Author Archives: admin

Statement by Sheila Bair on Supplemental Leverage Ratio

Statement by Sheila C. Bair, Former Chair of the FDIC and Chair of the Systemic Risk Council

“I applaud the federal banking agencies for finalizing a strong simple leverage ratio to work in tandem with the more complex risk-based standard. These tougher capital rules will enhance the durability of our economic recovery and buttress the ability of our nation’s largest financial institutions to meet the credit needs of the real economy. This simple requirement will help ensure that these institutions have a more robust cushion against losses and stand ready to lend even when markets change.  This in turn will protect markets, shareholders, and taxpayers.”

Letter from Sheila Bair to the Senate Banking Subcommittee on Financial Institutions

Chairman Sherrod Brown
Senate Committee on Banking, Housing and Urban Affairs
Subcommittee on Financial Institutions and Consumer Protection
534 Dirksen Senate Office Building
Washington, DC 20510

Re: Subcommittee Hearing: “Finding the Right Capital Regulation for Insurers”

Dear Chairman Brown and Members of the Subcommittee:

Thank you for the opportunity to present my views on the appropriate capital framework for insurance companies under the Dodd-Frank Act. I understand the insurance industry has expressed concerns about the potential treatment of insurance companies by the Federal Reserve in its establishment of consolidated capital standards for bank holding companies and nonbank financial institutions designated for heightened supervision. I agree that the Federal Reserve can and should craft a capital framework appropriate to insurance products, and should have the discretion to defer to state insurance regulators in establishing capital standards for the insurance activities which they regulate. However, I also believe that the Federal Reserve already has ample authority to do so without undermining important safeguards.

I am concerned however, that S. 1369 may unintentionally go beyond legitimate concerns about protecting the integrity of state regulation of insurance. As drafted, S. 1369 would provide a wholesale carve-out from common sense protections contained in the Section 171 of Dodd-Frank, also known as the Collins’ amendment, for insurance conglomerates, including their banking and derivatives activities. This would give insurance giants a significant competitive advantage over banking organizations engaged in the same activities, and leave the door open to the kinds of highly leveraged risk-taking which contributed to the 2008 crisis. We should not forget that in 2008 AIG was also an insurance company, which took excessive risks in its non-state regulated affiliates.

Read the full letter below:

Sheila Bair Letter to Senate Banking re Section 171

Systemic Risk Council Letter Calls On Banking Regulators To Simplify Too Big To Fail Institutions/Disclose Credibility of Living Wills

On February 18, the Systemic Risk Council (SRC) called on federal regulators to simplify complex financial institutions and mandate greater public disclosure of progress in reducing their systemic imprint.

The SRC specifically called on the Federal Reserve and FDIC to annually disclose their joint determination, required by Dodd-Frank, as to whether these firms have submitted “credible” living wills demonstrating their ability to fail in bankruptcy without systemic disruption.

Read the full letter below:

SRC Comment Letter to FDIC re: SPOE 2-18-14

 

 

Statement from Sheila Bair on her appointment as an Independent Director to the Board of Grupo Santander, SA

Statement from Sheila C. Bair on her appointment as an Independent Director to the Board of Grupo Santander, SA

“I am pleased to be appointed as an independent director to the board of Grupo Santander, SA., the Madrid-based Spanish bank which owns global banking operations. As an independent director my role will be to help identify risks and strengthen the group’s operations. I respect the way Santander successfully navigated through the financial crisis by sticking to a more traditional banking business model, as well as their ‘subsidiarization’ approach which heavily relies on local organization and strong, local management and governance. I have long advocated for ‘subsidiarization’ as a structure which makes global banks more resolvable. I hope that my service on the Santander board will provide yet another avenue for continuing my commitment to reforming the global financial system and contributing to a safer, more responsible, and customer oriented banking system.”

 

Systemic Risk Council Letter to GHOS Regarding International Leverage

On January 9, the Systemic Risk Council sent a letter to the Group of Governors and Heads of Supervision (GHOS) Chairman Mario Draghi encouraging global financial regulators to strengthen and implement international leverage standards. GHOS is the oversight body of the Basel Committee on Banking Supervision.

