risk management and the unece policy framework michael p. malloy, ph.d. distinguished professor and...
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Risk Management and the Risk Management and the UNECE Policy FrameworkUNECE Policy Framework
Michael P. Malloy, Ph.D.Michael P. Malloy, Ph.D.Distinguished Professor and ScholarDistinguished Professor and Scholar
University of the Pacific McGeorge School of LawUniversity of the Pacific McGeorge School of Law
19 October 201219 October 2012
FIABCI-USA UN Symposium
Raising the Standard of Real Estate Development around the World
Copyright Copyright © 2012 Michael P. Malloy .© 2012 Michael P. Malloy .
Risk Management and the UNECE Policy Framework
Focus on risk management as a fundamental principle of financial services regulation
Risk Management and the UNECE Policy Framework
Focus on risk management as a fundamental principle of financial services regulation
Objectives of FS regulation
Risk Management and the UNECE Policy Framework
Focus on risk management as a fundamental principle of financial services regulation
Objectives of FS regulation Supporting public confidence in the FS sectors
Risk Management and the UNECE Policy Framework
Focus on risk management as a fundamental principle of financial services regulation
Objectives of FS regulation Supporting public confidence in the FS sectors Maintaining safety and soundness in FS sectors
Risk Management and the UNECE Policy Framework
Focus on risk management as a fundamental principle of financial services regulation
Objectives of FS regulation Supporting public confidence in the FS sectors Maintaining safety and soundness in FS sectors Harmonization and efficiency across borders
Risk Management and the UNECE Policy Framework
Focus on risk management as a fundamental principle of financial services regulation
Objectives of FS regulation Supporting public confidence in the FS sectors Maintaining safety and soundness in FS sectors Harmonization and efficiency across borders
Traditional/standard approaches to risk supervision and management
Risk Management and the UNECE Policy Framework
Focus on risk management as a fundamental principle of financial services regulation
Objectives of FS regulation Supporting public confidence in the FS sectors Maintaining safety and soundness in FS sectors Harmonization and efficiency across borders
Traditional/standard approaches to risk supervision and management Examination
Risk Management and the UNECE Policy Framework
Focus on risk management as a fundamental principle of financial services regulation
Objectives of FS regulation Supporting public confidence in the FS sectors Maintaining safety and soundness in FS sectors Harmonization and efficiency across borders
Traditional/standard approaches to risk supervision and management Examination Supervisory standards
Risk Management and the UNECE Policy Framework
Risk analysis and management principles
Risk Management and the UNECE Policy Framework
Risk analysis and management principles Risk-weighted capital adequacy standards (Basel I and
its sequels)
Risk Management and the UNECE Policy Framework
Risk analysis and management principles Risk-weighted capital adequacy standards (Basel I and
its sequels) Stress testing
Risk Management and the UNECE Policy Framework
Stress Testing
Risk Management and the UNECE Policy Framework
Risk analysis and management principles Risk-weighted capital adequacy standards (Basel I and
its sequels) Stress testing
Blind spots in traditional approaches
Risk Management and the UNECE Policy Framework
Risk analysis and management principles Risk-weighted capital adequacy standards (Basel I and
its sequels) Stress testing
Blind spots in traditional approaches Limitations of risk analysis and management
Risk Management and the UNECE Policy Framework
Risk analysis and management principles Risk-weighted capital adequacy standards (Basel I and
its sequels) Stress testing
Blind spots in traditional approaches Limitations of risk analysis and management Complexity of U.S. regulatory structure
Risk Management and the UNECE Policy Framework
UNECE Policy Framework makes an important contribution to the twin objectives of FS regulation
Risk Management and the UNECE Policy Framework
UNECE Policy Framework makes an important contribution to the twin objectives of FS regulation Rigorous analytical foundation to the evaluation of an
extremely significant asset category
Risk Management and the UNECE Policy Framework
UNECE Policy Framework makes an important contribution to the twin objectives of FS regulation Rigorous analytical foundation to the evaluation of an
