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International Journal of Economics & Management Sciences
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Lobbying in the Financial Sector in US

Talex Maxim*

Talex Maxim, Ha Roe 96, Ramat Gan, Israel, 52001, Kfar Yona, Israel

*Corresponding Author:
Talex Maxim
Ha Roe 96, Ramat Gan, Israel
52001, Kfar Yona, Israel
Tel: +972 58 7754748
E-mail: [email protected]

Received date: August 12, 2014; Accepted date: September 11, 2014; Published date: September 21, 2014

Citation: Maxim T (2014) Lobbying in the Financial Sector in US. Int J Econ Manag Sci 3:177. doi:10.4172/2162-6359.1000177

Copyright: © 2014 Maxim T. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

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Abstract

The paper investigate the lobbying affords in the financial sector in US and observing the risks that might appeared thorough lobbying the legislations in the Basel regulatory framework. I was looking for the changes in lobbying activities connected with the changes in the Basel framework regulations as well as I wanted to look at the historical volatility of lobbying and through the regression analysis try to build a prognoses for the future development of the sector.

Introduction

Cracks in the financial system were the first signal of the beginning of financial crisis in 2007. On 2009 the failure of Lehman Brothers brought the World Economy to the collapse and to the half decade recession afterwards. Central banks of advanced economies ware forest to find ways of possible recovery and, for the beginning, they low down the policy rate almost equalize it to 0. The next step of central banks was the intensification of the balance sheet and at 2013 the level of expansion achieve three times of pre-crisis number and it still growing. But as soon as the highest pick of the crisis was passed the goal of policy was changed from prevention of the further losses to retention of the economy to sustainable growth. This target would be hard to achieve because central banks are not able to repair the balance sheets of the financial institution and households moreover to guarantee the fiscal return and initiate the reforms needed to relive the Economy. What actually central banks done are found a time borrowing system: time for balance sheet repairing, time for tax consolidation and time for reforms of productivity growth. But the time delay made the things even more difficult than it was before: chip money give time out for deleveraging in private sector, for the authorities it was easy to cover deficit living apart the necessity of reforms in real sector and in financial system. The conclusion for now cheap money most likely will be borrowed than saved or collected as tax. The time delay give to the authorities of the countries time to remain on the same level without real changes in a system for a while in spite of little efforts from the some financial institutes and some fiscal authorities towards the painful consolidation.

The waiting believes is slowing down the recovering process: households believe in assets value enlargement; firms believe in revenue growth and the balance sheet improvements through it; governments hope on the economy self-recovering and the down up the debt to GDP ratio.

Central banks driven the prevention police ignored the systemic risk which appears after all the change of the accent should be made and needed adjustments should be made rater then continue with repurchasing of government securities Proposed by BIS in 83d annual report [1]. But here another risk might appeared: if central banks will regulate the financial system without governments coordination it will lead to the decentralization of finance power in the countries and consideration of all financial systems independent of the authorities influence. My question is: “Who controls situation in the country and who can influence the government and how this influence can affect the real Economy”. I will try to give an answer this question studying the lobbying system in US and looking for the main interests in financial sector for lobbying. I will try to answer this question through estimation of the lobbying efforts and how the government decision on lobbying affected the situation in the financial market in the country and how the political changes in one country might affect the economical situation in the world.

Lobbying in the Financial Sector

Lobbying is highly controversial element of legislation activities from the well-connected professional lawyers which are remunerated to argue for specific issue or interest in decision–making bodies, such as Congress in US. Lobbying activity equalized by court rules as a free speech and protected by Constitution. As rapidly growing activity lobbying is an element of mandatory disclosure such of number of lobbyists and size of lobbing budget.

In the whole amount of lobbying activities financial sector one of the largest sours of contributions for the federal candidates and parties.

Manly sectors contribution spited between both parties but the Republicans historically collect more than Democrats. Mainly this sector in the opposition to tax and regulations of financial instruments (derivatives), hedge funds, real estate loans etc.

“According to the article of Aaron Kiersh: “The sector gave at least 55 percent of their contributions to the GOP from 1996 to 2004, but actually gave a slight majority of their donations to Democrats in the 2008 cycle. This reversal may suggest an effort to remain influential as a Democratic-controlled White House and Congress consider new market regulations in response to the specter of economic decline” [2].

