Forum Post: Who is Responsible for our US Financial Risk? FSOC, OCC, and the Federal Reserve
Posted 12 years ago on July 12, 2012, 5:55 a.m. EST by Middleaged
(5140)
This content is user submitted and not an official statement
Based on the Annual Report for 2011 for the Office of the Comptroller of the Currency OCC... The Financial Stability Oversight Council (FSOC) created by the Dodd-Frank Bill is supposed to monitor Financial Risk and create strategies for dealing with Risks.
"...Financial Stability Oversight Council, or FSOC, the intergovernmental body created by Dodd–Frank to identify risks to the financial system, extend supervision to systemically significant nonbanks, and respond to emerging threats to financial stability. ...By bringing together agencies with responsibilities for every sector of the financial services industry, FSOC will examine risks across the entire financial system and help to avert future financial crises...."
Who are members of the FSOC??
The Council consists of 10 voting members and 5 nonvoting members and brings together the expertise of federal financial regulators, state regulators, and an insurance expert appointed by the President.
1) Timothy F. Geithner (Treasury)
2) Ben Bernanke (Federal Reserve Board)
3) Martin J. Gruenberg (FDIC)
4) Mary Schapiro (SEC)
5) Gary Gensler Commodity Futures Trading Commission (CFTC)
6) Richard Cordray, Consumer Financial Protection Bureau (CFPB)
6) Edward DeMarco, Federal Housing Finance Agency (FHFA)
7) Debbie Matz, National Credit Union Administration (NCUA)
8) Thomas J. Curry, Office of the Comptroller of the Currency (OCC)
9) Roy Woodall, Independent Member with Insurance Expertise
10) Michael McRaith, (FDIC)
11) John P. Ducrest, Louisiana Office of Financial Institutions
12) John Huff, Director, Missouri Department of Insurance, Financial Institutions, and Professional Registration
13) David Massey, Deputy Securities Administrator, North Carolina Department of the Secretary of State, Securities Division
14)
15)
http://www.occ.treas.gov/publications/publications-by-type/annual-reports/2011AnnualReport.pdf
http://www.treasury.gov/initiatives/fsoc/Pages/Member-Agency-Dodd-Frank-Act-Portal.aspx
http://www.treasury.gov/initiatives/fsoc/Documents/May%2022,%202012.pdf (Looks like FSOC was talking about trading losses at JP Morgan back in May 2012)
http://www.treasury.gov/initiatives/fsoc/Documents/Macroeconomic%20Environment.pdf (page 4, Regulatory data on business loans less than $1 million and agricultural loans less than $500,000 suggest that small business lending had increased solidly in the years leading up to 2008, before declining by more than 10 percent through 2010 (Chart 4.1.6).)
Look at the FSOC Annual Report for 2011 if you have plenty of time:
http://www.treasury.gov/initiatives/fsoc/Documents/FSOCAR2011.pdf
Mostly I looked at the section on Macroeconomic issues which is a lot shorter:
http://www.treasury.gov/initiatives/fsoc/Documents/Macroeconomic%20Environment.pdf (Plenty of charts show the problems that we have had since before the Financial Crisis and Sub-pime Mortgage Crisis 2007 -2010)
The section 7 of the FSOC Annual Report is on Financial Stability:
http://www.treasury.gov/initiatives/fsoc/Documents/Potential%20Emerging%20Threats%20to%20U.S.%20Financial%20Stability.pdf
"...Shocks and imbalances can interfere with financial stability through three main interconnected channels:
- Failure of a financial institution or a market participant to honor a contractual obligation.
- Deterioration in market functioning.
- Disruptions in financial infrastructure..."
The Problem with the FSOC Annual Report is that I don't see examination of Risk associated with financial links to other banks or derivatives or asset backed securities.
The FSOC section 7 seems to go over old ground of risk with 5 of the largest bank holding companies, mortgages with negative equity, and financial stress tests.
Chart 7.1.7 is for European Sovereign 5-year CDS Spreads
Chart 7.1.8 is for Insurance Industry Exposure to Europe
US Bank exposures to core European banks in the United Kingdom, Germany, and France are the main concern of the FSOC, and those European banks are the primary international lenders to peripheral European borrowers.
Council members have identified three components of the market infrastructure that require strengthening: (1) mortgage servicing, (2) derivatives, and (3) tri-party repo. Of the three, the weaknesses in the tri-party repo market are most likely to amplify current risks.
