Cecchetti amp Schoenholtz Topic Status Recommendation Capital Up 2x since crisis requirements up 10x Raise much further Liquidity 2 new rules LCR amp NSFR Simplify to one ID: 776274
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Slide1
Regulatory Reform Scorecard - Cecchetti & Schoenholtz
TopicStatusRecommendationCapitalUp 2x since crisis(requirements up 10x)Raise (much?) furtherLiquidity2 new rules: LCR & NSFRSimplify to oneResolutionSubstantial ProgressNeeds improvementSkeptical, expect severe damageCentral ClearingSubstantial ProgressNeed resolution planSystemic RegulationLike Stress testsMacro-Pru still early daysStress tests are usefulMuch more work neededOverallClearly safer, More resilient, But. . . All of the above, plus:Tradeoff – safety v efficiencyWatch regulatory perimeterHerding considerationsInternational fragmentation worry
3 November 2017
Views expressed are personal only
Slide2Regulatory Reform Scorecard
TopicStatusRecommendationCapitalUp 2x since crisisTwo requirementsRaise (much?) further
3 November 2017
Views expressed are personal only
Crisis drawdown review (FSB data)
Major
impact
from resolution regime
Best Tier 1/RWA range goes from 16-19% to 10-14%
(BoE, 2015
)
Incentive issues:
Role of
requirements
vs actual level – “distance to constraint”
High capital supports lending, but high
requirements
do not
Distorted incentives – harder to control regulatory
perimeter
Leverage ratio creates bad incentives
CCAR - mostly a capital requirement (often the binding constraint)
Slide3Regulatory Reform Scorecard
TopicStatusRecommendationLiquidity2 new rules: LCR & NSFRSimplify to one
3 November 2017
Views expressed are personal only
Innovative discussion of LCR and NSFR – integration of systems
Stepping back to consider the LCR
Is it a usable recovery tool (stigma
“last taxi” problem?)
RRP requirements can dominate LCR
Need broader review of LCR, LOLR and liquidity framework
Appeal of CLF (see Stein 2013)
Slide4Regulatory Reform Scorecard
TopicStatusRecommendationResolutionSubstantial ProgressNeeds improvementSkeptical, expect severe damage
3 November 2017
Views expressed are personal only
Concerns over: willingness, effectiveness and impact
System not perfect, but funded and usable today:
Can
anyone name a US politician who will
back TARP
2
?
Consider: Tucker, Gruenberg, & Powell comments
Market expectations and debt pricing is working (in US)
US benefits from FDIC infrastructure & history, clear structural separation, and massive resourcing (>$1trillion of
holdco
debt)
Fully agree with proposal for “simple phoenix RRP plan”
Slide5Regulatory Reform Scorecard
TopicStatusRecommendationOverallClearly safer, More resilient, But. . . Tradeoff – safety v efficiencyWatch regulatory perimeterHerding considerationsInternational fragmentation worry
3 November 2017
Views expressed are personal only
Agree with much of paper – and these other concerns above
From here
: should we further reinforce core FSB reforms?
Diminishing returns
Or should focus shift to other issues?
CCP resilience? Cyber?
Tech Disruption?
Franchise value erosion? Legal uncertainty?
Assets “priced for perfection”
given political shocks & end of QE?
Nationalism
/ Competitive Ring Fencing? Title 1 zealotry?
LOLR / Liquidity design?