Tags: Peirce | bank | regulators | FSB

George Mason's Peirce: Bank Regulators Are Overdoing It

By    |   Thursday, 23 April 2015 07:20 AM

Bank regulation has mushroomed since the 2008-09 financial crisis, but that's not all for the good, says Hester Peirce, a senior research fellow at George Mason University.

"One of Dodd-Frank's aspirations was increased competition to dilute the power of large financial institutions. The status quo, however, plays right into impatient regulators' hands," she writes in an article for Real Clear Markets.

Dodd-Frank is the financial reform law passed by Congress in 2010.

"It's easy to force changes in the global financial industry by nudging — gently or otherwise — large banks to fall in line with regulators' wishes," Peirce explains.

"Bank regulators are not shy about exercising this kind of control. As convenient as such regulatory strong-arming might seem to be, it sidesteps the regulatory processes designed to ensure accountability, public input, and transparency."

Regulators are essentially ignoring the rules, Peirce argues.

The Financial Stability Board (FSB), a group of financial regulators from different countries, is behind the latest effort to force contractual changes in securities lending and repurchase (repo) agreements. While the FSB lacks the authority to directly regulate private companies, its members dutifully apply FSB prescriptions in their home countries.

The FSB and its members "have embraced a 'voluntary' agreement approach pursuant to which industry members embed FSB prescriptions in their private contracts. No need to bother with rules if all the big banks fall into line without a drop of rule-making ink being spilled."

Meanwhile, if you thought the Dodd-Frank law eradicated the dangers to our financial system, think again, says former Federal Reserve Chairman Paul Volcker.

"Even as the United States continues its long climb back from the financial crisis, it is all too clear that the federal financial regulatory structure is simply inadequate to head off future crises," he writes in The Washington Post.

"The structure that failed us in anticipating and responding to the emergency is largely still in place."

Many commentators have noted that the biggest banks have only grown larger since the 2008 financial crisis. The six biggest U.S. banks have about two-thirds of the assets in the country's banking system.

"Important progress has been made, here and internationally, in shoring up banking regulations, notably through stronger capital requirements," Volcker says.

"But, basically, the institutional structure for financial regulation — which traces its origins to the 1930s — has resisted repeated efforts for meaningful reform."

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Bank regulation has mushroomed since the 2008-09 financial crisis, but that's not all for the good, says Hester Peirce, a senior research fellow at George Mason University.
Peirce, bank, regulators, FSB
391
2015-20-23
Thursday, 23 April 2015 07:20 AM
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