Focus of lobbying efforts in financial sector is on the changes in specific rules or provision requirements accordingly to the interest of the group which operates with “significant amount of money” in the market. There are two main ways for the legal influence on the changes in policy formation process: first one is in the open offer of the financial contribution through political action committee (PACs); and second is in carrying out the lobbying activities in the executive and legislation branches on the federal level. According to the Lobbying Disclosure Act of 1995 individual companies and organizations are required to provide significant amount of information about their lobbying activities as well as all intermediates, who acting on behalf of third party have to submit semi-annual report to the Secretariat of Senate’s Office of Public Records (SOPR) from their side with full list of company names and the total income received from each of them with specification of lobbying interests (Figure 1a). That’s gives power to associate the lobbying expenditure with specific policy areas. Copy of the report also archived in contacted chamber of Congress. In financial industry lobbying interests involves approximately 600 companies, representatives from finance, insurance and real estate [3]. For example: changes in mortgage loans regulation rules towards homeownership, federal housing support programs, down payment assistant and insurance from federal agencies (Fannie Mae and Freddie Mac [4]). Wrapping up the main billions–contributors in the past financial crisis: Act in 1999 of Financial Services Modernization; in 2000 act about Commodity Futures Modernization Act (CFMA), American Homeownership and Economic Opportunity act and in 2003 –American dream down payment act; bankruptcy abuse prevention and consumer protection act in 20051.

economics-management-sciences-annual-lobbying-spending

Figure 1a: Total annual lobbying spending in financial sector.

The key point was made by Financial Accounting Standards Board in 1999, who allowed off-balance-sheet operations with securitized loans what gave an opportunity to avoid the capital reserves adjustments. Furthermore CFMA2 exempts derivatives, like credit default swaps from regulation it was a signal for commercial banks to drive up the financial active on the derivatives market. In addition to the lobbing affords unaccounted risk was barred in high average property prices and risky borrowings (low level income borrowers) which were dropping the liquidity on the market down.

From the 1998 year up to 2013 lobbing efforts and spends in financial industry continue to growth. I studied the data base [5] on the subject of influence of the lobbying effect on the regulation and on the economic situation after all.

I want to start with the descriptive statistic on the lobbying data from the period from 1998 to 2013 and to look what was going on with the lobbying through the 15 years period of time and mostly to look at the crisis 2007 and post crisis data.

In spite of the crisis 2007 and post crisis recession the spends on lobbying growth rapidly and in 2013 almost reach 2,5 time of the 1998 spends level and equals 500 billion $ (Figure 1b).

economics-management-sciences-Industrial-financial-sector

Figure 1b: Industrial financial sector.

In financial sector the most influenced industries are: insurance, securities and investments, real estate and also rapidly grows since 2007 the lobbying efforts in the commercial banks industry. Annually in the insurance lobbying on average expends equal 122.8 billion $ maximum was reached in 2009 up to 163.9 this is 127% growth since in 1998 72.1 billion $ was reported. Twice more rapidly growth lobbying spends in securities and investments industry and the average amount spends come to 78.2 billion $ and this is a 225% increase in budget since 1998. Maximum for the industry 105.7 billion $ was achieved in 2010. In the real estate market the average annual amount of lobbying money spends is around 59.7 billion $ and the maximum 82.7 billion $ was achieved in 2012 the dynamic in 15 years in industry shows 163% growth in expends. The last from the galloping spends growing in lobbying from the financial industry is Commercial banking. The maximum in 62.1 billion $ was reached in 2013 and in 2014 under the regression analysis estimated prognosis will continue to growth. In this industry the dynamic 180% increase in expenses since 1998. (See table in Attachments).

Expenses on other industries of the financial sector also growing significantly since 1998: Finance/Credit industry on 165%; Miscellaneous Finance on 334%; Accountants on the 154% and Credit Unions on 205% in Savings and Loans industry reported decline through 15 Years.

Based on regression analysis through 15 Years data in estimation gives the prognoses in possible expectations from one or another industry from the financial sector as well as shows the shift in interests throughout of industries in lobbying. Same time I can see the shift in increasing spends in lobbying through industries (Table 1). The most stable growth rate, without decline present in Commercial Banking industry. This is tightly connected with changes in international regulation frame work and follow up crisis adjustments3.

