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March 3, 2004
U.S. SHADOW FINANCIAL REGULATORY COMMITTEE
2003 Annual Report
Administrative Office
c/o Professor George G. Kaufman
Loyola University Chicago
820 N. Michigan Avenue
Chicago, Illinois 60611
312-915-7075
In 2003, the U.S. Shadow Financial Regulatory Committee completed its eighteenth year of operation. As in most of its previous years, the Committee met quarterly. It issued seventeen policy statements. Three new members joined the Committee: Kenneth Dam, University of Chicago and former Deputy Secretary of the U.S. Treasury; Kenneth Lehn, University of Pittsburgh and former chief economist of the Securities and Exchange Commission; and Randall Kroszner, University of Chicago and former member of the President's Council of Economic Advisers. Robert Litan, a member of the Committee since 1996 and co-chair since 1998, resigned for personal reasons. Richard Herring, a member since 1990 was elected co-chair to succeed Litan. (Current and past members of the Committee are listed in Appendix A.)
In addition to the U.S. Shadow Financial Regulatory Committee, similar committees currently operate in Europe, Japan, and Latin American, and a new committee in East Asia had its initial organizing meeting. The committees operate independently, but keep each other informed of their activities and generally meet jointly once a year. Although there was no joint meeting in 2003, a meeting is scheduled in late 2004 in Washington, D.C. The membership and statements of all the committees are posted on the U.S. Committee's website at the AEI--www.aei.org--scroll to Shadow Financial Regulatory Committee.
Meetings
As usual, the Committee met quarterly for two days--all day on Sundays and on Monday mornings. The 2003 meeting dates were on Sunday-Monday, February 23-24, May 4-5, September 21-22 and December 7-8. All meetings were at the offices of the American Enterprise Institute in Washington, D.C.
At its February meeting, the Committee discussed the bank regulators' proposal for disciplining bank auditors; remaining unresolved issues concerning the Sarbanes-Oxley and Gramm-Leach-Bliley Acts; Fannie Mae and Freddie Mac, and the settlement between state attorney generals and some investment banking firms and their research analysts. In May, the Committee discussed improving the efficiency of the transatlantic securities market, terrorism insurance, the House of Representative's deposit insurance reform bill, the Basel Capital Accord, and the European Union's proposed regulations on financial conglomerates. In September, the Committee discussed predatory lending and federal preemption of certain state banking laws, pending legislation regarding Fannie Mae and Freddie Mac, the responsibilities of financial professionals and firms in recent financial scandals, and taxpayer exposure to liabilities of the Pension Benefit Guarantee Corporation. The December meeting focused on the problems in the mutual fund industry and the NYSE, Basel capital requirements, nominating nonmanagement corporate directors, and the Comptroller of the Currency's annual report. In particular, the Committee developed a simple plan for resolving a number of the mutual fund problems at low cost by delaying settlement by one day (t + 1). At these meetings, the Committee followed its usual practice of devoting part of the session to meeting with guests. Guests are usually representatives of policy-makers, regulatory agencies, financial services firms, and trade associations. These meetings are private, closed-door exchanges of ideas on issues of current concern to both parties. Guests in 2003 included Cynthia Glassman, SEC Commissioner; Donald Powell, FDIC Chairman; Vicki Tillman, Executive VP of S&P; representatives of government agencies; and private consultants.
Policy Statements
The Committee continues to serve as a major independent public watchdog for monitoring and evaluating events affecting the efficiency and safety of the financial services industry. The primary means of disseminating its views on these issues is through policy statements adopted at its meetings after thorough discussion. A listing of all policy statements since its establishment in 1986 appears in Appendix B. Through 2003, the Committee has issued 202 policy statements.
In a sharp break from past policy statements, the Committee's statements in 2003 focused greatly on investment banking, mutual funds, and the SEC rather than on commercial banks, S&Ls, and bank regulators. This reflected the changed areas of current public policy concern and problems. Ten of the seventeen statements reflected this concern, two focused on GSEs and the remainder primarily on more traditional banking and bank regulation issues.
Dissemination and Public Service
The Committee seeks both to raise the level of debate on public policy affecting the financial services industry and to improve public policy itself largely through its policy statements and the underlying analytical reasoning. The policy statements are released at a press conference immediately following the quarterly meetings. The press conferences, which are attended by Committee members, serve two purposes. One, they provide the representatives of the media and other attendees, such as congressional and agency staff members, with an opportunity to obtain additional information about the statements, including background information and underlying reasons, through both an introductory briefing and from questions asked of Committee members. Two, the conferences provide the Committee with an opportunity to educate the press and Washington-based staff on the underlying economics arguments for each statement and to assist them in formulating appropriate questions. The policy statements and the press conferences receive regular coverage in financial trade publications, such as the daily American Banker and the daily and weekly BNA Banking Reports, and occasional coverage in major national daily and weekly publications, such as the Wall Street Journal and Washington Post. In addition, segments of the press conferences and interviews with Committee members at the conferences have in the past been broadcast on a number of TV and radio stations, including CSPAN, PBS, CNBC, CNN and Bloomberg.
The policy statements are posted shortly after the press conference on the AEI website, alongside the past statements, and are delivered the same day to the appropriate policy-makers, regulatory agencies, and other interested parties. To the extent that the statements pertain to specific issues and proposed regulations on which agencies have requested public comment, they are submitted to the agency. Members of the media who do not attend the press conference, as well as policy-makers, regulators, and members of the general public who request being on the mailing list, are emailed notifications that the statements are available on the AEI website. In addition, requests for policy statements and other information are made by telephone and letter through the Committee's administrative office at Loyola University Chicago.
The other three Shadow Financial Regulatory Committees also met throughout the year and released a number of policy statements. These statements are available on the U.S. Shadow Committee AEI website.
Administrative and Financial
The Committee is a tax-exempt 501(c)(3) nonprofit organization. The Committee's administrative office is at Loyola University Chicago. Beginning in 1999, the Committee has been financially supported entirely by the American Enterprise Institute and has held all of its meetings there, but retains its policy independence.
Appendix A: Statement of Purpose and Membership
The Shadow Financial Regulatory Committee is a group of independent experts on the financial services industry and its regulatory structure.
The purpose of the Committee are: (1) to identify and analyze developing trends and ongoing events that promise to affect the efficiency and safe operation of sectors of the financial services industry, (2) to explore the spectrum of short- and long-term implications of emerging problems and policy changes, (3) to help develop appropriate private, regulatory and legislative responses to such problems, and (4) to assess and respond to proposed and actual public policy initiatives with respect to their impact on the public interest.
The results of the Committee's deliberations are intended to increase the awareness and sensitivity of members of the financial services industry, public policy markets, the communications media and the general public to the importance and implications of current problems, events and policy initiatives affecting the industry.
Members of the Shadow Financial Regulatory Committee are drawn from academic institutions and private organizations and reflect a wide range of views. The Committee is independent of any of the members' affiliated institutions or of sponsoring organizations. The recommendations of the Committee are its own. The only common denominators of the members are their public recognition as experts on the industry and their preferences for market solutions to problems and the minimum degree of government regulation consistent with efficiency and safety.
Past and Present Members (1986-2003)
George G. Kaufman, (1986-) | Loyola University Chicago |
Appendix B: Policy Statements
1. The Baker Plan and LDC Lending, Feb. 15, 1986 |
