Banking

Speakers: James McCaughan , CEO, Principal Global Investors. Cliff Noreen, President, Babson Capital Management LLC. Tad Rivelle, Chief Investment Officer, Fixed Income, TCW. Aram Shishmanian, CEO, World Gold Council. Kevin Warsh, Distinguished Visiting Fellow, Hoover Institution; Former Member, Federal Reserve Board of Governors. Moderator: David Zervos, Chief Market Strategist, Jefferies LLC. Among the monetary measures central banks have taken to address the lingering impact of the 2008 financial rupture, keeping interest rates artificially low has been a primary aim. The term "financial repression" has become associated with that policy. Such measures were launched in the hope of not only stimulating economic activity but to ease the pressure of servicing onerous public debt. Concern is growing, however, that quantitative easing has distorted markets by interfering with the proper pricing of risk and, by extension, obscuring the true cost of capital. Our panel of experts will explore the possible effects of sustained QE and the quest for financial stability. For instance, are bubbles inflating? Will these effects be similar or will they vary from market to market? What costs will long-tem financial repression impose on the Federal Reserve and other central banks? What tools can be employed as alternatives?

Speakers: James Barth, Senior Finance Fellow, Milken Institute; Lowder Eminent Scholar in Finance, Auburn University. Bob Corker, U.S. Senator. Carey Lathrop, Managing Director and Head of Global Credit Markets, Citi. Kevin Lynch, Vice Chairman, BMO Financial Group. Thomas Perrelli, Partner, Jenner & Block; Former Associate U.S. Attorney General. Moderator: Jaret Seiberg, Managing Director and Senior Policy Analyst, Guggenheim Partners. As countries implement new regulations in response to the global financial crisis, will safer and sounder markets be the result? Or just more burdens and costs? What impact can we expect on financial institutions, lending, the flow of capital around the world and, eventually, the global economy? Has the too-big-to-fail problem been solved, or should the giants simply be broken up? Is there a place for a global financial regulator? And what should be done about the shadow banking system - the institutions that wield influence but go largely unregulated? Our panel will delve into whether there are more effective ways to oversee financial markets than current methods.

Seldom have there been more reasons than now to investigate and compare bank regulation around the world. One can point to the global banking crisis of 2007-2009, the banking problems that still plague many European countries in 2013, and the more than 100 systemic banking crises that have devastated economies around the world since 1970. All these crises reflect, at least in part, defects in bank regulation and supervision. The problem is that measuring bank regulation and supervision around the world is hard. Hundreds of laws and regulations, emanating from different national and local governments, define the rules for what banks are allowed to do and how they can do it. This immense quantity and diversity of laws and rules poses a daunting challenge for any effort to compile comprehensive data or to aggregate it into meaningful comparisons of very different regulatory regimes. As a result, the systematic collection of data on bank regulatory and supervisory policies is only in its nascent stages. Yet without sound measures of banking policies across countries and over time, researchers will be hard-pressed to assess which approaches work best or to propose useful reforms. In response, this paper offers a new database for more than 180 countries, covering the period from 1999 through 2011. We seek to contribute to research on the design and implementation of policies by providing useful measures of the systems now in place. As the great 19th-century scientist Lord Kelvin reportedly argued, “[I]f you cannot measure it, you cannot improve it.” Our database builds on surveys sponsored by the World Bank that were released in 1999, 2003, 2007, and 2012. Overall, the surveys cover 180 countries. The dataset also provides information on the organization of regulatory agencies and the size and structure of the overall banking system. Besides describing the data, this paper provides a wealth of cross-country and cross-time comparisons.