Insurance y = 7E+06x + 7E+07 R2 = 0,9028
Securities & Investment y = 5E+06x + 4E+07 R2 = 0,8813
Real Estate y = 3E+06x + 3E+07 R2 = 0,8203
Commercial Banks y = 3E+06x + 1E+07 R2 = 0,8925
Finance/Credit Companies y = 2E+06x + 1E+07 R2 = 0,7999
Misc Finance y = 2E+06x + 5E+06 R2 = 0,9191
Accountants y = 666910x + 6E+06 R2 = 0,8595
Credit Unions y = 478167x + 2E+06 R2 = 0,6811
Savings & Loans y = -182541x + 4E+06 R2 = 0,4471

Table 1: Trend in lobbying spends Financial industry.

To verify this hypothesis I need to extrapolate data from single industry and check the most influent interest and to try to understand how lobbying in single interest could affect the industry in whole.

Regulation Before Crisis 2007

In July 1988 Basel4 Accord was released as recommendations for major international banks from the 12 counters to hold a Capital/ RWA5 equal 8% in the beginning of 1992. The simplification in initial requirements give the power to the financial corporations to manipulate with the ration moreover the out of balance sheet assets was excluded from the capital adjustments in 1999. But before that in 1997 Basel committee released a set of “Core Principles” where the set of minimal requirements and extensive list of recommendations for the banking supervisory authorities (Tables 2 and 3).

shift of interest in lobbying
Insurance y = 7E+06x + 7E+07 3.007.871,09 0,43
Securities & Investment y = 5E+06x + 4E+07 2.443.166,65 0,49
Real Estate y = 3E+06x + 3E+07 1.492.939,02 0,50
Commercial Banks y = 3E+06x + 1E+07 2.237.385,57 0,75
Finance/Credit Companies y = 2E+06x + 1E+07 1.280.780,72 0,64
Misc Finance y = 2E+06x + 5E+06 1.480.674,79 0,74
Accountants y = 666910x + 6E+06 317.084,32 0,48
Credit Unions y = 478167x + 2E+06 314.590,74 0,66
Savings & Loans y = -182541x + 4E+06  unsignficant  unsignficant

Table 2: Rediction interest value growth.

