Eleven years since numerous bank reforms were approved in key banking centers globally, gaps remain in completing reform measures to end the threat that can be posed by Too Big To Fail (TBTF) systemically important banks (SIBs). Given the severity of the Covid crisis and the uncertainty surrounding when it will end, completing these Group of 20 (G20) endorsed reforms should be a priority for legislators and financial regulators globally.
The severe disruptive effects of Covid-19 on banks’ activities, have made identifying, measuring, controlling, and monitoring operational risk at banks more important than ever. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
Looming Corporate Credit Losses Will Be Absorbed By Financial Institutions And Possibly Even By Taxpayers
Corporate insolvencies, bankruptcies, and credit losses to financial institutions are just starting to be felt. The looming increase in corporate bankruptcies will generate credit losses that will need to be absorbed, either by the financial system or by taxpayers here.
Bank regulators globally should develop climate change-related regulations to insure financial stability. Under the President Joe Biden administration, there is no doubt that focusing on climate change is a national priority.
A More Balanced Regulatory Framework Is Needed To Achieve A Level Playing Field For Banks, BigTech, And FinTech
Both activity-based and entity-based regulations are needed for BigTech and FinTech to level the playing field. While there is a debate as to whether regulations should be activity-based or entity-based, I believe that there is a strong case for relying more, and not less, on entity-based rules for BigTech companies. here.
A report released today by Truth in Accounting, a nonpartisan government accounting watchdog, showed that in America’s most populous cities, New York City ranks 75th in fiscal health for the fifth year in a row. here
All U.S. Bank Regulators Should Require Banks To Incorporate Climate Change Risks Into Their Risk Management Frameworks And Disclosures
It is imperative that banks incorporate climate change risks in every aspect of their day-to-day risk management so that they are adequately capitalized and liquid to sustain unexpected losses, and so that they do not pose a threat to financial stability or to the communities they operate in. here.
According to a study released yesterday by the Americans for Financial Reform, The Center For Popular Democracy, and United For Respect, private equity-owned retailers slashed over half a million jobs even before the pandemic. “They cost nearly 542,000 jobs and closed nearly 18,000 stores by February 2020.” Total job losses have been substantial and widespread with more than 10,000 retail jobs lost in 20 states and more than 30,000 jobs lost in California, Florida, and New York. here
Financial Stability Oversight Council Is Missing An Opportunity To Enhance Preparedness And Response To Financial Stability Risks
In analyzing the leveraged lending and Collateralized Loan Obligation (CLO) markets, the U.S. Government Accountability Office found there are more opportunities for the Financial Stability Oversight Council (FSOC) to prepare and respond to financial stability threats. FSOC has been monitoring risks that arise in the leveraged lending market, through its monthly Systemic Risk Committee meetings. In its report released today, the GAO stated that “FSOC does not conduct tabletop or similar scenario-based exercises where participants discuss roles and responses to hypothetical emergency scenarios. As a result, FSOC is missing an opportunity to enhance preparedness and test members’ coordinated response to financial stability risks.” Thus far, FSOC has not publicly agreed with the GAO’s recommendation to conduct tabletop exercises. here
The pandemic has exposed many vulnerabilities and challenges that the United States needs to confront immediately. On a daily basis, I see those vulnerabilities in the area of financial literacy, that is, knowledge about earnings, expenditures, savings, investments, and long-term financial planning. According to studies compiled by the U.S. Financial Literacy and Education Commission, only one-third of adults could answer at least four of five financial literacy questions on fundamental concepts such as mortgages, interest rates, inflation and risk. here
For decades, numerous academics, consumer advocates, and legislators have pointed out the importance of consumer credit scores on individuals’ ability not only to obtain credit, but also on housing and loan affordability. The fact that the three credit reporting companies, Equifax, Experian, and Transunion, are practically an unregulated and unsupervised oligopoly, has led to a system that has had a destructive impact on millions of Americans and which is in dire need of reform for the good of all our country.
Despite the severity of the coronavirus crisis, internationally active banks have been more resilient than many would have anticipated. However, low interest margins and rising corporate default rates will put pressure on banks’ profitability and capital.
Ignoring the impact of climate change on financial institutions and global financial stability is no longer an option for any financial regulator. Given the Federal Reserve’s leadership role at the FSB, we should expect that together with other financial regulators around the world, the Fed should create and enforce regulations for banks and other financial institutions, so that they establish transparent frameworks to identify how climate change could impact their credit, market, and operational risk exposures, as well as their levels of capital and liquidity.
Years of allowing covenant-lite leveraged loans is now set to be a significant problem for creditors and loan investors. Covenant-lite leveraged loan borrowers are reworking loans in ways that are likely to impact loan investors adversely.
A Significant Majority Of Democrats And Republicans Support Strong Consumer Protection Regulations And Tougher Rules For Wall Street
It has been ten years since the Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed. Given the complex nature of rule writing and the fact that fifteen regulators were involved, not all rules were finalized or implemented. Since Trump came into power, many of the rules that were finalized have been tailored and watered down. Yet, the vast majority of both Democratic and Republican voters want strong consumer financial protections and tough regulation of the financial services industry.
The Federal Reserve has launched a seven-part series about racism and the American economy. This is an unprecedented conversation led by the Atlanta, Boston, and Minneapolis districts of the Federal Reserve. Just in the first part of the series, Federal Reserve Presidents Raphael Bostic (Atlanta), Neel Kashkari (Minneapolis) and Eric Rosengren (Boston) and their guests confronted the history and present state of racism and the American economy, the role of the Federal Reserve in these issues, and also explored public and private sector solutions that can benefit everyone in our country.