No time bomb. Just a missed opportunity. I think prospectively, the paperwork is being handled much better, but there is still a mess to clean up on the legacy loans.

Dear Everyone- This was a lot of fun and you really took me through my paces. I’m going to go get some dinner now and walk two very restless dogs with my also-restless husband. So sorry I couldn’t get to all of these. I will try to do a blog later that addresses issues I haven’t covered.

My Very Best,
Sheila Bair

thanks

They should have repealed the CFMA, but instead layered on top with new authorities for the CFTC and SEC.

If other countries want our speculative CDS, let them have it. Europe is actually ahead of us in cracking down.

I’m hoping that because he got re-elected without much help from Wall Street (just the opposite) he will be more independent and appoint people who are not so close to that sector.

It’s not size so much as it is complexity. European banks are starting to spin off or segregate their investment banking from their traditional lending function. Big banks might be more competitive if they specialized in different business lines, instead of trying to do everything –which no one can manage.

Most of them syndicate the big deals anyway — they don’t want to take all the risks by themselves.

This is the legacy of the deregulation mania we went through. It was definitely bipartisan, and for a time, seemed to work. The problem is it will take years for regulators to catch up, it went on for so long.

I fear that regulators tend to crack down more on smaller banks because they understand them better and they are less likely to push back. We need quality regulation for all institutions, but detailed, complex, bureaucratic rules are a barrier to entry and will only increase consolidation – the last thing we need!

Yes. Ethics rules have become almost trivial. You can’t accept a $10 sandwich, but you are free to go work for a bank who benefited from legislation or a regulation you just passed.

Yes, its always about incentives. Higher capital, risk retention on securitized loans, clawbacks of compensation, anything that forces skin in the game and real, financial loss if there is a screw up – that is the best kind of regulation.

Agree. The thing is these behomoths also deliver very weak shareholder value. I believe that Citi and BofA both trade at about half of tangible book value. Restructuring or breaking them up would also create better value for their owners…

The FDIC had annual GAO audits, as well as routine audits by our IG. I loved it. Helped to keep us on our toes.

I don’t think we are ready to capsize quite yet. In addition to financial reform, we need structural change – a more efficient tax code, sustainable defense and entitle spending, financial institutions taking their losses in the housing market so that it can truly recover. I’m for stimulus too if it gives us some lasting benefit like a better trained workforce and much-needed infrastructure repairs. We also need to rationalize immigration policy so it serves our long term economic interests. Much to do. The question is can Washington deliver?

The lower mortgages rates generate refi activity, which helps the banks and borrowers too, though they are not always getting the full benefit. I don’t agree with the Fed’s policies. We need fundamental structural changes in our economy – more manufacturing, more exports, less reliance on the housing market. The Fed is trying to keep us afloat with policies that are not sustainable. Our problems must be solved through fiscal policy, not monetary policy.

We made several criminal referrals when we discovered fraud that led to a bank failure, but our processes are really geared toward bank failures. If you bailout, the processes don’t apply.

Criminal cases have a very high burden of proof. Where do you draw the line between greed and criminal behavior? I would like to see more criminal cases of individuals, even if prosecutors lose. There has to be greater accountability. But with some of these guys, taking their money away is worse for them than going to jail… So more civil cases brought against individuals would be good and would do more to change behavior than cases brought against the corporate entity. Unfortunately, a lot of these folks have insurance coverage and indemnification agreements with the banks. That was a problem we ran into with WaMU. The regulators need to do more to ban those arrangements.

yes. “Saving the system” was definitely over-used.

Hmm. US interest rate swap market is about 350 trillion I think (notional value). CDS market is in the tens of trillions, but with CDS (unlike interest rate swaps) the entire contract amount is at risk

The system we have now doesn’t make sense. But I think that if we implemented the reforms outlined in my book, we could have a rationale, stable system.

Good (but scary) description.

Well he kept me, even though Tim wanted me out.

Insurance companies do it all the time. Yes, at least for bilateral contracts written by dealers, they should require proof of insurable interest and proof of loss to collect, just as you have to do on an insurance policy. I think this is a safety and soundness issue for banks. If their counter-parties have to actually lose money to collect on the CDS contract, they won’t be on the other side trying to squeeze them as we saw with the London Whale episode. I don’t want insured banks duking it out with big hedge fund speculators, but that is what a lot of this market is about.