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Paul Tucker to Succeed Sheila Bair as Chair of Systemic Risk Council

WASHINGTON, D.C.—On December 8, 2015, the Systemic Risk Council named Paul Tucker as its new Chair, succeeding Sheila Bair, the Council’s founding Chair from 2012 through 2015, who has assumed the role of Chair Emeritus.

Mr. Tucker, currently a Fellow at the John F. Kennedy School of Government at Harvard University, formerly served as Deputy Governor at the Bank of England and as a member of the G20 Financial Stability Board’s Steering Group.

“The Systemic Risk Council has provided a thoughtful and constructive voice for regulatory reform in the interests of ensuring that we have a stable financial system that can serve the economy’s needs,” said Sir Paul. “I look forward to serving the Council and working with colleagues to continue the important work that Sheila and the Council have undertaken since 2012.”

Ms. Bair was the 19th Chairman of the Federal Deposit Insurance Corporation from 2006 through 2011, leading the agency during the financial crisis and the momentous regulatory reforms that followed in its wake. Ms. Bair recently assumed the office of President of Washington College in Chestertown, Maryland.

“I am proud of the Council’s contributions to regulatory reform in the United States and abroad, and there is much more to do,” said Ms. Bair. “The Council will benefit greatly from Sir Paul’s decades of experience as a respected and thoughtful economist, thought leader, and central banker.”

Paul Volcker, Former Chairman of the Federal Reserve Board and Senior Advisor to the Systemic Risk Council, said, “Under Sheila’s leadership, our Council has become a powerful voice for financial regulatory reform here in the United States. As the baton passes to Sir Paul—who is highly regarded internationally as a leading expert on these issues—I am confident that the Council’s work will have an even greater impact on the global stage.”

Notes for Editors:

The independent, non-partisan Systemic Risk Council ( was formed to monitor and encourage regulatory reform of U.S. and global capital markets, with a focus on systemic risk. The Council is funded by the CFA Institute, a global association of more than 125,000 investment professionals who put investors’ interests first and set the standard for professional excellence in finance. The statements, documents, and recommendations of the private sector, volunteer Council do not necessarily represent the views of the CFA Institute. The Council works collaboratively to seek agreement on each of its recommendations.

About Paul Tucker:

Paul Tucker was Deputy Governor at the Bank of England from 2009 through 2013. He joined the Bank in 1980 and played a major role during his tenure in many of the most significant developments in the international financial system. Mr. Tucker was a member of the Bank’s Monetary Policy Committee, Financial Policy Committee, Prudential Regulation Authority Board, and Court of Directors. He also served as a member of the G20 Financial Stability Board Steering Committee and chaired the FSB’s group on resolving large and complex banks. He was a member of the board of the Bank of International Settlements and chaired the Basel Committee on Payments and Market Infrastructure. In 2014, Mr. Tucker was granted a knighthood for his services to central banking. In addition to his role at Harvard University, he currently serves as a Director at Swiss Re, a leading global re-insurer, and was recently elected to the board of the Financial Services Volunteers Corps (FSVC).

Systemic Risk Council Letter to Chairmen of Fed and FDIC on Latest Round of Living Wills

On Tuesday, September 8, the Systemic Risk Council submitted a letter to Janet Yellen, Chairman of the Board of Governors of the Federal Reserve System, and Martin J. Gruenberg, Chairman of the Federal Deposit Insurance Corporation, commenting on the recent release of public “living will” disclosures for 12 large financial firms in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The letter states that the Council is “encouraged” by the “updated and improved public disclosures” and that the “regulated institutions—responding to the agencies’ guidance—have considerably improved the quality of their public disclosure.”

The letter argues that public disclosure of living wills is critical to persuading the public that the “too-big-to-fail” problem has been solved and that the largest financial institutions can be resolved without recourse to taxpayer bailouts. “Although many provisions of the Dodd-Frank Act are intended to address systemic risk, the unique contribution of the living will regime—and particularly the public disclosures mandated by the agencies—is to attack directly the perception that the authorities have no choice but to bail out systemically important financial institutions in times of financial distress.”

The letter also encourages the agencies to mandate use of common definitions and reporting practices so as to facilitate comparison across systemic institutions and assist the public in evaluating the progress made by individual institutions over time.

Read the full letter here:

SRC Letter to Fed and FDIC re Living Wills 09-08-15

Systemic Risk Council Congratulates Federal Reserve Board on Finalizing the G-SIB Capital Surcharge

In response to today’s action by the Federal Reserve Board to unanimously approve its proposed “capital surcharge” on the nation’s largest financial institutions, Sheila Bair, chair of the Systemic Risk Council, issued the following statement:

“It is gratifying to see that the Governors of the Federal Reserve Board have moved ahead with final rules imposing tougher risk-based capital requirements on the nation’s largest institutions. Though the Systemic Risk Council continues to have serious concerns about the complexity of the risk-based rules, and their over-reliance on the banks’ own internal models, we applaud the Governors for imposing a surcharge up to 4.5 percent higher than the current 7 percent requirement and congratulate the Federal Reserve for holding firm against industry efforts to significantly weaken its original, proposed rule. We also note that international regulators agreed to impose a so-called ‘SIFI’ or ‘G-SIB’ surcharge on the world’s largest banks in 2010.  Yet the U.S. is the only jurisdiction to propose and finalize such a rule, which is higher than the standard contained in the 2010 international agreement. We hope the Federal Reserve will continue to work with other bank regulators to simplify the risk-based capital rules and make them less reliant on the banks’ own risk management systems. That said, this is a significant step in strengthening the current capital regime for large institutions, and we applaud the Governors for taking it.”

