Let me begin by thanking the organizers for inviting me to participate in this important dialogue on the role of finance in society. The financial sector is vital to the economy. A well-functioning financial sector promotes job creation, innovation, and inclusive economic growth. But when the incentives facing financial firms are distorted, these firms may act in ways that can harm society. Appropriate regulation, coupled with vigilant supervision, is essential to address these issues.
Unfortunately, in the years preceding the financial crisis, all too many firms took on risks they could neither measure nor manage. Leverage, interconnectedness, and maturity and … Read more
Thank you, David, for that kind introduction. I am very honored to address the Garrett Institute, one of the most important programs in the country for corporate and securities lawyers, and to be in David’s home territory of Northwestern Law School where he served as Dean before going on to serve as a very distinguished Chairman of the SEC in the late 1980s.
Although the Garrett Institute was established 35 years ago to honor former SEC Chairman Ray Garrett, Jr., I really first came to learn about him when I did a bit of research for a speech I gave … Read more
On March 25, 2015, the Conference of State Bank Supervisors (“CSBS”) and the American Association of Residential Mortgage Regulators (“AARMR”) issued for a 90-day public comment period a proposed set of baseline prudential regulatory standards for nonbank mortgage servicers and a set of enhanced prudential standards for large complex nonbank mortgage servicers.
CSBS and AARMR believe increased state prudential regulation of nonbank mortgage servicers would better protect borrowers, investors, and stakeholders; enhance effective regulatory oversight and market discipline; and improve standards of transparency, accountability, risk management, and governance.
The proposal marks the culmination of the work of the CSBS’s Mortgage … Read more
The 2007-2009 financial crisis was a watershed event that shook the confidence of people around the globe in the stability of the international financial system. The crisis demonstrated a failure of market discipline and the government responses only exacerbated this problem by confirming the long-standing expectation that some firms – particularly globally active financial companies – were too big or interconnected to fail.
In response, international standard setters and national authorities have sought to create a more resilient financial system while fashioning statutory frameworks and strategies to make the resolution of so-called systemically important financial institutions (“SIFIs”) possible.
The U.S. … Read more
On March 26, 2015, the Consumer Financial Protection Bureau (the “CFPB” or the “Bureau”) announced that it will be considering rules imposing significant structural limitations and other requirements on payday and similar loans: (1) short-term (45 days or less) loans to consumers; and (2) longer-term (more than 45 days) high-interest rate personal loans (more than 36% measured by an “all in” annual percentage rate (APR) that is more inclusive than the Truth in Lending Act APR) where a lender has the right to collect from the customer’s paycheck or bank account, or where a non-purchase money loan is secured by … Read more
Financial panics are pernicious, but they can be countered with government guarantees of panic-prone debt. In the wake of the crisis, however, Congress has stripped regulators of this sort of guarantee power, motivated in large part by concerns that such powers could exacerbate moral hazard. In a new article, The Moral Hazard Paradox of Financial Safety Nets, I suggest that the moral hazard impact of guarantee authorities in the current system is ambiguous – indeed, it is plausible that guarantee authorities could reduce the (net) cost of moral hazard arising from expectations of government intervention. This supports the view … Read more
Thank you, Hal [Scott], for that kind introduction. I apologize for not being able to address you in person. Back in 2013, I opened a speech to the American Academy in Berlin with a bit of German. While I managed not to call myself a jelly donut, my German was nonetheless so bad that I have been banned from entering the country to speak in a public forum.
I applaud Professor Scott and the Harvard Law School for sponsoring this important and timely symposium. After the financial crisis, regulators around the world rushed to take action — any action, … Read more
Good morning. Thank you for that kind introduction. It is my honor to deliver the opening remarks for today’s North American Securities Administrators Association (“NASAA”) and Securities and Exchange Commission (“SEC”) 19(d) Conference. For those who are keeping count, this is my seventh year as the SEC’s liaison to NASAA. It has been a privilege to serve you in this role, which I have done since my early days as a Commissioner. Before I begin my remarks, however, let me issue the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views … Read more
On April 1, 2015, the US Securities and Exchange Commission filed its first whistleblower protection case involving confidentiality obligations imposed on employees. The SEC charged Houston-based technology and engineering firm KBR Inc. with violating Rule 21F-17, which prohibits all persons, including companies, from taking any action to impede an individual from communicating with the SEC staff about a possible securities law violation, including by enforcing, or threatening to enforce, a confidentiality agreement. In a press release, the SEC Enforcement staff warned, as they have numerous times in the past, that they will vigorously enforce this provision.
What KBR Allegedly … Read more
Following a familiar historical pattern, policy responses to the latest global financial crisis and subsequent economic and political dysfunction can be divided into three sequenced but overlapping phases. The first phase was a period of “wartime”-style emergency measures hastily fashioned by legislators and regulators working to place a floor beneath sinking markets and stave off further collapse. Next came a protracted, although never quite settled, debate over what actually had happened in 2008 and how best to prevent a recurrence. This second phase saw the enactment of Dodd-Frank and adoption of Basel III, two of the most significant finance-regulatory reform … Read more
Europe is now engaged in an experiment unprecedented in world history: can independent nations – even if linked by significant legal, economic, and social ties – merge their financial systems into a true banking union? Policymakers are working diligently to achieve that goal. Spurred by the financial turmoil of 2007-2009 and its aftermath, Europe has created a network of powerful regulatory institutions including the Single Supervisory Mechanism, the European Systemic Risk Board, the European Banking Authority, the Single Resolution Mechanism, and the European Stability Mechanism. Acting individually and in concert, these bodies are working to enhance the integration of financial … Read more
In the Great Recession’s morality play, unscrupulous financiers on the inside of the mortgage industry exploited ordinary folk on the outside. Predatory lenders pushed unsuspecting homebuyers into teaser rate mortgages that seemed affordable but were in fact ticking time bombs. Wall Street’s financial alchemists then packaged these mortgages into impenetrably complex securities, which the credit rating agencies dutifully declared to be triple AAA gold. Everyone on the inside of this chain—the brokers, lenders, securitizers, and rating agencies—took their cut. But when the mortgage bomb finally exploded, the unsuspecting borrowers and investors on the ends of the chain were left in … Read more
It is an honor to speak at the Federal Reserve Bank of Atlanta’s 20th Financial Markets Conference, and I am grateful to President Lockhart and the organizers for inviting me to do so. This evening I would like to take stock of progress on financial reforms in the nonbank financial sector and highlight some principles for approaching prudential regulation of this sector to further strengthen financial stability.
The nonbank sector includes firms with diverse business models and practices, many of which differ greatly from those of banks. Even so, nonbank firms and activities can pose the same key vulnerabilities … Read more
On March 10, 2015, the Consumer Financial Protection Bureau (CFPB) released a much anticipated report regarding the use of pre-dispute arbitration clauses (sometimes referred to as “mandatory” arbitration clauses). The use of these clauses is fairly common in the consumer financial services sector. The CFPB was tasked in Section 1028(a) of the Dodd-Frank Act with studying these clauses, making a report to Congress about their use, and – if the CFPB finds it to be in the public interest and protective of consumers – promulgating rules to prohibit or regulate their use.
The CFPB’s 728-page report contains extensive data on … Read more
On February 11, 2015, the Securities and Exchange Commission issued a final rule (the “Final Rule”) and proposed amendments (the “Proposed Rule”) on the reporting and public dissemination of security-based swap (“SBS”) information, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Notably, the SEC:
- delayed establishing a final compliance schedule for SBS reporting;
- left many details of SBS reporting, including many of the required data elements, the format of reports and the assignment of product identifiers for standardized SBS, to registered security-based swap data repositories (“SBSDRs”);
- created an interim phase for the reporting of SBS information,
… Read more
Thank you, Bill, for that very kind introduction. I am honored to be here.I see that you have an ambitious agenda over the next two days discussing some of the hardest legal challenges companies are facing today. We at the SEC also have a very ambitious agenda of priorities of interest to you, including completing mandated Dodd-Frank and JOBS Act rulemakings, continuing to optimize our equity and fixed income markets, enhancing our monitoring and oversight of the asset management industry, making further progress on our disclosure effectiveness review, continuing to strengthen our critical exam program, which addresses the areas posing
… Read more
With less than six months to conform to the Volcker Rule’s proprietary trading restrictions, large banks are working quickly to build out their compliance programs. Last summer, they scrambled to build systems to report monthly seven metrics by September 2, 2014, as required by the rule. Now banks’ focus has moved to proving their trading desks’ exemptions from the proprietary trading restriction as part of their compliance programs that must be in place by July 21, 2015.
Among these exemptions, market making is becoming the most predominantly used. However, the desks taking this exemption (“market making desks”) face … Read more
According to a February 25, 2015 Wall Street Journal report, in recent weeks the SEC has sent requests to a number of companies seeking years of nondisclosure agreements, employment contracts and other documents as part of an agency probe into the potential silencing of corporate whistleblowers. The reported probe comes as SEC officials have expressed concerns about “pre-taliation”—the alleged use of express provisions in employment agreements, codes of conduct and severance agreements designed to deter employees from voluntarily communicating with the SEC. Chief of the SEC’s Whistleblower Office, Sean McKessy, has repeatedly warned that the agency’s Enforcement Division is … Read more
Thank you for the opportunity to speak to you today, it is great to be back in New York. The Citizens Budget Commission has played an important role over the years as a forum to discuss issues of interest to New Yorkers that are often also of national and even global importance. Given New York’s preeminence as a center of global finance, I thought it would be appropriate to discuss just such a topic, which is how the Federal Reserve oversees the largest financial institutions, many of which are headquartered or have a major presence here, and how that oversight … Read more
On February 9, 2015, the U.S. Securities and Exchange Commission (SEC) issued a proposed rule related to the disclosure of hedging policies applicable to board members, officers, and other employees. The proposed rule would implement one of the remaining requirements adopted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
The proposed rule would amend Item 407 of Regulation S-K to require companies to disclose whether they permit directors, officers, and other employees to hedge the company’s securities, including any equity securities of the company’s parent, subsidiaries, or any subsidiary of any parent of … Read more