Insurance  Securities & Investment  Real Estate  Commercial Banks  Finance/Credit Companies Misc Finance  Accountants  Credit Unions  Savings & Loans 
Mean 122.741.527,25 Mean 78.221.758,31 Mean 59.718.884,25 Mean 39.338.358,94 Mean 27807931 Mean 19255757,06 Mean 11438439,88 Mean 5846411 Mean 2360510
Standard Error 8.341.528,10 Standard Error 6.139.345,75 Standard Error 4.353.415,26 Standard Error 3.696.241,24 Standard Error 2259144,999 Standard Error 2146933,872 Standard Error 856181,6772 Standard Error 689627,2 Standard Error 324928,6
Median 131.494.800,00 Median 86.452.369,00 Median 62.451.565,00 Median 34.471.415,50 Median 25748937 Median 17383913 Median 10984082 Median 4479500 Median 2782438
Mode #N/A Mode #N/A Mode #N/A Mode #N/A Mode #N/A Mode #N/A Mode #N/A Mode #N/A Mode #N/A
Standard Deviation 33.366.112,38 Standard Deviation 24.557.383,00 Standard Deviation 17.413.661,06 Standard Deviation 14.784.964,97 Standard Deviation 9036579,997 Standard Deviation 8587735,488 Standard Deviation 3424726,709 Standard Deviation 2758509 Standard Deviation 1299714
Sample Variance 1,11E+15 Sample Variance 6,03E+14 Sample Variance 3,03E+14 Sample Variance 2,19E+14 Sample Variance 8,16598E+13 Sample Variance 7,37492E+13 Sample Variance 1,17288E+13 Sample Variance 7,61E+12 Sample Variance 1,69E+12
Kurtosis -1,50 Kurtosis -0,91 Kurtosis -1,26 Kurtosis -1,32 Kurtosis -1,660416347 Kurtosis -1,423465244 Kurtosis -1,561655038 Kurtosis -1,45155 Kurtosis -0,67189
Skewness -0,38 Skewness -0,73 Skewness -0,11 Skewness 0,47 Skewness 0,025381514 Skewness 0,385087982 Skewness -0,184830404 Skewness 0,719619 Skewness -0,67755
Range 91.739.966,00 Range 73.076.566,00 Range 51.352.482,00 Range 39.985.451,00 Range 25163756 Range 24092978 Range 9501205 Range 6713000 Range 4101502
Minimum 72.108.987,00 Minimum 32.623.164,00 Minimum 31.327.383,00 Minimum 22.213.145,00 Minimum 15270000 Minimum 7216297 Minimum 6180000 Minimum 3270000 Minimum 4965
Maximum 163.848.953,00 Maximum 105.699.730,00 Maximum 82.679.865,00 Maximum 62.198.596,00 Maximum 40433756 Maximum 31309275 Maximum 15681205 Maximum 9983000 Maximum 4106467
Sum         1.963.864.436,00 Sum         1.251.548.133,00 Sum 955.502.148,00 Sum 629.413.743,00 Sum 444926896 Sum 308092113 Sum 183015038 Sum 93542570 Sum 37768162
Count 16,00 Count 16,00 Count 16,00 Count 16,00 Count 16 Count 16 Count 16 Count 16 Count 16
Largest(1) 163.848.953,00 Largest(1) 105.699.730,00 Largest(1) 82.679.865,00 Largest(1) 62.198.596,00 Largest(1) 40433756 Largest(1) 31309275 Largest(1) 15681205 Largest(1) 9983000 Largest(1) 4106467
Smallest(1) 72.108.987,00 Smallest(1) 32.623.164,00 Smallest(1) 31.327.383,00 Smallest(1) 22.213.145,00 Smallest(1) 15270000 Smallest(1) 7216297 Smallest(1) 6180000 Smallest(1) 3270000 Smallest(1) 4965
Confidence Level(95,0%) 17.779.546,18 Confidence Level(95,0%) 13.085.705,65 Confidence Level(95,0%) 9.279.084,94 Confidence Level(95,0%) 7.878.351,68 Confidence Level(95,0%) 4815253,559 Confidence Level(95,0%) 4576081,205 Confidence Level(95,0%) 1824908,038 Confidence Level(95,0%) 1469906 Confidence Level(95,0%) 692568,9
Growth through 15Y 127%   224%   164%   180%   165%   334%   154%   205%   82608%

Table 3: Descriptive statistic lobbying in financial sector.

Following up in June 2004 the Basel Committee issued a reduction for previous recommendations Basel II targeting the increasing in capital adequacy measurement and identifying new minimum capital requirements for banks (Pillar 1). This was a way to attract the attention of the main international banks to the liquidity issue and contained the recommendation for the leading banks to develop their own riskmeasurement system for the better understanding of the risk which might occurs through operations in the open market.

In 2006 the Basel Committee in addition to the Pillar 1 introduced the Pillar 2 and Pillar 3 as a measure in improvement of collaboration between main banks and ban supervisors to better understanding the risks through banking activities and improving disclosure of information about banks operations involved.

Bank of International Settlements

Bank of international settlements (BIS) was establish in 1930, 17th of May for guarding central banks of different countries in their external transactions settlements, international financial collaboration and serve as international financial stability provider as an trust agent of third party and acts like a bank of central banks. The head office of BIS is situated in Switzerland and two more offices in Hong Kong and Mexico City.

Annually BIS rewires the activities of international financial system, describe the financial framework and publish the results as an annual report.

The main target of BIS based on providing the open discussion between central banks of main countries, other authorities responsible for the financial stability, contributes in the controlling policy modification by research in the financial system in the Economy. Being the trust agent in the international settlements BIS promotes international collaboration among monetary authorities in the world through meetings arrangements and through the Basel Process (Figure 2), welcomed the international committees and standard–setting bodies, particularly Financial Stability Board (FSB) and supports his objectives. The FSB objectives are in the coordination of the work of national authorities on the international level through standards and recommendations supporting global financial stability.

economics-management-sciences-Structure-Basel-Process

Figure 2: Structure of the Basel Process.

BIS arrange bimonthly meetings (The Global Economy Meeting6 and the All Governors Meeting) with Governors and other official members of central banks discussing current situation, prospective developments and outlook for the financial markets. The main goal of these meetings is in the experience exchange and involves the open discussion with main representatives from public and private sector and the academic community.