Systemic Risk Council Letter Supports Vitter Amendment to Increase Capital Requirements for Big Banks

On May 20, the Systemic Risk Council sent a letter to Senator David Vitter (R-LA), offering strong support for his amendment to the “Financial Regulatory Improvement Act of 2015”, which would strengthen equity capital requirements applicable to the largest financial institutions.

The letter states that the Council “has long supported stronger, simpler capital requirements for large, complex institutions, and we are gratified that you are moving forward with a proposal to do just that. There is widespread consensus that the use of excessive leverage by so-called “systemic” institutions was a key driver of the financial crisis and ensuing need for taxpayer bailouts. Though regulators have moved to strengthen bank leverage and risk-based capital standards since the crisis, the increases have been incremental and large financial institutions remain overly reliant on debt to fund themselves.”

Read the full letter below:

SRC Letter to Senator David Vitter Re Capital Requirements

Systemic Risk Council Letter to FSOC About Asset Management Products and Activities

On Wednesday, March 25, the Systemic Risk Council responded to a request for comment by the Financial Stability Oversight Council (FSOC) about asset management products and activities.

The letter states:

“We commend the FSOC for undertaking a comprehensive review of the asset management industry, consistent with its statutory responsibilities to identify and address systemic risks. We encourage the FSOC to work closely with its constituent agencies, and particularly the SEC, in addressing the systemic risks associated with asset managers. It seems clear that additional data collection is needed to understand the potential systemic risks in many areas of asset management and that further data analysis may well warrant additional regulations pertaining to leverage, liquidity, and redemption policies for high-risk funds. In other areas, such as securities lending, the risks are known and ripe for regulatory standards. In all areas, we would encourage the FSOC to work closely with the SEC in light of that agency’s considerable expertise and long experience in overseeing the asset management industry.  Finally, the FSOC should consider whether and to what extent any future regulatory-driven market developments and products (e.g., bail-in debt issued by banks) could affect the asset management industry in a manner that gives rise to additional systemic risks.”

The full letter can be found here: SRC Letter to FSOC Re Asset Management Products

Systemic Risk Council Supports Federal Reserve Board Proposal Of Capital Surcharge for Systemically Important U.S. Banks

On Monday, March 2, the Systemic Risk Council submitted a letter to the Board of Governors of the Federal Reserve System, supporting the Board’s recent proposal of a risk-based capital surcharge for U.S. bank holding companies identified as global systemically important banking organizations (G-SIBs) and calling for the proposal to be strengthened in several key areas.

The letter in part states:

“The Council believes that a well-calibrated GSIB surcharge will assist regulators and GSIBs to lean into the headwinds of systemic risk ex ante, that is, prior to the onset of periods of financial stress. This, in turn, will contribute to a reduction of the probability of catastrophic GSIB failures. . . . [T]he Council would encourage the Board to give even greater weight to a GSIB’s ‘complexity’ in calculating the surcharge. Furthermore, by explicitly incorporating into the measurement of systemic risk the additional factor of a GSIB’s reliance on short-term wholesale funding—a factor not included in the surcharge framework suggested by the Basel Committee on Banking Supervision—the Proposed Rule promises to curtail one of the key accelerants of the contagion that engulfed the global financial system during the 2008 financial crisis. . . .  Finally, by encouraging GSIBs to curtail or eliminate factors and activities contributing to their GSIB status, the GSIB surcharge is likely to reduce the moral hazard arising from the perception that GSIBs are ‘too big to fail.’”

Read the full letter below:

SRC Letter to Fed Board re GSIB Surcharge 030215

In Remembrance of The Honorable Harvey Goldschmid

The Systemic Risk Council has issued the following statement upon the passing of Harvey Goldschmid, a member of the Council:

The members and staff of the Systemic Risk Council are deeply saddened by news of the passing of our colleague, Harvey Goldschmid, a member of the Council since its formation and one of its founders.

Sheila Bair, Chair of the Council, stated:  “Harvey was dedicated throughout his career to advancing reforms in corporate governance and in protecting investors, for the benefit of all Americans.  We remember him for his numerous and valuable contributions in these fields as a public servant while General Counsel and later a Commissioner of the Securities and Exchange Commission, and as a brilliant scholar and teacher of generations of students while a professor at Columbia Law School.  His dedication to systemic risk mitigation and investor protection made him a valued member of the Council.  We will miss Harvey’s leadership in championing the mission of the Council, as well as his enduring wisdom and warm friendship.”

