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Andrew Metrick & Daniel K. Tarullo, Congruent Financial Regulation (Brookings Papers on Econ. Activity, Mar. 24, 2021).
Categories:
Banking & Finance
Sub-Categories:
Risk Regulation
,
Financial Markets & Institutions
,
Banking
Type: Other
Abstract
We propose a congruence principle for financial regulation. Application of this principle would enable regulators to use economically similar instruments across multiple domains to manage systemic risk. We present case studies of market malfunctions that occurred when congruence was ignored: nonprime mortgage finance (in 2008 and 2020) and United States Treasury securities (in 2020). In these cases, risk built up in non-bank financial institutions due in part to regulatory arbitrage. Under a congruence principle, regulators could mitigate this risk using a coordinated combination of capital requirements, minimum haircuts on repo transactions, and margining rules on futures exchanges and central clearing parties.
Daniel K. Tarullo, Are We Seeing the Demise of Stress Testing, Up Front (June 25, 2020).
Categories:
Banking & Finance
Sub-Categories:
Banking
,
Financial Markets & Institutions
,
Risk Regulation
Type: Other
Daniel K. Tarullo, Bank Supervision and Administrative Law, Colom. Bus. L. Rev. (forthcoming 2021).
Categories:
Banking & Finance
,
Government & Politics
Sub-Categories:
Banking
,
Administrative Law & Agencies
,
Congress & Legislation
Type: Article
Daniel Tarullo, Time-Varying Measures in Financial Regulation, 83 Law & Contemp. Probs. 1 (2020).
Categories:
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
Risk Regulation
,
Banking
Type: Article
Abstract
The financial crisis considerably strengthened the case for a “macro-prudential” component in financial regulation – that is, regulatory measures developed and implemented with a view to the stability of the financial system as a whole, rather than with sole attention to the circumstances of individual financial firms. Of particular conceptual appeal are time-varying measures that would discourage the creation of excessive risk, or at least augment the resiliency of firms and markets that could suffer greater losses in periods of economic or financial stress. Unfortunately, the analytic, political and practical hurdles to imposing effective time-varying measures during good times – whether through rules or discretionary action – are substantial. And, during periods of stress, market forces may demand that firms maintain fortress balance sheets, thereby thwarting the macro-prudential aim of allowing those firms to support economic activity through new lending that reduces capital levels and draws down liquidity reserves. This short paper examines these challenges through two examples – counter-cyclical capital requirements and the liquidity coverage ratio. It also suggests an approach that might begin to overcome these challenges, tough only partially and only for macro-prudential measures that increase regulatory requirements. The problem of market constraints on macro-prudential relaxation of requirements remains a problem.
Daniel K. Tarullo, Financial Regulation: Still Unsettled a Decade after the Crisis, 33 J. Econ. Persp. 61 (2019).
Categories:
Banking & Finance
Sub-Categories:
Banking
,
Commercial Law
,
Financial Markets & Institutions
,
Financial Reform
,
Risk Regulation
,
Economics
Type: Article
Abstract
A decade after the darkest moments of the financial crisis, both the US financial system and the legal framework for its regulation are still in flux. The post-crisis regulatory framework has made systemically important banks much more resilient. They are substantially better capitalized and less dependent on runnable short-term funding. But the current regulatory framework does not deal effectively with threats to financial stability outside the perimeter of regulated banking organizations, notably from forms of shadow banking. Moreover, with the political tide having for the moment turned decisively toward deregulation, there is some question whether the resiliency improvements of the largest banks will be preserved. This article assesses the accomplishments, unfinished business, and outstanding issues in the post-crisis approach to prudential regulation.
Daniel K. Tarullo, Banking on Basel: The Future of International Financial Regulation (2008).
Categories:
Banking & Finance
,
International, Foreign & Comparative Law
Sub-Categories:
Banking
,
Finance
,
Financial Markets & Institutions
,
Risk Regulation
,
International Monetary Systems
Type: Book
Abstract
The turmoil in financial markets that resulted from the 2007 subprime mortgage crisis in the United States indicates the need to dramatically transform regulation and supervision of financial institutions. Would these institutions have been sounder if the 2004 Revised Framework on International Convergence of Capital Measurement and Capital Standards (Basel II accord)--negotiated between 1999 and 2004--had already been fully implemented? Basel II represents a dramatic change in capital regulation of large banks in the countries represented on the Basel Committee on Banking Supervision: Its internal ratings-based approaches to capital regulation will allow large banks to use their own credit risk models to set minimum capital requirements. The Basel Committee itself implicitly acknowledged in spring 2008 that the revised framework would not have been adequate to contain the risks exposed by the subprime crisis and needed strengthening. This crisis has highlighted two more basic questions about Basel II: One, is the method of capital regulation incorporated in the revised framework fundamentally misguided? Two, even if the basic Basel II approach has promise as a paradigm for domestic regulation, is the effort at extensive international harmonization of capital rules and supervisory practice useful and appropriate? This book provides the answers. It evaluates Basel II as a bank regulatory paradigm and as an international arrangement, considers some possible alternatives, and recommends significant changes in the arrangement.
Daniel K. Tarullo, The US Administration's Priorities For Transatlantic Economic Relations, in Building Blocks For A Transatlantic Economic Area: Report of the November 1995 Fifth Annual Seminar on Trade and Investment 27 (Peter S. Rashish ed., 1996).
Categories:
Banking & Finance
,
Government & Politics
,
International, Foreign & Comparative Law
Sub-Categories:
Economics
,
Financial Markets & Institutions
,
Foreign Relations
,
International Monetary Systems
,
International Trade
Type: Book