ACA Summit Salzburg Global Seminar

ACA SummitACA Summit Salzburg Global Seminar Salzburg Global Seminar

“New Rules for Global Finance”

Nicholas W. Conger (WVWC) & Nora Myers (UCWV)October 15, 2011

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Salzburg Global SeminarSalzburg Global Seminar

Appalachian College Association (ACA)

Mellon Foundation Fellowship

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AustriaAustria 3

AustriaAustria4

Austrian Alps – The Sound of MusicAustrian Alps – The Sound of Music5

Grand Tetons National ParkGrand Tetons National ParkWyomingWyoming

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Salzburg Global SeminarSalzburg Global Seminar7

Schloss LibrarySchloss Library8

Schloss Dining RoomSchloss Dining Room9

Weiner SchnitzelWeiner Schnitzel10

Apple Strudel…but…Apple Strudel…but…11


Vienna, Austria-

1st Time in Vienna

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Belvedere Palace – Prince EugeneBelvedere Palace – Prince Eugene13

City HallCity Hall14

Schonbrunn Palace - Hapsburg Schonbrunn Palace - Hapsburg 15

St. Stephens CathedralSt. Stephens Cathedral 16

Vienna Opera HouseVienna Opera House17

Vienna Opera HouseVienna Opera House18

University of Vienna University of Vienna Universität WienUniversität Wien

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Vienna National LibraryVienna National Library20

Bratwurst & Sauer KrautBratwurst & Sauer Kraut21

Café Sacher & Sacher TortCafé Sacher & Sacher Tort22

Viennese CoffeeViennese Coffee23

Hotel & Tram to VNBHotel & Tram to VNB

Tram Hotel

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Austrian National BankAustrian National Bank Oestereichische National Bank (ONB) Oestereichische National Bank (ONB)

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Federal Reserve Board (FED)Federal Reserve Board (FED)26

Government Sponsored Enterprises Government Sponsored Enterprises (GSE’s)(GSE’s)

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Salzburg Global SeminarSalzburg Global Seminar28

Conservatorship of GSEs - September 7, 2008Conservatorship of GSEs - September 7, 200829

2008 Global Financial Crisis2008 Global Financial CrisisReview of the Carnage…Review of the Carnage…

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2008 Global Financial Crisis2008 Global Financial Crisis

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http://www.cfr.org/world/crisis-guide-global-economy/p19710

New Rules for Global FinanceNew Rules for Global Finance

2008 Global Financial Crisis2008 Global Financial Crisis““The Worst Crisis Since 1929”The Worst Crisis Since 1929”

Commercial Bank Failures in Ireland, UK, IcelandCommercial Bank Failures in Ireland, UK, Iceland Hedge Fund FailuresHedge Fund Failures

Investment Bank Failures or Near FailureInvestment Bank Failures or Near Failure Two GSE’s placed into ConservatorshipTwo GSE’s placed into Conservatorship

Global Insurance Company – CDSGlobal Insurance Company – CDS

Massive U.S. Central Bank & U.S. Treasury Massive U.S. Central Bank & U.S. Treasury Infusion of CapitalInfusion of Capital

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New Rules for Global FinanceNew Rules for Global Finance

Architect's of the Multi-Trillion* Fiscal Bailout

Hank Paulson – U.S. Treasury SecTim Geitner – NY Fed PresidentBen Bernanke – FED Chairman

White House – President’s Bush & Obama

Congress: Chris Dodd-Barney Frank

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Troubled Global Financial InstitutionsTroubled Global Financial Institutions

Northern RockNorthern Rock Bear StearnsBear Stearns

Lehman BrothersLehman Brothers Merrill Lynch Merrill Lynch

Bank of AmericaBank of America

Fannie Mae and Freddie MacFannie Mae and Freddie Mac

Citibank Citibank

AIGAIG

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New Rules for Global Finance: Proposals New Rules for Global Finance: Proposals for Regulatory Reform – Topics: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, ONBEwald Nowotny – Governor, ONB36


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 UnionThe European Union

27 Member Nations

European Council

European Commission

European Central Bank

Maastricst Treaty - 1993

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

The Euro 1€ Coin

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The European Central BankHQ: Frankfort, Germany -- President: Jean-Claude Trichet

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EU Stimulus PlanEU 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 PackageUK Bank Rescue Package

October 2008£500 Billion = $850 Billion

Restore Market Confidence and Stabilize Banks

S-T: Loans & GuaranteesDirect Investment in Bank Capital

Anglo Irish Bank Corp Act 2009

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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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Asian Financial Stability and ReformAsian 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” My SGS A-Ha - OMG Moment”

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Financial Stability Reforms - AsiaFinancial 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 Financial Stability Reforms AsiaAsia

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 - AsiaFinancial Stability Reforms - Asia

ChinaChina Banking Regulatory Commission

Fan Wenzhong

1997 Currency & Crisis (Baht) - Russia LTCM

NPL @ 25% China Hired Banking Experts

New Business Model & Risk Management…

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China Banking Regulatory Commission China Banking Regulatory Commission (CBRC)(CBRC)

Basel III - Already Implemented Staggered Implementation (2019) (12% Average)

Regulatory Agencies Centralized

New Risk Management Metrics: Risk Adjusted-ROE

NPL’s now at 1-2% Capital @ 12%PLL > 200%

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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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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 Gov’t Bond Purchases

Over $3 Trillion…and still countingOver $3 Trillion…and still counting

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U.S. Regulatory ReformU.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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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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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 muchTries to do too much

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So…are the various global So…are the various global regulatory reform regulatory reform

measures good enough to measures good enough to prevent a future crisis?prevent a future crisis?

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NO…

””The proposals are better than we had The proposals are better than we had before, but they do not go far enough”before, but they do not go far enough”

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Salzburg Global Seminar 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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Key TakeawaysKey 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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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 Earn a Reasonable Return on your Investment”Investment”

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*Micawber Principle*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 debtor’s prison after failing to meet his creditor’s demands.

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Questions…Questions…

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Documents

ACA Summit Salzburg Global Seminar