extremely significant asset category Framework Principles provide a conceptual structure
that other risk management approaches cannot match
Risk Management and the UNECE Policy Framework
UNECE Policy Framework Integrated national framework harmonized with regional and
international norms Efficient registration system Necessity of consistency with “rule of law,” including local practice Recognition of the role of real estate in economic development Clarity in financial and investment rules Access to credit, including mortgages and microfinance Transparency and credible valuation rules, particularly in advanced
financial products Credible appraisal criteria Recognition of the social policy dimension of real estate Necessity of professional development within the industry
Risk Management and the UNECE Policy Framework
UNECE Policy Framework Integrated national framework harmonized with regional and
international norms Efficient registration system Necessity of consistency with “rule of law,” including local practice Recognition of the role of real estate in economic development Clarity in financial and investment rules Access to credit, including mortgages and microfinance Transparency and credible valuation rules, particularly in advanced
financial products Credible appraisal criteria Recognition of the social policy dimension of real estate Necessity of professional development within the industry
Risk Management and the UNECE Policy Framework
UNECE Policy Framework Integrated national framework harmonized with regional and
international norms Efficient registration system Necessity of consistency with “rule of law,” including local practice Recognition of the role of real estate in economic development Clarity in financial and investment rules Access to credit, including mortgages and microfinance Transparency and credible valuation rules, particularly in advanced
financial products Credible appraisal criteria Recognition of the social policy dimension of real estate Necessity of professional development within the industry
Risk Management and the UNECE Policy Framework
UNECE Policy Framework Integrated national framework harmonized with regional and
international norms Efficient registration system Necessity of consistency with “rule of law,” including local practice Recognition of the role of real estate in economic development Clarity in financial and investment rules Access to credit, including mortgages and microfinance Transparency and credible valuation rules, particularly in advanced
financial products Credible appraisal criteria Recognition of the social policy dimension of real estate Necessity of professional development within the industry
Risk Management and the UNECE Policy Framework
UNECE Policy Framework Integrated national framework harmonized with regional and
international norms Efficient registration system Necessity of consistency with “rule of law,” including local practice Recognition of the role of real estate in economic development Clarity in financial and investment rules Access to credit, including mortgages and microfinance Transparency and credible valuation rules, particularly in advanced
financial products Credible appraisal criteria Recognition of the social policy dimension of real estate Necessity of professional development within the industry
Risk Management and the UNECE Policy Framework
UNECE Policy Framework Integrated national framework harmonized with regional and
international norms Efficient registration system Necessity of consistency with “rule of law,” including local practice Recognition of the role of real estate in economic development Clarity in financial and investment rules Access to credit, including mortgages and microfinance Transparency and credible valuation rules, particularly in advanced
financial products Credible appraisal criteria Recognition of the social policy dimension of real estate Necessity of professional development within the industry
Risk Management and the UNECE Policy Framework
UNECE Policy Framework Integrated national framework harmonized with regional and
international norms Efficient registration system Necessity of consistency with “rule of law,” including local practice Recognition of the role of real estate in economic development Clarity in financial and investment rules Access to credit, including mortgages and microfinance Transparency and credible valuation rules, particularly in advanced
