To the Editor:
Re “Shortcomings of Cybersecurity Bills” (editorial, May 14):
The “shortcomings” referred to in this editorial are in fact critically important legislative fixes that will empower businesses and government agencies with the best information to protect consumers and stay ahead of the rapidly evolving and increasingly malicious nature of cyberattacks.
Businesses and government need the ability to learn from each other regarding the nature and location of cyberattacks. This sharing of information will enable the public and private sectors to continually improve network security and protect Americans’ information from cybercriminals.
To be clear: The goal is not to share personally identifiable information about clients. Our goal is the exact opposite: to protect Americans’ sensitive information from threat or destruction. All of us — industry, government and consumers — are aligned in our effort to thwart criminal behavior.
Unfortunately, there are currently too many roadblocks that prevent businesses and government from learning from each other. Liability protections must be put in place so that businesses that share or receive cyberthreat information, or act proactively to prevent an attack, do not find themselves in violation of the law.
This is not about broad surveillance, hypothetical threats or uninformed action. We’re talking about real, specific intelligence about threats. Cybersecurity legislation must move forward.
KENNETH E. BENTSEN Jr.
President and Chief Executive
Securities Industry and Financial Markets Association
The letter was also signed by the leaders of the Financial Services Institute, the American Bankers Association, the Financial Services Forum and the Financial Services Roundtable.
Testimony of Forum President & CEO on Cybersecurity Efforts and Coordination in the Financial Sector
Forum President and CEO Rob Nichols recently testified before the House Financial Services Financial and Consumer Credit Subcommittee at a hearing entitled: “Protecting Critical Infrastructure: How the Financial Sector Addresses Cyber Threats.” In his testimony, Nichols described the important role large financial institutions play in combatting cyber threats and how these institutions not only protect their banks’ customer information in the event of a cyber-attack, but the financial system as a whole. Nichols also pushed for greater coordination with regard to information sharing among the financial system and relevant government agencies to combat cybercrime.
Nichols’ full written testimony can be viewed here.
Forum President Rob Nichols Discusses Impact of Dodd-Frank, State of Financial Industry on ‘Engage with Andy Busch’
Financial Services Forum President and CEO Rob Nichols was a recent guest on “Engage with Andy Busch” where he spoke about the impact of the Dodd-Frank Act on the financial sector as well as the industry-initiated improvements made to ensure the strength and resilience of the financial system. Click here for the full “Engage with Andy Busch” podcast.
By Rob Nichols, President and CEO, The Financial Services Forum
The findings of last week’s government report on big bank subsidies were misconstrued in a recent column by Camden Fine (“A Subsidy of Any Size Is Still Too Big,” Aug. 1, 2014). Mr. Fine argues that the study by the Government Accountability Office “reiterates the importance of ending the too-big-to-fail epidemic.” In fact, the GAO report offers proof that meaningful progress has been made since the financial crisis.
The GAO was asked by Sens. Sherrod Brown, D-Ohio, and David Vitter, R-La., to study whether the six largest banking companies enjoy a cost of funding differential over smaller institutions stemming from investors’ expectation of future bailouts. If a funding differential could be linked to bailout expectations, the difference could justifiably be characterized as a kind of “subsidy.”
Mr. Fine acknowledges that the GAO’s report “finds that the size of big bank subsidies has diminished since the crisis.” But he then asserts that large banks “can still access subsidized funding more cheaply than smaller financial firms because creditors believe the government would bail them out in the event of a crisis.”
Actually, the GAO not only found that any large bank cost of funding differential had diminished since 2007 — the differential may have actually reversed so that large banks are now at a disadvantage. In testimony before Sen. Brown’s subcommittee last Thursday, Lawrance Evans, Jr., the GAO’s director of financial markets and community investment, said: “[M]ost models suggest that such advantages may have declined or reversed. For example, most models we estimated suggest that large bank holding companies had higher bond funding costs than smaller bank holding companies in 2013.”
Mr. Fine also asserts that “the value of being too-big-to-fail increased significantly during the financial crisis, and would do the same in subsequent downturns.” But in the years since 2009, significant statutory, regulatory, and industry changes have been made to ensure that no institution is too big to fail and that taxpayers are never again put at risk. Moreover, there is zero appetite in Congress, among regulators, or among the American people to ever again bail out a failing bank. If depositors and investors were to flock to large banks in a future crisis, it would be because large banks offer strength, diversity and liquidity — not because of expectations of bailouts. Investors seek shelter in Treasury securities during a crisis for the same reason.
