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International Banking Standards & Regulatory FOR THE RECORD 9 Greg Baer, BPI THE QUARTERLY JOURNAL OF THE CLEARING HOUSE AND BANK POLICY INSTITUTE OUR PERSPECTIVE 14 Stephanie Heller & Rob Hunter, TCH, and Richard Taffet, Morgan Lewis Q3 2018, VOLUME 6, ISSUE 3 STATE OF BANKING 16 Andy Cecere, U.S. Bancorp INTERNATIONAL BANKING STANDARDS & REGULATORY BALKANIZATION Quarter after quarter, global business continues to speed up. Sullivan & Cromwell has been helping financial services clients stay the course for more than a century. We provide high-quality counsel and intense dedication to solving the complex issues faced by the financial services industry. Our market leading Financial Services practice focuses on M&A, finance and capital raising, complex regulatory issues, corporate governance, legislative developments, significant litigation and enforcement matters, corporate investigations and tax matters. For more information, please contact: H. Rodgin Cohen Mitchell S. Eitel Michael M. Wiseman [email protected] [email protected] [email protected] www.sullcrom.com new york . washington, d.c. los angeles . palo alto london . paris . frankfurt . brussels tokyo . hong kong . beijing . melbourne . sydney LG5983_Clearing House Annual Ad_Banking Perspective Mag_2018.indd 1 7/25/2018 2:28:20 PM We’ve never lost sight of putting others first. At BB&T, we make sure you get the attention you deserve. We know how important it is to listen and understand your needs so you can live your best financial life. So while everyone else may be distracted with other things, rest assured, our focus remains on you. Member FDIC. Only deposit products are FDIC insured. THE QUARTERLY JOURNAL OF THE CLEARING HOUSE AND BANK POLICY INSTITUTE Q3 2018, VOLUME 6, ISSUE 3 UPFRONT FEATURED ARTICLES For the Record Do Ring Fences Make 9 The regulatory and examination regime applied to 28 Good Neighbors? foreign banks operating in the U.S. seems difficult A decade has passed since the financial crisis, and to justify based on any historical experience or it’s an appropriate time to determine if ring-fencing reasoned analysis. makes sense. by Greg Baer, CEO, Bank Policy Institute by H. Rodgin Cohen, Sullivan & Cromwell Our Perspective 14 The plan to create a ubiquitous faster payments Ring-Fencing’s Global Impact capability in the United States in order to promote A Basel Committee perspective on the implications for efficient commerce and facilitate innovation. 36 policymaking and international cooperation. by Stephanie Heller, EVP & General Counsel, and Rob Hunter, Executive Managing Director & Deputy by William Coen, General Counsel, TCH, and Richard Taffet, Partner, Basel Committee on Banking Supervision Morgan Lewis Ring-Fencing: Escape from 44 the Prisoner’s Dilemma Widespread ring-fencing can increase the risk of bank failure, in some cases dramatically. by Wilson Ervin, Credit Suisse Ring-Fencing for 56 Bank Resolution and Crisis Response Present practices are preventing the emergence of cross-border banking groups. by Edouard Fernandez-Bollo, Autorité de Contrôle Prudentiel et de Résolution STATE OF BANKING On the Resiliency of U.S. 62 Operations of Foreign Banks Andy Cecere, U.S.-based operations of foreign banks, which are 16 U.S. Bancorp resilient and well positioned to weather the next economic downturn, also play a key role in the economy by Andy Cecere, chairman, president, and CEO of providing an important source of funding for businesses. U.S. Bancorp, discusses changes in the banking by Francisco Covas, Myya McGregory, industry, the effects of the financial crisis, and real- and Robert Lindgren, Bank Policy Institute time payments with Greg Baer, CEO of BPI. 4 BANKING PERSPECTIVES QUARTER 3 2018 EDITOR Greg MacSweeney DESIGN & PRODUCTION Big Yellow Taxi, Inc. Banking Perspectives is the quarterly journal of The Clearing House and the Bank Policy Institute. 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, and industry observers. 68 Established in 1853, The Clearing House is the oldest payments company in the United States. It is owned by the world’s largest Personal Financial Data: commercial banks, which collectively hold more than half of all 68 Consumer Views on U.S. deposits and which employ over 1 million people in the Data Aggregation United States and more than 2 million people worldwide. Its affiliate, The Clearing House Payments Company L.L.C., which is Survey shows consumers want to control third-party data access, ready to follow U.S. banks’ lead. regulated as a systemically important financial market utility, owns and operates payments technology infrastructure that provides by Dave Fortney, TCH, and Rajesh John, A.T. Kearney safe and efficient payment, clearing, and settlement services to financial institutions. It clears almost $2 trillion each day. The Bank Policy Institute (BPI) is a nonpartisan public policy, DEPARTMENTS research, and advocacy group, representing the nation’s leading banks and their customers. BPI’s members include Contributors universal banks, regional banks, and the major foreign 6 Information on the authors from this edition. banks doing business in the United States. Collectively, BPI’s members employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for A Note from BPI & TCH financial innovation and economic growth. 