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Talking Notes:

• Throughout history, financial regulations and deregulations are cyclical• Because of the difficulty of passing regulations, egregious events must happen

before major regulations are enacted• There is little fine-tuning after regulations are enacted• No effective legislative continuous improvement process• Political changes often initiate a period of deregulation• Destabilizes system• Over time, excesses occur. • The larger the deregulatory change, the shorter the time between deregulation

and new regulations• Regulations enacted again -- reaction

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Talking Notes:

Panic of 1907• 3 weeks in October in 1907• Country was in a recession, stock market had lost approximately 50% from its high

the year before• Trust banks, investment banks, commercial banks• No central bank, no way for any banks to borrow from a central bank• Liquidity crisis, large trucks of money brought in as a sign of stability.• Saved by immense personal investment by key figures – Rockefeller and JP Morgan• Regulatory changes – Federal Reserve Act of 1913, Created the Federal Reserve

central bank system

Great Depression• Multiple causes – stock market crash in 1929, bank failures combined with lack of

spending, tariffs enacted and retaliation• Regulatory changes – Glass Steagall Act separating commercial and investment

banking, Securities Act of 1933 (SEC for new issues), Securities Exchange Act of 1934 (secondary market)

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Talking Notes:

Deregulation 1980-2000• 1980 – Increased deposit insurance from 40 K to 100K• Deregulation of Savings and Loans almost entirely, allowed direct competition

with banks in almost all areas, • By 1987, FSLIC (Federal Savings and Loan Insurance Corporation) was insolvent,

increasing institutional failures. (S&L made increasingly risky investments)• 19994 – allowance of interstate banking and branching• 1999 Glass Steagall totally repealed

Accounting Scandals 2000 – 2006• Totally new financial instruments, highly competitive environment• Accounting firms not separating auditing, consulting• Large ethical and financial scandals (Enron, WorldCom, Tyco) because of financial

lapses and merger/acquisition aggression• Sarbanes-Oxley passed in 2002 -- PCAOB created, mandating auditor

independence, internal control reviews, and financial statement certification• Substantially increased audit fees and oversight

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Talking Notes:

Great Recession 2008• Longer-term effect of 80/90 deregulation• Creative mortgage options – interest only, aggressive variable rate mortgages,

subprime lending• Aggressive marketing to customers, incomplete vetting of mortgages• New mortgage-backed securities, collateralized debt obligations• Near collapse of financial markets• Aggressive government intervention to stabilize

Key provisions of Dodd-Frank• Created Financial Stability Oversight Council to identify risks that can affect the

entire financial industry• Bans banks from hedge funds for profit• Regulates derivatives• Created the Consumer Financial Protection Bureau

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Talking Notes:

• Highly likely we are entering an aggressive deregulatory period• Some will be through executive orders, and that will be the path of choice for the

Trump administration. Whatever deregulation can be done through executive order or Federal agency changes will be done that way

• Regulations requiring congressional collaboration will likely be pursued, however that climate is highly uncertain right now.

• General rule – how regulation came into being is how it must be altered

Prediction?• A matter of time until the pendulum swings• Frank-Dodd will be altered, relaxed• New instruments developed – pressure to sell, tempting to invest in• Other regulations relaxed, some businesses will be highly aggressive• Pressure to keep up• Lobster in water

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Talking Notes:

Business and Personal Ethics are our only defense

Business side –• Leadership is key• Must make a choice early about approach• Principled based discussions – what are key warning signs we need to be looking

out for? Where are our lines? What will we do when there are pressures?• What are ethical processes in place? Code of Ethics – hotlines --

Personal side• Highly difficult situation• Tone at the top may differ from personal comfort• Financial consequences are real• No easy answers – let’s discuss• May be ‘career limiting moves’

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Talking Notes:

Tone at the Top is the most important element

• Are you at the top? If so, what is your commitment? How is it consistently expressed? What could you do better?

• What if you are not at the top? How do you come across in your own actions? • At Rockhurst University, we believe each of us has the capacity to lead, and we are

showing our leadership choices in every situation

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Talking Notes:

Open up for Q&APossible topics are listed above

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