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Rethinking Bank Regulation & Supervision

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Rethinking Bank Regulation & Supervision FOR THE RECORD 9 Jeremy Newell, THE QUARTERLY JOURNAL OF THE CLEARING HOUSE Q3 2017, VOLUME 5, ISSUE 3 The Clearing House MY PERSPECTIVE 14 H. Rodgin Cohen, Sullivan & Cromwell STATE OF BANKING 18 Greg Carmichael, Fifth Third Rethinking Bank Regulation & Supervision Carine Joannou Carine JoannouPRESIDENT JAMIS BICYCLES PRESIDENT JAMIS BICYCLES SteeringSteering her her companycompany forward. forward. UnderstandingUnderstanding what’swhat’s important. important. Honoring her father’s legacy has been a priority for Carine since taking over Jamis Bicycles. And she’s done Honoring her father’s legacy has been a priority for Carine since taking over Jamis Bicycles. And she’s done just that, steadily growing the company. So when it came time to choose a new bank, she wanted a financial just that, steadily growing the company. So when it came time to choose a new bank, she wanted a financial partner that could help her continue to succeed. Carine found that in M&T Bank. We’ve put in the time to truly partner that could help her continue to succeed. Carine found that in M&T Bank. We’ve put in the time to truly understand both her company and the biking industry to determine what Jamis needs to keep moving ahead. understand both her company and the biking industry to determine what Jamis needs to keep moving ahead. To learn how M&T can help your business, visit mtb.com/commercial. To learn how M&T can help your business, visit mtb.com/commercial. DEPOSITORY AND LENDING SOLUTIONS | TREASURY MANAGEMENT DEPOSITORY ANDMERCHANT LENDING SOLUTIONS SERVICES | |COMMERCIAL TREASURY MANAGEMENT CARD MERCHANT SERVICES | COMMERCIAL CARD Equal Housing Lender. ©2017 M&T Bank. Member FDIC. Equal Housing Lender. ©2017 M&T Bank. Member FDIC. Carine Joannou PRESIDENT JAMIS BICYCLES Steering her company forward. Understanding what’s important. Debevoise’s Financial Institutions Group provides market- leading advice and counseling on critical issues to financial Named “Financial institutions around the world. The Group is an integral Honoring her father’s legacy has been a priority for Carine since taking over Jamis Bicycles. And she’s done Services Team of the part of the firm’s transactional, governance and litigation just that, steadily growing the company. So when it came time to choose a new bank, she wanted a financial Year” by The Legal 500 capabilities and regularly handles: partner that could help her continue to succeed. Carine found that in M&T Bank. We’ve put in the time to truly US for two consecutive years. It is also ranked understand both her company and the biking industry to determine what Jamis needs to keep moving ahead. • marquee M&A transactions; as a leading practice To learn how M&T can help your business, visit mtb.com/commercial. • governance and board advisory matters; • major compliance challenges; by Chambers USA and • enforcement proceedings and litigation; and other industry guides. • an array of other complex transactions. DEPOSITORY AND LENDING SOLUTIONS | TREASURY MANAGEMENT MERCHANT SERVICES | COMMERCIAL CARD www.debevoise.com Equal Housing Lender. ©2017 M&T Bank. Member FDIC. THE QUARTERLY JOURNAL OF THE CLEARING HOUSE Q3 2017, VOLUME 5, ISSUE 3 UPFRONT FEATURED ARTICLES For the Record Structural Limitations and 9 Regulators demand banking practices that are 30 Activity Restrictions static and standardized, which hurts innovation, Regs should not protect people from risks they knowingly competition, expansion, and change. accept, while firms that absorb more of their own losses by Jeremy Newell, Executive Managing Director, do not need to be heavily regulated. Head of Regulatory Affairs, and General Counsel, The Clearing House Association by Norbert Michel, The Heritage Foundation My Perspective Rethinking Safety and 14 The conclusion that E. Gerald Corrigan reached in Soundness Supervision 1982 – that banks are special – is still true today. 42 It’s worth revisiting his work for a second time. Consumer compliance and safety and soundness should be reviewed separately. And the processes, guidelines, by H. Rodgin Cohen, Senior Chairman, and regulations need considerable reforms. Sullivan & Cromwell by Greg Baer, The Clearing House Stress Tests: Restore 54 Compliance with the APA Supervisory practices at the Federal Reserve must be reformed to restore compliance with the Administrative Procedure Act, especially for stress tests. by Hal S. Scott, Harvard Law School Improving Appeals of 60 Material Supervisory Determinations Financial institutions rarely use the intra-agency process to appeal bank examiner decisions. Here are three suggestions to improve the system. by Julie Andersen Hill, University of Alabama School of Law STATE OF BANKING Greg Carmichael, Banks’ Own Models Should 18 Fifth Third Bancorp 70 Play a Role in Supervisory Greg Carmichael, CEO of Fifth Third Bancorp, Stress Tests discusses the impact of regulations on the industry, Including banks’ own models in supervisory stress tests and the relationship between FinTechs and banks would reduce the uncertainty around capital planning, with TCH’s Jim Aramanda. increase efficiency, and expand credit availability. by Francisco Covas, The Clearing House 4 BANKING PERSPECTIVES QUARTER 3 2017 EDITOR Greg MacSweeney DESIGN & PRODUCTION Big Yellow Taxi, Inc. Banking Perspectives is the quarterly journal of The Clearing House. Its aim is to inform financial industry leaders and the policymaking community on developments in bank policy and payments. The journal is a forum for thought leadership from banking industry executives, regulators, academics, policy experts, industry observers, and others. 