financial products Credible appraisal criteria Recognition of the social policy dimension of real estate Necessity of professional development within the industry
Risk Management and the UNECE Policy Framework
Complexity of U.S. Regulatory Structure
Tour d’horizon Tour d’horizon of U.S. Regulatory Structureof U.S. Regulatory Structure(excluding Investment Firms and Securities Firms)(excluding Investment Firms and Securities Firms)
Federal Reserve Board (FRB) → SSFIs
Secretary of the Treasury Securities & Exchange Commission (SEC)
State Regulators → Holding ← Department of Justice [DOJ]
State Regulators Companies
|
FRB → Depository ← SEC
Office of the Comptroller of the Currency (OCC) Institutions DOJ
_____________________________________|___________________________________________
| | |
Commercial ← FDIC → Savings NCUA → Credit
Banks (insurer) Associations Unions
______|_____ _____________________|__________________ __|__
| | | | | |
State National Savings & Loan ← OCC → Savings State Federal
________|_____ ↑ ↑ Associations if insured Banks ↑ ↑
| | OCC FRB _____|_______ _____|______ State NCUA
FRS FRS | | | | Regulator
Member non-member State Federal State Federal
↑ ↑ | | | | | | | |
FRB, FDIC, State Mutual Stock Mutual Stock Mutual Stock Mutual Stock
State Regulator ↑ ↑ ↑ ↑
Regulator FDIC, State OCC State OCC
Regulator Regulator
Risk Management and the UNECE Policy Framework
Origins of the Meltdown of
U.S. Financial Services Markets
Risk Management and the UNECE Policy Framework
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Risk Management and the UNECE Policy Framework
Identifying Key Regulatory and Supervisory
Problems The Death of Consumer Protection
Structural Problems in Regulation and
Supervision
Risk Management and the UNECE Policy Framework
Identifying Key Regulatory and Supervisory
Problems The Death of Consumer Protection Structural Problems in Regulation and
Supervision
Risk Management and the UNECE Policy Framework
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Structural gaps in regulation make for ineffective oversight
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
U.S. Financial Regulatory System ― pre-DFAU.S. Financial Regulatory System ― pre-DFA(excluding Investment Firms and Securities Firms)(excluding Investment Firms and Securities Firms)
Federal Reserve Board (FRB)
Secretary of the Treasury Securities & Exchange Commission (SEC)
Office of Thrift Supervision (OTS) → Holding ← Department of Justice [DOJ]
State Regulators Companies
|
FRB → Depository ← SEC
Office of the Comptroller of the Currency (OCC) Institutions DOJ
_____________________________________|___________________________________________
| | |
Commercial ← FDIC → Savings NCUA → Credit
Banks (insurer) Associations Unions
______|_____ _____________________|__________________ __|__
| | | | | |
State National Savings & Loan ← OTS, → Savings State Federal
________|_____ ↑ ↑ Associations if insured Banks ↑ ↑
| | OCC FRB _____|_______ _____|______ State NCUA
FRS FRS | | | | Regulator
Member non-member State Federal State Federal
↑ ↑ | | | | | | | |
FRB, State Mutual Stock Mutual Stock Mutual Stock Mutual Stock
State Regulator ↑ ↑ ↑ ↑
Regulator State OTS State OTS
Regulator Regulator
Risk Management and the UNECE Policy Framework
Two-Tiered StructureTwo-Tiered Structure
Secretary of the Treasury Securities & Exchange Commission (SEC)
Office of Thrift Supervision (OTS) → Holding ← Department of Justice [DOJ]
State Regulators Companies
|
FRB → Depository ← SEC
Office of the Comptroller of the Currency (OCC) Institutions DOJ
_____________________________________|___________________________________________
| | |
Commercial ← FDIC → Savings NCUA → Credit
Banks (insurer) Associations Unions
______|_____ _____________________|__________________ __|__
| | | | | |
State National Savings & Loan ← OTS, → Savings State Federal
________|_____ ↑ ↑ Associations if insured Banks ↑ ↑
| | OCC FRB _____|_______ _____|______ State NCUA
FRS FRS | | | | Regulator
Member non-member State Federal State Federal
↑ ↑ | | | | | | | |
FRB, State Mutual Stock Mutual Stock Mutual Stock Mutual Stock
State Regulator ↑ ↑ ↑ ↑
Regulator State OTS State OTS
Regulator Regulator
Risk Management and the UNECE Policy Framework
Formal Multiplicity of DepositoriesFormal Multiplicity of Depositories
Federal Reserve Board (FRB)
Secretary of the Treasury Securities & Exchange Commission (SEC)
Office of Thrift Supervision (OTS) → Holding ← Department of Justice [DOJ]
State Regulators Companies
|
FRB → Depository ← SEC
Office of the Comptroller of the Currency (OCC) Institutions DOJ
