Context: The safety and soundness of our financial system undoubtedly has improved as the result of recent changes made by Congress, supervisors, and financial institutions themselves. In particular, risk has been reduced, capital and liquidity have
improved, and failed firms can be resolved without imposing loss on taxpayers. These are positive developments for the U.S. and the future of financial services and should be applauded. However as hundreds of new rules are written – both here and
abroad – it is critically important for the sake of our economy, consumers, and the competitiveness of the financial services industry that the cumulative weight of new rules is understood. The Financial Services Roundtable has begun collecting
independent reports, testimonies, speeches, and statements that provide a window into the potential weight of these new rules.
CUMULATIVE WEIGHT OF REGULATORY REFORM
Topic Source Title/Date Key Takeaways
Economic Impact Institute for International Finance Interim Report on the Cumulative Impact on the For the G3 (US, Euro Area, Japan), the full implementation of regulatory reform will subtract an annual average of 0.6 percentage
Global Economy of Proposed Changes in the points from the path of real GDP growth over the five year period 2011-15, and an average of about 0.3 percentage points from the
Banking Regulatory Framework. June 2010 growth path over the full ten year period, 2011-2020. For the U.S., the path of real GDP would be lower than in a scenario of no
regulatory change, with the negative impact rising fastest in the next five years when the economy is struggling to resume a solid
growth against the headwinds of a fiscal policy reversal. By 2015, the downward deviation would be about 2.6%. The loss in jobs in
the regulatory change scenario is about 4.6 million by 2015. This slower recover in employment and output can be viewed as a
significant price to pay for a more heavily-regulated and arguably more stable system.
Economic Impact The Economist Too Big Not to Fail: Flaws in the confused, It is the risk that they and other parts of the Dodd-Frank apparatus will smother financial institutions in so much red tape that
bloated law passed in the aftermath of America’s innovation is stifled and America’s economy suffers.
financial crisis become ever more apparent
Economic Impact Institute for International Finance The Cumulative Impact on the Global Economy In the interim report, the downward deviation of real GDP in U.S. was estimated at about 2.6%. However the final report has
of Changes in the Financial Regulatory downward adjusted the estimate by 0.1%, leading to a real GDP decrease of 2.7% by 2015 in U.S.. Compared with 4.6 million in job
Framework. September 2011 loss through 2015 in U.S., the final report has updated the number to 2.9 million.
A big difference in the employment projection is that regulation reforms could actually increase employment by 0.9 million through
2020 instead of a job deduction of 4.9 million from the interim report. From the previous report, the changes in funding costs
resulting from regulatory reform would lead to an increase in bank lending rates of about 193 basis points by 2014.The final report
has put together more specific data on bank lending activities in U.S.. First, it expected an increase in capital needs by $ 1.3 trillion
and long-term debt issuance by $ 0.3 trillion by 2015 due to stricter regulations. In response to higher funding demands, the bank
lending rates would increase by about 364 bps over the next five years which would directly lead to a reduction of real GDP of 3.2%,
or about 0.7% per year. Consequently, it estimated that there would be 7.5 million few jobs being created over the next five years.
Financial Stability Industry Council As of 7/26/2012 Page 1
Economic Impact Dr. Douglas Holtz-Eakin, President, Testimony at the House Financial Services Financial regulation imposes budgetary costs on the taxpayer. It also imposes direct compliance costs and its distortions induce
American Action Forum Hearing: “The Costs of Implementing the Dodd- economic costs in the form of reduced capital investment, inferior risk-sharing, and lost competitiveness. Dodd-Frank will impose
Frank Act: Budgetary and Economic.” March 30, substantial costs of each type.
2011 Budgetary costs are the least difficult to estimate, and likely the smallest cost associated with Dodd-Frank. Compliance costs are an
important burden on the affected firms and industries. Past episodes such as the passage of the Sarbanes-Oxley legislation suggest
that these can be substantially larger than anticipated. SOX compliance for one provision of the Act was estimated at under
$100,000; the reality for most firms is easily 10 to 40 times greater. The economic consequences of Dodd-Frank will be to reduce
investment in the U.S. The total costs to date are $836.6 million. Standard & Poors estimates that Dodd-Frank would result in a $22
billion reduction in aggregate pre- tax earnings among large banks. International Swaps Dealers Association; $1 trillion in capital and
Economic Impact Institute for International Finance Net Cumulative Economic Impact of Banking Most assessments of the cost of a crisis seem to dramatically overstate the extent to which that crisis can be attributed to problems
Sector Regulation: Some new Perspectives. originating in the banking sector. In most recent crisis used in empirical studies – the banking sector is the casualty of failings
October 2010 elsewhere in the economy- generally in the macroeconomic policy making framework.
