BU Now » Federal Reserve

Kevin Gallagher explains quantitative easing or “QE2″

Jo Breiner — Fri, 05 Nov 2010 13:11:34 +0000

Lobbying the financial reform act

Dick Taffe — Wed, 28 Jul 2010 15:52:38 +0000

Intense lobbying is under way over the Dodd-Frank financial regulatory reform act, with federal agencies needing to fill in the details of at least 243 financial rules and conduct 67 studies before implementing the most sweeping such law since the 1930s. Political science Professor Graham Wilson, author of “Business and Politics,” says citizens should be concerned that the interest-group system is massively biased towards representing business interests.

“The regulations that give shape to laws are always crucial. In this case, the massive complexity and detail involved makes the regulations all the more important — and in this process the voices for consumer and taxpayer interests will be few in number compared with those for the financial industry.”

Contact Graham Wilson, 617-353-2540, gkwilson@bu.edu

Financial regulatory reform passed

Dick Taffe — Thu, 15 Jul 2010 21:01:28 +0000

With the Senate finally passing the complex financial regulatory reform law and sending it to President Obama for his signature, the work now turns to the hundreds of regulations and dozens of studies which must be completed to implement the most sweeping financial reform since the Great Depression. But while regulators work on all of that, says Political science Professor Graham Wilson, others will be watching how it all plays out politically for Obama and his embattled Democrats.

“Combined with health care and the stimulus, this gives Obama a notable legislative record. But unless he and the Democrats can do a better job of explaining to the American people what their plan is for economic recovery, this record won’t be noticed outside the Beltway.”

Contact Graham Wilson, 617-353-2540, gkwilson@bu.edu

FDIC gets more authority over banks

Dick Taffe — Mon, 12 Jul 2010 20:36:48 +0000

During the Crash of 2008, the Federal Deposit Insurance Corporation said it lacked access to need information to evaluate the risk being taken by banks which later either collapsed or needed taxpayer bailouts to stay afloat. Now regulators at the Federal Reserve and Treasury Department have given the FDIC specific, unlimited authority to examine banks. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, says the agreement is an improvement in interagency cooperation, but sound bank regulation ought not be something negotiated among sometimes competing federal agencies.

“Coming on the eve of financial reform legislation passing the Senate, it serves principally to highlight the opportunity that Congress and the administration missed by their failure to make part of the new reform law a rationalization of our chaotic bank regulatory apparatus.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

To bank regulator stepping down

Dick Taffe — Fri, 09 Jul 2010 20:40:03 +0000

In a surprise announcement, Comptroller of the Currency John Dugan (r.) says he will step down next month as the top U.S. bank regulator. Appointed by President George Bush, Dugan was instrumental in shaping the “stress tests” for the largest financial institutions, but often sparred with FDIC Chairwoman Sheila Bair about consumer matters. Former Federal Reserve Bank examiner Mark Williams, who teaches finance at the School of Management, say choosing Dugan’s successor is an opportunity for the Obama administration to send a signal that our banks will be held to a higher accountability and scrutiny.

“It is important to not repeat the error of the past and appoint a former lobbyist, as was Dugan, who is banker friendly. As an important industry watchdog, the head of the OCC needs to set the tone that banks will be regulated — not coddled.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

The weak link in bank reform

Dick Taffe — Thu, 08 Jul 2010 18:59:37 +0000

The financial regulatory reform legislation likely to be sent soon to President Obama calls for the biggest banks and hedge funds to put up some $20 billion in fees to pay the costs of additional oversight by regulators. But even that won’t help regulators don’t quickly upgrade the training and standards of rank-and-file examiners, says Mark Williams, a former Fed examiner who now teaches finance in the School of Management. In a Boston Globe op-ed, Williams — author of “Uncontrolled Risk” about the fall of Lehman Brothers — says if bank examiner performance over the last decade is an indicator, oversight may prove grossly inadequate unless the regulators become as financial sophisticated as those they’re supposed to regulate.

“Our entire financial system is dependent on strengthening regulator oversight and closing this sophistication gap.”

Contact Mark Williams 617-358-2789, williams@bu.edu

Goldman executives questioned

Dick Taffe — Thu, 01 Jul 2010 21:05:43 +0000

The Congressionally appointed Financial Crisis Inquiry Commission exploring the 2008 crash questioned executives from Goldman Sachs, the world’s most profitable bank, about how much it makes trading derivatives — those complex financial bets that helped bring down the economy. Goldman Chief Financial Officer David Viniar said they had no way of determining its derivatives data separately from trading in cash securities. But Mark Williams, a former Federal Reserve bank examiner who teaches finance in the School of Management and is author of “Uncontrolled Risk” about the fall of Lehman Brothers, says he doesn’t buy it.

“For Goldman’s CFO to go before the Financial Crisis Inquiry Commission and claim he doesn’t know what Goldman makes in derivatives trading is the equivalent of a major league pitcher not knowing his ERA. Such a claim is shocking given how lucrative and central derivatives trading is to Goldman’s core business model.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

Brown gets reform bill changed

Dick Taffe — Wed, 30 Jun 2010 17:56:48 +0000

By threatening to withhold his vote for the final compromise, Massachusetts GOP U.S. Senator Scott Brown (l.) got the Democratic negotiators on the financial regulatory reform bill to delete a $19 billion fee on large financial institutions to cover costs of implementing the new law. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, says the Dems missed the boat by labeling the charge a “tax,” making it vulnerable to read-meat ideological attacks.

“Pure and simple, their charge should be labeled for what it is — a return of the subsidy that taxpayers bestow on the too-big-to-fail banks every day by pledging to their creditors and depositors that if the big banks go bust we collectively will pick up the tab. Senator Brown would have a difficult time refuting this framing of the discussion.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Wall Street reform bill threatened

Dick Taffe — Tue, 29 Jun 2010 16:00:57 +0000

The death of U.S. Senator Robert Byrd (r.) is threatening to delay passage of the sweeping Wall Street regulatory reform legislation until mid-July after it had been on track for House and Senate votes this week. Law Professor Cornelius Hurley, a former counsel to the Federal Reserve Board of Governors and now director of the Morin Center for Banking and Financial Law, says the proposed legislation has been so weakened in compromise efforts to garner enough votes to pass it in the Senate that it might be worth starting over.

“Its demise would have at least two significant benefits: first, it would allow the next Congress to develop a more robust bill, particularly with respect to systemic risk; and, second, it would enable global regulators to press the ‘reset button’ on international harmonization efforts, a vision apparently abandoned by this Congress and this Administration.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Derivatives amendment showdown

Dick Taffe — Tue, 15 Jun 2010 22:56:36 +0000

Enemies on all sides are coming down on Arkansas Democratic U.S. Senator Blanche Lincoln’s amendment to the regulatory reform bill that would rid banks of their lucrative derivatives business which played such a huge rule in the 2008 financial crash. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, feels that the only problem with the amendment is that it doesn’t go far enough to drive “toxic” derivatives out of the bank-holding company temple entirely.

“By lodging this casino activity in bank holding company affiliates she runs the risk of the Fed doing in the next crisis exactly what it has done in this one, namely waiving the rigid rules that are supposed to separate banks from their holding company affiliates.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu