Since the financial crisis, a debate has emerged about the appropriate role of central banks as an ex ante “smoke detector” and as an ex post “fire extinguisher.” While a greater focus on financial stability concerns is valuable, policymakers should not underestimate the difficulty of undertaking effective macroprudential policy and should be mindful of significant challenges to implementing such policy, challenges that could ultimately undermine market discipline.
The U.S. financial system remains too fragmented, with gaps in regulation that contribute to systemic risk. A more modern financial regulatory architecture should be considered – one in which regulatory agencies have clearer mandates, are better empowered to perform their regulatory functions, are more focused on truly systemic risks, and are more clearly committed to international coordination with regulatory counterparts.
Regional banks add immense economic value to the regions and local communities that they serve with a risk profile that more closely resembles that of a community bank than that of a G-SIFI. Policymakers should consider this in setting regulatory thresholds.
An exploration of the legislative history of §165 of Dodd-Frank offers insight into the original aims of enhanced prudential regulation. Can the recalibration of enhanced prudential regulations not only result in better regulation but also more accurately reflect the original purposes of §165?
Executives from Capital One, Comerica, Fifth Third, KeyBank, and U.S. Bank weigh in on the most important issues impacting regional banks, including their growth strategy, competitive challenges, the regulatory environment, the U.S. economic outlook, and how the regulatory framework can be better calibrated to address the risks posed by regional banks.
The feasibility of single-point-of-entry recapitalization will depend on banks holding sufficient loss-absorbing, long-term debt. However, an incorrectly calibrated or unduly narrow requirement could be counterproductive and make SPOE more difficult.