8 A letter from the CEOs of BPI & TCH about the future co-publishing model for Banking Perspectives. Copyright 2018 The Clearing House Association L.L.C. All rights reserved. All content is owned by The Clearing House Association Bank Conditions Index L.L.C. or its licensors. The views expressed herein are not 74 A quantitative assessment of the resiliency of the U.S. necessarily those of The Clearing House Association L.L.C., its banking sector. affiliates, customers, or owners. Any use or reproduction of any of the contents hereof without the express written permission of The Research Rundown Clearing House Association L.L.C. is strictly prohibited. 78 Highlights from academic research on banking issues. The Clearing House Bank Policy Institute Featured Moments 1114 Avenue of the Americas 600 13th Street NW 84 Images from the Bank Policy Institute’s Launch Party. 17th floor Suite 400 New York, NY 10036 Washington, D.C. 20005 212.613.0100 202.289.4322 BANKING PERSPECTIVES QUARTER 3 2018 5 Contributors William Coen practice is regulatory, enforcement, Prior to joining The Clearing House in 2016, acquisition, and securities law matters for Covas was an assistant director of the Division As Secretary General, U.S. and non-U.S. financial institutions and of Monetary Affairs at the Federal Reserve William Coen directs the their trade associations, and corporate Board, where he supervised a team focused work of the Basel governance matters for a wide variety on the effects of changes in bank regulation Committee on Banking of organizations. on monetary policy, the role of banks in the Supervision and transmission of monetary policy, and the manages its Secretariat. Cohen advises the financial services development and validation of stress-testing Coen chairs the industry on the full range of regulatory, models. Prior to that, he was an economist Committee’s Policy Development Group and compliance, enforcement, and merger and in the Division of Banking Supervision & the Committee’s Coherence and Calibration acquisition matters, including multiagency Regulation and focused on a range of capital, Task Force. He also chaired the Committee’s investigations relating to compliance with liquidity, and other regulatory initiatives. Corporate Governance Task Force and is a anti-money laundering and sanctions member of the IFRS Advisory Council. issues. He frequently works with all the Covas earned a Ph.D. in economics from bank regulatory agencies as well as University of California, San Diego, in 2004 Prior to his appointment as Secretary General multiple other governmental agencies. and a B.A. from the Universidade Nova de in 2014, Coen served from 2007 as Deputy Key recent matters include the Volcker Lisboa, Portugal, in 1997. He has written Secretary General. His responsibilities focused Rule, numerous other provisions of the extensively on liquidity rules, capital regula- on the Committee’s response to the global Dodd-Frank Act, international capital tion, and stress testing and has published financial crisis, including the coordination of and liquidity standards, resolution and research in a wide range of journals, includ- the Committee’s various Basel III initiatives. resolution planning, and cybersecurity. ing American Economic Review, Journal of He provides corporate governance advice Money Credit and Banking, and Internation- Coen joined the Committee’s Secretariat to a large number of financial and non- al Journal of Forecasting. in 1999 and had previously worked for the financial institutions, both regular clients Board of Governors of the Federal Reserve and as special assignments, and is also a Wilson Ervin System in Washington, D.C., as well as for the frequent adviser on the rise of strategic and U.S. Office of the Comptroller of the Currency. corporate governance activism. Wilson Ervin is a Vice He began his career as a credit officer at a Chairman at Credit New York City-based bank. He is a native of Francisco Covas Suisse in the group New York City and received his MBA degree executive
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