Header graphic for print
Banking & Finance Law Report

Some Big Picture Links

Posted in Bank Regulation

At year-end, when there may be more time and inclination for busy bank executives (and their counsel) to consider the big picture, a look at financial research from your federal bank regulators may provide insight and food for thought. As a place to start, here are two recent examples.

The first is a research project that was devoted to stress tests, and in particular, the use of stress testing in conjunction with the Basel III capital reforms. See Wall, Measuring Capital Adequacy Supervisory Stress Tests in a Basel World, Working Paper 2013-15 (December 2013).

The second is the transcription of a speech describing a modelling project focused on why, from a theoretical point of view, bank balance sheets are constructed the way they are. See Stein, Banks as Patient Debt Investors, given at the American Economic Association/American Finance Association Joint Luncheon, Philadelphia, Pennsylvania (January 3, 2014).

A fundamental conclusion of the first study is that weaknesses in Basel III can be mitigated by stress testing in some useful ways, such as the failure of Basel III to include an explicit interest rate risk component. Here is a link: http://www.frbatlanta.org/documents/pubs/wp/wp1315.pdf

And a fundamental value of the second is an articulation of an explanation – apart from regulatory requirements — of the economic reasons why banks are well-served by the conservative balance sheets one usually associates with them. Here is a link: http://www.federalreserve.gov/newsevents/speech/stein20140103a.htm

If you have more time on your hands, and assuming you are still in a reflective and inquisitive mood, here are links to the recent semi-annual regulatory agendas of the major federal bank regulators. These are also worth a review:

1) the Consumer Financial Protection Bureau: https://www.federalregister.gov/articles/2014/01/07/2013-29638/semiannual-agenda-and-fiscal-year-2014-regulatory-plan;

2) the Federal Reserve: http://www.gpo.gov/fdsys/pkg/FR-2014-01-07/pdf/2013-29638.pdf;

3) the Treasury: http://www.gpo.gov/fdsys/pkg/FR-2014-01-07/pdf/2013-29638.pdf;

4) and the FDIC: http://www.fdic.gov/regulations/laws/federal/2013/2013-01-08_notice.pdf.