_____________________________________|___________________________________________
| | |
Commercial ← FDIC → Savings NCUA → Credit
Banks (insurer) Associations Unions
______|_____ _____________________|__________________ __|__
| | | | | |
State National Savings & Loan ← OTS, → Savings State Federal
________|_____ ↑ ↑ Associations if insured Banks ↑ ↑
| | OCC FRB _____|_______ _____|______ State NCUA
FRS FRS | | | | Regulator
Member non-member State Federal State Federal
↑ ↑ | | | | | | | |
FRB, State Mutual Stock Mutual Stock Mutual Stock Mutual Stock
State Regulator ↑ ↑ ↑ ↑
Regulator State OTS State OTS
Regulator Regulator
Risk Management and the UNECE Policy Framework
Multiplicity of Chartering AuthoritiesMultiplicity of Chartering Authorities
Federal Reserve Board (FRB)
Secretary of the Treasury Securities & Exchange Commission (SEC)
Office of Thrift Supervision (OTS) → Holding ← Department of Justice [DOJ]
State Regulators Companies
|
FRB → Depository ← SEC
Office of the Comptroller of the Currency (OCC) Institutions DOJ
_____________________________________|___________________________________________
| | |
Commercial ← FDIC → Savings NCUA → Credit
Banks (insurer) Associations Unions
______|_____ _____________________|__________________ __|__
| | | | | |
State National Savings & Loan ← OTS, → Savings State Federal
________↑ ____ ↑ ↑ Associations if insured Banks ↑ ↑
| State | OCC FRB _____|_______ _____|______ State NCUA
FRS Regulator RS | | | | Regulator
Member non-member State Federal State Federal
↑ ↑ | | | | | | | |
FRB, State Mutual Stock Mutual Stock Mutual Stock Mutual Stock
State Regulator ↑ ↑ ↑ ↑
Regulator State OTS State OTS
Regulator Regulator
Risk Management and the UNECE Policy Framework
Two Deposit InsurersTwo Deposit Insurers
Federal Reserve Board (FRB)
Secretary of the Treasury Securities & Exchange Commission (SEC)
Office of Thrift Supervision (OTS) → Holding ← Department of Justice [DOJ]
State Regulators Companies
|
FRB → Depository ← SEC
Office of the Comptroller of the Currency (OCC) Institutions DOJ
_____________________________________|___________________________________________
| | |
Commercial ← FDIC → Savings NCUA → Credit
Banks (insurer) Associations Unions
______|_____ _____________________|__________________ __|__
| | | | | |
State National Savings & Loan ← OTS, → Savings State Federal
________|_____ ↑ ↑ Associations if insured Banks ↑ ↑
| | OCC FRB _____|_______ _____|______ State NCUA
FRS FRS | | | | Regulator
Member non-member State Federal State Federal
↑ ↑ | | | | | | | |
FRB, State Mutual Stock Mutual Stock Mutual Stock Mutual Stock
State Regulator ↑ ↑ ↑ ↑
Regulator State OTS State OTS
Regulator Regulator
Risk Management and the UNECE Policy Framework
Federal Regulators of Depository Institution SecuritiesFederal Regulators of Depository Institution Securities
Federal Reserve Board (FRB)
Secretary of the Treasury Securities & Exchange Commission (SEC)
Office of Thrift Supervision (OTS) → Holding ← Department of Justice [DOJ]
State Regulators Companies
|
FRB → Depository ← SEC
Office of the Comptroller of the Currency (OCC) Institutions DOJ
______________________________________|
| | |
Commercial ← FDIC → Savings NCUA → Credit
Banks (insurer) Associations Unions
______|_____ _____________________|__________________ __|__
| | | | | |
State National Savings & Loan ← OTS, → Savings State Federal
________|_____ ↑ ↑ Associations if insured Banks ↑ ↑
| | OCC FRB _____|_______ _____|______ State NCUA
FRS FRS | | | | Regulator
Member non-member State Federal State Federal
↑ ↑ | | | | | | | |
FRB, FDIC Mutual Stock Mutual Stock Mutual Stock Mutual Stock
State Regulator ↑ ↑ ↑ ↑
Regulator State OTS State OTS
Regulator Regulator
Risk Management and the UNECE Policy Framework
Federal Regulators of Securities ActivitiesFederal Regulators of Securities Activities
Federal Reserve Board (FRB)
Secretary of the Treasury Securities & Exchange Commission (SEC)
Office of Thrift Supervision (OTS) → Holding ← Department of Justice [DOJ]
State Regulators Companies
|
FRB → Depository ← SEC
Office of the Comptroller of thurrency (OCC) Institutions DOJ
_____________________________________| ___________________________________________
| | |
Commercial ← FDIC → Savings NCUA → Credit
Banks (insurer) Associations Unions
______|_____ _____________________|__________________ __|__
| | | | | |
State National Savings & Loan ← OOTS → → Savings State Federal
________|_____ ↑ ↑ Associations f insured Banks ↑ ↑
| | OCC FRB _____|_______ _____|______ State NCUA
FRS FRS | | | | Regulator
