Tags: Shadow | statement | bank | liquidity

Shadow Economists Hold Quarterly Meeting

By    |   Friday, 13 Dec 2013 08:39 AM

The conservative Shadow Financial Regulatory Committee (SFRC) held its quarterly meeting on Dec. 9 at the American Enterprise Institute (AEI), presided over by co-chair George Kaufman, the John Smith Professor of Finance and Economics of Chicago's Loyola University.

The Committee issued three statements, with a fourth due within the week:

Statement No. 346 — Liquidity ratios. The Basel Committee, U.S. regulators and the international Shadow Committees. (Presented by the co-chairman Richard Herring of the Wharton School of the University of Pennsylvania.) Note that the reference to "international Shadow Committees" refers to the groups that meet on other continents, which met recently in Tokyo. This statement concerns proposals by the Basel Committee on Banking Supervision to prescribe both short- and long-term liquidity requirements for banks, because liquidity problems are often associated with underlying solvency problems.

The long-term proposal is languishing, and the Shadows decided that the short-term proposal could be improved by a stricter definition of the assets that would qualify, so as to exclude assets such as mortgage-backed securities that rely on secondary markets.

The measure of estimated cash outflows would also be tightened by using stricter stress assumptions that those currently employed by regulators. The Shadow members hope that the ratio of these measures could produce a "Simple Liquidity Indicator" that would permit comparisons among banks and peer groups of banks.

Statement No. 347 — Asset management and systemic risk. (Presented by Marshall Blume of the Wharton School of the University of Pennsylvania.) This statement criticizes efforts by the Treasury Department's Office of Financial Research (OFR), as detailed in a report titled "Asset Management and Financial Stability," circulated for public comment by the Securities and Exchange Commission, to gather data that would establish a basis for determining that large asset management firms pose a systemic risk and therefore require heightened supervision under the Dodd-Frank Act.

Statement No. 348 — The JPMorgan Settlement. (Presented by Peter Wallison of AEI.) This statement begins by referring to "unusual editorial reactions" by the financial press to the recent $13 billion settlement between JPMorgan Chase and a number of federal and state agencies, which The Washington Post, for example, said overturned "basic principles of justice." The Committee added its voice to this criticism on five grounds, such as the alleged helplessness of JPMorgan in the face of heavy-handed federal regulation and enforcement, that reflect the bank's view of the case as argued by its voluble chairman, Jamie Dimon.

For me, the spate of editorial comment against the settlement demonstrates the ability of the JPMorgan spin machine to drum up press support for its stance that the bank is the victim, rather than on of the chief perpetrators, of the 2008 episode of the ongoing financial crisis.

The Committee is right to criticize the lack of transparency, but this applies as well to the deals by which JPMorgan took over Bear Stearns and Washington Mutual, making it difficult to establish the facts of this case, to "follow the money" and to assess the fairness of the settlement.

(Archived video and copies of the statements can be found here.)

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Robert-Feinberg
The conservative Shadow Financial Regulatory Committee (SFRC) held its quarterly meeting on Dec. 9 at the American Enterprise Institute (AEI), presided over by co-chair George Kaufman, the John Smith Professor of Finance and Economics of Chicago's Loyola University.
Shadow,statement,bank,liquidity
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2013-39-13
Friday, 13 Dec 2013 08:39 AM
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