Author Archives: Debra Palmore

Jeremy Stein Joins Systemic Risk Council, January 2, 2020

Today, the Systemic Risk Council announced that Jeremy Stein, Chairman of the Department of Economics at Harvard University and former member of the Board of Governors of the Federal Reserve System, has become a member.

Welcoming the appointment, SRC Chair Paul Tucker said “I am absolutely delighted that Jeremy Stein is joining the Systemic Risk Council. A front rank economist, seasoned policymaker, committed to maintaining financial stability, Jeremy enriches our ranks as we strive to keep the authorities focused on doing more to avoid financial crises and instability.”

Notes for Editors:

Jeremy C. Stein is the Moise Y. Safra Professor of Economics and Chairman of the Department of Economics at Harvard University. From May 2012 to May 2014, he was a member of the Board of Governors of the Federal Reserve System.  Stein is a fellow of the American Academy of Arts and Sciences, a research associate at the National Bureau of Economic Research, and a member of the Federal Reserve Bank of New York’s Financial Advisory Roundtable. In 2008, he was president of the American Finance Association. In 2009, he served as a senior advisor to the Treasury Secretary and on the staff of the National Economic Council.  Before moving to Harvard in 2000, Stein was on the finance faculty of M.I.T.’s Sloan School of Management for ten years, most recently as the J.C. Penney Professor of Management. Prior to that, he was an assistant professor of finance at the Harvard Business School from 1987-1990.  He received his AB in economics summa cum laude from Princeton University in 1983 and his PhD in economics from M.I.T. in 1986.

Systemic Risk Council Mourns Passing of Senior Advisor, Paul Volcker, Former Chair of the Federal Reserve Board

Washington, D.C. December 11, 2019

It is with the most enormous sadness that members of the Systemic Risk Council have heard that Paul Volcker has passed away.

His contributions to public life, for the US and the world, are beyond measure. While most famous for taming inflation, Paul’s commitment to a stable financial system was equally deep — from his initiation of the first Basel Accord in the mid-1980s, to the reforms after the 2008/09 crisis, and his long-standing efforts to persuade legislators to overhaul the architecture of the US regulatory system.

As a founding spirit of the Systemic Risk Council, where he served as Senior Advisor for seven years, Paul gave weight to our words, and brought wisdom to our deliberations. The world will be less safe without him.

Paul Tucker, chair of the SRC said, “To know Paul Volcker was to touch greatness. To work with him, the most enormous privilege. To have his active help and backing, a true blessing. He stood for everything the SRC exists to promote, and he was an inspiration to us all. Our deepest condolences to Paul’s family.”

Sheila Bair, founding chair of SRC, said, “Given his long, distinguished career and premiere list of affiliations, Paul hardly needed to lend his name and good counsel to the Systemic Risk Council at our formation, but he did so to help us become a powerful credible voice for financial stability. Paul stood for regulatory independence, courage, and the highest standards of public service. As public trust in government continues to decline, we would do well to remember his inspirational example of government at its best.”

Erkki Liikanen Joins Systemic Risk Council

Today, the Systemic Risk Council announced that Erkki Liikanen, Chairman of the IFRS Foundation Board of Trustees and former Governor of the Bank of Finland, has become a member.

Welcoming the appointment, SRC Chair Paul Tucker said “I am absolutely delighted that Erkki Liikanen is joining the Systemic Risk Council. Being able to draw on Erkki’s international stature and experience underlines our commitment to engaging with European and global policy makers at the highest levels in order to preserve a stable financial system.”

Notes for Editors: Erkki Liikanen was Governor of the Bank of Finland and a member of the Governing Council of the European Central Bank from 2004 to 2018. In 2012, at the request of the European Commission, he chaired a group of experts that reviewed and proposed significant structural reforms to the European banking sector. From 1995 to 2004, he served two terms as a Commissioner of the European Union, where he was responsible for Enterprise and Information Society, and earlier for Budget, Personnel and Administration. Prior to that, he was Finland’s Ambassador to the European Union, and Finance Minister.

Darrell Duffie Joins Systemic Risk Council, 23 July 2019

Today, the Systemic Risk Council announced that Darrell Duffie, of Stanford University, has become a member.

Welcoming the appointment, SRC Chair Paul Tucker said “I am absolutely delighted that Darrell is joining the Systemic Risk Council. His remarkable combination of deep theoretical and practical knowledge will be invaluable in pursuing the Council’s mission of doing everything we can to avoid financial stability being sacrificed again.”

Darrell Duffie is the Dean Witter Distinguished Professor of Finance at Stanford University’s Graduate School of Business. He is a Fellow and member of the Council of the Econometric Society, a Research Fellow of the National Bureau of Economic Research, a Fellow of the American Academy of Arts and Sciences, and was a member of the board of directors of Moody’s Corporation from 2008 to 2018. Duffie was the 2009 president of the American Finance Association. In 2014, he chaired the Market Participants Group, charged by the Financial Stability Board with recommending reforms to Libor, Euribor, and other interest rate benchmarks. Duffie’s recent books include How Big Banks Fail (Princeton University Press, 2010), Measuring Corporate Default Risk (Oxford University Press, 2011), and Dark Markets (Princeton University Press, 2012).

Systemic Risk Council Urges Federal Reserve and FDIC Not to Relax Resolution-Planning Requirements for Large US Regional Banks

The Systemic Risk Council has today strongly urged the Federal Reserve Board and the Federal Deposit Insurance Corporation not to proceed with their proposals to relax resolution-planning requirements for the large regional US banks that are not globally systemic. Over recent months, the Fed and the FDIC have published proposals that, taken together, would relax both resolution-planning and capital and liquidity requirements even though it is currently unclear that all of the affected banking businesses could be resolved in an orderly way. If ever a large regional bank failed, that uncertainty creates the possibility of the authorities resorting to a taxpayer bailout in order to contain disruption to the regional and national economy and losses to the Deposit Insurance Fund. The SRC is recommending that the banking authorities should seriously consider introducing requirements for regional banks to issue bonds that could be bailed-in wherever there is a material risk that the more traditional (“purchase and assumption”) resolution techniques could not always be applied effectively. Commenting on the authorities’ package of proposals, SRC Chair Paul Tucker said: “The priority right now should be stepping up preparations to ensure that all large regional banks can be resolved in an orderly way without taxpayer solvency support, not relaxing planning in the hope that things will work out ok.”

Read the full letter here

FSOC and non-bank financial companies

In March this year, the Financial Stability Oversight Council proposed amendments to its interpretive guidance on the supervision and regulation of certain non-bank financial companies. Paul Tucker, chair of the Systemic Risk Council, and Amias Moore Gerety, partner at QED, join Mark Sobel, US chairman of OMFIF, to discuss their views on the matter. They also assess the position of non-bank financial companies in the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010, and the wider role of FSOC. 

Listen to the recording

Systemic Risk Council Urges US Treasury not to Marginalize Financial Stability Oversight Council’s Power to Designate Non-Bank Financial Intermediaries as Systemically Significant

WASHINGTON, D.C., May 21, 2019

The Systemic Risk Council urges the U.S. Treasury and other members of the Financial Stability Oversight Council to abandon their 6 March proposal to marginalize their power to designate individual non-bank financial firms as systemically significant.

The proposed guidance, while framed in terms of setting preconditions for when the FSOC would exercise its designation power, would in practice almost certainly deprive the FSOC of the capacity to designate a non-bank firm as systemically significant in time to head off the risks posed by that firm to financial stability.

Commenting on the Treasury’s proposal, SRC Chair Paul Tucker said:  “If FSOC really intends activities to be center stage, it should get on with putting in place a general policy to protect the economy from threats to stability from shadow banking. But nor should FSOC flinch from designating any individual intermediaries whose disorderly failure would be systemic. It is too early to put aside one of the most obvious lessons of 2008/09.”

Read the full letter here.

The SRC already expressed its concern with the FSOC’s proposed approach in a comment letter submitted to the Treasury last year.

Read earlier letter here.

Systemic Risk Council Urges Action on Resolution of Central Counterparty Clearing Houses

WASHINGTON, D.C.—On March 18, 2019, the Systemic Risk Council (SRC) responded to the Financial Stability Board’s (FSB) late-2018 Discussion Paper on the resolution of distressed central counterparty clearing houses (CCPs).

Commenting that the Discussion Paper “is as welcome as it is overdue” given that many of today’s CCPs are “super systemic” and so too important to fail, the SRC emphasizes that the resolution of CCPs is “one of the biggest gaps in the post-crisis regime for financial stability.” Chair of the SRC Paul Tucker said: “We are urging the Financial Stability Board to take decisive steps to ensure that there are clearly understood and credible resolution plans for these hugely important clearing houses to be able to get through failure without a global calamity.”

SRC does not believe that the in-life recovery plans of CCPs will always suffice, and that in some circumstances they could have the perverse effect of transforming CCPs from being risk absorbers to being systemic-risk transmitters and amplifiers. In consequence, credible resolution powers and plans are vital.

SRC urges the FSB to articulate clear high-level principles that all such CCP-resolution regimes should satisfy. In the interest of creating healthy incentives for CCPs, SRC recommends that those principles should include the equity of CCP owners being wiped out upon entry into resolution (or special bankruptcy).

SRC makes a number of recommendations: on restrictions that should apply to the exercise of CCP’s in-life recovery plans; on the order in which their creditors should take losses in resolution; and for extra resources to absorb losses before operational liabilities (such as margin obligations and cleared contracts) are haircut or torn up. Those extra resources could include subordinated bonds, held by CCP owners or clearing members, that could be “bailed-in” as part of resolution; third-party insurance against some losses; and, most ambitiously, an internationally mutualised default fund to which all globally systemic CCPs would contribute.

If the FSB or its key members were to conclude that (something like) the SRC’s proposals could not work in the event of a systemic CCP’s failure, then it might be necessary to question the current model (structure, governance, ownership) of CCPs.

This is a field that can seem highly technical, but individual clearing houses have failed in the past and if and when they do in the future the social costs will alarm legislators and the public.

Read the full letter here.

Sir Paul Tucker Speaks to Global Capital for Its Review of 2018 and Outlook for 2019

On 18 December 2018, Sir Paul Tucker was quoted in a Special Report by Global Capital called “Review of the Year 2018 and Outlook 2019” on US financial regulation.  The Republicans had been driving the changes to Dodd-Frank, but they will now lose control of influential committees in the lower chamber, such as the House Financial Services Committee.  Sir Paul Tucker, chair of the Systemic Risk Council which encourages regulatory reform in the US capital markets, says that this committee has been “in the vanguard of deregulation proposals over the past few years”.  Among his other comments, Sir Paul says, “There is unlikely to be much in the way of legislation on financial services in the US in the next few years, given that the House and Senate are in the hands of rival political parties”.

Read the full article here:  Special Report by Global Capital