The Global Economy Meeting (GEM) includes mandatory the Governors of 30th BIS central banks from different markets economies and covered approximately 4/5 part of global GDP. Governors from another 19 countries attend meeting voluntarily. This meeting monitors risks, assessing the developments and looking for the opportunities to improve global financial system as well as leads in the guidance of the three Basel–based central bank Committees (Committee on the Global financial system, Committee on the Payment and Settlement System and the Markets Committee). The chairs of these Committees send the reports to the GEM who decides on publication.

Because GEM is quite large it is supported by Economic Consultative Committee (ECC) which consists of 18 participants who are: all BIS Board member Governors, the central banks Governors from India and Brazil and BIS General Manager. The ECC assembly proposes and initiates recommendations to the GEM on the appointments of chairs of the three central bank committees.

The second meeting, arranges by BIS is All Governors’ Meeting. This meeting includes 60 central banks members and lead by BIS Chairman. It employs the discussion of the topics of the crucial interests for the members of the meeting. For example recent 2012/2013 meeting rise the topics like reform of the over the counter (OTC) derivatives markets, collaterial evaluation, the global financial system, structural bank regulation initiatives and presentation of special guess-speaker Harold James “Making the European monetary union”.

Same time two others meetings take place in: The Central Bank Governance Group and Irving Fisher Committee on Central Bank Statistics although having a broader membership than GEM and by agreement with GEM and BIS board the All Governors’ meeting has responsibility for overseeing there work and initiations.

During the bimonthly meetings other regular consultations take place in by groups of interests (emerging markets members, small open economies Governors and etc.).

The group of central bank governors and heads of supervision

The Group of Central Bank Governors and Heads of Supervision (GHOS) also take place in BIS. GHOS overseas the work of the Basel committee on Banking supervision [6]. In January 2013 GHOS sanctioned (unanimously) the Basel Committee’s to proposed the revision of liquidity average ratio (LCR) and support the implementation of the other component of the global liquidity monitoring regime (NSFR) targeting the reviewing the recommendation in next two years. The GHOS guide the model-based internal risk weightings measurement and hold initiative in reforming regulatory framework improving risk sensitivity and comparability there. The group regularly holds an informal discussion focusing on the functions of international financial system the private financial sector and academic world a welcomed to contribute. The sessions include the annual meetings of the working parties on monetary policy on two levels: international and regional (Asian banks; banks of central and eastern Europe, Latin America bank society). In January 2013 seminar on sovereign risk consist of presentations of policymakers, practitioners and academics with participations of the Governors from shareholding banks as listeners. Same year the regional meeting (Africa, Caribbean, Latin America and other regions) on the same topic was scheduled.

The basel activities

BIS plays a main role supporting international activities in standard settings for financial stability. Financial stability board (FSB) coordinates the national fiscal authorities and international standardsettings bodies and hosted by BIS. To assist more complex and collaborative work on the financial stability BIS run its own Financial Stability Institute (FSI) to assist financial supervisory authorities worldwide. Basel process arranged according the structure on 4 main principals (Figure 3):

economics-management-sciences-Pic-trend-lobbying-financial

Figure 3: Pic trend in lobbying in the financial sector.

• Synergy

• Exchange of information

• Research

• Broadcasting

Synergy plays the important role in Basel process. The secretariats office of nine groups situated in BIS through synergy and tight collaboration between independent reporting lines which every group has contribute in financial stability. The main six contributors are:

• The Basel Committee on Banking Supervision (BCBS)– develop the global regulatory standards for banks and addresses this standards to be applied on the individual institutions as it relates to the situation on macro level after all;

• The Committee on the Global Financial System (CGFS)– monitors and analyses the broad issues related to the financial system;

• The Committee on Payments and Settlements Systems (CPSS) –analyze and initiate standards for payments, clearing and settlements;

• The Market Committee–examination of financial markets;

• The Central Banks Governance Group–examinations of the items, related to the work of central banks;

• Irving Fisher Committee on Central Bank Statistics (IFC) –statistical data accumulation concerning central banks, including economic, monetary and financial stability.

• The remaining three groups in this section are:

• The Financial Stability Board (FSB);

• The International Association of Deposit Insurers (IADI);

• The International Association of Insurance Supervisors (IAIS).

