Thursday, April 20, 2017

Financial CHOICE Act 2.0

New Bill Retains the Theme of Version 1.0 with Some Tweaks

Author: David Schwartz

On April 19, Rep. Jeb Hensarling (R-TX) published a discussion draft of his Financial CHOICE Act (Version 2), updated from his original 2016 draft (Version 1). While keeping what the Rep. Hensarling calls its “pro-growth, pro-consumer” features that would end “too-big-to-fail” bailouts, the 2017 discussion draft of the Financial CHOICE Act walks back or modifies some key provisions from the 2016 version. Version 2 retains the "Dodd-Frank offramp,” the optional exemption from many Dodd-Frank regulations in exchange for higher capital reserves, that was the centerpiece of Version 1. This new version, however, provides more incentives to banks to take the offramp, in the form of exemption from stress testing. As with Version 1, Version 2 also repeals the Volcker Rule and eliminates enhanced supervision of financial market utilities designated as systemically important by the Financial Stability Oversight Council. The bill also adds new provisions drastically limiting the powers of the CFPB, and modifies various regulatory abilities of the SEC, PCAOB, and the CFTC.

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Sunday, April 16, 2017

Basel Report: "Repo Markets are Not Settled Yet"

Global repo markets in transition post-crisis, regulatory changes and central bank stimulus

Author: David Schwartz

An April 12, 2017 report issued by the Bank for International Settlement’s Committee on the Global Financial System (CGFS) takes stock of the state of repo markets. Drawing on a number of sources, the report surveys the landscape of the repo markets, taking into account the effects of the financial crisis, changes in the regulatory landscape, and the unprecedented period central bank stimulus. 

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Friday, April 14, 2017

FSB Launches Holistic Look at Regulatory Reforms

Author: David Schwartz

With the main elements of the G20’s core financial reforms underway, the Financial Stability (FSB) has proposed a framework to assess the effects of the reforms. In an April 11, 2017 consultation paper, the FSB proposes a structured framework specifying the processes and appropriate analytical approaches for the evaluation of the social benefits and cost of reform measure as well as identifying unintended adverse consequences. The paper considers the framework's:

 

  • scope, 
  • prioritization of evaluations, 
  • processes for measuring benefits and costs of the reforms, 
  • how to map objectives to intended outcomes, and 
  • the evaluation approaches and tools that could be used. 
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Tuesday, April 4, 2017

Fed Paper Seeks Optimal Capital Ratio for U.S. Banks

Empirical cost-benefit analysis yields a range of ratios

Author: David Schwartz

A working paper published on April 3, 2017 by the US Federal Reserve attempts to quantify the costs and benefits of bank capital to arrive at an estimate of the optimal capital ratio for U.S. banks. In their paper,[1] authors Simon Firestone, Amy Lorenc, and Ben Ranish begin their analysis by estimating to what extent the probability of financial crises falls as bank capital rises and calculate the output costs of a financial crisis. Against this cost, the authors then balance the cost of equity, a more expensive source of funding for banks than debt.

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Tuesday, March 28, 2017

House Committee Hearing Examines SIFI Designation Process

Hears Testimony on FSOC's "Inconsistent and Arbitrary" SIFI Designation Process

Author: David Schwartz

The House Oversight and Investigations Subcommittee held a hearing on Tuesday, March 28, 2017  to examine the process used by the Financial Stability Oversight Council (FSOC) to designate systemically important financial institutions (SIFIs). The subcommittee heard testimony from a panel of witnesses about the designation process and about the House Financial Services Committee’s February 28, 2017 report criticizing the FSOC and what it termed its “inconsistent and arbitrary” SIFI designation process. 

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