Economic Impact Professor Hal S. Scott, Director of the Testimony at the House Financial Services Studies estimate the impact on global GDP of a 1 percentage point increase in bank common equity to have a peak negative effect of
Committee on Capital Markets Hearing: "Financial Regulatory Reform: The up to 1.1% of GDP, or up to $748 billion by 2019. The cumulative effects of the various provisions in Basel III could lead to a
Regulation, Nomura Professor and International Context." June 2011 decline in U.S. GDP alone of up to $951 billion over the period of 2011 to 2015 according to the IIF. But as Chairman Bernanke
Director of the Program on admits, we really do not know the impact; it might be much worse.
International Financial Systems at
Economic Impact Jeffrey M. Lacker, President, Federal Testimony at the House Financial Services Researchers at the Federal Reserve Bank of Richmond have estimated, based on conservative assumptions, that the implicit safety net
Reserve Bank of Richmond Hearing: “The Costs of Implementing the Dodd- covered as much as 40 percent of all financial sector liabilities by the end of 2009. When combined with the explicit protection in
Frank Act: Budgetary and Economic.” March 30, place for depository institutions and other firms, the broader federal financial safety net now covers 62 percent of the financial sector,
2011 compared to about 45 percent a decade earlier.
Economic Impact Douglas W. Elmendorf, Director, Testimony Before the Subcommittee on Oversight CBO estimated that, over the 2010–2020 period, the Dodd-Frank Act would increase both revenues and direct (or mandatory)
Congressional Budget Office and Investigations Committee on Financial spending—by $13.4 billion and $10.2 billion, respectively. The revenues would stem primarily from fees assessed on various
Services: "Review of CBO's Cost Estimate for the financial institutions and market participants. Certain provisions of the act were estimated to increase direct spending by $37.8 billion
Dodd-Frank Wall Street Reform and Consumer over the 10-year period; most of those costs, $26.3 billion, would result from a new program created to resolve insolvent or soon-to-
Protection Act," March 30, 2011 be insolvent financial entities, which would be financed through an Orderly Liquidation Fund (OLF). Other provisions of the act
would reduce direct spending by $27.6 billion over that period by decreasing authority for the Troubled Asset Relief Program
(TARP) and making changes to federal deposit insurance program. In addition to those changes in direct spending and revenues,
CBO estimates that the Dodd-Frank Act will lead to an increase of $2.6 billion in discretionary spending over the five-year period
ending in fiscal year 2015, assuming that the Congress provides the necessary appropriations in the future.
Financial Stability Industry Council As of 7/26/2012 Page 2
Economic Impact Dr. James J. Angel, Associate Testimony at the House Financial Services Cost of Sarbanes-Oxley as an example of regulation gone wrong: One study by Foley and Lardner found that the average cost of
Professor of Finance, McDonough Hearing: “The Costs of Implementing the Dodd- being public for a firm with less than $1 billion in revenue jumped from $1.05 million before Sarbanes-Oxley to $2.88 million by
School of Business, Georgetown Frank Act: Budgetary and Economic.” March 30, 2005 – a 171% increase.
University 2011 There are the indirect costs stemming from the impact on the economy. I will focus my remarks on these indirect costs, as they can be
the largest costs that matter the most. However, the CBO report to Congress during the deliberations over Dodd-Frank did not even
attempt to address the indirect costs or impacts on our economy, but focused solely on the near-term impact on the federal budget.
Economic Impact American Enterprise Institute The Dodd Frank Act: Creative Destruction, Where financial firms once focused on beating their competitors, they will now focus on currying favor with their regulator, which
Destroyed. August 2010 will have the power to control their every move. What may ultimately emerge is a partnership between the largest financial firms and
the Federal Reserve--a partnership in which the Fed protects them from failure and excessive competition and they in turn curb their
competitive instincts to carry out the government's policies and directions.