Big is bad. At least that has become the view of many individuals about big banks ever since the financial crisis of 2007-2009. The fear is that if a big bank gets into trouble, its problems will infect other financial institutions and threaten the entire economy, and this fear prompted bank bailouts, both in the U.S. and abroad. In the wake of that experience, regulators and banking experts almost unanimously agree that regulatory reform is essential to ensuring that no bank is ever again too big to fail. Unfortunately, there is far less agreement about the best approach for ending too big to fail. As a result, a number of prominent bank regulators and industry experts recommend a more drastic change: simply breaking up the biggest banks. There is no question that too big to fail is an urgent problem in need of a solution. But there are huge complexities at almost every level. What is “big?” How big is “too big”? What is a “bank?” What kinds of risk-taking are appropriate for a bank—and why? What do we know about the costs and benefits of different strategies? This paper examines these issues in depth, including a look at measures of “bigness" for the world’s 100 biggest publicly traded banks. It also includes a discussion of two major and legitimate concerns about big banks. The first is that big banks, through a concentration of power, will successfully lobby regulators for leniency and effectively receive greater leeway for excessive risk taking. The second concern is that the failure of a big bank can radiate instability throughout the financial system, forcing policymakers to bail out troubled big banks for the sake of the overall economy. The authors see little evidence that the regulatory reforms now being enacted will solve the problem of too big to fail. They believe breaking up banks would be a mistake at this time, pointing out that there's surprisingly little evidence that big banks per se caused the recent financial crises. Breaking up some or all of the world’s biggest financial institutions would unleash forces with unpredictable consequences and considerable risks. Instead, policymakers may simply have to monitor the incremental reforms they have already begun to implement and make adjustments as the results come in.

Big losses by traders are back in the news. In September the trial of a former Union Bank of Switzerland (UBS) derivatives trader opened in London, and before that was the trial of JPMorgan Chase's credit derivatives traders -- including the one known as the "London Whale" -- who lost an estimated $7.5 billion on credit default swap trades. Since 1990, there have been 15 instances when traders lost at least $1 billion (in 2011 dollars). You may be surprised to learn that almost half the loss-making trades were not at financial services firms but at the types of institutions that typically use financial products for hedging purposes as opposed to speculation. You may also be surprised to hear that the popular perception that rogue traders piled up secret losses behind the bosses’ backs isn’t the whole story. Just six of the 15 losses involved unauthorized trading. Read about the nature, scope and consequences of recent trading losses and the unintended effect of banking regulation that's making the situation worse -- for shareholders and for economic recovery.

Speakers: Simon Johnson, Harvey Rosenblum, Phillip Swagel, Peter Wallison Moderator: Bradley Belt. In the United States, the top five banks hold more than 50 percent of the total assets in the U.S. banking industry. Given increased bank consolidation and continued concerns over systemic risk to the global economy since the financial crisis, some have argued that big banks should be broken up to protect American taxpayers. But others disagree, arguing that markets can best dictate the appropriate size and structure of banks and that scale is critical in promoting efficient global credit markets and ensuring the competitiveness of U.S. banks. Simon Johnson, Harvey Rosenblum, Phillip Swagel, and Peter Wallison will debate these issues and related questions. We welcome you to join the distinguished panelists for a lively and timely debate.

"Just How Big Is the Too Big to Fail Problem?" examines the impact of recent changes in banking regulation since the financial crisis and suggests that it is uncertain if the changes will truly eliminate TBTF risk. According to the authors, the new resolution authority designed to allow troubled big banks to fail will, apart from other issues, "be incomplete and perhaps unworkable until there is more progress on the international coordination of bankruptcy regimes." Other provisions in Dodd-Frank, such as the Volcker rule, limit firms' activities and scale. "But it is difficult to evaluate the cost-benefit ratio since there is little evidence on either side. In a sense, it is not even easy to pinpoint the problem to which the Volcker Rule is the solution." The report also puts the U.S. "too big to fail" institutions into international comparison, pointing out that of the 50 biggest banks in the U.S., only seven are among the 50 largest in the world. The authors examine the question of whether limiting the size of U.S. banks may be put them at a competitive disadvantage globally.

Speakers: James Barth and Ross Levine. The recent financial crisis was an accident, a perfect storm fueled by an unforeseeable confluence of events that collided and brought down the global financial system. And policymakers? They did everything they could, given their limited authority. At least that's the story that's been fed to the American people. But economists and regulatory experts James Barth and Ross Levine are here to debunk that version of events. In a provocative new book, they argue that the financial meltdown was no accident. It was negligent homicide. In "Guardians of Finance" (written with Williams College economist Gerard Caprio), Barth and Levine show that senior regulatory officials around the world knew (or should have known) that their policies were destabilizing the global financial system. They had years to process the evidence that risks were rising and the authority to change their policies - but they chose not to act until it was too late. Barth and Levine maintain that the current system is simply not designed to work on behalf of average citizens. It is virtually impossible for the public and its elected officials to make an informed and impartial assessment of financial regulation and to hold regulators accountable. But there's a potential solution at hand: the establishment of a "Sentinel" empowered to demand information and evaluate it in terms of the public interest - rather than that of the financial industry, the regulators or politicians.