Member non-member State Federal State Federal
↑ ↑ | | | | | | | |
FRB, FDIC tate Mutual Stock Mutual Stock Mutual Stock Mutual Stock
State Regulator ↑ ↑ ↑ ↑
Regulator State OTS State OTS
Regulator Regulator
Risk Management and the UNECE Policy Framework
Origins of the Meltdown of
U.S. Financial Services Markets
Identifying Key Regulatory and Supervisory
Problems The Death of Consumer Protection Structural Problems in Regulation and
Supervision Failure of “Safety and Soundness” (“Prudential”)
Supervision
Risk Management and the UNECE Policy Framework
MortgageFinance
Companies,Banks and
Other Lenders(Mortgagees)
InstitutionalInvestors
MortgageFinance
Companies,Banks and
Other Lenders
Credit RatingAgencies
InvestmentBanks
Home Buyers(Mortgagors)
SubprimeMortgage
Market
MortgageTo Lender
SubprimeLoans Lenders
to Home PackageOwner (“securitize”)
or Buyer SubprimeLoans
Proceeds of CDOSales Fund Collateralized
Increasing Debt Obligations
Loans (“CDOs”)Marketed
Failure of “safety and soundness” supervision by the federal banking regulators
Risk Management and the UNECE Policy Framework
Home Buyers (Mortgagors)Appraisers
Anatomy of a Meltdown:Some Empirical Observations
on the Social Utility of Financial Services
and the Housing Market
Risk Management and the UNECE Policy Framework
Risk Management and the UNECE Policy Framework
Risk Management and the UNECE Policy Framework
Risk Management and the UNECE Policy Framework
Risk Management and the UNECE Policy Framework
Risk Management and the UNECE Policy Framework
•Lags in market reaction
Risk Management and the UNECE Policy Framework
•Lags in market reaction•Counterintuitive price movement
Risk Management and the UNECE Policy Framework
•Lags in market reaction•Counterintuitive price movement•Slide into collapse
Risk Management and the UNECE Policy Framework
•Lags in market reaction•Counterintuitive price movement•Slide into collapse•Persisting bankruptcy
Risk Management and the UNECE Policy Framework
Risk Management and the UNECE Policy Framework
•Lags in market reaction
Risk Management and the UNECE Policy Framework
•Lags in market reaction•Counterintuitive price movement
Risk Management and the UNECE Policy Framework
•Lags in market reaction•Counterintuitive price movement•Abrupt collapse
Risk Management and the UNECE Policy Framework
•Lags in market reaction•Counterintuitive price movement•Abrupt collapse•Swift return to operations (after JPMorgan Chase acquisition)
Risk Management and the UNECE Policy Framework
Risk Management and the UNECE Policy Framework
“Centralized Approach”
Risk Management and the UNECE Policy Framework
“Centralized Approach”
● Programmatic
Risk Management and the UNECE Policy Framework
“Centralized Approach”
● Programmatic
● Macroeconomic
Risk Management and the UNECE Policy Framework
“Centralized Approach”
● Programmatic
● Macroeconomic
● Prolonged
Risk Management and the UNECE Policy Framework
“Centralized Approach”
● Programmatic
● Macroeconomic
● Prolonged
● Favors large, institutional interests
Risk Management and the UNECE Policy Framework
“Centralized Approach”
● Programmatic
● Macroeconomic
● Prolonged
● Favors large, institutional interests
“Case Resolution Approach”
Risk Management and the UNECE Policy Framework
“Centralized Approach”
● Programmatic
● Macroeconomic
● Prolonged
● Favors large, institutional interests
“Case Resolution Approach”
● Individualized
Risk Management and the UNECE Policy Framework
“Centralized Approach”
● Programmatic
● Macroeconomic
● Prolonged
● Favors large, institutional interests
“Case Resolution Approach”
● Individualized
● Microeconomic
Risk Management and the UNECE Policy Framework
“Centralized Approach”
● Programmatic
● Macroeconomic
● Prolonged
● Favors large, institutional interests
“Case Resolution Approach”
● Individualized
● Microeconomic
● Swift turnaround
Risk Management and the UNECE Policy Framework
“Centralized Approach”
● Programmatic
● Macroeconomic
● Prolonged
● Favors large, institutional interests
“Case Resolution Approach”
● Individualized
● Microeconomic
● Swift turnaround
● Emphasizes interests of depositors and borrowers
Risk Management and the UNECE Policy Framework
Dodd-Frank Act (“DFA”) and the
current status of its implementation
Risk Management and the UNECE Policy Framework
Essential structural problems persist
Risk Management and the UNECE Policy Framework
U.S. Regulatory Structure post-DFAU.S. Regulatory Structure post-DFA(excluding Investment Firms and Securities Firms)(excluding Investment Firms and Securities Firms)
Federal Reserve Board (FRB) → SSFIs,
