The document discusses concerns about the potential negative impacts of the Volcker Rule on non-financial businesses. It summarizes that the Volcker Rule may: reduce banks' ability to provide important services like underwriting bonds that businesses rely on to raise capital; increase costs for businesses and reduce their access to credit; and cause some financial risks to shift from banks to other parts of the economy rather than being eliminated. It argues the lack of clarity and complexity of the Volcker Rule could have significant unintended consequences for both businesses and the broader economy.
This presentation discusses the changing financial landscape after the 2008 crisis and lessons learned. It covers four main topics: 1) how the financial crisis occurred and the role of poor policy and incentives, 2) changes in regulation and the financial system, 3) key lessons on risk management and governance, and 4) focus areas including liquidity, capital, and compensation. The presentation emphasizes that while regulation is important, the underlying issues were related more to incentives and risk culture within firms.
The document discusses the role of FINSAC Limited in resolving problems of solvency and liquidity in Jamaica's financial sector in the 1990s. FINSAC's mandate was to restore stability to distressed financial institutions. Its objectives included protecting depositors and policyholders, strengthening institutions' management, and improving regulatory structures. FINSAC served as the government's executive arm to coordinate interventions, provide financial assistance, develop restructuring plans, monitor institutions, and advise on regulation.
Six Principles for True Systemic Risk Reformcoryhelene
Ten years after the capstone of financial industry deregulation--the Financial Modernization, or Gramm-Leach-Bliley, Act--the United States is facing the worst economic crisis since the Great Depression. The following policy brief outlines six key principles for comprehensive and meaningful systemic risk reform, which are neccessary to undo many of the ill-advised deregulatory measures of the past 20 years, including the four key changes wrought by the Gramm-Leach-Bliley Act.
The document discusses the causes of the financial crisis and solutions to prevent future crises. It argues that the financial system is too important to leave unregulated and that mistakes were made during the crisis that went unpunished. It identifies three main challenges regulators face: 1) increasing capital requirements for financial institutions, 2) increasing regulation and transparency of credit derivative markets, and 3) regulating credit rating agencies to address conflicts of interest. Nationalizing credit rating agencies and increasing clearinghouse requirements are proposed as solutions.
Dr. Charles Calomiris "An Incentive-Robust Program for Financial Reform"Nataly Nikitina
KSE Open Lecture with Dr. Charles Calomiris (Columbia University Graduate School of Business) on "An Incentive-Robust Program for Financial Reform" was held on April 12, 2011.
This document summarizes the outlook for the global economy and structured finance markets in early 2008. It finds that while economic growth has decoupled internationally, global credit markets remain tight due to concerns about the U.S. economy flirting with recession. Within structured finance, the near-term outlook is poor, but there is long-term optimism if the industry addresses issues through improved transparency and standardization. Housing prices and the U.S. job market will be key indicators to watch in determining if and how deep a recession may be.
There will likely be continued consolidation in the banking industry in the coming years for three key reasons:
1) Increased regulation has made larger banks more efficient but also increased scrutiny of mergers, especially for large firms.
2) Compliance costs have become disproportionately burdensome for small banks, incentivizing mergers.
3) Markets have become more concentrated as deposits have shifted to large banks, raising anti-competitive concerns for future mergers.
The successful management of the regulatory approval process, which takes longer for larger deals, will provide firms a strategic advantage going forward.
Group Presentation on the events surrounding Lehman Brothers. An insight into the rules of corporate governance rules and bailout comparison between USA and UK.
This presentation discusses the changing financial landscape after the 2008 crisis and lessons learned. It covers four main topics: 1) how the financial crisis occurred and the role of poor policy and incentives, 2) changes in regulation and the financial system, 3) key lessons on risk management and governance, and 4) focus areas including liquidity, capital, and compensation. The presentation emphasizes that while regulation is important, the underlying issues were related more to incentives and risk culture within firms.
The document discusses the role of FINSAC Limited in resolving problems of solvency and liquidity in Jamaica's financial sector in the 1990s. FINSAC's mandate was to restore stability to distressed financial institutions. Its objectives included protecting depositors and policyholders, strengthening institutions' management, and improving regulatory structures. FINSAC served as the government's executive arm to coordinate interventions, provide financial assistance, develop restructuring plans, monitor institutions, and advise on regulation.
Six Principles for True Systemic Risk Reformcoryhelene
Ten years after the capstone of financial industry deregulation--the Financial Modernization, or Gramm-Leach-Bliley, Act--the United States is facing the worst economic crisis since the Great Depression. The following policy brief outlines six key principles for comprehensive and meaningful systemic risk reform, which are neccessary to undo many of the ill-advised deregulatory measures of the past 20 years, including the four key changes wrought by the Gramm-Leach-Bliley Act.
The document discusses the causes of the financial crisis and solutions to prevent future crises. It argues that the financial system is too important to leave unregulated and that mistakes were made during the crisis that went unpunished. It identifies three main challenges regulators face: 1) increasing capital requirements for financial institutions, 2) increasing regulation and transparency of credit derivative markets, and 3) regulating credit rating agencies to address conflicts of interest. Nationalizing credit rating agencies and increasing clearinghouse requirements are proposed as solutions.
Dr. Charles Calomiris "An Incentive-Robust Program for Financial Reform"Nataly Nikitina
KSE Open Lecture with Dr. Charles Calomiris (Columbia University Graduate School of Business) on "An Incentive-Robust Program for Financial Reform" was held on April 12, 2011.
This document summarizes the outlook for the global economy and structured finance markets in early 2008. It finds that while economic growth has decoupled internationally, global credit markets remain tight due to concerns about the U.S. economy flirting with recession. Within structured finance, the near-term outlook is poor, but there is long-term optimism if the industry addresses issues through improved transparency and standardization. Housing prices and the U.S. job market will be key indicators to watch in determining if and how deep a recession may be.
There will likely be continued consolidation in the banking industry in the coming years for three key reasons:
1) Increased regulation has made larger banks more efficient but also increased scrutiny of mergers, especially for large firms.
2) Compliance costs have become disproportionately burdensome for small banks, incentivizing mergers.
3) Markets have become more concentrated as deposits have shifted to large banks, raising anti-competitive concerns for future mergers.
The successful management of the regulatory approval process, which takes longer for larger deals, will provide firms a strategic advantage going forward.
Group Presentation on the events surrounding Lehman Brothers. An insight into the rules of corporate governance rules and bailout comparison between USA and UK.
odd-Frank and Basel III Post-Financial Crisis Developments and New Expectations in Regulatory Capital. Following the recent global financial crisis of 2009, financial regulators have responded with arrays of proposals to revise existing risk frameworks for financial institutions with the objective to further strengthen and improve upon bank models. In this meeting, Dr. Michael Jacobs will discuss new developments and expectations in regulatory capital with particular reference to the definition of the capital base, counterparty credit risk, procyclicality of capital, liquidity risk management, and sound compensation practices. He will also explain the implications of the Frank-Dodd rule for financial institutions and will conclude by presenting the implementation schedule for Basel III.
The document provides an overview of the downfall of Lehman Brothers, which filed for Chapter 11 bankruptcy in September 2008. It discusses several factors that contributed to Lehman Brothers' collapse, including the US housing bubble and subprime mortgage crisis, Lehman's high leverage and reliance on short-term funding, and flaws in risk management practices. After Lehman filed for bankruptcy, parts of its business were acquired by Barclays and Nomura. The collapse had widespread effects on financial markets and the global economy.
