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Friday, October 11, 2013

Strategic CSR - Washington

The article in the url below discusses something that vaguely resembles an effective political process. I had forgotten what that looks like in Washington, so was taken aback as I began to read it:
“In July of last year, senators David Vitter and Sherrod Brown noticed each other across a crowded room. Ben Bernanke, chairman of the Federal Reserve Board of Governors, was testifying to the Senate Banking Committee. Vitter, a conservative Louisiana Republican, and Brown, a liberal Ohio Democrat, were asking the same questions about capital ratios. ‘We were surprised by that,’ says Vitter, ‘so we started comparing notes.’ The notes led to a weekly schedule of direct conversations and staff meeting between their offices. By the end of the summer, Brown and Vitter had co-signed an eight-page letter to Bernanke.”
Genuine, bipartisan cooperation:
“Now the romance has borne a bill, the Terminating Bailouts for Taxpayer Fairness Act. It’s short. It’s simple. Its 24 printed pages, if ever passed into law, would have far greater consequences for the money-center banks than the 848 pages of Dodd-Frank. Banks with assets greater than $500 billion would have to hold equity capital of at least 15 percent. There’s no cheating allowed: Equity-like instruments such as contingent capital won’t count. And the complicated, modeled assessments of different assets known as ‘risk-weighting’ won’t count, either. A dollar at risk will be a dollar at risk. … The bill marks a departure from Basel III, which allows contingent capital and risk weighting, and asks for equity capital of 4.5 percent.”
Not only bipartisan cooperation, but global leadership:
“Asked whether this means pulling out of the Basel negotiations completely, Vitter says ‘Yes, and trying to lead the world … we think Basel II and Basel III are hopelessly complicated. And risk weighting, it’s too easy to be gamed, certainly the versions I’ve seen.’”
Not only bipartisan cooperation and global leadership, but taking a stand against the well-financed lobbyists that often prevent effective legislation from being crafted:
“It’s hard to overstate how significant this is. Large banks got much of what they wanted out of both Dodd Frank and the Basel III negotiations. Complexity in bank regulation favors large organizations, which can pay to throw lawyers at problems. And since the crisis, regulators both in the U.S. and internationally have continued to use banks’ internal models to assess risk. The Brown-Vitter approach does away with the models entirely. A large bank can arrange its risks however it pleases, so long as it holds 15 percent equity.”
As the article’s author concludes (equally shocked):
“This bill is so good and so unambiguous that it’s hard to imagine it becoming law.”
Have a good weekend.
David Chandler & Bill Werther
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Ditch Basel Bank Rules, Just Raise Capital, Vitter Says
By Brendan Greeley
May 1, 2013
Bloomberg Businessweek