Secretary of the Treasury Securities & Exchange Commission (SEC)
State Regulators → Holding ← Department of Justice [DOJ]
State Regulators Companies
|
FRB → Depository ← SEC
Office of the Comptroller of the Currency (OCC) Institutions DOJ
_____________________________________|___________________________________________
| | |
Commercial ← FDIC → Savings NCUA → Credit
Banks (insurer) Associations Unions
______|_____ _____________________|__________________ __|__
| | | | | |
State National Savings & Loan ← OCC → Savings State Federal
________|_____ ↑ ↑ Associations if insured Banks ↑ ↑
| | OCC FRB _____|_______ _____|______ State NCUA
FRS FRS | | | | Regulator
Member non-member State Federal State Federal
↑ ↑ | | | | | | | |
FRB, State Mutual Stock Mutual Stock Mutual Stock Mutual Stock
State Regulator ↑ ↑ ↑ ↑
Regulator FDIC, State OCC FDIC, State OCC
Regulator Regulator
Risk Management and the UNECE Policy Framework
U.S. Regulatory Structure post-DFAU.S. Regulatory Structure post-DFA(excluding Investment Firms and Securities Firms)(excluding Investment Firms and Securities Firms)
Federal Reserve Board (FRB) → SSFIs,
Secretary of the Treasury Securities & Exchange Commission (SEC)
State Regulators → Holding ← Department of Justice [DOJ]
State Regulators Companies
|
FRB → Depository ← SEC
Office of the Comptroller of the Currency (OCC) Institutions DOJ
_____________________________________|___________________________________________
| | |
Commercial ← FDIC → Savings NCUA → Credit
Banks (insurer) Associations Unions
______|_____ _____________________|__________________ __|__
| | | | | |
State National Savings & Loan ← OCC → Savings State Federal
________|_____ ↑ ↑ Associations if insured Banks ↑ ↑
| | OCC FRB _____|_______ _____|______ State NCUA
FRS FRS | | | | Regulator
Member non-member State Federal State Federal
↑ ↑ | | | | | | | |
FRB, State Mutual Stock Mutual Stock Mutual Stock Mutual Stock
State Regulator ↑ ↑ ↑ ↑
Regulator FDIC, State OCC FDIC, State OCC
Regulator Regulator
Risk Management and the UNECE Policy Framework
U.S. Regulatory Structure post-DFAU.S. Regulatory Structure post-DFA(excluding Investment Firms and Securities Firms)(excluding Investment Firms and Securities Firms)
Federal Reserve Board (FRB) → SSFIs,
Secretary of the Treasury Securities & Exchange Commission (SEC)
State Regulators → Holding ← Department of Justice [DOJ]
State Regulators Companies
|
FRB → Depository ← SEC
Office of the Comptroller of the Currency (OCC) Institutions DOJ
_____________________________________|___________________________________________
| | |
Commercial ← FDIC → Savings NCUA → Credit
Banks (insurer) Associations Unions
______|_____ _____________________|__________________ __|__
| | | | | |
State National Savings & Loan ← OCC → Savings State Federal
________|_____ ↑ ↑ Associations if insured Banks ↑ ↑
| | OCC FRB _____|_______ _____|______ State NCUA
FRS FRS | | | | Regulator
Member non-member State Federal State Federal
↑ ↑ | | | | | | | |
FRB, State Mutual Stock Mutual Stock Mutual Stock Mutual Stock
State Regulator ↑ ↑ ↑ ↑
Regulator FDIC, State OCC FDIC, State OCC
Regulator Regulator
Risk Management and the UNECE Policy Framework
Risk Management and the UNECE Policy Framework
Mortgage Market Regulators – pre-DFA
FSOC
Post-Dodd-Frank
& CFTC
CFPB
Risk Management and the UNECE Policy Framework
Mortgage Market Regulators – post-DFA
Essential structural problems persist DFA delayed its own effectiveness for at least
one year, and as much as two years, now further slowed by regulatory delays
Risk Management and the UNECE Policy Framework
Essential structural problems persist DFA delayed its own effectiveness for at least
one year, and as much as two years, now further slowed by regulatory delays
Does not address operations of government-sponsored housing finance enterprises Fannie Mae and Freddie Mac, reform of the mortgage markets, or the foreclosure crisis
Risk Management and the UNECE Policy Framework
Selective approach to resolution of failures of “systemically significant,” nonbanking firms is untested, ad hoc, and prone to public choice dilemmas
Risk Management and the UNECE Policy Framework
NOW LET THESE
PEOPLE ASK
SOME
QUESTIONS !
AND LET THESE
PEOPLE ASK
SOME
QUESTIONS !
GOOD IDEA !
ROLL THE CREDITS !
Risk Management and the Risk Management and the UNECE Policy FrameworkUNECE Policy Framework
THANK YOU! ..
Risk Management and the Risk Management and the UNECE Policy FrameworkUNECE Policy Framework
malloympm@aol.com
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