Re-regulation in the aftermath of the financial crisisTUAC
The document discusses the causes of the 2008 financial crisis and calls for re-regulation of the financial industry. It notes that the crisis was caused by an unsustainable growth model, risky structured finance products, lack of oversight of banks and shadow banking, and short-term corporate behavior. It argues that re-regulation should strengthen financial safeguards, ensure cooperation internationally, and spread responsibility throughout the investment industry to prevent future crises.
Euromoney - Global Insolvency & Restructuring Review 2013-14Anindya Roychowdhury
Three key points:
1) Kuwait was one of the first countries to introduce a stimulus package after the 2008 credit crunch, allocating $14 billion, but there has been limited success with only one case admitted under the bailout scheme and workouts being held up by regulatory hurdles.
2) Investment companies (ICs) in Kuwait, many of which were overleveraged, have struggled amid falling asset values and tightening regulations, with most ICs now headed towards default and in need of restructuring.
3) Restructurings have faced challenges due to reluctance among fragmented lenders to coordinate, cultural preferences for rescheduling over restructuring, and lack of specialized re
The document discusses characteristics of banking credit in Latin America across several areas:
1. Credit is scarce and costly in the region, with high interest rate margins and volatility. Recurring banking crises are also common.
2. Sudden stops of capital flows and banking crises are linked, with dollarization exacerbating the effects of abrupt changes in relative prices. Weak regulation and supervision have contributed to crises.
3. Reforms improving creditor rights, increasing foreign bank ownership, and reducing the role of inefficient public banks have helped increase financial depth, competition, and access to credit in some countries. However, challenges remain regarding stability and supporting small businesses.
The document discusses lessons that can be learned from the 2008 financial crisis on Wall Street. It notes that Americans lacked propensity to save, taking on too much debt through credit cards and mortgages. This led to a mortgage bubble that burst. The crisis showed the importance of countries having higher savings rates being able to take advantage of cheap stock prices. While the situation was dire, the document argues there are opportunities for Jamaican investors to buy cheap stocks that will rebound, such as Citigroup. It also warns that both individuals and corporations need to curb tendencies towards overleveraging.
June 2010 Ethical Corporation intelligence briefing on how banks can and should use ethics, sustainability and corporate responsibility to rebuild trust in their brands and in finance generally
1. The document discusses the failures of development policies like the Washington Consensus and financial globalization due to their reliance on first-best thinking when second-best thinking is required given real-world market and institutional failures.
2. It argues policy should be based on second-best thinking and target "binding constraints" through selective, sequential, and context-specific reforms rather than assuming all distortions can be removed at once.
3. Financial globalization failed because capital markets operate under significant market imperfections that cannot be fully addressed, and capital inflows can cause overvaluation and move exchange rates in ways that hinder development.
The document outlines 10 key things voters should know about the economy before the November election, including:
1) The debate between "supply-side" and "demand-side" economic theories.
2) Arguments around tax policy and the federal budget deficit.
3) The Federal Reserve's role in monetary policy and managing interest rates.
4) The rising federal debt and questions around spending vs. balancing the budget.
5) Issues surrounding large banks and financial institutions.
6) The growing costs of social programs like Social Security and Medicare.
7) Problems in the U.S. healthcare system.
8) Impacts of free trade and globalization.
This presentation serves as study notes for the e-learning material titled: "South African Hedge funds and international developments"
These notes focus on Dodd Frank and its Impact on the Hedge Fund Industry.
http://www.hedgefund-sa.co.za/dodd-frank
The document summarizes an upcoming conference on financing rapidly growing companies. It includes panels on financing growing companies, trends in the credit markets, mezzanine and subordinated debt financing options, and an overview of several investment firms. The panels will discuss financing options, deal structures, terms and conditions for providing capital to middle market companies during challenging economic times.
The major credit rating agencies, Moody's, Standard & Poors, and Fitch, bear a heavy burden of responsibility for the financial meltdown. It was their seal of approval that enabled Wall Street to develop a multi-trillion-dollar market for bonds resting on a foundation of tricky loans and bubbly housing prices. Institutional investors around the world were seduced into buying these high-risk securities by credit ratings that made them out to be as safe as the most conventional corporate and municipal bonds.
Moderninizing bank supervision and regulationcatelong
This is the testimony of Chris Whalen to the Senate Banking Committee on March 24, 2009 about bank and financial institution regulation and supervision.
The document discusses reforms needed to the mark-to-market accounting rule (FASB 157) to help address the financial crisis. It argues that FASB 157, which requires securities to be valued based on their last sale price, even if that does not reflect intrinsic value, has led banks to post losses on mortgage securities and curtail lending. Reforming the rule to value securities based on their "call price" (the price a bank would sell them at) would result in prices closer to intrinsic value and support markets. While the Treasury plan addresses some issues, a complete overhaul of securities regulations is still needed to prevent future crises.
The document discusses the debate around taxing carried interest at ordinary income tax rates versus capital gains tax rates. Currently, carried interest is taxed as capital gains. Proponents of change argue this is unfair, as fund managers provide services, and their income should be taxed like other service providers at higher ordinary rates. However, opponents note that fund managers also take on investment risk like other investors. The document outlines the various perspectives in the debate and considers alternative proposals but does not take a definitive position.
A Fistful of Dollars: Lobbying and the Financial Crisis†catelong
Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions’ lobbying and their mortgage lending activities to answer this question. We find that, during 2000-07, lenders lobbying more intensively on specific issues related to mortgage lending (such as consumer protection laws) and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing loan portfolios. Ex-post, delinquency rates are higher in areas where lobbying lenders’ mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during key events of the crisis. The findings are robust to (i) falsification tests using information on lobbying activities on financial sector issues unrelated to mortgage lending, (ii) instrumental variables strategies, and (iii) a difference-in-difference approach based on state-level lending laws. These results suggest that lobbying may be linked to lenders expecting special treatments from policymakers, allowing them to engage in riskier lending behavior.
Deniz Igan, Prachi Mishra, and Thierry Tressel, Research Department, IMF‡
October 14, 2009
This document summarizes a research paper that investigates the role of non-bank financial institutions (OFIs), including credit unions, in economic growth. It analyzes data from 76 countries from 1981 to 2005. The paper finds that measures of OFI assets and credit are positively and significantly related to real GDP growth, even after controlling for bank credit. Measures of credit union loans and assets are also positively linked to economic growth. While bank credit is positively related to growth, the relationship is not statistically significant over the sample period. The findings suggest that OFIs play an important role in promoting economic growth.
Macro Risk Premium and Intermediary Balance Sheet Quantitiescatelong
The macro risk premium measures the threshold return for real activity that
receives funding from savers. Financial intermediaries’ balance sheet conditions provide a window on the macro risk premium. The tightness of intermediaries’ balance sheet constraints determines their “risk appetite”. Risk appetite, in turn, determines the set of real projects that
receive funding, and hence determine the supply of credit. Monetary policy affects the risk appetite of intermediaries in two ways: via interest rate policy, and via quantity policies. We estimate time varying risk appetite of financial intermediaries for the U.S., Germany, the U.K., and Japan, and study the joint dynamics of risk appetite with macroeconomic aggregates and monetary policy instruments for the U.S. We argue that risk appetite is an important indicator for monetary conditions.
