global banking regulation · biggest percent of banking assets worldwide ggg the orderly failure of...
TRANSCRIPT
Global Banking Regulation
Date & Time: Tuesday, May 01, 2012; 04:00 PM - 05:15 PM
Moderator:James Barth, Senior Finance Fellow, Milken Institute; Lowder Eminent Scholar in Finance, Auburn
University
Speakers:Madelyn Antoncic Vice President and Treasurer The World Bank GroupMadelyn Antoncic, Vice President and Treasurer, The World Bank Group
Chris Brummer, Senior Fellow, Milken Institute; Professor of Law, Georgetown University Law Center
Mary Ellen Iskenderian, President and CEO, Women's World Banking
Bo Lundgren, Director General, Swedish National Debt Office
Michael Taylor, Member of the Secretariat, Financial Stability Board, Bank of International Settlements
History of banking crises worldwideMore frequent (and more severe)More frequent (and more severe)
Middle East & North Africa
Sub-SaharanSub-Saharan Africa
South Asia
East Asia & Pacific
Latin America &Latin America & CaribbeanEurope &
Central AsiaNorth America
Sources: Reinhart and Rogoff (2008), Milken Institute.
1801 1816 1831 1846 1861 1876 1891 1906 1921 1936 1951 1966 1981 1996 2011
New EU regulatory structure
European Central Bank Council (ECB President, and Vice-President and
NCBs Governors)
Chairpersons of EBA, EIOPA and
ESMA
A member of the European
Commissionropr
uden
tial
uper
visi
on
General Board
Euro
pean
stem
ic R
isk
oard
(ESR
B)
NCBs Governors)
urop
ean
perv
isor
y th
oriti
es
Joint Committee of the ESAs
Mac su
ial
Microprudential Information Exchange Systemic risk
ESy
sB
o
Eu
Sup
Aut
atio
nal
perv
isor
y th
oriti
es
European Banking Authority (EBA)
European Insurance and Occupational Pensions
Authority (EIOPA)
European Securities and Markets
Authority (ESMA)
National Banking National Insurance National Securities
Mic
ropr
uden
tisu
perv
isio
n
Na
Sup Au
t National Banking Supervisors
National Insurance Supervisors
National Securities Supervisors
Source: Xavier Vives (2012).
G20 regulatory reform agendaKey elements and statusKey elements and status
Agreed (international guidelines)or accomplished (national implementation)Work in progressInsufficient processNothing available to implement
Internationalguidelines
Nationalguidelines
Bank capital and liquidity
SIFI framework
Shadow banking
OTC derivatives
Credit ratings
Notes: OTC = over-the-counter; SIFI = systemically important financial institutions.Source: International Monetary Fund.
Data initiatives
Financial Stability Board
• The FSB coordinates the work of national financial authorities and international standard setting bodies to develop and promote financial stability.
• It brings together national authorities responsible for financial g gstability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank
texperts.
Financial Stability Board
• Not a “global financial regulator”• Guiding hand in standard setting processGuiding hand in standard setting process• Co-ordination on implementation of international standards• Co-ordination on supervision of cross-border groups• Assessment of cross-border vulnerabilities• Assessment of cross-border vulnerabilities
Concentration of banking assets worldwide
“[T]he G20 must put in place a credible regime for managing 68%
50 biggest
Percent of banking assets worldwide
g g gthe orderly failure of financial institutions,however large, complex or international ”
44%
68%
10
20 biggest banks
ggbanks
international.”
Paul TuckerDeputy Governor of
the Bank of England and a member of Financial
14%
26%
5 biggest b k
10 biggest banks
Note: $96.5 trillion in assets in 2011.Sources: The Banker, Milken Institute.
a member of Financial Stability Board
Financial TimesJanuary 31, 2012
banks
Fifty biggest banks in the world get bigger
“[T]he G20 must put in place a credible regime for managing 100
Combined assets of the world's 50 biggest banksPercentof GDP
g g gthe orderly failure of financial institutions,however large, complex or international ”
66%
94%
60
80
international.”
Paul TuckerDeputy Governor of
the Bank of England and a member of Financial15%
24%
45%
20
40
Sources: The Banker, Milken Institute.
a member of Financial Stability Board
Financial TimesJanuary 31, 2012
15%0
1970 1980 1990 2000 2011
Cross-border banking for selected big banks
80
100Domestic assets Foreign assetsPercent of total banking assets
20
40
60
0
20
Note: Data as of 2010.Source: Bloomberg.
