Managing to the new regulatory reality : doing business under the Dodd-Frank Act

369 Pages·2011·3.083 MB·English

by  Gregory P Wilson

Managing to the
New Regulatory
Reality
Founded in 1807, John Wiley & Sons is the oldest independent publishing
company in the United States. With offi ces in North America, Europe,
Australia, and Asia, Wiley is globally committed to developing and
marketing print and electronic products and services for our customers’
professional and personal knowledge and understanding.
The Wiley Finance series contains books written specifi cally for fi nance
and investment professionals as well as sophisticated individual investors
and their fi nancial advisors. Book topics range from portfolio management
to e-commerce, risk management, fi nancial engineering, valuation, and
fi nancial instrument analysis, as well as much more.
For a list of available titles, please visit our Web site at www.Wiley
Finance.com.
Managing to the
New Regulatory
Reality
Doing Business under the
Dodd-Frank Act
GREGORY P. WILSON
John Wiley & Sons, Inc.
Copyright © 2011 by Gregory P. Wilson. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted
in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or
otherwise, except as permitted under Section 107 or 108 of the 1976 United States
Copyright Act, without either the prior written permission of the Publisher, or authorization
through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc.,
222 Rosewood Drive, Danvers, MA 01923, (978) 750–8400, fax [phone], or
on the Web at www.copyright.com. Requests to the Publisher for permission should be
addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street,
Hoboken, NJ 07030, (201) 748–6011, fax [phone], or online at http://www.wiley
.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their
best efforts in preparing this book, they make no representations or warranties with respect
to the accuracy or completeness of the contents of this book and specifi cally disclaim any
implied warranties of merchantability or fi tness for a particular purpose. No warranty may
be created or extended by sales representatives or written sales materials. The advice and
strategies contained herein may not be suitable for your situation. You should consult with
a professional where appropriate. Neither the publisher nor author shall be liable for any
loss of profi t or any other commercial damages, including but not limited to special,
incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please
contact our Customer Care Department within the United States at (800) 762–2974,
outside the United States at (317) 572–3993 or fax [phone].
Wiley also publishes its books in a variety of electronic formats. Some content that appears
in print may not be available in electronic books. For more information about Wiley
products, visit our web site at www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
Wilson, Gregory P.
Managing to the new regulatory reality : doing business under the Dodd-Frank Act /
Gregory P. Wilson.
p. cm. – (Wiley fi nance ; 611)
Includes bibliographical references and index.
ISBN 978-0-470-87439-4 (book); ISBN 978-1-118-02298-6 (ebk); ISBN 978-1-118-
02299-3(ebk); ISBN 978-1-118-02300-6 (ebk)
1. Financial services industry–Government policy–United States. 2. Financial services
industry–State supervision–United States. 3. United States–Economic
policy–2009- I. Title.
HG181.W55 2011
332.1068'1–dc22
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
To those millions of unfortunate innocents around the world who lost
their wealth, their jobs, and their homes, and who suffered
unnecessarily as a result of a global fi nancial crisis that was
caused by humans, should not have happened, and
could have been prevented.
Contents
Foreword xiii
List of Acronyms xv
Preface xvii
PART ONE
Understanding the Immediate Political Reactions 1
CHAPTER 1
Immediate U.S. Reaction: The Emergency Economic Stabilization
Act of 2008 3
All Roads Ultimately Lead to Congress 3
How a Crisis Bill Becomes an Emergency Law 6
EESA’s Major Provisions 13
Conclusion 15
CHAPTER 2
Rise of the G20—A Global Call to Action 17
A New International Financial Order 17
Toward a Balanced Approach 20
Conclusions 22
CHAPTER 3
The Beginnings of the New Regulatory Reality 25
Democracy Can Act Swiftly in a Crisis 26
Problems at a Small Minority of Firms Create
Lasting Industry Problems 26
Populist Anger Drives Unintended Consequences 28
When Governments Intervene to Protect Taxpayers,
Strings Are Attached 30
vii
viii CONTENTS
Crises Have Long Political and Regulatory Tails 30
Safety Valves Don’t Always Work as Expected 31
International Crises Command Global Responses 33
Conclusions 34
PART TWO
Understanding U.S. and G20 Regulatory Reforms 37
CHAPTER 4
The U.S. Legislative Process 41
Administration Proposal 42
House Consideration 42
Senate Consideration 50
Conference Consideration 58
Conclusions 66
CHAPTER 5
The Dodd-Frank Act of 2010 69
New Regulatory Architecture 70
New Regulatory Standards 88
New Operating Restrictions 96
Higher Regulatory Costs 105
Conclusions 107
CHAPTER 6
Beyond the United States—Current G20 Efforts 111
G20 Agenda Going Forward 112
IMF Review of U.S. Financial Sector Assessment
Program, 2010 116
The Seoul Action Plan 117
Conclusions 119
PART THREE
Preparedness: 10 Lessons for Winning in the New
Regulatory Reality 121
CHAPTER 7
Set the Right Leadership Tone at the Top 127
Contents ix
Background 127
Corporate Leadership 128
Leadership in Society 133
Leadership on Public Policy 136
Implications 144
CHAPTER 8
Tell a Good Story 147
Background 148
What Individual Firms Can Do 149
What the Industry Must Do 155
Implications 161
CHAPTER 9
Be Politically Adept, Not Tone Deaf 163
Background 164
New Legislative Mandates for Executive
Compensation Limits 164
Consumer Protection 174
Implications 179
CHAPTER 10
Advocate Constructively for Better Outcomes 181
Background 182
No Shortage of Future Policy Debates 183
The Importance of Balanced Policy Objectives 185
Re-Engaging Public Policy 188
Broader Issues: Getting Back to Competitiveness 195
Implications 197
CHAPTER 11
Manage Strategy and Regulatory Risks Together 205
Background 205
Strategy and Regulatory Risks after the Dodd-Frank Act 208
Implications 212
CHAPTER 12
Maintain Fortress Strength at All Times 213
Background 214
New Basel III Requirements 215
x CONTENTS
New Capital and Liquidity Requirements in the
Dodd-Frank Act 220
Implications 227
CHAPTER 13
Live Good Governance 231
Background 232
The Value of Good Governance 233
Recent Regulatory Efforts to Improve Corporate
Governance 234
IIF Principles 243
Implications 243
CHAPTER 14
Plan Carefully for Contingencies 247
Background 248
U.S. Rapid Resolution Plans 252
Implications 256
CHAPTER 15
Engage Regulators on Warning Signs 263
Background 264
Making Sense of Crisis Warning Signs 265
The New Offi cial U.S. Role in Identifying
Financial Crises 274
An Industry Action Plan on Early Crisis Detection 276
Implications 280
CHAPTER 16
Build Trust-Based Supervisory Relationships 283
Background 284
Building Trust-Based Supervisory Relationships 285
Improve Supervisory Relationships to Avoid Negative
Regulatory Consequences 295
Implications 300
CHAPTER 17
Conclusion—Be Prepared! 303
Implications for Financial Companies 303
Implications for the Financial Services Industry 306
Contents xi
Notes 311
Additional Resources 329
Acknowledgments 331
About the Author 335
Index 337