Este documento descreve as atividades de mergulho com tubarões e passeios pelas ilhas e praias dos Jardins da Rainha em Cuba entre dezembro de 2011 e abril de 2012, incluindo a descrição da vida marinha e terrestre, alojamentos disponíveis nos barcos e sugestões de hotéis em Havana.
This document summarizes research on factors influencing the low percentage of women entering the radiology field. It finds that women are more drawn to specialties with flexible hours, direct patient contact and female role models. While half of medical students are now women, only 25% of radiology residents are women. The document examines surveys that show lifestyle factors and lack of mentors/exposure to patient-focused subspecialties negatively impact women's decisions. It concludes that increasing female mentors and earlier exposure to radiology, especially patient-contact subspecialties, could help address the gender imbalance.
Yahoo News May 16, 2009 Markets Move Up Brushing Aside Poll Result FearsJagannadham Thunuguntla
“Markets absorbed the uncertainty earlier in the week, but regained confidence later and some good valuations also helped. Global markets have been in an uptrend, which was also helpful,” said Jagannadham Thunuguntla, equity head at SMC Capitals.
odd-Frank and Basel III Post-Financial Crisis Developments and New Expectations in Regulatory Capital. Following the recent global financial crisis of 2009, financial regulators have responded with arrays of proposals to revise existing risk frameworks for financial institutions with the objective to further strengthen and improve upon bank models. In this meeting, Dr. Michael Jacobs will discuss new developments and expectations in regulatory capital with particular reference to the definition of the capital base, counterparty credit risk, procyclicality of capital, liquidity risk management, and sound compensation practices. He will also explain the implications of the Frank-Dodd rule for financial institutions and will conclude by presenting the implementation schedule for Basel III.
The document provides an overview of the downfall of Lehman Brothers, which filed for Chapter 11 bankruptcy in September 2008. It discusses several factors that contributed to Lehman Brothers' collapse, including the US housing bubble and subprime mortgage crisis, Lehman's high leverage and reliance on short-term funding, and flaws in risk management practices. After Lehman filed for bankruptcy, parts of its business were acquired by Barclays and Nomura. The collapse had widespread effects on financial markets and the global economy.
Re-regulation in the aftermath of the financial crisisTUAC
The document discusses the causes of the 2008 financial crisis and calls for re-regulation of the financial industry. It notes that the crisis was caused by an unsustainable growth model, risky structured finance products, lack of oversight of banks and shadow banking, and short-term corporate behavior. It argues that re-regulation should strengthen financial safeguards, ensure cooperation internationally, and spread responsibility throughout the investment industry to prevent future crises.
Euromoney - Global Insolvency & Restructuring Review 2013-14Anindya Roychowdhury
Three key points:
1) Kuwait was one of the first countries to introduce a stimulus package after the 2008 credit crunch, allocating $14 billion, but there has been limited success with only one case admitted under the bailout scheme and workouts being held up by regulatory hurdles.
2) Investment companies (ICs) in Kuwait, many of which were overleveraged, have struggled amid falling asset values and tightening regulations, with most ICs now headed towards default and in need of restructuring.
3) Restructurings have faced challenges due to reluctance among fragmented lenders to coordinate, cultural preferences for rescheduling over restructuring, and lack of specialized re
The document discusses characteristics of banking credit in Latin America across several areas:
1. Credit is scarce and costly in the region, with high interest rate margins and volatility. Recurring banking crises are also common.
2. Sudden stops of capital flows and banking crises are linked, with dollarization exacerbating the effects of abrupt changes in relative prices. Weak regulation and supervision have contributed to crises.
3. Reforms improving creditor rights, increasing foreign bank ownership, and reducing the role of inefficient public banks have helped increase financial depth, competition, and access to credit in some countries. However, challenges remain regarding stability and supporting small businesses.
The document discusses lessons that can be learned from the 2008 financial crisis on Wall Street. It notes that Americans lacked propensity to save, taking on too much debt through credit cards and mortgages. This led to a mortgage bubble that burst. The crisis showed the importance of countries having higher savings rates being able to take advantage of cheap stock prices. While the situation was dire, the document argues there are opportunities for Jamaican investors to buy cheap stocks that will rebound, such as Citigroup. It also warns that both individuals and corporations need to curb tendencies towards overleveraging.
June 2010 Ethical Corporation intelligence briefing on how banks can and should use ethics, sustainability and corporate responsibility to rebuild trust in their brands and in finance generally
1. The document discusses the failures of development policies like the Washington Consensus and financial globalization due to their reliance on first-best thinking when second-best thinking is required given real-world market and institutional failures.
2. It argues policy should be based on second-best thinking and target "binding constraints" through selective, sequential, and context-specific reforms rather than assuming all distortions can be removed at once.
3. Financial globalization failed because capital markets operate under significant market imperfections that cannot be fully addressed, and capital inflows can cause overvaluation and move exchange rates in ways that hinder development.
The document outlines 10 key things voters should know about the economy before the November election, including:
1) The debate between "supply-side" and "demand-side" economic theories.
2) Arguments around tax policy and the federal budget deficit.
3) The Federal Reserve's role in monetary policy and managing interest rates.
4) The rising federal debt and questions around spending vs. balancing the budget.
5) Issues surrounding large banks and financial institutions.
6) The growing costs of social programs like Social Security and Medicare.
7) Problems in the U.S. healthcare system.
8) Impacts of free trade and globalization.
This presentation serves as study notes for the e-learning material titled: "South African Hedge funds and international developments"
These notes focus on Dodd Frank and its Impact on the Hedge Fund Industry.
http://www.hedgefund-sa.co.za/dodd-frank
The document summarizes an upcoming conference on financing rapidly growing companies. It includes panels on financing growing companies, trends in the credit markets, mezzanine and subordinated debt financing options, and an overview of several investment firms. The panels will discuss financing options, deal structures, terms and conditions for providing capital to middle market companies during challenging economic times.
The major credit rating agencies, Moody's, Standard & Poors, and Fitch, bear a heavy burden of responsibility for the financial meltdown. It was their seal of approval that enabled Wall Street to develop a multi-trillion-dollar market for bonds resting on a foundation of tricky loans and bubbly housing prices. Institutional investors around the world were seduced into buying these high-risk securities by credit ratings that made them out to be as safe as the most conventional corporate and municipal bonds.
Moderninizing bank supervision and regulationcatelong
This is the testimony of Chris Whalen to the Senate Banking Committee on March 24, 2009 about bank and financial institution regulation and supervision.
The document discusses reforms needed to the mark-to-market accounting rule (FASB 157) to help address the financial crisis. It argues that FASB 157, which requires securities to be valued based on their last sale price, even if that does not reflect intrinsic value, has led banks to post losses on mortgage securities and curtail lending. Reforming the rule to value securities based on their "call price" (the price a bank would sell them at) would result in prices closer to intrinsic value and support markets. While the Treasury plan addresses some issues, a complete overhaul of securities regulations is still needed to prevent future crises.
The document discusses the debate around taxing carried interest at ordinary income tax rates versus capital gains tax rates. Currently, carried interest is taxed as capital gains. Proponents of change argue this is unfair, as fund managers provide services, and their income should be taxed like other service providers at higher ordinary rates. However, opponents note that fund managers also take on investment risk like other investors. The document outlines the various perspectives in the debate and considers alternative proposals but does not take a definitive position.
