The banking turmoil that rocked the past year is the most significant system-wide banking stress since the 2008 financial crisis. Now, regulators are rushing to implement measures to respond to those bank failures and mitigate their impact. In July, federal banking regulators, including the Federal Reserve Board of Governors and the FDIC, proposed new rules around capital requirements and risk, but these measures have actually been a long time coming, with the US considering the adoption of the so-called Basel III Endgame framework ever since 2008. Today, we learn more about what the proposals entail and the potential impact they will have on the economy. Joining us for this discussion is Jeremy Kress, Assistant Professor of Business Law at the University of Michigan Ross and Co-Faculty Director of the University of Michigan’s Center on Finance, Law, and Policy. Jeremy’s research focuses on bank regulation, systemic risk, and financial stability, which makes him the ideal guest to lend his voice to today’s conversation. Also joining today’s discussion is Richard Squire, professor of business law at Fordham Law School and the faculty director of the Fordham Corporate Law Center. Join us as we discuss the Basel III Endgame proposal, whether it will have favorable effects on the US lending environment, the Fed’s role in banking stability, and more!
Key Points From This Episode:
• Some context on the 2023 bank failures and the revision of the Basel III standards.
• Defining capital and capital requirements according to bank regulators.
• Different types of risk implicated in the Basel III Endgame proposal.
• The main risks that banks face that most other businesses don’t.
• Understanding the liquidity crisis of 2008 versus 2023.
• Why banks shouldn’t count held-to-maturity securities as highly liquid assets.
• Insight into the AOCI opt-out and how the Basel III Endgame proposal has responded.
• How a broader crisis of confidence in the markets influenced the recent bank failures.
• Why Jeremy believes we’ll see more effective supervision of regional banks going forward.
• The discount window and the Federal Reserve’s role in maintaining banking stability.
• Jeremy’s take on the supposed negative effects of the Basel III Endgame proposal.
• When we can expect to see the proposal finalized.
Links Mentioned in Today’s Episode: