Harvard Kennedy School Senior Fellow Antonio Weiss
One of the central pillars of financial reform, the Financial Stability Oversight Council (FSOC), is under political attack and at risk of coming undone.
In the past, the balkanized U.S. financial regulatory system has consistently failed to address risks that took root in its jurisdictional gaps. The FSOC was created to solve that problem, bringing regulators together to make sure they have the tools to protect the economy from financial crises. It is already making an important difference.
Unfortunately, earlier this month the House Financial Services Committee passed the Financial Choice Act (CHOICE Act), which threatens to reverse that progress. It would, for example, all but eliminate the FSOC’s ability to prevent the regrowth of an unsupervised shadow banking sector that might once again threaten our financial stability and economic resiliency. At the same time, the administration of President Donald Trump has signaled that it may use the council to pursue deregulation, rather than its core mandate of financial stability, and to reverse or limit its ability to designate systemically important non-banks for enhanced supervision. Meanwhile, MetLife Inc., the largest U.S. life insurer, recently asked the courts to delay ruling on an appeal filed by the Obama administration seeking to reinstate the firm’s designation as a systemically important institution requiring prudential oversight by the Federal Reserve. The Trump administration has agreed to put the appeal on hold.
“Are new regulations creating new problems for the housing market?”
“Has the federal government now become the subprime market?”
“Could the financial crisis happen again any time soon?”
These were just a few of the questions tackled by Deborah Lucas, the Distinguished Professor of Finance at MIT’s Sloan School of Management and the Director of the MIT Golub Center for Finance and Policy, during the #MITSloanExperts Twitter chat on October 30.
Joined by host Amy Resnick, editor of Pensions & Investments, she asked Lucas questions about the future of financial regulation and housing market finance reform, as well as ideas for fostering stronger ties between the regulatory and the academic communities.
Did you miss the chat? That’s OK, but we’ve encapsulated everything in the Storify below.
After much speculation, President Trump has announced his pick to lead the Federal Reserve System: Jerome “Jay” Powell. How should we think about this appointment in the context of the overall Trump administration thinking on financial regulation?
Trump slammed Wall Street throughout his campaign, asserting big banks had “gotten away with murder.” The Republican National Convention platform even mentioned a new Glass-Steagall (the Great Depression-era restriction on banks’ activities). Still, many questioned whether the Trump administration, including Powell, was committed to implementing policies tough on global megabanks.
The answer is no.
There are actually two Trump administrations. One, which attempts to deal with issues that require legislation, like health care, is having trouble making progress. But the second, which can change the rules of regulation, is moving full-steam ahead. We can already see the ground being cleared for a major round of financial deregulation.
There are three important signs of intent when it comes to finance. First, the top people on economic policy in the White House and at Treasury have all worked on Wall Street — and mostly at one big bank, Goldman Sachs. Gary Cohn, the former Goldman Sachs president, is chairman of Trump’s National Economic Council, and he has brought in a team that apparently is running the show in terms of policy. Cohn has made his intentions clear: He wants to rollback regulation.
Former SEC Chief Economist and MIT Golub Center Senior Fellow Chester Spatt
Our latest installment of the MIT Sloan Experts Series includes a live conversation with former SEC Chief Economist and MIT Golub Center Senior Fellow Chester Spattand Golub Center Director and Professor of Finance Deborah Lucas.
As the 10-year anniversary of the great financial crisis approaches, the program seeks to answer two questions: what have we learned? And have we made enough progress to prevent a repeat of something similar? Chester and Deborah will discuss financial regulation and housing market finance reform, and share their ideas for fostering stronger ties between the regulatory and the academic communities and what lies ahead
MIT Sloan Prof. and Golub Center Director Deborah Lucas
Laurie Goodman,co-director of the Housing Finance Policy Center at the Urban Institute also appears on the program to talk about the housing shortage and housing finance reform.
Benchmarks are heavily wired into modern financial markets. For example, trillions of dollars in bank loans and several hundred trillion dollars (notional) of derivatives transactions depend on daily announcements of LIBOR. The WM/Reuters foreign exchange fixings dominate the currency markets, in which there are over $5 trillion of transactions per day. Benchmarks are the basis for trade of a wide range of commodities such as gold, silver, oil, and natural gas. They have also been the focus of scandals (Brousseau et al. 2013).