A Fistful of Dollars: Lobbying and the Financial Crisis†catelong
Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions’ lobbying and their mortgage lending activities to answer this question. We find that, during 2000-07, lenders lobbying more intensively on specific issues related to mortgage lending (such as consumer protection laws) and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing loan portfolios. Ex-post, delinquency rates are higher in areas where lobbying lenders’ mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during key events of the crisis. The findings are robust to (i) falsification tests using information on lobbying activities on financial sector issues unrelated to mortgage lending, (ii) instrumental variables strategies, and (iii) a difference-in-difference approach based on state-level lending laws. These results suggest that lobbying may be linked to lenders expecting special treatments from policymakers, allowing them to engage in riskier lending behavior.
Deniz Igan, Prachi Mishra, and Thierry Tressel, Research Department, IMF‡
October 14, 2009
This document summarizes a research paper that investigates the role of non-bank financial institutions (OFIs), including credit unions, in economic growth. It analyzes data from 76 countries from 1981 to 2005. The paper finds that measures of OFI assets and credit are positively and significantly related to real GDP growth, even after controlling for bank credit. Measures of credit union loans and assets are also positively linked to economic growth. While bank credit is positively related to growth, the relationship is not statistically significant over the sample period. The findings suggest that OFIs play an important role in promoting economic growth.
Macro Risk Premium and Intermediary Balance Sheet Quantitiescatelong
The macro risk premium measures the threshold return for real activity that
receives funding from savers. Financial intermediaries’ balance sheet conditions provide a window on the macro risk premium. The tightness of intermediaries’ balance sheet constraints determines their “risk appetite”. Risk appetite, in turn, determines the set of real projects that
receive funding, and hence determine the supply of credit. Monetary policy affects the risk appetite of intermediaries in two ways: via interest rate policy, and via quantity policies. We estimate time varying risk appetite of financial intermediaries for the U.S., Germany, the U.K., and Japan, and study the joint dynamics of risk appetite with macroeconomic aggregates and monetary policy instruments for the U.S. We argue that risk appetite is an important indicator for monetary conditions.
Este documento descreve as atividades de mergulho com tubarões e passeios pelas ilhas e praias dos Jardins da Rainha em Cuba entre dezembro de 2011 e abril de 2012, incluindo a descrição da vida marinha e terrestre, alojamentos disponíveis nos barcos e sugestões de hotéis em Havana.
This document summarizes research on factors influencing the low percentage of women entering the radiology field. It finds that women are more drawn to specialties with flexible hours, direct patient contact and female role models. While half of medical students are now women, only 25% of radiology residents are women. The document examines surveys that show lifestyle factors and lack of mentors/exposure to patient-focused subspecialties negatively impact women's decisions. It concludes that increasing female mentors and earlier exposure to radiology, especially patient-contact subspecialties, could help address the gender imbalance.
Yahoo News May 16, 2009 Markets Move Up Brushing Aside Poll Result FearsJagannadham Thunuguntla
“Markets absorbed the uncertainty earlier in the week, but regained confidence later and some good valuations also helped. Global markets have been in an uptrend, which was also helpful,” said Jagannadham Thunuguntla, equity head at SMC Capitals.
Generating Narratives through Timespace Data 台大數位典藏研究發展中心蔡炯民博士演講_20130605AAT Taiwan
This document discusses generating narratives through time-space data. It explains that narratives represent histories or processes as coherent stories constructed from sequences of events. The document outlines emerging trends like geospatial narratives and qualitative GIS that tell stories through space and time. It contrasts the epistemologies of GIS which focuses on accuracy, and the humanities which emphasizes nuance and ambiguity. The document provides examples of representing event, time, and place data to construct narratives using GIS software and tools. It showcases projects analyzing old land deeds in Taiwan and generating interactive storytelling maps.
Este documento describe brevemente la historia y cultura de los huaves, un pueblo indígena que habita la costa sur de Oaxaca. Los huaves han ocupado tradicionalmente un territorio entre el océano Pacífico y las lagunas del Istmo de Tehuantepec, donde su estilo de vida se ha centrado en la pesca y la agricultura. El documento también resume la conquista española de la región y cómo los huaves pasaron a formar parte de la jurisdicción colonial de Tehuantepec.
The document discusses finding a balanced approach to marketing that utilizes both inbound and outbound tactics. It outlines a 5-step framework for becoming a "Complete Marketer" by using both attract, capture, nurture, convert, and expand strategies. For each step, it provides mantras and tips on how to effectively implement a mix of inbound and outbound tactics to drive business results. The overall message is that marketing effectiveness comes from balancing these approaches to move customers through the buying journey, rather than relying solely on one method or the other.
The document discusses the evolution of the social buying process. It describes how sales and marketing have changed from door-to-door salesmen and CRM systems to utilizing social networks and data. Professionals now face challenges of personalization, tactical messaging, marketing automation, and lead delivery across various social platforms and databases. The presentation outlines the key stages in the social buying funnel from initial customer profiling to feedback and ROI analysis to close more sales opportunities.
The document summarizes a presentation given by the Financial Management Association of New Hampshire on safeguarding cash and investments during turbulent economic times. The presentation addressed the current financial crisis, economic outlook, condition of the financial industry, cash management options, and investment policy guidelines. Panelists discussed issues like capital adequacy, the future of securitization and universal banking, and strategies for preserving capital while generating yield.
The document discusses the concept of "too big to fail" and its role in economic crises. It argues that allowing certain financial institutions to privatize profits while socializing losses through government bailouts undermines free enterprise. When large banks and corporations take on excessive risk knowing they will be bailed out, it leads to moral hazard. While government intervention may accelerate economic recovery, it comes at a high cost to taxpayers and increases national debt. The document suggests reinstating regulations like the Glass-Steagall Act to restrict risky activities by large banks and prevent institutions from growing too big and interconnected to fail.
Risk Trends - Parkview Newsletter September 2010ugulvadi
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law on July 21, 2010 to address the causes of the financial crisis. The Act introduces increased regulation of banks and other financial institutions to prevent future crises and ensure taxpayers are not forced to bail out firms that are "too big to fail". It also aims to protect consumers, reform executive compensation, and bring transparency and accountability to the financial system. However, some question if the Act will truly prevent future crises or simply react to the most recent one.
Week-9 Bank RegulationMoney and Banking Econ 311Tuesdays 7 .docxalanfhall8953
Week-9 Bank Regulation
Money and Banking Econ 311
Tuesdays 7 - 9:45
Instructor: Thomas L. Thomas
Capital Adequacy Management
Bank capital helps prevent bank failure
The amount of capital affects return for the owners (equity holders) of the bank
Regulatory requirement – Regulatory Capital – Tier 1 and Tier 2 Basle Rules
Economic Capital - What is this
2
Capital Adequacy Management:
Returns to Equity Holders
3
Traditional Economic Capital Value-At-Risk (VaR) View
Frequency of Occurrence / Probability
Mean/Average Expected Losses (m)
Unexpected Losses @ 99.9% confidence Level (s)
Economic Capital
Reserves
Value-at-Risk
VAR
Before we can develop adequate credit stress testing we need to understand the differences between traditional credit loss measures and what stress tests incorporate.
Aside form standard concentration and coverage analysis, a standard portfolio credit risk analysis typically employs a Value-at-Risk view.
Credit risk in this view generally follows a positive skewed distribution (by definition one cannot have negative defaults and thus a normal distribution is not applicable).
Reserves ALLL generally cover average expected losses over a horizon. In reality these are usually allocated to general reserves since most ALLL have two components: general reserves and specific reserves for known credits that are detraining.
Economic capital functions as a cushion against unexpected loss up to some confidence level. In this case 99.9% or a single “A” rating is the regulatory standard (once every 10,000 years)
In addition to a loss cushion economic capital represents the amount of the firm’s equity that is at risk which requires a return sufficient to cover the associated risk.
The shape of the curve or tail will then reflect the underlying credit risk of the portfolio or product.
However this view has some assumptions that can miss important risk elements.
The distribution is generally based on one variable PD in this case and does necessarily fully account for other correlated factors that when combined either change the tail or increase the likelihood of default.
Second, while the event may be rare, this methodology does not tell how severe or the magnitude of the event when it occurs beyond the confidence level prescribed for economic capital.
4
Old Measure: New Ones
RAROC - Risk Adjusted Return on Capital
EVA - Economic Value Added.
Hurdle Rate – What is it. How is it measured?
5
Time Line of the Early History of Commercial Banking in the United States
6
Historical Development of the Banking System
Bank of North America chartered in 1782
Controversy over the chartering of banks.
National Bank Act of 1863 creates a new banking system of federally chartered banks
Office of the Comptroller of the Currency
Dual banking system
Federal Reserve System is created in 1913.
7
Asymmetric Information and Financial.
The Dodd-Frank Act aims to create a more stable financial system through increased regulations and consumer protections. It establishes new regulatory agencies, restrictions on large banks, and hundreds of new rules. The act aims to end taxpayer bailouts of financial institutions, increase transparency, and protect investors. One key change was removing Regulation Q which prohibited paying interest on business checking accounts, potentially impacting banks' revenues and customers' cash management strategies.
Learn what can you do to stay a step ahead of fraudsters without limiting revenue growth. Prevent Financial Fraud in your organization with the help of HLB HAMT
AnsAns I am going to focus my remarks today on what is popularly.pdfankkitextailes
Ans:
Ans: I am going to focus my remarks today on what is popularly known as the “too big to fail”
(TBTF) problem. In particular, should society tolerate a financial system in which certain
financial institutions are deemed to be too big to fail? And, if not, then what should we do about
it?
The answer to the first question is clearly “no.” We cannot tolerate a financial system in which
some firms are too big to fail—at least not ones that operate in any form other than that of a very
tightly regulated utility.
The second question is the more interesting one. Is the current approach of the official sector to
ending TBTF the right one? I’d characterize this approach as reducing the incentives for firms to
operate with a large systemic footprint, reducing the likelihood of them failing, and lowering the
cost to society when they do fail. Or would it be better to take the more direct, but less nuanced
approach advocated by some and simply break up the most systemically important firms into
smaller or simpler pieces in the hope that what emerges is no longer systemic and too big to fail?
What Is the Too-Big-to-Fail Problem?
The root cause of “too big to fail’ is the fact that in our financial system as it exists today, the
failure of large complex financial firms generate large, undesirable externalities. These include
disruption of the stability of the financial system and its ability to provide credit and other
essential financial services to households and businesses. When this happens, not only is the
financial sector disrupted, but its troubles cascade over into the real economy.
There are negative externalities associated with the failure of any financial firm, but these are
disproportionately high in the case of large, complex and interconnected firms. Although the
moniker is “too big to fail,” the magnitude of these externalities does not depend simply on size.
The size of the externalities also depends on the particular mix of business activities and the
degree of interconnectedness with the rest of the financial industry. One important element is the
importance of the services the firm provides to the broader financial system and the economy
and the ease with which customers can move their business to other providers. Another is the
extent to which the firm’s structure and activities create the potential for contagion—that is,
direct losses for counterparties, fire sales of assets held by other leveraged financial institutions,
or loss of confidence that might precipitate runs on other firms with similar business models.
The presence of large negative externalities creates a dilemma for policymakers when such firms
are in danger of failing, particularly if the wider financial system is also under stress at the same
moment. At that point in time, the expected costs to society of failure are very large compared to
the short-run costs from providing the extraordinary liquidity support, capital or other emergency
assistance necessary to pre.
This is a free e-book from the London School of Economics. It includes several stand alone chapters. Each one of them is written by a different expert or professor. The main underlying topics include how to manage and prevent future financial crisis. And, what would be the best financial regulatory framework to do just that.
The document discusses corporate governance in India, highlighting several key points:
1. Corporate governance issues are universal but particularly important in India due to features like family-run businesses, weak legal enforcement, and high ownership concentration.
2. Effective corporate governance promotes strong financial systems and economic growth by enhancing access to financing and investment while reducing risks.
3. The main challenges are ensuring managers serve shareholder interests and protecting minority shareholder rights in contexts like family businesses where interests may not align.
Financial fraud cost $1.9 billion in 2019 according to the FTC, with common types including inflating earnings by extending depreciation periods, hiding debt, recognizing revenue early while delaying expenses, and incorrect capitalization of expenses. Notable fraud cases include Enron, Volkswagen, Lehman Brothers, Wells Fargo, and Bernie Madoff's Ponzi scheme. Cryptocurrencies are also at risk of fraud due to lack of sovereign backing, volatility, and lack of clarity. Companies can prevent fraud by studying governance, auditing thoroughly, monitoring stakeholder relationships, and ensuring performance is consistent with industry peers.
Identify in 150 - 200 words your reactions to the concepts of global.pdffathimafancyjeweller
Identify in 150 - 200 words your reactions to the concepts of globalization and Global Business
Ethics Issues.
Solution
Overview
The current financial crisis has raised questions about the legitimacy of capitalism. Ethical
failures certainly played a role. While it remains to be seen whether and how many people
blatantly broke the law, there are abundant signs of various forms of potentially unethical
behavior. These include greed, unreasonable amounts of leverage, subtle forms of corruption
(such as ratings agencies that appear to have had a conflict of interest), complex financial
instruments that no one really understood, and herd behavior where people just followed along
and failed to exercise independent judgment.
It is difficult or impossible to regulate against greed and against many of the other ethical
shortcomings that have been seen. What can be done is to force greater transparency and
accountability, a process which began with Sarbanes-Oxley and is expected to continue with new
regulations of the financial system.
Context
Drawing upon learnings from their work and experiences, the panelists and moderator exchanged
views with the audience on the ethics and legitimacy of business and capitalism in general, and
the financial crisis in particular.
Key Takeaways
The financial crisis may shift societal views on the legitimacy of business.
Each panelist offered a different perspective on the issue of ethics and legitimacy in business:
– The financial crisis has the potential to damage the legitimacy of capitalism (Di Tella). Richer
nations tend to be more right-wing in their views and have more capitalistic economic systems.
The United States is exceptionally right-leaning, even among developed nations.
These attributes are heavily influenced by beliefs regarding the reasons why people are
prosperous or poor. Americans tend to see prosperity as a product of effort more than luck; left-
leaning nations believe the opposite.
Affecting these beliefs: the number and severity of the shocks a society has weathered; and
perceptions regarding the legitimacy of business—i.e., the perceived degree of corruption.
America generally perceives that corrupt businesspeople are the exception, and punishes deviants
severely. However, this financial crisis holds the potential to shift America leftward since it: 1) is
a major shock that 2) suggests systemic corruption. Both call into some question the legitimacy
of U.S. capitalism.