The FSOC Annual Report sction 7 doesn't seem to address the "False Ratings" provided by "Ratings Agencies" to finanical instruments like CDOs, ABS (derivatives) or to the coorporations themselve.
The Executive Summary for the FSOC report doesn't mention that there is $1 Tillion Dollar short fall in US Pensions due to funds never being paid in. Also it doesn't address the fact that there is no individual savings account interest rate for Main Street who have given up largely on financial investments for retirement.
Nor is there a clear plan for the US when the 'perfect storm' of European recession, cooling of Chinese economy, state and municipal debt levels, combined with reduced public sector workforces (reduced public sector spending), and no job growth in the US.
http://www.treasury.gov/initiatives/fsoc/Documents/Financial%20Developments.pdf (Section 5)
Looks like Section 5 of the FSOC Annual Report on Financial Developments is a good one to read if you want to know more about the new financial instruments in the US. I should make time some day to read this...
But the report doesn't explain how Mitt Romney ended up with millions of dollars in an IRA Account.
OCC Criticism from Wikipedia:
Americans have been wary of an institution that stands outside of actual the U.S. Government's control. Because it was established at the behest of the Federal Reserve System (i.e., an entity that is legally independent of the U.S. Government or Treasury), and is under private control, the OCC is in fact not accountable to American citizens directly. It has never been formally forced to provide such protections to U.S. citizens by the U.S. Government, nor does the U.S. Government have the ability to demand policy changes or provisions at the OCC. It is a self-regulating board controlled by private interests. Newer mandates of the OCC (like ensuring fair and equal access to financial services to all Americans), are therefore biased in favor of the private banking institutions themselves. National, regional and local banks are not forced to provide loans, capital, insurance or brokerage services at a fair or equal price to American consumers under any formal governmental act or law other than consumer protection mandates without the power of enforcement. This leaves big business in charge of itself. Once the mortgage crisis of 2008 revealed banks were actually betting against their own customers (by buying massive amounts of collateralized debt obligation default risk insurance), the U.S. Government was forced to create actual monitoring divisions, like the United States Consumer Financial Protection Bureau, not controlled by private banking interests.
OCC doesn't supervise all banks. It looks like state banks regulate themselves. The OCC regulates and supervises about 2,000 national banks and 50 federal branches of foreign banks in the U.S., accounting for over thee-quarters of the total assets of all U.S. commercial banks (as of 2011)[3].
Commercial Bank = Investment Bank
http://en.wikipedia.org/wiki/Office_of_the_Comptroller_of_the_Currency
The Office of Thrift Supervision (OTS) was a United States federal agency under the Department of the Treasury that chartered, supervised, and regulated all federally chartered and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency (that was faulted for its role in the savings and loan crisis). Like other US federal bank regulators, it was paid by the banks it regulates. The OTS was initially seen as an aggressive regulator, but was later lax. Declining revenues and staff led the OTS to market itself to companies as a lax regulator in order to get revenue.
The OTS also expanded its oversight to companies that were not banks. Some of the companies that failed under OTS supervision during the financial crisis of 2007–2010 include American International Group (AIG), Washington Mutual, and IndyMac.
The OTS was implicated in a backdating scandal regarding the balance sheet of IndyMac. Reform proposals from Henry Paulson, President Barack Obama, and the U.S. Congress proposed to merge the OTS with the Office of the Comptroller of the Currency. Section 312 of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated merger of OTS with the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board of Governors, and the Consumer Financial Protection Bureau (CFPB) as of July 21, 2011. The OTS ceased to exist on October 19, 2011.
http://en.wikipedia.org/wiki/Office_of_Thrift_Supervision
The Financial Stability Oversight Council (FSOC) is a United States Federal government organization, established by Title I of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Barack Obama on July 21, 2010.[1] The Dodd-Frank Act provides the Council with broad authorities to identify and monitor excessive risks to the U.S. financial system arising from the distress or failure of large, interconnected bank holding companies or non-bank financial companies, or from risks that could arise outside the financial system; to eliminate expectations that any American financial firm is "too big to fail"; and to respond to emerging threats to U.S. financial stability. The Act also designates the Secretary of the Treasury as Chairperson. Inherent to the FSOC's role as a consultative council is facilitation of communication among financial regulators. The FSOC has the authority to set aside certain financial regulations published by the Bureau of Consumer Financial Protection if those rules would threaten financial stability.
http://en.wikipedia.org/wiki/FSOC
Attaching Federal Reports that I can find. I don't see any evaluation of the risks of links between public and private banks, Credit Default Swaps, Derivitives, and lack of transparency, lack of tracking, lack of monitoring, lack of involvement of regulators to define systemic risks.