The existence of these groups produces broad and complex ideas for the exchange. Intro group communication gives an open and flexible information exchange. The output producing with tight collaboration and sharing gives the overall picture; they are able to control the expertise of the international community of central bankers, financial regulators and supervisors and other national and public authorities (Figure 4). The work of Basel committee support by BIS research group and relay on its bank experience as well. The final proposal implements by BIS Banking Department in tight relationship with market participants and visualized in regulatory standards and financial controls of the banking operations.

economics-management-sciences-Global-economical-activity

Figure 4: Global economical activity.

The FSI supports the disclosure and popularizations of the standards settings work together with financial sector supervisory and regulatory agencies (Figure 5).

economics-management-sciences-Structure-annual-Report

Figure 5: Structure from the BIS 83 d annual Report.

Financial Stability Board (FSB)

The FSB chairmen Mark Carney7 and FSB members are senior officials from finance ministries, central banks and financial regulators and supervisors of 24 countries and territories including the country members of the G20 plus Hong Kong SAR, the Netherlands, Singapore, Spain and Switzerland [7-16].

Senior officials from the European Central Bank (ECB) and the European Commission; high level representatives of international institutions and international standard–settlings bodies and central bank groups: BIS, IMF, OECD and World Bank, the Basel Committee on Banking Supervision, CGFS, CPSS, International Accounting Standards Board, IAIS and the International Organization of Securities Commissions.

FSB functioning through plenary meetings and includes four Standing Committees on the following the subjects:

Assessment of Vulnerabilities–chaired by Agustín Carstens, Governor of the Bank of Mexico, who succeeded Jaime Caruana, General Manager of the BIS, as Chair on 31 March 2013;

Supervisory and Regulatory Cooperation–chaired by Daniel Tarullo, member of the Board of Governors of the Federal Reserve System, who succeeded Adair Turner, Chairman of the UK Financial Services Authority, as Chair on 31st March 2013;

Standards Implementation–chaired by Ravi Menon, Managing Director of the Monetary Authority of Singapore, who succeeded Tiff Macklem, Senior Deputy Governor of the Bank of Canada, as Chair on 31 March 2013;

Budget and Resources–established in November 2012 and chaired by Jens Weidmann, President of the Deutsche Bundesbank.

The main function of FSB is in coordination of the national financial authorities and international standard settings bodies providing the policy to enhance the financial stability in the World as well as it controls the policy implementation fully and consistently under mandate from G20:

• Identified and reviewed the regulatory, supervisory and any other related action and provides with recommendations for the global financial system and deal with outcome from this actions;

• Promotes disclosure and collaboration among authorities responsible for the financial stability;

• Monitors the market and the market reaction on the regulatory policy;

• Advise on a best practice to meet the standards;

• Reviewed the strategies of standard–settings policies to ensure that it is valuable and focused on the priorities.

• Supports the supervisory activities and guides them;

• Includes cross-border crisis management with respect to the important Corporations;

• Works tightly with IMF to carry out the early warning signals;

• As early warning exercises FSB implemented framework corresponded systematic and moral hazard risks and base on three key elements:

• More detailed supervising regime as a frame work for financial institutes that may cause systemic risk (resolution SIFI);

• Disclosure policy for the financial institutes for on time quick resolving of all financial institutes without further loss transformations on the taxpayers;

Establishment of high loss absorption capacity in reflection to the global financial system activities8.

SIFI resolution after November 2011 is a massage for financial institutions that the falling at least one of them will be significant and it is relevant not only for banks but also for other financial institutions like insurance companies, investment companies other financial companies.

The FSB also responsible for the guidance9 on three key aspects such as stress scenario developing and developing of the action plan for recovery for the Global SIFIs “The current list is at [17-20]”, developing resolution strategies and associated operational plans based on different group structures and critical function identification to maintain systemic stability. On the OTC derivative market FSB continuously making pressure on the members of G20 to continue with reforms to improve the functioning, transparency and omissions through increasing the standardization, central clearing and reporting item10.