The example of Harvey Goldschmid as a scholar and public servant will inspire the continued efforts of the Council to provide a strong, independent voice for reforms that are necessary to protect the public from financial instability.

Systemic Risk Council Letter to Financial Stability Board About Systemically Important Banks in Resolution

On Monday, February 2, the Systemic Risk Council wrote a letter to the Financial Stability Board (FSB) about the consultative document recently issued by the FSB on the adequacy of the total loss-absorbing capacity (TLAC) of global systemically important banks (G-SIBs) in resolution.

The letter states:

“The Council has consistently supported requirements for G-SIBs to maintain robust levels of high-quality capital, whether in the United States or overseas. We have also supported efforts to strengthen the mechanisms available for the resolution or orderly liquidation of large, complex financial institutions should the need arise, pursuant to Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act in the United States and comparable resolution regimes elsewhere. We commend the FSB for its attention to addressing the causes of financial instability and developing effective methods to combat the perception that certain large, complex financial institutions are ‘too big to fail.'”

Read the full letter below:

SRC TLAC Comment Letter to FSB 020215


New Paper Finds Little Progress in Reducing the Complexity of Global Systemically Important Banks

Today, the Systemic Risk Council* released a research paper by Richard Herring and Jacopo Carmassi examining the complexity of the 29 institutions that have been designated as Global Systemically Important Banks (G-SIBs) by the Financial Stability Board in November 2013.

Links to the full paper and executive summary are below.

The authors found that in 2013 G-SIBs had:

  • an average of $1.587 trillion in assets (with a high of $3.100)
  • an average of 1,002 majority-owned subsidiaries (with a high of 2,460), with nearly half the subsidiaries classified as non-financial
  • 2.6 times more subsidiaries than non-financial institutions with comparable market capitalizations
  • 60% of subsidiaries located outside the headquarters country (high of 95%)
  • at least one subsidiary in 44 different countries (a high of 95)
  • 12% of subsidiaries located in off-shore centers (with a high of 28%)

“The complex structure and opaque connections among G-SIBs impeded oversight and market discipline before the crisis and greatly complicated management and resolution after the crisis”, said Richard Herring.  “To enhance market discipline and ensure the credibility of plans to resolve G-SIBs without resort to taxpayer bailouts, greater progress is needed to simplify and rationalize G-SIBs’ organizational structures and improve transparency and market understanding of those structures.”

The paper also includes several recommendations to regulators and banks including:

  • The use of consistent definitions and terminology in bank disclosures of organizational structure, including such key terms as “material entity.”  The paper found that basic information can vary widely depending on reporting venue. For instance, Federal Reserve Reports show that in 2013 Citigroup had 1,883 subsidiaries, while Citi’s 10-K filing with the SEC shows 184 subsidiaries;
  • Public disclosure of information on organizational structure in readily searchable formats;
  • Disclosure of key elements of living wills to enable the market to better evaluate their credibility;
  • Reconsideration of tax and regulatory policies with an emphasis on how they impact organizational complexity and impede orderly resolution.

Download the full paper below:

Carmassi Herring Corporate Structures Transparency and Resolvability of G-SIBs Paper

Download an executive summary below:

Executive Summary of Carmassi Herring Corporate Structures Paper

*Support for this paper was provided by the Systemic Risk Council, an independent and non-partisan council formed to monitor and encourage regulatory reform of US capital markets focused on systemic risk. The views expressed in the paper are those of the authors and do not necessarily reflect the views of the Systemic Risk Council, its members, or its supporting organizations.

Richard J. Herring is Jacob Safra Professor of International Banking and Professor of Finance at The Wharton School, University of Pennsylvania, where he is also founding director of the Wharton Financial Institutions Center. 

Jacopo Carmassi is a research fellow at the LUISS Guido Carli University in Rome, Italy, and a research fellow of the Wharton Financial Institutions Center, University of Pennsylvania.

Systemic Risk Council Statement About Repeal of Section 716 of Dodd Frank

On Friday, December 12, the Systemic Risk Council released the following statement about the repeal of Section 716 in the omnibus spending bill.

“We wish to express our strong opposition to including in the omnibus spending bill a repeal of the so-called ‘swaps push-out’ provision of the Dodd-Frank financial reform law. While this provision only pertains to a small portion of derivatives trading, its repeal would set a dangerous precedent.

First, if we want a more stable financial system, repeal of this provision, also known as Section 716, goes in the wrong direction. To increase market discipline and protect taxpayers, we should be shrinking the safety net, not expanding it. Repeal of Section 716 would allow certain high risk swap transactions to be conducted inside banks which are supported with taxpayer-backed, insured deposits, as opposed to securities and derivatives affiliates which do not use taxpayer backed funding sources. As FDIC Vice-Chair Tom Hoenig has stated, such a move is ‘illogical.’

Second, any changes to Dodd-Frank should be considered and passed under regular order, after thorough Committee consideration.  If the changes to Dodd-Frank cannot pass on their own merits as part of the normal legislative process, they should not be jammed through as riders to must-pass spending bills.  The American people deserve better from their elected representatives.”