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ACA Summit Salzburg Global Seminar. “New Rules for Global Finance” Nicholas W. Conger (WVWC) & Nora Myers (UCWV) October 15, 2011. Appalachian College Association (ACA) Mellon Foundation Fellowship. Salzburg Global Seminar. Austria. Austria. Austrian Alps – The Sound of Music. - PowerPoint PPT Presentation
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ACA SummitACA Summit Salzburg Global Seminar Salzburg Global Seminar
“New Rules for Global Finance”
Nicholas W. Conger (WVWC) & Nora Myers (UCWV)October 15, 2011
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Salzburg Global SeminarSalzburg Global Seminar
Appalachian College Association (ACA)
Mellon Foundation Fellowship
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AustriaAustria 3
AustriaAustria4
Austrian Alps – The Sound of MusicAustrian Alps – The Sound of Music5
Grand Tetons National ParkGrand Tetons National ParkWyomingWyoming
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Salzburg Global SeminarSalzburg Global Seminar7
Schloss LibrarySchloss Library8
Schloss Dining RoomSchloss Dining Room9
Weiner SchnitzelWeiner Schnitzel10
Apple Strudel…but…Apple Strudel…but…11
Salzburg Global SeminarSalzburg Global Seminar
Vienna, Austria-
1st Time in Vienna
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Belvedere Palace – Prince EugeneBelvedere Palace – Prince Eugene13
City HallCity Hall14
Schonbrunn Palace - Hapsburg Schonbrunn Palace - Hapsburg 15
St. Stephens CathedralSt. Stephens Cathedral 16
Vienna Opera HouseVienna Opera House17
Vienna Opera HouseVienna Opera House18
University of Vienna University of Vienna Universität WienUniversität Wien
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Vienna National LibraryVienna National Library20
Bratwurst & Sauer KrautBratwurst & Sauer Kraut21
Café Sacher & Sacher TortCafé Sacher & Sacher Tort22
Viennese CoffeeViennese Coffee23
Hotel & Tram to VNBHotel & Tram to VNB
Tram Hotel
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Austrian National BankAustrian National Bank Oestereichische National Bank (ONB) Oestereichische National Bank (ONB)
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Federal Reserve Board (FED)Federal Reserve Board (FED)26
Government Sponsored Enterprises Government Sponsored Enterprises (GSE’s)(GSE’s)
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Salzburg Global SeminarSalzburg Global Seminar28
Conservatorship of GSEs - September 7, 2008Conservatorship of GSEs - September 7, 200829
2008 Global Financial Crisis2008 Global Financial CrisisReview of the Carnage…Review of the Carnage…
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2008 Global Financial Crisis2008 Global Financial Crisis
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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
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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
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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
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Salzburg Global SeminarSalzburg Global Seminar
Salzburg Global SeminarSalzburg Global Seminar
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
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Ewald Nowotny – Governor, ONBEwald Nowotny – Governor, ONB36
Salzburg Global SeminarSalzburg Global Seminar
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…
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The European UnionThe European Union
27 Member Nations
European Council
European Commission
European Central Bank
Maastricst Treaty - 1993
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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
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The European Central BankHQ: Frankfort, Germany -- President: Jean-Claude Trichet
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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)
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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
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Salzburg Global SeminarSalzburg Global Seminar
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”
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Salzburg Global SeminarSalzburg Global Seminar
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”
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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
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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)
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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…
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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%
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Salzburg Global SeminarSalzburg Global Seminar
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
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Salzburg Global SeminarSalzburg Global Seminar
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
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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.
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U.S. Regulatory ReformU.S. Regulatory Reform
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)
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U.S. Regulatory ReformU.S. Regulatory Reform
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
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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?
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Salzburg Global SeminarSalzburg Global Seminar
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”
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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
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Salzburg Global SeminarSalzburg Global Seminar
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
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Salzburg Global SeminarSalzburg Global Seminar
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”
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*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.
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Salzburg Global SeminarSalzburg Global Seminar
Questions…Questions…
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