– It is ethically legitimate for businesses to place the customer\'s interests above all else, because
only through profit comes the freedom to contribute to society (Vasella). Business leaders must
use their personal moral compasses to make ethical decisions. As for the business\'s compass, it
should be oriented toward satisfying customers above all stakeholders. That is the orientation
that allows for the greatest competitive success and profitability. In Mr. Vasella\'s view, only by
making a profit does a company earn the rig.
Participation Expectations.In order to be eligible for the m.docxdanhaley45372
Participation Expectations.
In order to be eligible for the maximum score on this graded activity, the initial response to the discussion questions must be at least 200 words and be suitably supported (citations) with material from our our assigned textbook readings. Subsequent comments to other students must "add value" to the discussion and should be approximately 100 words each in order to be considered "substantive" and therefore eligible for the maximum score
APA FORMATTING NOT NEEDED
: Please keep the two post separate
Discussion Post #:1
From 2007-2010, the Federal Reserve Bank (the Fed) used many practices that had never before been seen from the central bank of the United States.
Discuss the some of the actions that the Fed took during this period. Such as:
· How the Federal Reserve’s lending practices changed during this period.
· What did the Federal Reserve do to support firms deemed “too big to fail.”
Do you believe these actions were necessary to avoid a collapse in the financial system? Support your opinion with information from the textbook or external source(s).
Reference: Chapter 12, section 12.4: Bank Failures During the Great Recession, Chapter 14, section 14.4: Monetary Policy in the 2000s, and Conclusions section at the end of the Chapter 14
Guided Response: Review the posts of your classmates and respond to at least two of your classmates by agreeing or disagreeing with their opinions on whether the Federal Reserve actions were necessary to avoid the collapse of the financial system.
Peer Response #1: AM
At the height of the Great Recession, the Fed made changes to the FDIC to prevent the same kind of loss from happening again. “First, all accounts that do not earn interest are insured infull, regardless of the balance” (Amacher & Pate, 2012). Followed by the increase in the SMDIA to the amount of $250,000. This law (Dodd–Frank Wall Street Reform and ConsumerProtection Act ) was enacted by President Obama as a permanent fixture to the banking system.
The Fed took actions the were considered unconventional for the large financial institutions that were considered nonbanks. “Too Big To Fail” means these companies are too important the economy to let fail or go bankrupt. In an effort to keep these institutions from closing, the Fed offered bailout programs.
The actions taken by the Fed were thought necessary to keep from further hindering the U.S. economy. President of Federal Reserve Bank of Minneapolis, Neel KashKari, said, “We had a choice in 2008: Spend taxpayer money to stabilize large banks, or don’t, and potentially trigger many trillions of additional costs to society” (Kashkari, 2016). The failure of these companies could have harmed homeowners, businesses, and families across the U.S. much more than the bailouts that were given. Many believe that these banks should be broken up because they are too big and taxpayer bailouts should not be required to keep them afloat. “[…] there is no question that the.
The document outlines the Treasury's framework for regulatory reform, focusing first on containing systemic risk. It discusses establishing a single regulator for systemically important firms, higher capital and risk management standards for such firms, requiring registration of large hedge funds, regulating over-the-counter derivatives markets, strengthening money market fund regulation, and creating stronger resolution authority for failing complex institutions. The framework aims to modernize financial oversight and prevent future crises.
The document outlines the Treasury's framework for regulatory reform, focusing first on containing systemic risk. It discusses establishing a single independent regulator to oversee systemically important firms and critical infrastructure. It also calls for higher capital and risk management standards for large, interconnected firms. Additionally, it proposes requiring hedge funds above a certain size to register with regulators to increase transparency and oversight of these investment vehicles.
The document outlines Treasury Secretary Geithner's testimony on regulatory reform which focuses on addressing systemic risk. It discusses establishing a single regulator for systemically important firms, higher capital and risk management standards for such firms, requiring registration of large hedge funds, regulating over-the-counter derivatives, strengthening money market funds, and creating a resolution authority for failing complex institutions. The goal is to modernize financial regulation to prevent future crises and ensure stability.
The document summarizes the investment banking industry. It describes major trade associations that represent the industry globally and regionally. It provides details on revenue sources for major US investment banks pre-2008 crisis. It discusses the effects of the 2008 financial crisis, including the collapse of Lehman Brothers and bailouts of other banks. It also covers criticisms of conflicts of interest and compensation in the industry.
Financial Market Failure and Regulation of the Financial Systemtutor2u
This is a study presentation on different causes of financial market failure and also policies introduced designed better to regulate the activities of the financial sector.
The document discusses why financial institutions exist and how they promote economic efficiency. It covers topics like transaction costs, adverse selection, moral hazard, and how these concepts influence financial structure. Financial institutions help address issues like the "lemons problem" that can arise from asymmetric information between parties. They do this through tools like producing private information, regulation, financial intermediation, debt contracts, collateral requirements, and monitoring borrowers.
Week-1 Into to Money and Bankingand Basic Overview of U.S. Fin.docxalanfhall8953
Week-1 Into to Money and Banking
and Basic Overview of U.S. Financial System
Money and Banking Econ 311
Instructor: Thomas L. Thomas
Financial markets transfer funds from people who have excess available funds to people who have a shortage.
They promote grater economic efficiency by channeling funds from people who do not have a productive use for them to those who do.
Well functioning financial markets are a key factor in producing economic growth, where as, poor functioning financial markets are a major reason many countries in the world remain poor.
Financial Markets
A security or financial instrument is a claim on the issuer’s future income or assets.
A bond is a debt security (IOU) that promises to make payments periodically for a specified period of time.
The bond market is especially important economic activity because it enables businesses and the government to borrow and finance their activities and because it is where interest rates are determined.
An interest rate is the cost of borrowing money or the price to rent (use someone else’s) funds.
Because different interest rates tend to move in unison, economist frequently lump interest rates together and refer to the “interest rate”.
Interest rates are important on a number of levels:
High interest rates retard borrowing
High interest rates induce saving.
Lower interest rates induce borrowing
Lower Interest rates retard saving
Information Asymmetry and Information costs
Why Financial Intermediaries
In the neo-classical world economists have argued financial intermediaries are not necessary. Savers (investors) could manage their risks through diversification.
The logic rests on the perfect market assumption – that is investors can always through their own borrowing and lending compose their portfolios as they see fit, without costs. In such a world there are no bankruptcy costs.
In such a world if taken to the extreme, perfect and complete markets imply that there is no need for financial institutions to intermediate in the financial (capital markets) as every investor (saver) has complete information and can contract with the market at the same terms as banks. E.g. Information Asymmetry
Why Financial Intermediaries Bonds
A common stock (usually called stock) represents a share of ownership in a corporation.
It is usually a security that is a claim on the earnings and assets of the corporation.
Issuing stock and selling it to the public (called a public offering) is a way for corporations to raise the funds to finance their activities.
The stock market is the most widely followed financial market in almost every country that has one – that is why it is generally called the market – here “Wall Street.”
The stock market is also an important factor in business investment decisions, because the price of shares affects the amount of funds that can be raised by selling newly issued stock to finance investment spending. (Note impact examples..
