Federal Reserve Proposed Rulemaking Addresses Dodd-Frank Systemic Risk Provisions
Editor’s Note: Margaret E. Tahyar is a partner and member of the New York Financial Institutions Group at Davis Polk & Wardwell LLP. This post is based on a Davis Polk client memorandum by Arthur S. Long.
Sometime ago, I did some writing on the financial turmoil. In one article, a program was proposed which suggested various factors be looked at in order to logically reform Regulatory policies and regimes regarding the financial system in the U.S.
As time went on, I advised one Senator, a Banking Committee member, through the original TARP legislation.
I’m familiar with Davis, Polk and Wardwell through their excellent contribution to the comprehensive and detailed work entitled Enhancing Financial Stability and Resilience: Macroprudential Policy, Tools and Systems for the Future, produced and published by The Group of Thirty. I commented on and discussed that report with members of the working group who produced it and with the Financial Stability Section at Bank of England.
It’s obvious how imporatnt well ordered Regulation should be crafted. Does Dodd-Frank meet that set of criteria? Can it lead to a well ordered system? How does FSOC function? Who is the final authority? Harry Truman?
In an effort to deal with the concept of “too big to fail”, aren’t we really confronted with the idea of “too big to bail out?” What’s next–”too big to salvage at all?”
The fact is: that implicit in an unweildy system are things like human error, how to connect the dots, definitions of systemically important -non-bank financial companies, systemically important BHC’s, Dynamic Provisoning, Variable Scalars,various types of Capital(Core, Tier 1, Tier 2),etc.
By the way, without reform of the OTC derivatives markets, will we still be herding cats?
This is all in the correct area–but it needs to be simplified.
I hope we can monitor it and keep track of it all–without getting too big of a headache.