Tags: Bipartisan Policy Center | Dodd-Frank | FSOC | financial

Bipartisan Policy Center Proposes Changes to Dodd-Frank

By    |   Friday, 12 September 2014 08:02 AM

The Bipartisan Policy Center (BPC) presented a paper Sept. 4 that analyzed the changes wrought by the Dodd-Frank Act of 2010, found them lacking in five specific areas and proposed changes to remedy these perceived flaws.

Before looking at the proposal, readers may want to get acquainted with the group, which is composed of centrist, business-friendly thinkers and advocates. The structure of the BPC's work is very complex and involves a lot of high-powered people in many different roles. In the financial services area, the BPC has formed, under the Economic Policy category, a Financial Regulatory Reform Initiative, which, in turn, has five task forces.

The report came from the Systemic Risk Task Force, which includes of John Dugan, a partner at Covington & Burling LLP and former Comptroller of the Currency; Peter Fisher, senior director of BlackRock Investment Institute, senior fellow and senior lecturer at the Tuck School of Business at Dartmouth and former Under Secretary of the Treasury for domestic finance; and Cantwell Muckenfuss, a partner at Gibson, Dunn & Crutcher LLP who held senior positions at the FDIC and the Office of the Comptroller of the Currency.

The presentation was moderated by Greg Ip of The Economist , who is the moderator of choice for events such as this.

The five recommendations of the report are:
  • Restore the Federal Reserve's ability to make emergency loans to individual non-depository institutions.
  • Eliminate the Dodd-Frank requirement for the FDIC to gain prior congressional approval to provide emergency guarantees to debt issued by depository institutions or affiliates.
  • Provide access to collateralized liquidity from the Fed to broker-dealers owned by regulated systemically important financial institutions (SIFIs) and those susceptible to runs.
  • Reform the Financial Stability Oversight Council (FSOC) to improve regulatory accountability and transparency.
  • Improve the regulation and supervision of nonbanks by properly accounting for the ways they are different from banks.
This writer's initial reaction was that the very proposal of such a package of ideas by such an influential, powerful group should put to rest the debate over whether another round of bailouts of "too big to fail" financial institutions is in store. However, a member of the task force has denied to this writer that these measures would constitute a bailout.

Perhaps this is a matter of semantics, but either singly or as a group, the first three proposals would appear to constitute a breathtaking grant of discretion to regulators that have established a record of indulgent supervision of disaster-prone institutions, followed by bailouts on terms favorable to the institutions, rinse and repeat. Under the rubric of "systemic risk," which involves the financial system as a whole, emergency loans could be made to individual institutions, debt could be guaranteed to institutions or affiliates without congressional approval and broker-dealers owned by SIFIs could receive liquidity support from the Fed in order to forestall runs.

The last two recommendations appear to embody key elements of the financial industry agenda as too big to fail nonbank financial institutions have objected to being designated as SIFIs by the FSOC established by Dodd-Frank to identify threats to the financial system and to protect insurance companies and fund managers from being regulated under a bank-like format that might impose capital and liquidity standards, however lenient.

It looks like a campaign could begin in earnest after the new Congress convenes early next year with congressional hearings that have the potential to be some of the most informative, enlightening and contentious ever. From that standpoint, the BPC proposal should stimulate debate in advance of arbitrary actions by regulators, rather than by rump investigatory commissions afterward.

(Archived video can be found here.)

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The Bipartisan Policy Center (BPC) presented a paper Sept. 4 that analyzed the changes wrought by the Dodd-Frank Act of 2010, found them lacking in five specific areas and proposed changes to remedy these perceived flaws.
Bipartisan Policy Center, Dodd-Frank, FSOC, financial
Friday, 12 September 2014 08:02 AM
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