Economic Impact Harvard Business Law Review In Dodd-Frank’s Shadow: The Declining The perceived unfairness and unpredictability of the U.S. legal system have driven companies away from our public exchanges; 46%
Competitiveness of U.S. Public Equity Markets. of executives surveyed believed the U.K. had more predictable legal outcomes compared with 16% for the U.S.
Economic Impact Brian Moynihan, President and CEO, Bank of America's CEO Says Capital Rules May If the capital goes too high it is going to cause us to constrict. Every 100 basis points of capital for us--under the new regulations--is
Bank of America Discourage Lending. June 2011 about $18 billion of capital, and if you multiply that times 10, 12, or 15 that's how much we have to optimize the balance sheet. So
the question is that trade off. [Banks cannot still loan and just accept a lower return on equity] because the equity that is meant to
provide the buffer can't be put to use or else you need more of it.
Economic Impact Mr. John Walsh, Acting Comptroller Testimony at the House Financial Services Failure to consider and balance the combined impact of all of the changes will have real consequences to the extent that constraints on
of the Currency Hearing: "Financial Regulatory Reform: The liquidity translate into constraints on bank lending and the availability of credit within the economy.
International Context." June 2011
Economic Impact Myron Scholes, Nobel prize winner Myron Scholes Warns Against Excessive Capital Myron Scholes, a Nobel Prize-winning quantitative analyst, said
Requirements. June 2011 "if you restrict or require more capital of banks, what will happen is that they have to wait until the deviations [in price] get larger
before they intermediate, because they have to make a return on the capital they are employing. As intermediary services stop,
markets then become more chaotic. "
Economic Impact Anonymous, Former Senior Fed Regulators Risking New Depression. June 2011 By insisting on higher and higher levels of required capital, regulators risk making precisely the same mistake as their predecessors at
Official a very similar juncture in the current economic recovery -- with potentially disastrous consequences for the nation.
Economic Impact SIFMA SIFMA Roundtable of Economists Sees Over 75 percent of survey respondents expected a negative impact on credit availability and nearly 60 percent expected a negative
Economic Growth Steady at Subpar Rate, Deficit impact on the cost of credit for households. The forecast for impact on the business sector was only slightly less negative, with 65
Reducation Debate Continues for 2011, 2012. percent and 53 percent predicting a negative impact on the availability of credit and cost of credit, respectively.
Economic Impact Representative Scott Garrett American Banker: House Republicans Launch “What is not being discussed or identified is what the combined impact of all these rules and other rules will ultimately have on the
New Push Against Dodd-Frank, July 10, 2012 cost of credit for borrowers in the country…when you take them individually, the cost might be tolerable. But when you take these all
together, cumulatively, it will prove extremely onerous.”
Financial Stability Industry Council As of 7/26/2012 Page 3
Economic Impact Kenneth E. Bentsen, Jr., Executive Testimony before the House Subcommittee on [With respect to certain provisions of the Dodd Frank Act] …if not properly crafted both domestically and in coordination with
Vice President for Public Policy and Capital Markets and Government Sponsored regulators around the world, could have far reaching negative consequences to the detriment of the businesses, governments, non-
Advocacy, Securities Industry and Enterprises, July 10, 2012. profits, and individual and institutional investors who rely upon deep and liquid U.S. capital markets.
Financial Markets Association
Economic Impact Paul Vanderslice, President of Testimony before the House Subcommittee on The cumulative impact of the regulations implementing the Dodd-Frank Act poses a serious threat to sustaining the nation's overall
Commercial Real Estate Finance Capital Markets and Government Sponsored economic recovery. The tremendous uncertainty created by the multitude of required financial regulatory changes serves as a direct,
Council Enterprises, July 10, 2012. independent impediment to private lending and investing, as the markets attempt to anticipate the impact these developments may
have on the availability of commercial real estate credit, capital and liquidity.
Economic Impact Rick Judson, First Vice Chairman, Testimony before the House Subcommittee on A narrowly defined QM would put many of today’s sound loans and creditworthy borrowers into the non-QM market, which would
National Association of Home Financial Institutions and Consumer Credit, July undermine prospects for a housing recovery. A narrowly defined QM would expose lenders and investors to a high risk of an ability-
Builders 11, 2012. to-repay violation and even a steering violation. As a result of these increased risks, these loans are unlikely to be made. In the
unlikely event they are made, they will be far costlier, burdening families least able to bear the expense.