29 May 2015--Capital Flying into the ShadowsEconReport
Years of monetary stimulus from quantitative easing and new bank capital requirements have reduced the size of the overnight bank lending market and increased non-bank lending. Quantitative easing flooded markets with cash and reduced banks' need to borrow overnight, while regulations increased capital holdings. This created an environment where shadow banks could expand by filling the void in credit markets. The Volcker Rule further discouraged banks from proprietary trading and restricted investments in hedge funds, pushing more activity to unregulated shadow banks outside traditional banking. As a result, shadow banking now comprises about 40% of US credit, demonstrating how quantitative easing and regulations contributed to capital flight from traditional banks to shadow banks.
Similar to Treasury Strategies Testimony to U.S. House of Representatives on the Volcker Rule / Dodd-Frank (20)
Treasury Strategies Testimony to U.S. House of Representatives on the Volcker Rule / Dodd-Frank
1. Examining the Impact of the Volcker Rule on
Markets, Businesses, Investors and Job Creation
Treasury Strategies’ Testimony to Congress
U.S. House Subcommittee on Capital Markets and Government Sponsored Enterprises
U.S. House Subcommittee on Financial Institutions & Consumer Credit
January 18, 2012
Treasury Strategies, Inc. was invited to testify at the Congressional hearing “Examining the
Impact of the Volcker Rule on Markets, Businesses, Investors and Job Creation” by Chairmen
Garrett and Capito, Ranking Members Waters and Maloney, and members of the subcommittees.
This was a timely hearing, going to the heart of the stability of the financial system. Anthony J.
Carfang, a founding partner, represented and served as spokesperson for the firm, and also for
the U.S. Chamber of Commerce.
2. Introduction institutions to scale back and even exit some
of the critical services they provide. Simply
Treasury Strategies is the world’s leading put, after the Volcker Rule goes into effect,
consultancy in the area of treasury when a business’ treasurer calls a bank to
management, payments and liquidity. Our raise the cash needed to pay the bills, will
clients include the CFOs and treasurers of someone answer that phone call?
large and medium sized corporations as well
as state and local governments, hospitals Besides reduced financing for American
and universities. We also consult with the businesses, the Volcker Rule could actually
major global and regional banks that provide increase systemic risk by consolidating
treasury and transaction services to these assets into the banking system, exacerbating
corporations. In thirty years of practice, we too-big-to-fail.
have consulted to many of the world’s
largest and most complex corporations
and financial institutions.
”After the Volcker Rule goes into
The purpose of the testimony was, on behalf
of the U.S. Chamber of Commerce, to effect, when a business’ treasurer calls
discuss the impact of the Volcker Rule on
non-financial businesses. a bank to raise the cash needed to pay
The questions that have not been asked and
the bills, will someone answer that
that need to be answered by both the phone call? ”
regulators and Congress are simply these:
How does the Volcker Rule impact the ability
of non-financial companies to raise capital
and mitigate risk, and are we willing to live
with the adverse impacts of the Volcker Rule Summary
that will affect the competitiveness and the
overall efficiency of the U.S. economy? Businesses operating in the U.S. are the
most capital-efficient and productive in the
Treasury Strategies and our clients fully world. Thanks to our financial institutions and
support well-thought-out efforts to improve existing banking frameworks, businesses
economic efficiency and to reduce the and the U.S. economy benefit greatly from:
likelihood of another systemic failure. The
U.S. Chamber’s position is the same and • Broadest, deepest and most resilient
they have advocated for stronger capital capital markets
rules, rather than a unilateral ban on • Best risk management products and
proprietary trading, as a pro-growth means tools
of stabilizing the financial system and • Most robust liquidity markets
avoiding systemic failure.
• Technologically-advanced cash
management services
However, collectively, we feel strongly that
• Most efficient and transparent
the Volcker Rule, as currently constructed,
payment systems
will not succeed in this effort. We believe that
it will make U.S. capital markets less robust,
As a result, U.S. businesses are extremely
U.S. Businesses less competitive, and
efficient. Consider the following Treasury
ultimately reduce underlying economic
Strategies analysis:
activity. We believe that the lack of clarity in
many of the proposed regulatory provisions
Companies doing business in the U.S.
and the lack of a precise definition of
operate with approximately $2 trillion of
“propriety” trading itself will cause financial
cash reserves. That represents only 14%
2
3. of U.S. gross domestic product. In None of these things are happening in
contrast, corporate cash in the Eurozone a vacuum.
is 21% of Eurozone GDP. In the UK, the
ratio is even higher. Corporate treasurers must also contend with
looming money market regulations that may
Highly liquid means of raising capital allow imperil 40% of the commercial paper market,
treasurers to keep less cash on hand and Basel III lending requirements and expected
use a just-in-time financing system that derivatives regulations.
enables companies to pay the bills and raise
the capital needed to expand and create All of these efforts are converging in one
jobs. place – the corporate treasury. The
combined impacts of these measures have
Should the Volcker Rule be enacted in its not been thought through.
present form, capital efficiency will decline,
resulting in increased corporate cash buffers.
Were cash to rise to the Eurozone level of
21% of GDP, that new level would be $3 ”…Risk can neither be created nor
trillion.
destroyed, but only transformed.
Stated differently, CFOs and treasurers …When you consider ways to reduce
would need to set aside and idle an
banking system risk, do not be tricked
additional $1 trillion of cash.
into thinking that risk disappears. It
• That $1 trillion is greater than the simply moves elsewhere. ”
entire TARP program.
• It’s more than the Stimulus program.
• It is even greater than the Federal
Reserve’s quantitative easing
program, QE II.
A common understanding among clients
Setting so much cash idle would seriously regarding financial risk is that, like energy,
slow the economy to the detriment of risk can neither be created nor destroyed,
businesses and consumers alike. To raise but only transformed. Therefore, when you
this extra $1 trillion cash buffer, companies consider ways to reduce banking system
may have to downsize and lay off workers, risk, do not be tricked into thinking that risk
reduce inventories, postpone expansion and disappears. It simply moves elsewhere.
defer capital investment. Obviously, the
economic consequences would be huge. To truly minimize the probability of future
financial crises, we must understand how
Why would treasurers have to idle so much this risk transforms and where it will show up
more cash? next. Risk is managed most efficiently when
it is transparent, properly understood and the
The Volcker Rule, as currently proposed, will market responds with robust, efficient and
increase administrative expenses for banks, liquid hedging solutions
and create a subjective regulatory scrutiny of
trades, making a company’s ability to raise
capital more expensive and time consuming. Specific Unintended Consequences
These changes will raise costs for some of the Volcker Rule
companies, make foreign capital markets
more attractive for some and will shut some The ambiguity surrounding provisions of the
companies out of debt markets entirely. Volcker Rule is likely to have a chilling effect
on precisely those banking services that
account for U.S. competitiveness, capital
3
4. efficiency and financial stability. This issue is activities, banks would be unable or unwilling
a concern for U.S. businesses, large and small. to underwrite these public and private bonds.
Thus, if banks can no longer hold inventory,
Some of the unintended consequences, in it will be much more difficult for businesses,
addition to a general slowdown in economic municipalities and schools to raise capital.
activity, include:
Bank trading activities are what create
• Impaired market liquidity and reduced market liquidity and enable the market to
access to credit provide an efficient clearing price. Without
• Higher costs and less certainty for these activities, markets take a giant step
borrowers backward to bilateral “deals” and, in effect, a
• Restricted trading in proper and barter or auction system.
allowable businesses
• Competitive disadvantage for U.S.
