WASHINGTON, March 24, 2009 (GLOBE NEWSWIRE) -- The Wall Street Journal's first annual Future of Finance Initiative concluded today with the release of a list of issues facing the new Obama administration and Congress.
More than 100 CEOs and CFOs of Fortune 1000 companies, prominent academics and financiers gathered in Washington, D.C. for the conference, which kicked off Monday evening. The program included U.S. Treasury Secretary Timothy F. Geithner, Australian Prime Minister Kevin Rudd, Paul Volcker, chairman of the President's economic recovery advisory board and Larry Summers, director of the White House's National Economic Council.
The group addressed key financial issues such as regulatory structure, foreclosure policy, derivatives, controls on private pools of money, global coordination, financial industry compensation, mark-to-market accounting, and methods to ensure adequate access to capital. The attendees worked within four concurrent group sessions and were charged with identifying principles within four issue areas -- the future of credit markets, the future of banking, the future of non-bank financial institutions and the future of risk-credit default swaps. The 20 priorities that were set include:
1) STRENGTHEN UNDERWRITING STANDARDS: Bank management and bank
examiners must enforce the banks' minimum underwriting standards,
focused on the borrowers' ability to repay debt from income.
Extend supervisors' authority beyond banks to mortgage brokers and
other bank agents. Ensure national real estate appraisal
standards.
2) BOLSTER FDIC: Bolster the FDIC and provide it with additional
funds and flexibility so there is capacity to handle escalating
bank failures.
3) REGULATORY OVERHAUL: Streamline the regulatory architecture so
there is more effective and consistent regulation across financial
services and an end to regulatory arbitrage. Improve effectiveness
of regulators. Provide them with better training, pay, status and
resources. Specific industry experience desirable. Testing,
licensing and continuing education required.
4) CREATE NEW CLEARINGHOUSES: Create a clearinghouse to enhance
transparency for standardized Credit Default Swap contracts,
including individual corporate names and indices. The
clearinghouse would also extend to overnight financing and
interest-rate swaps.
5) RAISE CAPITAL REQUIREMENTS: Writers of Credit Default Swaps should
face higher capital (reserve or margin) requirements. Banks
heavily involved in the CDS market should face a further surcharge
for concentration risk.
6) ENHANCE COLLATERAL: Enhance collateral requirements on over-the-
counter derivatives to protect the system. To minimize the effects
of financial-institution failure, regulators should segregate
customer collateral in the event of a bankruptcy by a firm
involved in the Credit Default Swap market.
7) SMARTER SECURITIZATION: Improve disclosure in securitization,
improve underwriting standards, require all parties in the process
to have "skin in the game." Create meaningful standards for
transparency of financial flows in all instruments and provide it
in an easily accessed form.
8) RATING AGENCY REFORM: Eliminate special status of rating agencies.
Reform pay structure for rating agencies to align incentives
better so they are paid over time as their ratings prove to be
accurate.
9) CONSISTENT REGULATORY SYSTEM: Include non bank financials under
regulatory scheme and require them to provide information to the
systemic regulator. Regulation should be risk based. Firm-specific
information should be private, and only aggregate information made
public.
10) CONSTRAIN LEVERAGE: Limit leverage across large, systemically
important financial institutions and enhance capital requirements
for certain products. Be clear about how risk gets measured for
purposes of leverage and capital requirements.
11) LET TARP CAPITAL BE REPAID: Make regulators explicitly state
conditions for the repayment of TARP money.
12) EXECUTIVE COMPENSATION: Limit the government role in executive
compensation to companies where the government has a stake.
Companies should be sure executive compensation provides the right
set of incentives.
13) TRANSPARENCY BEFORE REGULATION: Systemic risk regulator should
require all firms first to provide information. Regulation should
be limited to those deemed to pose a systemic risk. Intermediaries
with sufficiently long investor lock-ups and sufficiently low
leverage relative to risk should be granted a safe harbor from
regulation. Regulator should publicly disclose cross-industry
liquidity and concentration risk.
14) PRICE AND VOLUME TRANSPARENCY: The industry should publish price
and volume data on over-the-counter derivatives.
15) FED SHOULD BE SYSTEMIC RISK REGULATOR: The Fed should be the
systemic risk regulator of non-bank financial institutions. It is
important the regulator be independent and apolitical. We
recommend using private sector advisory bodies. In order to take
on these responsibilities, the Fed may have to reallocate some
responsibilities to other agencies.
16) ENSURE PPIP'S SUCCESS: To improve the chances that Public-Private
Investment Partnerships work, the government should recognize that
many sellers of these assets are reluctant because of the impact
on their balance sheet, and should allow for regulatory
forbearance on capital requirements or accounting flexibility.
17) ACCOUNTING RULES: Have a sensible set of accounting rules to
reflect value for financial reporting and capital purposes.
18) NEW RESOLUTION AUTHORITY FOR NON BANKS: Create an FDIC-like model
for winding down non-bank financial institutions that pose system
risk. Adopt global standards for determining how different classes
of creditors are treated.
19) AUDITORS ENFORCE CONSISTENT MARKS: Encourage disclosure of
disparate asset marks, by asking auditors to raise instances of
price discrepancies among clients.
20) LIMIT FORECLOSURES: More efforts to limit foreclosures through
interest and principal reductions, rent to own, and other creative
solutions. Create a new federal agency with sufficient resources
to limit foreclosures. Force banks to identify potential troubled
borrowers.
A wrap-up of the Future of Finance Initiative will be covered in a Journal Report to be published on March 30. For more information and a list of key participants at The Wall Street Journal Future of Finance Initiative, please visit https://futurefinance.wsj.com.
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