With all this in mind, it is misguided to support legislative efforts that would require banks to hold dramatically higher capital or forcibly break them up. Banks are already holding capital at or near record highs. Further hiking up requirements would diminish banks’ ability to lend to working families and businesses, undermining the ongoing economic recovery.
Similarly, dismantling highly diversified banks would undermine financial stability. Diversification is a hallmark of sound investing — and institutional and systemic stability. Breaking up large, multi-faceted institutions would produce less diversified, more concentrated components that could be more prone to sudden shock and instability.
The GAO report demonstrates that our financial system is stronger, more resilient and more fair today than it was in 2007. That said, I am in strong agreement with Mr. Fine about the urgent need for regulatory relief for small community banks, which continue to struggle under a compliance burden that is unnecessarily heavy and complex. An economy as diverse as that of the United States needs banks of all sizes and business models, including thriving community banks and large, diversified, globally active banks. On that point, I am certain large banks and small banks can agree.
Rob Nichols is the president and chief executive of the Financial Services Forum.
By Rob Nichols, President and CEO, The Financial Services Forum
With the midterm elections just months away, the limitations of the congressional calendar, and a contentious political environment, conventional wisdom suggests that little is likely to become law between now and November. Acknowledging these headwinds, it’s not too early to think about what Washington should focus on to accelerate economic growth and job creation once the environment is right.
Five years into the post-recession recovery, economic growth remains subpar and more than 20 million Americans remain out of work, underemployed, or have left the workforce, discouraged. Working together, Congress and the business community can — and must — do more.
Gradual but meaningful debt reduction: As recently as 2007, U.S. publicly held debt amounted to just 36 percent of the gross domestic product (GDP). Since then, the nation’s debt has increased 155 percent, and that’s not counting trillions of dollars more in unfunded liabilities. According to the Congressional Budget Office, federal debt will likely exceed 76 percent of GDP this year and “could have serious negative consequences, including restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis.”
Recent research indicates that gradual but substantial reduction of government debt promotes economic growth as business expectations of lower future debt levels and taxes encourage private spending and investment. While the urgency to put America on a more sustainable fiscal path has unfortunately faded, the problem remains unsolved, and we need to remain diligent about addressing our long-term fiscal circumstances.
Tax reform: The last significant overhaul of the U.S. tax code was signed into law by President Ronald Reagan nearly 30 years ago. The Tax Reform Act of 1986 simplified the code, broadened the tax base and lowered rates, revitalizing the economy and laying the foundation for one of the longest periods of economic expansion in American history.
In the years since, Congress has passed nearly 15,000 changes to the tax code; now, any of the loopholes, deductions, special credits, and expenditures are back. Higher marginal tax rates are also back. The U.S. corporate tax rate is the highest in the developed world, 14 percentage points higher than the average of the 33 other members of the Organization for Economic Co-operation and Development. A simpler and fairer code, with lower rates and a broader base achieved by eliminating loopholes and expenditures will encourage greater investment and production and significantly enhance America’s economic competitiveness.
Further trade liberalization: After completing 19 free trade agreements (FTAs) between 1994 and 2007, an average of more than one each year, the United States has not ratified a new FTA since October 2011. The United States is currently party to negotiations of the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership, but negotiations are arduous and congressional ratification is very much in question. Meanwhile, “fast track,” or trade promotion authority (TPA), the president’s authority to negotiate international agreements that Congress can approve or disapprove but not amend or filibuster, expired in July 2007.
Trade liberalization achieved to date adds about $1 trillion to America’s income each year, and further liberalization would deliver an estimated $500 billion more. Moreover, according to the Commerce Department, each additional $1 billion in U.S. exports creates about 5,000 new American jobs. Expanded trade, particularly with rapidly growing emerging economies, represents an enormous opportunity for America’s manufacturers, service providers, and farmers. A bipartisan, bicameral bill to renew TPA, introduced in January, should be passed as soon as possible.
Recall the simple fact that 95 percent of the world’s consumers live outside the United States. Given that reality, a focus on trade policy frankly should be a priority for every Congress. Restoring the U.S. economy’s growth rate to the post-World War II average of 3.5 percent-4 percent from the current pace of just 2 percent -2.5 percent should be policymakers’ foremost domestic priority. Faster economic growth would produce the jobs necessary to end the current job crisis; the expanded opportunity necessary to accelerate socio-economic mobility; the rising real wages needed to narrow the income gap and reduce poverty; and the tax revenue necessary to narrow budget deficits and substantially reduce the nation’s long-term debt.