The FSB OTC Derivatives Coordination Group, self-possessed by the chairs of the BCBS, CGFS, CPSS, FSB and IOSCO, works to improve the coordination and consistency on OTC derivatives markets same time strengthening the regulation of shadow banking system11. In November 2012 the initial policy recommendation for the mitigation of systemic risk through shadow banking system was published by FSB with following coverage12:

• Mitigation of spillover effect between the regular and shadow banking systems;

• Weakness of money market to runs reduction;

• Mitigation of the systemic risk driven by shadow banking;

• Evaluation of all initiatives with securitizations;

Reduction of the propolitical incentives and repurchase agreements in runs

Activities FSB on the Credit ratings field was in reduction of reliance on credit ratings opinions which might cause systemic disruption and this will create an initiatives for the market participants to improve their independent credit risk assessments and due diligence.

Acton of FSB for data gaps reduction in the globally active financial institutions reports projected as a common data template for financial institution where they will need to disclose their exposure in dependence of the funds by counterparty, by market, by sector and instruments in the portfolio.

Since March 2013 the Project implemented ordering into 3 Phases:

• Phase 1–to provide national supervisory authorities for G-SIBs and other large banks with common access to improved data on bilateral and aggregate credit exposures through a central hub located at the BIS13;

• Phase 2–data will be given for the consideration, improvement and expansion of the framework;

• Phase 3–implementation data in consolidated balance sheets.

Based on the initiative above the necessity of accounting standards modification appeared. The G20 and FSB support the development of a single set of high-quality global accounting standards finished that will be possible with engagement of Accounting Standards Board and US Accounting Standards Board the FSB14.

Current priorities for FSB are Basel II/2.5/III framework; the OTC derivatives market; compensation practices; policy measures for Global SIFIs; resolution frameworks; shadow banking.

Mortgage initiative of FSB is in settling underwriting principles for the mortgage underwriting practices. The principles provide a framework with definition of the minimum acceptable underwriting standards. This limits the risks from mortgage markets and improves financial stability and provides with better quality of borrowers for the confidence of investors.

Impact of regulatory reforms on emerging market and developing economies (EMDEs) FSB looking at a long time perspective and the solution here in long-term financial schedule for trust recreation and financial system stability.

The FSB activities in regions needed for the facilitation of interaction with a wider group of countries. For those purpose FSB recognized six regional consultative groups which brings together FSB members with other 65 jurisdictions (Americas, Asia, Europe, Middle East and North Africa). This meeting typically initiated twice per year with open discussion on the topics specifically relevant to the particular region.

“The FSB will continue to be hosted by the BIS in Basel, and the two organizations have entered into an agreement that formalizes the provision of financial and other resources for the FSB secretariat [21-25]”.

Basel committee on banking supervision

The Basel Committee of Banking supervisor (BCBS) is in charge of supervisory cooperation and improvement of quality of banking supervision worldwide. BCBS initiate basic international requirements for the financial institutions (Banks) in the form of standards. Annually BCBS meets 4 times and consist of senior representatives of banking supervisory and central banks authorities responsible for the supervision of the financial issues in the members’ counters (Figure 6).

The BCBS governing body is GHOS (The group of Governors and Heads of Supervision) which includes the Governors of central banks and non-central banks heads of supervisions from member countries. After crisis challenge for BCBS became the implementation of Basel III framework as a set of global standards including bank capital adequacy and liquidity that will lead to the more stable banking sector. This initiative of the BCBS is the subject of jurisdiction started with 2013.

Following the GHOS recommendations for the review dated by January 2013 BCBS publish the liquidity coverage ratio which shows the fraction of highly liquid assets to meet the cash needs under the stressscenario in 30 calendar days15. The revised LCR will be implemented since January 2015 in 60% of the ratio accounted and will be increased annually by 10% until 100% which will be reached in 2019. The LCR identify short-term financial situation in the Company [25].

For the long-term focus BCBS propose the Net stable funding ratio (NSFR) which corresponds to the long-term debt profile of the bank. NSFR is planned to be implemented before 2018 as a minimum standard for the limitation of short–term funding preference and reviewing this ratio is a priority for the next to year on the Basel Committee [26].

Other activities of the BCBS

In July 2012, the BCBS published the consultative paper, which implement “monitoring indicators” for daily liquidity management– paper reinforce banks to monitor there liquidity position on a daily basis and monitor the situation consider the risk in the obligations of payments and other settlements under normal and stress-conditions. Final guidance was issued in March 2013. Indicators referred will help the supervisors’ authorities to understand the payments and settlements behavior of the bank and for bank they will show the actual situation with liquidity and risk of possible default to meet on-time payments [27].