History of U.S. banking laws More regulators and more regulations after every crisisMore regulators and more regulations after every crisis
Federal Housing Finance
Regulatory Reform Act
(2008)
Federal Reserve Act
(1913)(Bank runs)
Depository Institutions
Deregulation and Monetary
Control Act
Financial Institutions Reform,
Recovery and Enforcement Act
(1989) (S&L i i )
2010
(2008)
1860
1880 1900 1920 1940 1960
1980 2000
(Bank runs) Control Act (1980)
(S&L crisis)
N ti l
(S&L crisis)Dodd–Frank Wall Street
Reform and Consumer Protection
Act
National Currency Act
Federal Deposit
Insurance Corporation
Improvement
National Bank Act
(1864)Garn- St Germain
Depository Institutions Act
(1982)(S&L crisis)
Federal Deposit
Insurance Corp. & SEC
(Great
(Civil War & wildcat
b ki )
SarbanesOxley Act
(2002)(Enron and
Emergency Economic
StabilizationAct
(2008)
(2010)
Source: Milken Institute.
(1863)Improvement
Act (1991)
(Banking crisis)
(Great Depression)
banking) (Enron and WorldCom
bankruptcies)
New U.S. regulatory structure
• Federal Reserve
Nonbank financial and bank holding companies posing
systemic risk
• Federal Housing Finance Agency
Fannie Mae, Freddie Mac, and Federal
Home Loan Banks
• Consumer Financial Protection Bureau
• Financial Stability Oversight Council (Treasury, Fed, OCC, CFPB, SEC, CFTC, FDIC, FHFA, NCUA, OFR, FIO and three
Identify emerging systemic risks and
improve interagency cooperation
Protect consumers across the financial sector from
unfair, deceptive, and abusive practices
• National Credit Union Administration• State credit union regulators
Credit Unions
National commercial banks and federal
savings banks
State commercial and savings
banks
Hedge funds, private equity
funds and venture capital funds
Insurance companies
Securities brokers/dealers
Other financial companies, including mortgage companies
and brokers
Fed is the regulator when subsidiaries include a commercial or savings bank
• OCC • State bank • SEC • FINRA • FedPrimary/ • 50 State insurance
state regulators)
• FDICState baregulators
• FDIC• Fed--state membercommercial banks
• SEC • CFTC• State securities regulators
ed• State licensing(if needed)
• U.S. Treasuryfor some products
Foreignbranch
Foreignbranch
ysecondaryfunctionalregulator
Justice Department Federal courts
50 State su a ceregulators plusDistrict of
Columbiaand Puerto Rico
• FIO(oversight)
• OCC• Host country regulator
• Fed• Host country regulator
p• Assesses effects of mergers and acquisitions on competition
• Ultimate decider of banking, securities, and insurance products
Source: Milken Institute.
What will be the impact of theU S Dodd-Frank Act?
“Has anyone bothered to study the cumulative effect of these”
“The central bank doesn’t have the quantitative tools to study
U.S. Dodd-Frank Act?
regulatory and market fixes?
Jamie DimonJPM Ch CEO
the net impact of all the regulatory and market changes over the last three years... It’s too complicated” to st d theJPMorgan Chase CEO
June 7, 2011too complicated” to study the new regulations’ affects.
Ben BernankeFed Chairman
June 7, 2011
What will be the impact of tougher regulators?
“It is…possible that bank regulators, in an effort to bolster their reputation for toughness and prevent what they seetheir reputation for toughness and prevent what they see as “systemic risk,” will act to suppress risk-taking in general, limiting innovation and dynamism in the economy.”economy.
Richard Fisher and Harvey RosenblumFRB of DallasFRB of Dallas
Wall Street JournalApril 4, 2012
Concentration of U.S. banking assets
“We can select the road to enhanced financial efficiency 89%
50 biggest
Percent of bank holding companies assets
yby breaking up TBTF banks…. Or…we almost certainly will face the prospect of again using taxpayer
79%
10
20 biggest BHCs
ggBHCs
again using taxpayer funds to rescue bigbanks.”
Richard Fisher and H R bl
52%
67%
5 biggest BHC
10 biggest BHCs
Note: $16.5 trillion in assets in 2011.Sources: The Banker, Milken Institute.
