Monday, January 23, 2017

Treasury Nominee Wants Regulation with Limits, Not Repeal

Author: David Schwartz J.D. CPA

For the most part, Treasury Nominee Steven Mnuchin's five-hour confirmation hearing on January 19, 2017 focused on responding probing questions about his past associations and financial reporting oversights. Amid the sparring, however, Mnuchin was able to reveal a bit about his plans for Dodd-Frank, the Volcker Rule, and his thoughts on the future of financial regulation. Most notably, the wholesale repeal of Dodd-Frank promised during the election campaign does not appear to be on his agenda.  While he believes some aspects of Dodd-Frank regulations have gone too far and are stifling growth, Mr. Mnuchin said that rather than rolling back regulations, he favored placing limits on the existing framework to make it fairer, particularly to smaller financial firms. 

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Thursday, January 19, 2017

Financial CHOICE Act to Take Center Stage

Author: David Schwartz J.D. CPA

Republican control of Congress and the White House has put financial regulatory reform back on the legislative agenda. As an indication of Republicans' preliminary plans, the Financial CHOICE Act (H.R. 5983), proposes a regulatory capital “off-ramp” for banks which restrain their leverage and self-insure against losses. The centerpiece of the Financial CHOICE Act is the optional exemption from many Dodd-Frank regulations in exchange for higher capital reserves. The bill achieves this by creating a single leverage limit.

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Friday, December 23, 2016

Industry Leaders Want Dodd-Frank Fixed Not Scrapped

Time to Deal with the Devils in the Details

Author: David Schwartz J.D. CPA

As we mentioned last week it is premature to write the obituary for Dodd-Frank. Regulators have publicly recommitted themselves to seeing Dodd-Frank implemented fully. But regulators are not the only ones who would like to hold on to at least some aspects of the new regulatory landscape. Recently in speeches and congressional testimony, rather than calling for wholesale repeal, leaders of several of the largest banks and trade groups in the U.S. financial industry have advocated revision and refinement of the regulations under the Act, preserving what works while changing what does not.

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Friday, December 16, 2016

Dodd-Frank Won't Go Gently into that Good Night

Regulators are dedicated to the unfinished work of Dodd-Frank

Author: David Schwartz J.D. CPA

Listening to the pundits, the press, and the political class, one gets the impression that the repeal of the Dodd-Frank Act and its new regulatory landscape is imminent and certain.  But to paraphrase Mark Twain, the rumors of Dodd-Frank’s death have been greatly exaggerated. Lately, regulators at the Fed, CFTC, and OCC have been giving full-throated rhetorical support to the post-crisis financial reforms already in place, and have both tacitly and explicitly been signaling their commitment to completing what they believe is the unfinished work of the new financial regulatory regime.  While the electoral triumph of those long opposed to Dodd-Frank almost certainly will introduce a strong deregulatory assault against the legislation, it does not necessarily mean the death of every aspect of Dodd-Frank Act. 

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Monday, December 5, 2016

Basel Chair Calls for More Research into Bank Risk Models

Author: David Schwartz J.D. CPA

In his December 2, 2016 keynote speech at the second Conference on Banking Development, Stability and Sustainability, Basel Committee Chairman Stefan Ingves invited the financial industry and academics to help better calibrate capital and liquidity standards. As the Committee finalizes Basel III, Ingves said that he welcomes research and rigorous analysis of how the Committee should think about the capital benefits of allowing banks to use internally modeled approaches to calibrate appropriate capital floors. While standardized modeling approaches have the benefit of being uniform and simple, they lack precision and may ignore real differences in risk among banks better addressed by internal models. Recognizing that “academic challenge…is an essential ingredient of a healthy financial and regulatory system,” Chairman Ingves says that the Basel Committee is eager to see research that answers questions like:

 

  • What are the pre-conditions for such models to produce better outcomes than, say, simpler standardized approaches? 
  • To whom do the benefits of improved modeling accrue?  For example, if a bank using a model can lower its capital requirements by, say, 30%, what are the financial stability and real economy benefits of such an approach? 
  • To what extent do the benefits of modeling accrue to lower-risk borrowers as opposed to the parties being compensated for developing and using the models?
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