February 12, 2010
Fed’s Tarullo Says Regulators Need More Data Powers
Federal Reserve Governor Daniel Tarullo urged U.S. lawmakers to expand regulators’ powers to collect data on loans and securities from financial firms so they can better assess risks and prevent a future crisis.
Much of the Fed’s data collection from banks and other firms relies on voluntary information, and one law, the Paperwork Reduction Act, can delay the flow of data to regulators from more than nine entities, Tarullo said. The remarks were in prepared testimony obtained to a Senate Banking subcommittee.
Tarullo, 57, is leading an overhaul of examinations conducted by the central bank, aiming to identify potential threats across the industry.
Fed’s Tarullo Says Regulators Need More Data Powers
Federal Reserve Governor Daniel Tarullo urged U.S. lawmakers to expand regulators’ powers to collect data on loans and securities from financial firms so they can better assess risks and prevent a future crisis.
Much of the Fed’s data collection from banks and other firms relies on voluntary information, and one law, the Paperwork Reduction Act, can delay the flow of data to regulators from more than nine entities, Tarullo said. The remarks were in prepared testimony obtained to a Senate Banking subcommittee.
Tarullo, 57, is leading an overhaul of examinations conducted by the central bank, aiming to identify potential threats across the industry.
Senate Banking Committee Chairman Christopher Dodd, who’s drafting legislation for new financial rules, has proposed removing bank-supervision powers from the Fed and other regulators and vesting them in a new agency.
“Legislation will be needed to improve the ability of regulatory agencies to collect the necessary data to support effective supervision and systemic risk monitoring,” Tarullo said in his testimony to the Subcommittee on Security and International Trade and Finance.
“Regulators have been hampered by a lack of authority to collect and analyze information from unregulated entities.”
Tarullo didn’t comment on the outlook for the economy or monetary policy in the text of his remarks.
$1.7 Trillion
The credit crunch resulted in $1.7 trillion of global writedowns and losses at financial firms and helped spark the worst U.S. recession since the 1930s.
Responding to questions from lawmakers, Tarullo said information about financial firms that were outside the Fed’s oversight became crucial to understanding the severity of the crisis.
“The absence of data from the shadow banking system was certainly problematic in retrospect,” he said. Financial firms not regulated as banks were more closely interconnected to the regulated banks, which “was underappreciated even from those who saw problems ahead.”
Fed staffers are studying the possible use by banks of “contingent capital,” or debt that would convert to common equity if a higher equity cushion were needed, Tarullo said. The issue under study is what should trigger conversion as “supervisory discretion” would create uncertainty among investors.
Capital Cushion
Contingent capital, if it proves less expensive, “is something worth pursuing” as part of an effort to ensure capital levels are adequate, Tarullo said.
Still, “common equity is far and away the most important component of regulatory capital,” he said.
The Fed has begun new data-collection efforts, such as getting loan-level data on banks’ exposure to syndicated corporations and “detailed data” from companies’ risk- management systems to determine vulnerability to other firms or borrowers, Tarullo said.
“The recent financial crisis revealed important gaps in data collection and systematic analysis of institutions and markets,” Tarullo said in his prepared testimony. “Remedies to fill those gaps are critical” to monitor risks across the financial system and for “enhanced supervision” of the most important firms, he said.
Data Collection
Tarullo said the Paperwork Reduction Act requires approval from the White House Office of Management and Budget for collecting data from more than nine entities. That provision has “discouraged agencies from undertaking many initiatives and can delay the collection of important information in a financial crisis.”
“While the principle of minimizing the burdens imposed on private parties is an important one,” Tarullo said, he called on Congress to amend the law to allow regulators to “obtain the data necessary for financial stability in a timely manner when needed.”
Tarullo is the newest member of the Fed’s Board of Governors and the only appointment to the central bank by President Barack Obama. Tarullo advised Obama’s 2008 election campaign on economic policy and served as President Bill Clinton’s top adviser on international economic policy. The seven-member Fed board has two vacancies.
The data-collection efforts discussed by Tarullo are part of a broader push by the central bank to beef up regulation. In October, the Fed issued proposed guidance on compensation practices for the bank holding companies it regulates and launched a review of pay policies at more than 20 of the largest banks.
The Fed and other supervisors also last month told banks to guard against possible losses from an eventual end to low interest rate and reduce risk or raise capital if needed.
AFP
related article~
Fed’s Tarullo Says Dividing Banks May Not Curb Too Big to Fail Share Business
“Legislation will be needed to improve the ability of regulatory agencies to collect the necessary data to support effective supervision and systemic risk monitoring,” Tarullo said in his testimony to the Subcommittee on Security and International Trade and Finance.
“Regulators have been hampered by a lack of authority to collect and analyze information from unregulated entities.”
Tarullo didn’t comment on the outlook for the economy or monetary policy in the text of his remarks.
$1.7 Trillion
The credit crunch resulted in $1.7 trillion of global writedowns and losses at financial firms and helped spark the worst U.S. recession since the 1930s.
Responding to questions from lawmakers, Tarullo said information about financial firms that were outside the Fed’s oversight became crucial to understanding the severity of the crisis.
“The absence of data from the shadow banking system was certainly problematic in retrospect,” he said. Financial firms not regulated as banks were more closely interconnected to the regulated banks, which “was underappreciated even from those who saw problems ahead.”
Fed staffers are studying the possible use by banks of “contingent capital,” or debt that would convert to common equity if a higher equity cushion were needed, Tarullo said. The issue under study is what should trigger conversion as “supervisory discretion” would create uncertainty among investors.
Capital Cushion
Contingent capital, if it proves less expensive, “is something worth pursuing” as part of an effort to ensure capital levels are adequate, Tarullo said.
Still, “common equity is far and away the most important component of regulatory capital,” he said.
The Fed has begun new data-collection efforts, such as getting loan-level data on banks’ exposure to syndicated corporations and “detailed data” from companies’ risk- management systems to determine vulnerability to other firms or borrowers, Tarullo said.
“The recent financial crisis revealed important gaps in data collection and systematic analysis of institutions and markets,” Tarullo said in his prepared testimony. “Remedies to fill those gaps are critical” to monitor risks across the financial system and for “enhanced supervision” of the most important firms, he said.
Data Collection
Tarullo said the Paperwork Reduction Act requires approval from the White House Office of Management and Budget for collecting data from more than nine entities. That provision has “discouraged agencies from undertaking many initiatives and can delay the collection of important information in a financial crisis.”
“While the principle of minimizing the burdens imposed on private parties is an important one,” Tarullo said, he called on Congress to amend the law to allow regulators to “obtain the data necessary for financial stability in a timely manner when needed.”
Tarullo is the newest member of the Fed’s Board of Governors and the only appointment to the central bank by President Barack Obama. Tarullo advised Obama’s 2008 election campaign on economic policy and served as President Bill Clinton’s top adviser on international economic policy. The seven-member Fed board has two vacancies.
The data-collection efforts discussed by Tarullo are part of a broader push by the central bank to beef up regulation. In October, the Fed issued proposed guidance on compensation practices for the bank holding companies it regulates and launched a review of pay policies at more than 20 of the largest banks.
The Fed and other supervisors also last month told banks to guard against possible losses from an eventual end to low interest rate and reduce risk or raise capital if needed.
AFP
related article~
Fed’s Tarullo Says Dividing Banks May Not Curb Too Big to Fail Share Business
