The Federal Reserve Bank of Chicago hosted its 45th Annual Conference on Bank Structure and Competition at the Hotel InterContinental in Chicago. The conference has a rich tradition as a leading forum for dialogue on public policy issues affecting the financial services industry.
The conference theme this year dealt with financial regulatory reform. Federal Reserve Chairman Ben Bernanke, via satellite, provided the opening keynote address. Sheila Bair, Chairman of the Federal Deposit Insurance Corporation and John Allison, Chairman of the Board at BB&T Corporation presented their perspectives at the luncheons on Thursday and Friday, respectively. We also had a panel of industry experts discuss the conference theme, and additional sessions where topics ranging from the current financial crisis, the performance of U.S. mortgage markets, personal bankruptcy trends, the future role (if any) of market discipline in financial markets and other policy relevant issues will be debated.
The conference theme was particularly timely. At the 2008 Bank Structure Conference, a number of speakers emphasized the need for reform of regulation and oversight of the financial services industry. Subsequently, the U.S. Treasury proposed a blueprint for reform, both presidential candidates stressed the need for reform during their campaigns and the calls for regulatory reform intensified, with problems in financial markets cited as a major cause for the deterioration of the economy. Leaders in both houses of Congress have indicated that regulatory reform will be a high priority item.
Proposals for reform have been quite varied ranging from a significant move back toward the policies implemented during the 1930s (based on the argument that the current crisis is mainly a result of the unwinding of those policies) to calls for minor tweaks of the current framework (based on the position that the crisis was driven by a relatively few, fixable, regulatory problems, such as the lack of transparency and distorted incentives.) There were an array of issues that needed to be seriously considered during the policy debate.
- How can we efficiently address the tradeoff between too-big-to-fail policies and moral hazard?
- Can too-big-to-fail be effectively managed with new failure resolution processes?
- Should banks be run as public utilities?
- Do we need a regulator whose major (sole?) responsibility is managing systemic risk in financial markets?
- Should that regulator's responsibilities expand beyond financial markets?
- Do we need a thorough revamping of the complex, multilayered structure of financial regulation in the U.S.?
- Do we need a new product approval process in finance similar to that for the pharmaceutical industry to avoid the introduction of potentially destructive new products?
- What is the appropriate role of the financial government sponsored enterprises (GSEs) in the future?
- What is the responsibility of the rating agencies?
- Is there a concern that the push for reform may be an overreaction and result in a significantly less efficient process of credit allocation (a position argued by those who show evidence that the most inefficient regulation is put in place during times of crises).
Each year, we bring together industry leaders, scholars and regulatory authorities to address current economic issues. The first day of the conference was more technical in nature and typically attended by an "academic" audience.