ACA Summit Salzburg Global Seminar “New Rules for Global Finance”

ACA SummitACA Summit Salzburg Global Seminar Salzburg Global Seminar

“New Rules for Global “New Rules for Global Finance”Finance”

Nicholas W. Conger (WVWC) & Nora Myers (UCWV)Nicholas W. Conger (WVWC) & Nora Myers (UCWV)

October 15, 2011Ashville, North Carolina

1

ACA Member InstitutionsACA Member Institutions

WVWC UCWV

2

Salzburg Global SeminarSalzburg Global Seminar

Appalachian College Association (ACA)

Mellon Foundation Fellowship

3

AustriaAustria 4

AustriaAustria5

Austrian Alps – The Sound of MusicAustrian Alps – The Sound of Music6

Grand Tetons National ParkGrand Tetons National ParkWyomingWyoming

7

Salzburg Global SeminarSalzburg Global Seminar8

Schloss LibrarySchloss Library9

Schloss Dining RoomSchloss Dining Room10

Weiner SchnitzelWeiner Schnitzel11

Apple Strudel…but…Apple Strudel…but…12


Vienna, Austria-

1st Time in Vienna

13

Belvedere Palace – Prince EugeneBelvedere Palace – Prince Eugene14

City HallCity Hall15

Schonbrunn Palace - Hapsburg Schonbrunn Palace - Hapsburg 16

St. Stephens CathedralSt. Stephens Cathedral 17

Vienna Opera HouseVienna Opera House18

Vienna Opera HouseVienna Opera House19

University of Vienna University of Vienna Universität WienUniversität Wien

20

Vienna National LibraryVienna National Library21

Bratwurst & Sauer KrautBratwurst & Sauer Kraut22

Café Sacher & Sacher TortCafé Sacher & Sacher Tort23

Viennese CoffeeViennese Coffee24

Hotel & Tram to VNBHotel & Tram to VNB

Tram Hotel

25

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

26

Federal Reserve Board (FED)Federal Reserve Board (FED)27

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

28

Salzburg Global SeminarSalzburg Global Seminar29

Conservatorship of GSEs - September 7, 2008Conservatorship of GSEs - September 7, 200830

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

31

2008 Global Financial Crisis2008 Global Financial Crisis

32

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

33

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

34

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

35



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

36

Ewald Nowotny – Governor, ONBEwald Nowotny – Governor, ONB37


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…

38

The European UnionThe European Union

27 Member Nations

European Council

European Commission

European Central Bank

Maastricht Treaty - 1993

39

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

40

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

41

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)

42

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

43


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”

44


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”

45

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

46

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)

47

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…

48

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%

49


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

50


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

51

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.

52


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)

53


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

54

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?

55


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”

56

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

57


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

58


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”

59

*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.

60


Questions…Questions…

61

ACA Summit Salzburg Global Seminar “New Rules for Global Finance”

Documents

Transcript of ACA Summit Salzburg Global Seminar “New Rules for Global Finance”