http://4closurefraud.org/2012/07/05/semiannual-risk-perspective-spring-2012-occ-report-discusses-risks-facing-national-banks-and-federal-savings-associations/ (Office of the Comptroller of the Currency, seems to head federal bank examiners offices)
http://4closurefraud.org/2012/03/08/board-of-governors-of-the-federal-reserve-system-moral-hazard-the-effect-of-tarp-on-bank-risk-taking/ (The results indicate that, relative to non-TARP banks, the risk of loan originations increased at large TARP banks but decreased at small TARP banks. Interest spreads and loan levels also moved in different directions for large and small banks. For large banks, the increase in risk-taking without an increase in lending is suggestive of moral hazard due to government ownership)
http://www.federalreserve.gov/boarddocs/srletters/2008/SR0812.htm (The US Interagency agreement (Circular) seems to loosen up the rules on rating other countries banking risk, but it does prove a definite kind of responsibility for the Federal Reserve, FDIC, OCC)
http://www.huffingtonpost.com/2012/06/24/bank-for-international-settlements-report_n_1622244.html (The BIS – an intergovernmental organization of central banks based in Basel, Switzerland – said it's key for governments to make banks take responsibility for their losses and force them to rebuild their finances. Meanwhile, the threat from risky bank behavior is growing again)
"...The report also emphasized the need to increase the safety of the banking system by pushing banks to be responsible for their losses, add to their financial buffers and avoid risky practices. It added that big banks still have an interest in using high-risk debt – so-called "leveraging" – to magnify any trading gains because they can expect taxpayers to step in and cover their losses if things go bad...)
"...Some of the concerns about banks reflected in the BIS report were highlighted last week by the downgrade of the credit ratings of 15 large banks by Moody's Investors Service. The credit rating agency cited the banks' "significant exposure to the volatility and risk of outsized losses inherent to capital markets activities."..."
"...The BIS said fundamental progress would be secured when the "largest institutions can fail without the taxpayer having to respond" and when the size of the financial sector relative to the rest of the economy stays within tight limits..."
OCC, Commercial Credit Risk Division staff maintains expert knowledge of industry practices, emerging issues, and trends in commercial credit and is responsible for • Identifying and analyzing areas of significant risk.
OCC, Market Risk Division comprises two teams—balance sheet management and asset management—and maintains expert knowledge of industry practices, emerging issues, and trends in balance sheet management and asset management
OCC, Compliance Policy Department staff provides guidance to the banking industry and to examiners to promote compliance with consumer protection laws, the Community Reinvestment Act, fair lending laws, Bank Secrecy Act, and anti-money laundering laws. • Developing and maintaining examination procedures for use by field examiners.
OCC, Office of the Chief Accountant develops and publishes policy guidance on bank accounting issues and is responsible for • Coordinating accounting and financial reporting issues, including call report requirements. • Interpreting and developing guidance on generally accepted accounting principles related to banking, and identifying emerging accounting issues. • Working with the Financial Accounting Standards Board, the U.S. Securities and Exchange Commission, and other banking agencies to develop generally accepted accounting principles.
OCC, Financial Markets Group is responsible for • Assessing trading and counterparty credit risks at large trading banks. • Working with the National Risk Committee to identify areas of emerging risks. • Maintaining contacts in financial markets (loans and derivatives) to assess developments that may affect national banks. • Serving as a consultant to senior OCC management field staff, attorneys, and bankers on trading and counterparty credit risk policies. • Representing the OCC on interagency working groups.
OCC, Retail Credit Risk Division comprises two teams— (1) mortgage banking and securitization and (2) retail credit. Division staff maintains expert knowledge in industry practices, emerging issues, and trends in mortgage banking and securitization and in retail credit.
http://www.occ.treas.gov/publications/publications-by-type/annual-reports/annual-report-2009.pdf (Click here to see Rogue Gallery and names of participants in our Financial Crisis 2008)
The only way I see to secure the federal pension plan, is to take the money from the trust funds upon death, otherwise we default on social security and millions fall into poverty, of course that is what the 1% push with "entitlement reform".
Private plans are failing and as more boomers age they will default on more of those.
(Wait till he pays regular tax on the cap gains.)
I'm a bit tired. I'm just thinking we need leaders to think outside the box and address at least tow problems. But cutting taxes can't be a solution to any problem being discussed.
