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ACA Summit Salzburg Global Seminar. “New Rules for Global Finance” Nicholas W. Conger (WVWC) & Nora Myers (UCWV) October 15, 2011. Appalachian College Association (ACA) Mellon Foundation Fellowship. Salzburg Global Seminar. Austria. Austria. Austrian Alps – The Sound of Music.

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ACA Summit Salzburg Global Seminar

“New Rules for Global Finance”

Nicholas W. Conger (WVWC) & Nora Myers (UCWV)

October 15, 2011


  • Appalachian College Association (ACA)

  • Mellon Foundation Fellowship

Salzburg Global Seminar


Austria


Austria


Austrian Alps – The Sound of Music


Grand Tetons National ParkWyoming


Salzburg Global Seminar


Schloss Library


Schloss Dining Room


Weiner Schnitzel


Apple Strudel…but…


Vienna, Austria

-

1st Time in Vienna

Salzburg Global Seminar


Belvedere Palace – Prince Eugene


City Hall


Schonbrunn Palace - Hapsburg


St. Stephens Cathedral


Vienna Opera House


Vienna Opera House


University of Vienna Universität Wien


Vienna National Library


Bratwurst & Sauer Kraut


Café Sacher & Sacher Tort


Viennese Coffee


Tram

Hotel

Hotel & Tram to VNB


Austrian National Bank Oestereichische National Bank (ONB)


Federal Reserve Board (FED)


Government Sponsored Enterprises (GSE’s)


Salzburg Global Seminar


Conservatorship of GSEs - September 7, 2008


2008 Global Financial Crisis

Review of the Carnage…


http://www.cfr.org/world/crisis-guide-global-economy/p19710

2008 Global Financial Crisis


2008 Global Financial Crisis

“The Worst Crisis Since 1929”

  • Commercial Bank Failures in Ireland, UK, Iceland

  • Hedge Fund Failures

  • Investment Bank Failures or Near Failure

  • Two GSE’s placed into Conservatorship

  • Global Insurance Company – CDS

  • Massive U.S. Central Bank & U.S. Treasury Infusion of Capital

New Rules for Global Finance


Architect's of the Multi-Trillion* Fiscal Bailout

  • Hank Paulson – U.S. Treasury Sec

  • Tim Geitner – NY Fed President

  • Ben Bernanke – FED Chairman

  • White House – President’s Bush & Obama

  • Congress: Chris Dodd-Barney Frank

New Rules for Global Finance


Northern Rock

Bear Stearns

Lehman Brothers

Merrill Lynch

Bank of America

Fannie Mae and Freddie Mac

Citibank

AIG

Troubled Global Financial Institutions


Salzburg Global Seminar

New Rules for Global Finance: Proposals for Regulatory Reform – Topics:

  • Capital Adequacy

  • Regulatory Structure Reforms

  • Oversight of Derivatives

  • Risk Management

  • Systemic Risk

    Europe – Asia - USA

Salzburg Global Seminar


Ewald Nowotny – Governor, ONB


Financial Stability:

The Role of the EU & the UK FSB & FSA

  • European Union (EU) Stimulus Plan

  • UK:

    Financial Stability Board (FSB) and

    FSA (Financial Services Authority)

    Starting with the EU…

Salzburg Global Seminar


  • 27 Member Nations

  • European Council

  • European Commission

  • European Central Bank

  • Maastricst Treaty - 1993

The European Union


The Euro

1€ Coin

The Euro - The Common Currency of 17 of the 27 member countries of the European Union


The European Central Bank

HQ: Frankfort, Germany -- President: Jean-Claude Trichet


  • November 2008

  • €200 Billion = $300 Billion

  • Macro Economic Plan to Limit the Economic Slowdown:

  • S-T Stimulus to increase Demand and maintain employment

  • L-T investment in strategic sectors (Research & Innovation)

EU Stimulus Plan


  • October 2008

  • £500 Billion = $850 Billion

  • Restore Market Confidence and Stabilize Banks

  • S-T: Loans & Guarantees

  • Direct Investment in Bank Capital

  • Anglo Irish Bank Corp Act 2009

UK Bank Rescue Package


European Financial Regulatory Reform and Impact on Banks

  • UK: Centre for Regulatory Strategy:

    Need for Coordinated Regulatory Framework Reforms

  • London School of Economics: Capital Adequacy (Charles Goodhart: Basel II was a “miserable failure”)

  • Austrian Financial Market Authority:

    Euro Zone Problems are Country Concerns

    “We are moving in the right direction”

Salzburg Global Seminar


Asian Financial Stability and Reform

  • Asian Development Bank-Manila

    (President Kuroda)

  • Financial Institutions Stability –

    Deputy Governor Vanikkul, Bangkok, Thailand

  • China Banking Regulatory Commission

    Fan Wenzhong

    “My SGS A-Ha - OMG Moment”