Reforms in derivatives and OTC market: The last crisis of 2007 was driven OTC risk–taking derivatives and strength through systemic risk in derivative transactions, market and practice.

To close the gap in regulations BCBS was put in necessity of reforming the set of roles and regulations through counterparty risk disclosure, in side of the sours of it appearance (other banks or other central counterparties). BCBS was also collaborating with other global regulation bodies in merging settling of non-cleared contracts. The completeness of these reforms is crucial for the understanding of the situation in the financial markets and the influence of it on the real economy in whole [28].

In July 2013, before Basel III official recognition BCBS issued standards for the capitalization of bank exposure to other central counterparties. This framework based on Principals for financial market infrastructure, released in April 2012 by CPSS and IOSCO and the work on the completes and fearness of the final standards is currently in progress. The standard proposing the margin adjustment on the noncentrally cleared derivatives and it will consider all transactions that involve either financial firms or systemically significant non-financial entities. Marginal requirements will help to mitigate systemic risk on derivatives market and also encourage standardization and central clearing by reflecting the generally higher level of risk appearance from non-centrally cleared derivatives [29].

“To reduce the liquidity impact of the original margin proposal, which included a zero initial margin threshold, the February 2013 proposal provides for a universal initial margin threshold of €50 million. The near-final proposals also envisage a gradual phase-in. The requirement to collect and post initial margin on non-centrally cleared trades, to be phased in between 2015 and 2019, will begin with the largest, most active and most systemically risky derivatives market participants”16.

1American Homeownership and Economic Opportunity Act of 2000 and American Dream Down payment Act of 2003. A related bill was the FHA Multi Family Loan Limit Adjustment Act, which aimed to amend the National Housing Act to increase the mortgage amount limits applicable to FHA mortgage insurance for multifamily housing located in high-cost areas. This bill never became law but passed the House in the 109th Congress.

2Commodity Futures Modernzation Act (2000).

3On the pic. and trend prediction tables in attachments “The trend in lobbying spends n financial sector”.

4Basel Committee on Banking Supervision

5Risk-weighted assets

6The members of the GEM are the central bank Governors of Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, Poland, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, the United Kingdom and the United States and also the President of the European Central Bank and the President of the Federal Reserve Bank of New York. *The Governors attending as observers are from Algeria, Austria, Chile, Colombia, the Czech Republic, Denmark, Finland, Greece, Hungary, Ireland, Israel, Luxembourg, New Zealand, Norway, Peru, the Philippines, Portugal, Romania and the United Arab Emirates.

7Governor of the Bank of Canada until 1 June 2013 and Governor of the Bank of England beginning 1 July 2013

8Beginning with the 2012 update, the list assigns each bank to one of the five levels of required additional loss absorbency (additional common equity) for G-SIBs. The levels range from 1% to 3.5% of risk-weighted assets, according to the level of systemic risk posed by the bank. Starting from 2016, the additional loss absorbency will be phased in over three years, initially for those banks in the list.

9Draft of the guidance was published for considerations in October 2012 and should be finilised in 2013.

10The FSB published progress reports on member jurisdictions’implementation of these agreed reforms in June and October 2012 and April 2013; and it continues to press member jurisdictions to complete the reforms, which were due by end-2012, and to ensure the consistency of implementation across jurisdictions.

11The shadow banking system–credit intermediation involving entities and activities outside the regulated banking system–can be a source of systemic risk both directly and through its interconnectedness with the regular banking system. Shadow banking can also create opportunities for arbitrage that might undermine stricter bank regulation and lead to a build-up of additional leverage and risks in the financial system as a whole.

12In November 2012, the FSB published its second annual monitoring report on the global shadow banking system, expanding its coverage to include all FSB member jurisdictions. The report assesses risks from the shadow banking system, including innovations and changes that could lead to growing systemic risks and regulatory arbitrage.

13International statistical initiatives in the “Research and statistics” section 83d annual BIS report

14The two ccounting boards made further progress in 2012, but work remains ongoing in some key areas of convergence, notably on accounting for financial instruments and insurance contracts, on which the two standard setters will undertake further consultation in 2013.

15Initially LCR was introduced in Desember 2010 through enourmos reviewings of omitmends in the previos standards and requirments for the fianncial markets.

1683d Annual report BIS

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