Actually perhaps they could lower the age for entry into Medicare and this will allow some people to reitre early and free their job up for a young person.
I also suspect that adding huge funds to the social security system will be needed to fill the big hole there now.
The federal government now has:
1) Portable Halth Care for its work force.
2) Portable Pensions systems, FERS, CSRS, TSP (thrift savings plan, like a 401K), plue you have IRAs, Roth IRAs. 3) Social Security is portable
4) Medicaid is portable once you reach 62 or 67.
5) Should have portable Education and College, where you can start classes here and finish classes in a different state.
6) The fedral government has insurance for Pensions up to the dollars they are funded, I would guess. So yes, people will be losing more pension benefits this next year or two.
MIT Systemic Risk Analysis for FSOC, A Survey of Systemic Risk Analytics, 31 quantitative measures of systemic risk
http://www.treasury.gov/initiatives/wsr/ofr/Documents/OFRwp0001_BisiasFloodLoValavanis_ASurveyOfSystemicRiskAnalytics.pdf
Systemic Risk Measure Section
Macroeconomic Measures:
Costly Asset-Price Boom/Bust Cycles A.1
Property-Price, Equity-Price, and Credit-Gap Indicators A.2
Macroprudential Regulation A.3
Granular Foundations and Network Measures:
The Default Intensity Model B.1
Network Analysis and Systemic Financial Linkages B.2
Simulating a Credit Scenario B.3
Simulating a Credit-and-Funding-Shock Scenario B.4
Granger-Causality Networks B.5
Bank Funding Risk and Shock Transmission B.6
Mark-to-Market Accounting and Liquidity Pricing B.7
Forward-Looking Risk Measures:
Contingent Claims Analysis C.1
Mahalanobis Distance C.2
The Option iPoD C.3
Multivariate Density Estimators C.4
Simulating the Housing Sector C.5
Consumer Credit C.6
Principal Components Analysis C.7
Stress-Test Measures:
GDP Stress Tests D.1
Lessons from the SCAP D.2
A 10-by-10-by-10 Approach D.3
Cross-Sectional Measures:
CoVaR E.1
Distressed Insurance Premium E.2
Co-Risk E.3
Marginal and Systemic Expected Shortfall E.4
Measures of Illiquidity and Insolvency:
Risk Topography F.1
The Leverage Cycle F.2
Noise as Information for Illiquidity F.3
Crowded Trades in Currency Funds F.4
Equity Market Illiquidity F.5
Serial Correlation and Illiquidity in Hedge Fund Returns F.6
Broader Hedge-Fund-Based Systemic Risk Measures F.7
Table 1: Taxonomy of systemic risk measures by data requirements.
A Survey of Systemic Risk Analytics
Dimitrios Bisias†, Mark Flood‡, Andrew W. Lo§, Stavros Valavanis¶
This Draft: January 5, 2012
We provide a survey of 31 quantitative measures of systemic risk in the economics and finance literature, chosen to span key themes and issues in systemic risk measurement and management. We motivate these measures from the supervisory, research, and data perspectives in the main text, and present concise definitions of each risk measure—including required inputs, expected outputs, and data requirements—in an extensive appendix. To encourage experimentation and innovation among as broad an audience as possible, we have developed open-source Matlab code for most of the analytics surveyed, which can be accessed through the Office of Financial Research (OFR) at http://www.treasury.gov/ofr.
Keywords: Systemic Risk; Financial Institutions; Liquidity; Financial Crises; Risk Management
JEL Classification: G12, G29, C51
Among its many provisions, the Dodd-Frank Act established the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR) to address the concern that policymakers and investors lacked sufficient data to anticipate emerging threats to financial stability or assess how shocks to one financial firm could impact the system as a whole. Specifically, the FSOC is charged with three primary purposes:1
http://www.rhsmith.umd.edu/cfp/events/2011/confSystemicRisk1011/docs/Lucas.pdf
Below data or narrative relates mostly to Government Financial Risk that is mostly related to debt and loans to Main Street
"...To help support the FSOC’s mission, the OFR is tasked with improving the quality of financial data available to policymakers and with facilitating more robust and sophisticated analyses of the financial system..."
"...In that context, most discussions about systemic risk and the need for additional monitoring and data collection have focused on private-sector financial institutions. U.S. federal government is the world’s largest ... banker, rule-maker, and regulator—arguably represents a major source of systemic risk. The government’s counterparties and creditors assume that they will be shielded from losses by taxpayers, and hence it is subject to little market discipline, less transparent, lightly scrutinized. This paper makes the case that the government is a significant source of systemic risk, and hence that it falls under the mandate of the FSOC and OFR to monitor and study it. ...some of the mechanisms by the OFR through its data initiatives and analysis could help to mitigate the risks that are identified..."