Higher costs and less certainty for borrowers
businesses and financial institutions
• Increased compliance costs for non-
The Volcker Rule will increase the cost of
financial businesses
capital for all companies. With reduced
• Higher bank fees for consumers and
market liquidity, transaction spreads widen,
businesses
risks increase and price changes become
• Less access to capital for small more volatile. To compensate for these new
business and start ups risks, investors will demand higher rates.
• Shifting of risks to other sectors of
the economy Because banks can currently underwrite a
• Capital flows into offshore markets bond issue for a customer and hold any
unsold bonds in inventory, creditworthy
Let’s examine these consequences one borrowers can be reasonably assured of
by one. timely access to credit. However, under the
Volcker Rule in its current form, banks may
not be able to hold that inventory. They
Impaired market liquidity and reduced
therefore, may instead decide to defer or
access to credit
delay underwriting those bonds for their
customers until buyers are found in advance.
The Volcker Rule will impair the ability of
banks to function as market makers. Banks
Imagine a municipality or a hospital facing a
act as significant buyers and sellers of
critical funding need. Under the Volcker rule,
securities to ensure that borrowers can find
they would go bankrupt while waiting for a
investors and investors can find investments.
bank to line up the funding. Or, they would
end up paying a crippling rate.
As market makers, banks hold inventory.
This inventory could be in various investment
instruments, treasury debt, customer Restricted trading in proper and allowable
securities and foreign currencies. However, businesses
the Volcker Rule significantly constrains their
ability by dictating how banks should The proposed rule is inherently complicated
manage their inventory, which will reduce the and forces regulators to define the intent of a
depth and liquidity of our capital markets. trade. Worse, they require banks to “prove”
the intent of each trade. This proof cannot be
For example, corporations, municipalities, done in any reliable and consistent way. One
healthcare providers, and universities rely entity’s proprietary trade is another entity’s
upon the “market making” activities of banks “market making” activity. “Proprietary
in order to secure affordable funding in the trading” defies a symmetrical definition.
bond market. Without these “market making”
4
5. The complexity and vagueness of the Finally, most companies will still have
Volcker Rule will force banks to adopt the financial risks that need to be managed. U.S.
most conservative interpretation of the rule business will increasingly turn to foreign
and the least favorable “intent” of any trade. banks in overseas markets – which would
With the burden of proof on the banks, the simultaneously weaken U.S. banks while
compliance costs become prohibitive. The strengthening foreign banks.
net result will likely be the elimination of
perfectly acceptable “market making”
activities. Eliminating these activities could Increased compliance costs for non-
result in banks exiting or scaling back such financial businesses
routine activities as commercial paper
issuance, cash management sweep The reach of the Volcker Rule can extend to
accounts and multi-currency trade finance. non-financial businesses, although they
These are services which all Treasury present no systemic risk whatsoever. Many
Strategies clients view as critical solutions to businesses offer financing services to their
execute sound financial management. customers. They may own a bank, have a
commercial or consumer finance subsidiary
or have a credit card company. These
Competitive disadvantage for U.S. businesses will incur increased costs and
businesses and financial institutions higher compliance burdens. Some will pass
these costs on to their customers. Others will
The United States’ major trading partners simply discontinue the financial or card
have rejected the Obama Administration’s services. In any event, the result is higher-
request to follow the Volcker rule. This cost credit for those willing to pay and less
rejection puts American businesses and credit for most small businesses and consumers.
financial institutions at a disadvantage. By
eliminating a core revenue stream from U.S.
banks, the Volcker Rule would effectively Higher bank fees for consumers and
reduce the ability for U.S. banks to compete businesses
and grow. Additionally, in order to avoid the
territorial jurisdiction of the Volcker Rule, The cumulative effect of regulatory changes
foreign financial firms may retreat from the such as the Volcker Rule and Basel III will
U.S., further depriving American businesses reduce or eliminate core banking revenue. At
of capital and degrading the ability of U.S. the same time, the Volcker rule will
regulators to oversee and regulate financial materially increase the costs of regulatory
activity. compliance. In order to continue providing
high quality, technologically-advanced
banking services, U.S. banks will need to
increase banking fees on a wide range of
services. They may also need to become
”U.S. Businesses will increasingly turn more selective in the customer segments
they choose to serve, thereby reducing the
to foreign banks in overseas markets – general availability of banking services.
which would simultaneously weaken
U.S. banks while strengthening foreign Less access to capital for small business
and start ups
banks. ”
As banks restrict the availability of their
services and increase the price, an inevitable
“crowding out” will occur. The very highest-
5
6. rated corporations and those who transact in their treasury technology. Their intent is to
the highest denominations will still have get a real-time view of their cash, and
access to credit and risk management implement automated tools to easily move
products. However, the less creditworthy that cash around the globe. In this
customers and start-ups will be left out. frictionless environment, cash can easily be
Many traditional services will be no longer moved to the most favorable jurisdictions.
cost effective. Some may not be available to
those segments at all. Many U.S. multinational companies are
already selecting lead banks for each region
of the globe, eroding the dominance of the
Shifting of risks to other sectors of the U.S. banks. Many companies are
economy establishing regional treasury centers for
functions traditionally housed in the U.S.
As stated earlier, risk is neither created nor This regional structuring leads to capital
destroyed. It can only be transformed. A flowing out of the U.S. and competitiveness
corporate CFO whose company imports a declining.
raw material from the Far East, for example,
must manage currency risk, commodity price
risk, interest rate risk and operational Process Issues
shipping risk. Simply precluding a bank from
helping the company hedge those risks, the Now that we have discussed the impacts of
Volcker Rule does not make those risks go the Volcker Rule upon non-financial
away. Indeed, the risk becomes less companies, let us consider regulatory
transparent and thus more potent. process issues that make it extremely
difficult, if not impossible, for businesses to
CFOs and treasurers will undoubtedly understand how the Volcker Rule will impact
conclude that some risk management their ability to raise capital.
techniques and some previously efficient
transactions will no longer be cost effective. The Federal Reserve (“Fed”), Federal
They will decide to “go naked” and retain that Deposit Insurance Corporation (“FDIC”),
risk internally. The upshot is that they will Office of the Comptroller of the Currency
hold even more precautionary cash on their (“OCC”) and Securities and Exchange
balance sheets as a buffer. This added buffer Commission (“SEC”) proposed their portion
will take money out of the real economy. of the Volcker Rule implementing regulations
in October, and these were published in the
Federal Register on November 7, 2011. The
Capital flows into offshore markets Commodities and Futures Trading
Commission (“CFTC”) voted on its proposal
Corporate treasury is the financial nerve last week, but has not yet published its
center of the firm, daily facing and managing proposal in the Federal Register.
the complexities of the global markets. Most
treasurers select a lead bank as their Each of these regulators looks at a separate
primary source of capital, information and portion of the markets, so it is only possible
advice. That bank must be one that cannot to understand the full scope and impacts of
only give the company global visibility, but the proposed regulations when one
can seamlessly operate in markets far and examines the interrelationships of the
wide. The Volcker Rule would virtually proposed rules and the markets themselves.
eliminate U.S. banks from contention for that While the CFTC is expected to close its
important “lead” role. comment period 60 days after publication in
the Federal Register, the other regulators’
Many companies have recently engaged comment period will close on February 13,
Treasury Strategies to assist in upgrading 2012.
6