Case of Central Counterparties
This paper analyzes how the deeply interconnected networks created by central counterparties (CCPs) can transmit and amplify cross-border shocks. Using a high-frequency market-based indicator of the conditional capital shortfall (SRISK) of the members of two large CCPs, the authors explore the ways in which a CCP that has exhausted its prefunded resources may propagate shocks across borders, raising challenging questions about the adequacy of current stress test practice.
New Financial Stability Governance Structures and Central Banks
Macroprudential stability has been a key topic since the global financial crisis, but the institutional frameworks developed to implement these policies vary significantly across countries. This study finds that out of 47 countries that have set-up financial stability committees (FSCs) only about one-quarter have good processes and tools to implement macroprudential actions. Generally, FSCs design shows high weight on political economy considerations and a strong focus on improving communication and coordination among existing regulators but without the structures necessary to take direct actions.
The Re-emergence of the Federal Reserve Funds Market in the 1950s
The federal funds market in the 1950’s experienced a revival as it evolved from a reserve-abundant and anemic trading market into a dynamic exchange with tightened liquidity. In this Federal Reserve Board note, the authors explore monetary policy mechanisms prevailing in the mid twentieth century and try to extrapolate certain conclusions to the present. They believe the reduction in the supply of reserves could potentially revive interbank trading in the federal funds market.
Does Price Regulation Affect Competition? Evidence from Credit Card Solicitations
This paper studies the unintended consequences of restricting credit card issuers’ ability to raise interest rates in the CARD Act. The paper finds that the law significantly reduced the ability of issuers to change interest rates when competitors also change interest rates, especially in response to decreases in interest rates in areas with more subprime borrowers. These findings underscore how interest rate regulations intended for consumer protection may have material costs that must be weighed against the benefits.