"...3.4 Inadequate supervision The Federal Reserve, as the systemic risk regulator for private financial institutions, has three major tools: disclosure requirements, supervision and regulation, and setting capital standards. It uses none of those tools, however, to control risks arising from government financial institutions..."
We all know the government let us down in this Financial Crisis of 2007 - 2012.
We just didn't know there was no regulators supervising and monitoring all the Banking Activities.
1) There is plenty of Crime in banking to watch out for.
2) There is plenty of Accounting Fraud to watch out for.
3) Matter of fact the best way to catch crooks of any kind is to get a hold of their books and see what they are doing.
4) We should have had Independent Auditing Agencies to stop High Risk Behavior and Fraud in Banking (and in Mortgages, and in Mortgage Servicing Houses).
5) We should have had Independent Ratings Agencies to also 'Sound the Alarm' on banks.
6) There should be clear discrimination between making money from 'finanical rent making' (making money for nothing) and real business like making things and adding value (everyone should be able to see this: Politicians, Rating Agencies, Auditing Agencies, and US Voters).
So Why?
1) Why are derivatives now valued at 20 times our Economy? Greed.
2) Why didn't the government protect the US Voter? Self interest, Greed, Regulatory Capture, Revolving Doors between Regulators and Industry, Conflict of Interest, Congressional Members trying to make money on stocks and other financial instruments.
So are derivatives still a threat to the Global Economy?
Probably Derivatives ARE a threat to Global Stability because there is like $600 Trillon Dollars worth in the Economy and we don't know about all the existing Derivatives ...AND we don't know all the Links between all banks.
But even in a depression banks will keep the money flowing from Payroll Systems, billing payings systems, invoice systems, mortagage payments systems anyway that they can.
The Real QUESTION is why Politicians won't recognize government Failure to Regulate, why they won't recognize Recession and huge Jobs Problems including decreasing wages, Why they don't create real programs that would lead to jobs, Why they don't recognize that Banks and Money corrupt and made these problems.
Because it is not PERSONAL to Politicians. Self interest Rules the Day. They answer only to their ambition to be re-elected. They need to allocate money to do their Job in Congress and they need money for re-election campaigns. Lobby money is just the cream on top.
Survivial of the Fittest. We are the 99% and have to fight it out for prosperity. Or join in the corrupt game somehow.
The Answer: Get rid of rich politicians - they have been in the game too long.
Looking Nouriel Roubini - video interview, he says markets are not working. http://live.wsj.com/video/nouriel-roubini-karl-marx-was-right/68EE8F89-EC24-42F8-9B9D-47B510E473B0.html#!68EE8F89-EC24-42F8-9B9D-47B510E473B0
Zombie Governments, Zombie Households, Zombie Economcy... Not enought demand for goods, You can't keep shifting income from people who work and turn it into capital through consumption, credit, public and private debt.
Nouriel Roubini - Talks about "Perfect Storm in the Economy"
You can't Inflate yourself out of this recession, you can't save yourself out of this recession (paradox of thrift), you can't spend yourself out of this recession. He is saying that the FED won't fix the problem with QE3. Jobs are needed.
I say Nouriel Roubini is mostly talking about a coming deep recession or depression. He is concerned about financial problems and finanical systemic problems and too much public debt/federal total debt. But ...it is not clear to me that Roubini is talking about total financial collapse from derivative exposure like banks closing down like dominos. And looking at US stabilization efforts, it doesn't make sense that Roubini would forget to mention "Derivatives".
We can survive a deep recession and we may not have a choice since 'Status Quo' in Washington DC means a Thatcher Style Austerity for the next six years.
The HIDDEN POVERTY in the USA is having Food Stamps, Electronic Checks for welfare and unemployment, and other safety net assistance. That is why we don't see long lines of hungry at soup kitchens, long lines to get jobs in the street, and hoover-villes. SO THE GOVERNMENT WILL Have to continue to provide food stamps and electronic checks over the next SIX years.
Good to review what our tools are. We've been asking why we don't do what FDR did to get 100 percent employment. I have been talking about jobs programs for the last year and economic free zones.
http://occupywallst.org/forum/economics-stimulus-taxes-jobs-regulations-revolvin/ (I have over 10 suggestions listed here)
That is the place I put my ideas.