Immigration reform: In an ever-more competitive global economy in which highly skilled talent and brainpower are among the resources most sought after, current U.S. immigration policies are irrational and self-defeating. Though representing just 12 percent of the U.S. population, immigrants account for nearly 20 percent of small-business owners and launch half of the nation’s top startups, which, research has shown, account for virtually all net new job creation. According to the Partnership for a New American Economy, immigrants were also involved in more than 75 percent of the nearly 1,500 patents awarded at the nation’s top 10 research universities in 2011. And nearly all the patents were in science, technology, engineering and mathematics.
The net result of immigrants’ propensity for innovation and entrepreneurship is faster economic growth and job creation. And, as the program’s trustees pointed out in a report last May, more legal immigration will improve the financial position of Social Security, adding $4.6 trillion over the next 75 years.
There are a number of things that can be done to spur economic growth, but making real progress on immigration reform, tax reform, debt reduction, and further trade liberalization will create the growth America needs.
PUBLISHED ON WEDNESDAY, 16 APRIL 2014 10:00
By Rob Nichols, President and CEO, Financial Services Forum
In a recent BankThink, Independent Community Bankers of America President Camden Fine claimed a new study by the Federal Reserve Bank of New York proves that the issue of “too big to fail” remains a “persistent and burgeoning problem.” Let’s examine this issue more closely.
The NYFRB study relied on outdated data from a 20-year period ending in 2009, at the height of the financial crisis: a period of explicit government support for the industry and prior to the passage of the Dodd-Frank Act. Since then, Dodd-Frank, a host of regulatory initiatives and industry-initiated reforms has transformed market conditions for firms large and small. Crisis-era and pre-Dodd Frank data is about as relevant to what’s going on in today’s financial markets as teletype.
Even as he relied on outdated data, NYFRB researcher João Santos found only a small cost of funding advantage for large banks. He also conceded that this advantage could have nothing to do with market expectations of bailout: “To the extent that the largest banks are better positioned to diversify risk because they offer more products and operate across more businesses (something not fully captured in their credit rating), this wedge could explain part of that difference in the cost of bond financing.”
For similar reasons, Wal-Mart and Apple can borrow more cheaply than neighborhood retailers or tech startups. Investors do not assume that Wal-Mart or Apple will be rescued if they fail. For investors to see large, diversified banks as a safer bet is not unreasonable. During the financial crisis, 70% of the banks that relied on the Federal Reserve’s Term Auction Facility were under $50 billion in assets.
The International Monetary Fund recently examined funding advantages using more recent data – 2011 and 2012 – and found that any market advantages provided to the large banks at the height of the financial crisis have declined sharply to close to zero – only 15 basis points.
Recent research from Oliver Wyman found that any advantage was “statistically insignificant (i.e. it cannot be confidently distinguished from zero).” These findings are consistent with credit analysts, who have been removing large U.S. banks’ ratings “uplift” because they do not see an expectation of any future taxpayer bailout, believing instead that bank creditors will suffer losses if a firm gets into trouble in a future crisis.
This progress towards ending “too big to fail” in the U.S. is especially encouraging, because as the IMF data makes clear, we are well ahead of other international jurisdictions in our reform efforts. In parts of Europe, the recent sovereign debt crisis has left many bond investors with the impression that national authorities still stand behind their financial institutions. To put this in perspective, the implied borrowing advantage for some large European banks is six times the size of the advantage for U.S. banks – nearly 90 basis points. That number stands in stark contrast to the U.S. and is consistent with the expectation of future government support still seen in the Eurozone.
Both the IMF and the NYFRB studies recommend that authorities around the world move to complete the existing reforms, especially cross-border resolution planning and capital requirements. However, they also warn against capping bank size or curtailing bank activities, which would have significant negative consequences for liquidity and the efficiency our economy. While our international counterparts are still working through these challenges, many of these reforms have already taken place or are underway here in the U.S.
The facts make clear that, in the U.S., the era of “too big to fail” is fading into the rearview mirror. For the U.S. economy to work its best, we need a vibrant and diverse banking sector that includes large global banks, regional banks and community banks. Banks today are safer, sounder, more secure, transparent, accountable and performing their critical roles in the global economy. Rather than picking winners and losers, we need to support a system that works for everyone.