ACA Summit Salzburg Global Seminar

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ACA Summit Salzburg Global Seminar New Rules
for Global Finance

• Nicholas W. Conger (WVWC) Nora Myers (UCWV)
• October 15, 2011
• Ashville, North Carolina

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ACA Member Institutions

• WVWC

• UCWV

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Salzburg Global Seminar

• Appalachian College Association (ACA)
• Mellon Foundation Fellowship

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Austria
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Austria
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Austrian Alps The Sound of Music
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Grand Tetons National Park Wyoming
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Salzburg Global Seminar
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Schloss Library
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Schloss Dining Room
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Weiner Schnitzel
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Apple Strudelbut
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Salzburg Global Seminar

• Vienna, Austria
• -
• 1st Time in Vienna

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Belvedere Palace Prince Eugene
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City Hall
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Schonbrunn Palace - Hapsburg
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St. Stephens Cathedral
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Vienna Opera House
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Vienna Opera House
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University of Vienna Universität Wien
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Vienna National Library
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Bratwurst Sauer Kraut
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Café Sacher Sacher Tort
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Viennese Coffee
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Hotel Tram to VNB

• Tram

• Hotel

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Austrian National Bank Oestereichische National
Bank (ONB)
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Federal Reserve Board (FED)
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Government Sponsored Enterprises (GSEs)
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Salzburg Global Seminar
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Conservatorship of GSEs - September 7, 2008
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• 2008 Global Financial Crisis
• Review of the Carnage

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2008 Global Financial Crisis

• http//www.cfr.org/world/crisis-guide-global-econo
  my/p19710

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New Rules for Global Finance

• 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 GSEs placed into Conservatorship
• Global Insurance Company CDS
• Massive U.S. Central Bank U.S. Treasury
  Infusion of Capital

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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 Presidents Bush Obama
• Congress Chris Dodd-Barney Frank

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Troubled Global Financial Institutions

• Northern Rock
• Bear Stearns
• Lehman Brothers
• Merrill Lynch
• Bank of America
• Fannie Mae and Freddie Mac
• Citibank
• AIG

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Salzburg Global Seminar

• 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

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Ewald Nowotny Governor, ONB
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Salzburg Global Seminar

• 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

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The European Union

• 27 Member Nations
• European Council
• European Commission
• European Central Bank
• Maastricht Treaty - 1993

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

• The Euro

• 1 Coin

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The European Central Bank

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

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EU Stimulus Plan

• 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)

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UK Bank Rescue Package

• 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

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Salzburg Global Seminar

• 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

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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

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Financial Stability Reforms - Asia

• 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

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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)

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Financial Stability Reforms - Asia

• China
• China Banking Regulatory Commission
• Fan Wenzhong
• 1997 Currency Crisis (Baht) - Russia LTCM
• NPL _at_ 25
• China Hired Banking Experts
• New Business Model Risk Management

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China Banking Regulatory Commission (CBRC)

• Basel III - Already Implemented
• Staggered Implementation (2019) (12 Average)
• Regulatory Agencies Centralized
• New Risk Management Metrics
• Risk Adjusted-ROE
• NPLs now at 1-2 Capital _at_ 12
• PLL gt 200

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Salzburg Global Seminar

• 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

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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 Govt Bond Purchases
• Over 3 Trillionand still counting

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U.S. Regulatory Reform

• 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.

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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)

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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

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Soare the various global regulatory reform
measures good enough to prevent a future crisis?
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Salzburg Global Seminar

• NO
• The proposals are better than we had before, but
  they do not go far enough

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Salzburg Global Seminar

• Other Issues Proposals
• Strengthen Corporate Governance
• Regulation of Non-Banking Institutions
• (Shadow Banking)
• Global Convergence Coordination of Regulatory
  Reforms

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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

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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

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Micawber Principle

• 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 debtors prison after failing to meet his
  creditors demands.

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Salzburg Global Seminar

• Questions