Salzburg Global Seminar


Asian Development Bank: President Kuroda

  • Global Challenge is Economic Growth & Economic Reform Concurrently (Stimulus & Restraint)

  • Implementation Challenge Within and Across All Regions of the World

Financial Stability Reforms - Asia


Thailand

Financial Institutions Stability – Governor Vanikkul

  • 1997 Currency Crisis (Baht) – Lessons Learned

  • Traditional Conservative Banking Model:10% Growth (ROE)…

  • …Not 25% (Western Target)

Financial Stability Reforms Asia


China

China Banking Regulatory Commission

Fan Wenzhong

  • 1997 Currency & Crisis (Baht) - Russia LTCM

    NPL @ 25%

  • China Hired Banking Experts

  • New Business Model & Risk Management…

Financial Stability Reforms - Asia


  • Basel III - Already Implemented

    Staggered Implementation (2019) (12% Average)

  • Regulatory Agencies Centralized

  • New Risk Management Metrics:

    Risk Adjusted-ROE

    NPL’s now at 1-2% Capital @ 12%

    PLL > 200%

China Banking Regulatory Commission (CBRC)


U.S. Financial Regulatory Reforms

Center for American Progress (David Min)

The Brookings Institution (Douglas Elliott)

  • History of US Banking System – Glass Steagall

  • Regulatory Structure Fractured – Needs Harmonized

  • Large Banks Getting More Concentrated = ^ Risk

  • Lesson Learned: Due Diligence for PLS

Salzburg Global Seminar


US Financial Regulatory Response

  • Initial Stimulus Packages (TARP): $700 Billion

  • Multiple Follow-On FED Programs:

  • Asset-Backed Commercial Paper

  • CP Funding Facility

  • GSE Debt & MBS Purchases

  • Money Market Investor Funding Facility

  • Term ABS Loan Facility

  • US Gov’t Bond Purchases

    Over $3 Trillion…and still counting

Salzburg Global Seminar


US Financial Regulatory Reforms

  • Financial Crisis Inquiry Commission (2009)

  • Financial Crisis Inquiry Report (2011)*

  • Dodd-Frank Bill (July 21,2010)…

    * Scope: to examine the causes of the crisis . Membership: 6-D & 4-R. No Policy Recommendations and no specific violations cited.

U.S. Regulatory Reform


Dodd-Frank Bill: Objectives*

An Act: (1) to promote the financial stability of the United States by improving accountability and transparency in the financial system; (2) to end "too big to fail", (3) to protect the American taxpayer by ending bailouts, (4) to protect consumers from abusive financial services practices, and for other purposes.

*Senator Christopher Dodd (D-Conn) & Representative Barney Frank (D-Mass)

U.S. Regulatory Reform


Dodd-Frank Bill Accomplishments

Key areas left unaddressed

  • Derivatives

  • Credit Rating Agency Reform

  • Hedge Fund Accounting and Oversight

  • Unlike European System of Legislative Streams

    Weaknesses

  • Too Political

  • Too Fragmented

  • Too Broad

    Tries to do too much

U.S. Regulatory Reform


So…are the various global regulatory reform measures good enough to prevent a future crisis?


NO…

”The proposals are better than we had before, but they do not go far enough”

Salzburg Global Seminar


Other Issues & Proposals

  • Strengthen Corporate Governance

  • Regulation of Non-Banking Institutions

    (Shadow Banking)

  • Global Convergence & Coordination of Regulatory Reforms

Salzburg Global Seminar


Key Takeaways

  • Current Regulatory Proposals Do Not go Far Enough

    (Basel III Bank Capital Adequacy - 2019)

  • “Too Big to Fail Banks” are even Bigger - US

  • Global Regulatory Structures Need To Be Reformed

  • Many Derivatives Markets remain Unregulated

  • Asian Banks have Learned Their Lesson Well

Salzburg Global Seminar


Discussion Questions…

Where Do We Go From Here?

  • Critical Thinking Needed

  • Leadership and Hard Decisions Need to be Made

  • New Business & Financial Models Needed…

    …or maybe a return to the old fashioned ones?

    “Earn a Reasonable Return on your Investment”

Salzburg Global Seminar


Closing Thought*

“Annual income: twenty pounds. Annual expenditure: 19 pounds, nineteen and six, result happiness.

Annual income: twenty pounds. Annual expenditure: twenty pounds, ought and six, result misery.”

Source: David Copperfield, by Charles Dickens (1850). Quote by Wilkins Micawber, modeled on Dickens father, John Dickens who was incarcerated in debtor’s prison after failing to meet his creditor’s demands.

*Micawber Principle


Questions…

Salzburg Global Seminar


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