70 Established in 1853, The Clearing House is the oldest banking association and payments company in the United Why Banking Systems Today States. It is owned by the world’s largest commercial banks, which collectively hold more than half of all U.S. deposits 76 Are More Unstable Than Ever The usual two culprits named after a bank crisis occurs and which employ over 1 million people in the United don’t do a very good job of explaining what caused the States and more than 2 million people worldwide. The problem. It’s time for a broader view. Clearing House Association L.L.C. is a nonpartisan advocacy organization that represents the interests of its owner by Charles W. Calomiris, Columbia Business School banks by developing and promoting policies to support a safe, sound, and competitive banking system that serves The Role of the Board customers and communities. Its affiliate, The Clearing 82 in the Transforming House Payments Company L.L.C., which is regulated as a Banking Industry systemically important financial market utility, owns and The separation of responsibilities between the board of operates payments technology infrastructure that provides directors and senior management must be clarified and safe and efficient payment, clearing, and settlement maintained as the industry evolves and changes. services to financial institutions, and leads innovation and by Paul Harris, KeyBank, and thought leadership activities for the next generation of Gregg Rozansky, The Clearing House payments. It clears almost $2 trillion each day, representing nearly half of all automated clearing house, funds transfer, and check-image payments made in the U.S. DEPARTMENTS Copyright 2017 The Clearing House Association L.L.C. All Contributors rights reserved. All content is owned by The Clearing House Association L.L.C. or its licensors. The views expressed Information on the authors from this edition. 6 herein are not necessarily those of The Clearing House Association L.L.C., its affiliates, customers, or owners. Any TCH Bank Conditions Index use or reproduction of any of the contents hereof without 90 A quantitative assessment of the resiliency of the U.S. the express written permission of The Clearing House banking sector. Association L.L.C. is strictly prohibited. The Clearing House Research Rundown 92 Highlights from academic research on banking issues. 1114 Avenue of the Americas 1001 Pennsylvania Avenue, NW New York, NY 10036 Washington, DC 20004 212.613.0100 202.649.4600 BANKING PERSPECTIVES QUARTER 3 2017 5 Contributors Greg Baer Business School’s Program for Financial Banking Supervision & Regulation focusing Studies and its Initiative on Finance and on a range of capital, liquidity, and other Greg Baer is Growth in Emerging Markets, and a professor regulatory initiatives. He previously worked at President of The at Columbia’s School of International and the central banks of Portugal and Canada. Clearing House Public Affairs. His research spans the areas Association and of banking, corporate finance, financial Covas earned a Ph.D. in economics from Executive Vice history, and monetary economics. the University of California, San Diego, in President and 2004 and a B.A. from the Universidade Nova General Counsel of He is a Distinguished Visiting Fellow de Lisboa, Portugal, in 1997. The Clearing House at the Hoover Institution, a Fellow at the Payments Co. Prior Manhattan Institute, a member of the Paul Harris to joining TCH, Baer was Managing Director Shadow Open Market Committee and the and Head of Regulatory Policy at JPMorgan Financial Economists Roundtable, and a Paul Harris is Chase. He previously served as General Research Associate of the National Bureau Secretary and Counsel for Corporate and Regulatory Law at of Economic Research. He received a B.A. General Counsel JPMorgan Chase. in economics from Yale University, magna of KeyCorp and cum laude, and a Ph.D. in economics from oversees the Baer previously served as Deputy General Stanford University. corporation’s legal Counsel for Corporate Law at Bank of America, and government and as a partner at Wilmer, Cutler, Pickering, Francisco Covas relations Hale & Dorr. From 1999 to 2001, he served as functions. Prior to Assistant Secretary for Financial Institutions at Francisco Covas is joining KeyCorp in 2003, Harris served as the U.S. Department of the Treasury, after serving Senior Vice partner-in-charge of the Cleveland office of as Deputy Assistant Secretary. Prior to working President and Thompson Hine LLP.
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