Cornelius Hurley argues that banks are implicitly and explicitly subsidized, and that they need to return the subsidy.
Dean Baker argues for a transfer tax, and weakening the political power of financial institutions. Really tangential to the point of the conference. I’m not sure it would help or hurt too much. It would drop trading volumes.
Dana Chasin argues for more centralized information analysis to deal with opacity and interconnectedness.
Ron Feldman argues that plans should be made in advance for how to wind up firms, based on what is special about the firms aka “living wills.” Suggests that resolution regimes are too vague.
Tamar Frankel argues that banks should bail out each other, but pay differential guaranty fees based on the riskiness of each bank. I think that would be difficult to pull off, such a strategy hasn’t worked that well for the PBGC (not equally funded), State Insurance Guaranty funds (post-funding), or the FDIC (pre-funded but equal contributions). There are moral hazard and agency problems with this idea.
Personally, I would make the Risk based capital [RBC] percentage rise with the amount of risk-based capital. Say, when RBC gets over $10 billion, the percentage of capital needed for RBC grades up to 50% higher than the level needed at $10 billion by the time RBC gets up to $50 billion.
One questioner suggested unlimited liability for bank shareholders. That sounds like requiring the investment banks to be partnerships.
Another mentioned the trouble with state guaranty funds in the ’80s.
Also, more capital needs to be held against securitized assets versus non-securitized assets.
One commenter suggested making repo funding unsecured. Oh my.
Another guy commented that having subordinated debt as a warning sign did not work in the past.
Another commenter said that liquidity always dries up when you need it most.
There are always a few loonies at conferences, who know nothing about the topic at hand. It keeps things colorful.
At the end of this panel, Heather McGhee of Demos came to talk about Financial Reform in DC. Snapshot:
- Non-compromise Dodd bill coming Monday — no systemic risk regulator, but a systemic risk council.
- Standardization of derivatives trading, clearing, etc. There will likely be end-user exemptions.
- Prudential regulation ~20 big financial companies will be regulated by the Fed.
- New special bankruptcy court — a check to determine illiquidity or insolvency.
- Possible Prop trading amendment — the Volcker Rule, with regulatory exceptions.
- Possible amendment: Size cap on assets, unlikely to get made into law.
- Possible new resolution authority.
Difficult to see how proactive financial services regulation gets enacted… politicians and regulators tend not to be forward looking.