Harvey RosenblumFRB of Dallas
Wall Street JournalApril 4, 2012
BHCs
Fifty biggest U.S. banks get bigger
“We can select the road to enhanced financial efficiency
98%100
Combined assets of the 50 biggest bank holding companiesPercentof GDP
yby breaking up TBTF banks…. Or…we almost certainly will face the prospect of again using taxpayer
98%
60
80
again using taxpayer funds to rescue bigbanks.”
Richard Fisher and H R bl
25%33% 33%
49%
20
40
Sources: The Banker, Milken Institute.
Harvey RosenblumFRB of Dallas
Wall Street JournalApril 4, 2012
01970 1980 1990 2000 2011
U.S. Senators Brown and Kaufman amendment on Too Big To FailLi it d it li biliti t 2% f GDPLimits non-deposit liabilities to 2% of GDP
Bank holding Total assets Total assets Non-deposit liabilities
Non-deposit liabilities
Non-deposit liabilities exceeding
Impact on 5 biggest banks
company (US$ bn) (% of GDP) liabilities(US$ bn)
liabilities(% of GDP)
liabilities exceeding 2% of GDP (US$ bn)
JPMorgan Chase 2,266 14.8 1,138 7.4 819
Bank of America 2,129 13.9 1,103 7.2 785America , ,
Citigroup 1,874 12.2 1,005 6.6 688
Wells Fargo 1,314 8.6 393 2.6 86
G ldGoldman Sachs Group 924 6.0 878 5.7 563
Note: Data as of December 31, 2011.Sources: Bloomberg, Milken Institute.
Shadow banking grows in importanceRepresents 20-30% of the world financial sectorRepresents 20-30% of the world financial sector
Share of U.S. financial assets by type of financial institution
1945 2011
“Regulation has done some good, but more
1945 Total: $0.2 trillion
Contractualintermediaries
2011 Total: $62.7 trillion
Contractualintermediaries
Depositoryinstitutions
work needs to be done to prevent shadow credit intermediation from continuing to be a source intermediaries
24% Depositoryinstitutions
70%Shadowbanking
institutions6%
intermediaries28%
institutions28%
Shadowbanking
institutions44%
of systemic concern.”
Tobias Adrian and Adam AshcraftFRB of New York
Sources: Federal Reserve Board, Financial Times, Milken Institute.
44%April 2011
U.S. small businesses account for 61% of private sector job growth in past 15 yearsprivate sector job growth in past 15 years
Total net job gains: 9.2 million1996 - 2011Q2
Medium/large size business
39%Small
business61%
Note: Small business < 500 employees.Sources: US Bureau of Labor Statistics, Milken Institute.
Small businesses raise only 22% of their capital from bankstheir capital from banks
SBA l
Percent of survey respondentsJuly 2011
36% of small-business owners feel they are NOTable to obtain
Bank loans22%
N fi i
SBA loans2% Others
9%Private loans10%
able to obtain adequate financing.
Credit cards17%
No financing10% Business
earnings19%Vendor
credit11%
Source: National Small Business Association.
17%
Large banks overtake smaller banksShare of assets of all U S depository institutionsShare of assets of all U.S. depository institutions
“Less lending among smaller banks signals 80
90Percent of total banking assets
Large bankscontinued tough times for small businesses, typically an important contributor to 40
50
60
70Large banks
economic growth.”
David ReillyWall Street Journal10
20
30
40
Smaller banks
Note: Large banks are banks with assets > $10 billion.Source: Federal Deposit Insurance Corporation.
February 14, 201201985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Mobile banking vs. “old-school” banking to provide financial services to the poorprovide financial services to the poor
“[T]he poor are stuck using cash…. [It] has never been profitable to put bank branches in the slums and rural villages where poor people live.… Mobile technology is a solution for the roughly one billion people who already have a phone but who don’t have a bank account…. [T]he World Bank and the Gates Foundation are already investing heavily in these new technologies for providing the poor with financial services.”
David WolmanWall Street Journal
February 11-12, 2012y ,
Small and medium enterprises loan shareof total business loansof total business loans
“SME loan shares … [are] well below the
3540
Percent of total business loans
[are] well below the respective contribution by SMEs to national income and 15
202530
employment.”
OECD20120
510
Note: Data as of 2010.Source: OECD.