As I wind down my stint on the Glom with many thanks to my generous hosts and indulgent audience, I am floored at how far I have strayed from the plan. Two months ago, this was going to be an orderly rollout of brainwaves on somewhat scholarly topics and works in progress. Two weeks ago, this was going to be an interesting way to practice our countercyclical trade. But events intervened with way too many notes for my meagher processing capacity. Paper piles grew, laptop froze, phone, TV and radio talked over one another. I hereby abandon any attempt at coherence with the following loose parting thoughts:
- Following up on David's post, here is today's word from Anne-Marie Slaughter on regulatory networks in the aftermath of the crisis. Slaughter highlights the role of the Basel Committee. At the G-7 press conference this evening, Paulson pointed to the Financial Stability Forum for future regulatory coordination. Note their April and October reports on "Enhancing Market and Institutional Resilience".
- With deposit guarantees and bank nationalizations proliferating, the question of who is responsible for deposits with foreign bank branches is sure to resurface in many ways and many places. Iceland's banks in the U.K. are controversy du jour, but it will not stop there. This old spat between Citi and Wells Fargo over WF's deposits in Citi's Manila branch looks poignant in light of current events: Citibank, N.A. v. Wells Fargo Asia Ltd. (Citibank I) 495 U.S.660 (1990) and Wells Fargo Asia Ltd. v. Citibank (Citibank II) 936 F.2d 723 (1991).
- As to the executive compensation controversy, EU finance ministers have announced principles of their own here (see pp. 13-14; the whole document is a worthwhile window on the EU crisis response). It may look general verging on platitudinous, but French Economy Minister Lagarde suggested this morning that at least some national authorities plan rather substantial measures.
- Those interested in circuit breakers may want to take note of broken circuits in Iceland, Indonesia, Romania, Russia and Ukraine this week. Shutting down stock markets has not done much for confidence so far, but of course who knows how much worse it could have been without, whether this translates to larger markets, etc. Proving negatives is tricky.
- Bloomberg has a readout of the Lehman CDS auction here. It will be fascinating to see how the CDS stock affects what happens in bankruptcy.
- There are people who make a living interpreting G-7 communiques (here is today's). I know not to go there, but refer you to Felix Salmon for the day's accomplishments. David Wessell called it "theater" on Washington Week -- not a compliment in this environment. Let us see what the G-20 do tomorrow.
- Morris Goldstein has a lucid take on regulation in the aftermath. See his recent talk here; video here.
- Further to the mark-to-market controversy, regulatory accounting adventures are crisis perennials. U.S. v. Winstar 518 U.S. 839 (1996) is famous. My favorite example is this 1989 letter from the SEC to the U.S. Treasury, which allowed banks to reduce developing country debt by 30-50% without booking losses. Download sec.Mulford Letter.pdf (reprinted from Hay & Paul, Regulation and Taxation of Commercial Banks during the International Debt Crisis).
Many thanks and all the best.
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1. Posted by David Zaring on October 11, 2008 @ 6:40 | Permalink
Been great having you, Anna.
2. Posted by Elizabeth Brown on October 11, 2008 @ 8:22 | Permalink
The Financial Stability Forum may be too narrowly focused a body to properly deal with the type of regulatory coordination in the future. It is predominately a forum for bank regulators. One of the major instruments underlying today's crisis is the credit default swap, which is a hybrid between a securities and an insurance product. The bankers, notably Greenspan, didn't want to regulate them, perhaps because they didn't understand the risks that they posed. Now we are seeing insurance regulators, like the one in New York State, classify these instruments as insurance in an effort to begin regulating. The US has no national insurance regulator. The National Association of Insurance Commissioners (NAIC) isn't a member of the Financial Stability Forum. The International Association of Insurance Supervisors (IAIS) is a member but it has no power to establish binding regulations on its members and it has proven to be a relatively weak in setting standards when compared to the Basel Committee. A forum which does not include the regulators for major financial services sectors will be ineffective in properly identifying and regulating future problems.
The international community needs to recognize that financial services (banking, insurance, and securities) form a spectrum of services, which cannot be cabined off into isolated regulatory silos anymore. The Treasury Blueprint accepts this fact by arguing for the Australian/UK approach, in which financial services need a risk or objectives based regulatory structure and not the quasi-functional/institutional structure that the US currently employs.