Read the full letter below:

SRC Letter to GHOS re ILR 1-9-14

A Roadblock to Brawny Bank Reform

Publication: New York Times

Author: Gretchen Morgenson

1/5/2014 – Regulators made some real progress last year attacking the risks of too-big-to-fail banks. The Volcker Rule and other Dodd-Frank reforms were completed, and, perhaps even more important, three big regulators devised a proposal for tougher capital rules intended to ensure that banks would never require a government bailout when their risky bets went bad.

But action on that last crucial bit of business has ground to a halt. Officials at the Federal Deposit Insurance Corporation had hoped that the rule they proposed last July along with the Federal Reserve Board and the Comptroller of the Currency would be set in stone by the end of the year. It was not.

Read the full article, A Roadblock to Brawny Bank Reform, on the the New York Times website.

Big Banks and the Failure of Bankruptcy

Publication: New York Times

Author: Simon Johnson

12/19/2013 —In modern American political discourse, it is unusual to see ideas explode before your very eyes. It’s much more typical for bad ideas to drift away quietly – or alternatively to stick around, year after year, despite being completely at odds with the facts.

On Dec. 11, at a meeting at the Federal Deposit Insurance Corporation, there was a complete and public collapse of the notion that today’s large complex financial institutions could actually go bankrupt without causing a great deal of collateral damage.

In a free and fair discussion before the F.D.I.C.’s Systemic Resolution Advisory Committee, proponents of bankruptcy as a viable option acknowledged that this would require substantial new legislation, implying a significant component of government support — or what would reasonably be regarded as a form of “bailout” to a failing company and its stakeholders. (I’m a member of the committee, and the events took place in the first session of the committee’s public hearing.)

In other words, as matters currently stand, bankruptcy for a big financial company would imply chaotic disaster for world markets (as happened after Lehman Brothers failed). It is completely unrealistic to propose “fixing” this problem with legislation that would create a new genre of bailouts. Under current law – and as a matter of common sense – the Federal Reserve should take the lead in forcing megabanks to become smaller and simpler.

The legal authority for such action is clear. Under Section 165 of the 2010 Dodd-Frank financial reform legislation, large nonbank financial companies and big banks are required to create and update “the plan of such company for rapid and orderly resolution in the event of material financial distress or failure.” The design is that this plan – known now as a “living will” – should explain how the company could go through bankruptcy (i.e., reorganization of its debts under Chapter 11 or liquidation under Chapter 7 of the Bankruptcy Code) without causing the kind of collateral damage that occurred after the failure of Lehman Brothers.

This bankruptcy should not involve any government support. It is supposed to work for these large financial companies just as it would for any company, with a bankruptcy judge supervising the treatment of creditors. Existing equity holders, of course, are typically “wiped out” – the value of their claims is reduced to zero.

The full details of these living wills are secret, known only to the companies and the regulators. (The Systemic Risk Council, whose chairwoman is Sheila Bair, has called for greater disclosure of important details. I am a member of the council.)

Read the full article, Big Banks and the Failure of Bankruptcy, on the New York Times website.

A Safer Financial System is Now Within our Grasp

Publication: Financial Times

Author: Paul Volcker and John Reed

12/11/2013 —Much has been written about the degree of progress in continuing financial reform. Too little credit, however, has been given to regulators for their efforts to impose a simple, commonsense, leverage restriction on our largest bank holding companies.

Read the full editorial, A Safer Financial System is Now Within our Grasp, on the Financial Times website.

Systemic Risk Council Letter to Fed, FDIC About Living Wills

On December 2, the Systemic Risk Council sent a letter to the Federal Reserve Board and the FDIC requesting that they take steps to substantially improve the amount and quality of information published in the public sections of “living wills” required by Section 165 of the Dodd-Frank Act.

Read the full letter below:

SRC letter to Fed and FDIC re Living Wills 12-02-13

Systemic Risk Council Letter to the SEC About Improving the Public Disclosure for Large Complex Financial Institutions

On December 2, the Systemic Risk Council sent a letter to the Securities and Exchange Commission to request that the SEC examine the level and quality of disclosures being provided by large complex financial institutions (“LCFIs”) and take steps to strengthen that disclosure.

Read the full letter below:

SRC letter to SEC re LCFI Public Disclosure 12-02-13