Conference Presentation, Panel
Financial Regulation in the 21st Century: Risks, Challenges and Opportunities
- Significant success in regulatory reform is anticipated on the non-financial side via the Congressional Review Act, while passing the Financial Choice Act to replace Dodd-Frank in the Senate faces low odds due to legislative hurdles.
- Chair Hensarling is expected to pursue one-off legislative pieces for specific issues, though broader deregulation may be delayed by the administration's slow personnel placement and the principle that "personnel is policy."
- Enthusiasm for immediate deregulation is characterized as potentially irrational, with expectations that fewer changes will occur than anticipated despite Treasury reports on adjustments expected by June.
- The Volcker Rule is projected to be repealed and replaced with a simpler bright-line test, while compensation regulations face reduction to end micromanagement.
- Future industry standards will be shaped by capital and liquidity requirements, specifically Basel III's Net Stable Funding Ratio and the Fundamental Review of the Trading Book.
- Regulatory focus is expected to expand into cybersecurity, described as a potential wave of new rules, while existing frameworks are viewed as more stable and better capitalized than in the 2008-2009 period.
- Technological solutions utilizing RegTech, robotics, and AI are expected to substantially reduce compliance costs for processes like AML over time, though activities prohibited under the Volcker Rule have shifted to hedge funds and pensions, creating new systemic risks.
- Neil Gorsuch's Supreme Court confirmation may drive the most significant regulatory changes by altering the court's conservative majority, potentially striking down specific Dodd-Frank items like the MetLife case or CFPB provisions.
- Existing regulations are expected to be repealed if they fail to meet seven nonpartisan principles outlined in the financial services executive order, with the CFPB director's appointment expected to significantly impact enforcement.
- Private equity firms are expected to face continued burdensome registration requirements, while asset managers remain regulated similarly to banks despite lacking access to the Fed window.
- New non-bank lenders face inhibition in obtaining bank charters due to Volcker Rule ownership thresholds, whereas the proposed Special Purpose National Bank charter offers preemption advantages alongside capital and liquidity requirements.
- Government capabilities to react to instability may be constrained by Dodd-Frank amendments to the Fed's emergency lending facility and FDIC liquidity facility, while the FSOC serves as an essential forum for identifying systemic risk.
- The number of US banking regulators is expected to remain high, with proposals to collapse functions among the Fed, OCC, and FDIC for clarity, while global banks face a persistent patchwork of regulations across Canada, Europe, China, and Hong Kong.
- Jurisdictional rules present political challenges for revisiting the SEC and CFTC, though the SEC chairman's independence is noted as potentially uncertain regarding partisan confirmation pressures.