NEW YORK--()--NYU Stern faculty are available to provide commentary on key issues central to the regulatory reform bills now working their way through Congress.
A selection of viewpoints and spokespeople follow; read the complete new set of policy papers (will be updated in real-time as debates evolve) at http://govtpolicyrecs.stern.nyu.edu
The Future Role of the Fed—Dean Thomas F. Cooley and Professor Paul Wachtel
Pending legislative proposals would compromise the Fed’s independence, politicize its role and hamper its ability to react swiftly in the event of a crisis.
The Approach to Systemic Risk—Professors Viral Acharya and Matthew Richardson
To contain systemic risk, regulators must first identify systemically important institutions and quantify the risk. The current bills rely on simple criteria; we argue to add market-based measures and force systemic firms to separate activities that expose taxpayers to excessive risk.
Restructuring Too-Big-To-Fail Institutions—Dean Thomas F. Cooley and Professor Roy Smith
The current bills are flawed because they focus more on a firm’s size than its systemic risk profile to determine capital contribution levels to a risk-based systemic fund. We oppose breaking up large, complex financial institutions based on size, but find merit in doing so based on activities.
Shadow Banking: OTC Derivatives & Money Market Funds—Professors Viral Acharya and Philipp Schnabl
The Swaps Exchange Facility (electronic exchange) has the potential to stabilize the derivatives markets and improve functioning/regulation. The SEC’s regulatory proposals for money markets do not adequately address the issue of likely government guarantees in future crises.
Consumer Financial Protection Agency—Professor Thomas Mertens
We support the agency creation pending changes that would close loopholes, encourage innovation and extend the authority of the agency to intervene prudently.
Financial Institutions Subject to the Bankruptcy Code—Professor Viral Acharya
While the bill gives legal authority to unwind large, complex financial institutions that aren’t simply depository institutions, the legislation doesn’t go far enough to reduce uncertainty surrounding bankruptcy.
Compensation and Governance—Professor Jennifer Carpenter
We support reforms that reduce shareholder/regulator and manager/shareholder conflict, but believe that prohibiting “excessive” compensation is problematic.
Credit Rating Agencies—Professors Edward Altman and Lawrence White
The proposed legislation does little to prevent issuers from “shopping” for the best rating.
Government-Sponsored Enterprises—Professor Stijn Van Nieuwerburgh
The collapse of Fannie Mae and Freddie Mac raises questions about how GSEs should be structured. Legislation must address these issues—but GSEs are noticeably absent from the Congressional agenda.