Economic Impact Kenneth E. Bentsen, Jr., Executive Testimony before the House Subcommittee on SIFMA is very concerned that the QM regulations may be constructed in a narrow manner with parameters that will not allow for the
Vice President for Public Policy and Financial Institutions and Consumer Credit, July certainty of compliance at origination. Our members believe such an outcome would restrict the availability of credit, through
Advocacy, Securities Industry and 11, 2012. increased costs and restrictive underwriting, and would be detrimental to consumers.
Financial Markets Association
Economic Impact Debra Still, Mortgage Bankers Testimony before the House Subcommittee on Secretary of Housing and Urban Development Shaun Donovan has said he believes that in today’s market 10-20 percent of potential
Association Financial Institutions and Consumer Credit, July home-buyers who could adequately carry the debt were being “locked out” of the market because credit was either not available or
11, 2012. was available only at a restrictive price. “We had risk-amnesia going into the crisis and I think now we’ve gone a bit too far in the
other direction,” he said.
Economic Impact John H.P. Hudson, Chairman of Testimony before the House Subcommittee on Dodd-Frank Act was hastily passed and fraught with unintended consequences affecting the housing market which would not be
Government Affairs, National Financial Institutions and Consumer Credit, July realized for years. In effect, the market (and industry actions) had already solved the problem, but panic had set in where it was
Association of Mortgage Brokers 11, 2012. accepted the “Congress should do something,” and the result was the DFA – fraught with destructive consequences.
Economic Impact Testimony before the House Subcommittee on Consumer and industry groups indicated that the criteria specified in the act would likely encourage sound underwriting but could
Financial Institutions and Consumer Credit, July also restrict the availability of and raise the cost of mortgage credit for some homebuyers.
Economic Impact Scott Louser, Vice President and Testimony before the House Subcommittee on Most economists and housing market analysts in government and in the private sector agree that today’s underwriting standards are
Liaison to Government Affairs, Financial Institutions and Consumer Credit, July tight and are contributing to a slow housing recovery. [The National Association of Realtors] believes that an unnecessarily narrow
National Association of Realtors 11, 2012. definition of the Qualified Mortgage (QM) that covers only a modest proportion of loan products and underwriting standards and
serves only a small proportion of borrowers would undermine prospects for a housing recovery and threaten the redevelopment of a
sound mortgage market.
Financial Stability Industry Council As of 7/26/2012 Page 4
Economic Impact Committee on Capital Markets The Pace of Rulemaking Under the Dodd-Frank The current rulemaking process is sacrificing quality and fairness for apparent speed, risking lengthy court challenges and poor rules
Regulation Act: Letter to Congress. December 2010 that will damage our financial system and hinder economic recovery . . . Rather than using a prudent deliberative process, sweeping
reforms are being quickly pushed forward without providing adequate time for meaningful fact-finding or dialogue.
Economic Impact House Financial Services Committee One Year Later: The Consequences of the Dodd- Operating the Consumer Financial Protection Bureau (CFPB), a brand new agency created by the Dodd-Frank Act, will cost
Frank Act. Authored by Chairman Spencer $329,045,000 for 2012 alone. This amounts to all of the income and payroll taxes paid by 26,000 average American workers. That
Bachus and Vice-Chairman Jeb Hensarling. July means 26,000 Americans will work all year to offset the cost of this new government bureaucracy
Economic Impact Eugene A. Ludwig, CEO, Promontory Testimony at the U.S. Senate Banking In implementing the Dodd-Frank Act, it is important to emphasize that the Act is sufficiently comprehensive that each rulemaking
Financial Group and Former Committee. “Debt Financing in the Domestic should be evaluated with the recognition that the cumulative impact of the entirety of the Dodd-Frank Act reforms will have an
Comptroller of the Currency Financial Sector.” August 2011 immense, and not entirely predictable, impact.. . . [DFA could have] a deleterious drag on capital formation and meaningful job
opportunities for our people. . . Like any strong medicine, if applied incorrectly or excessively, the Dodd-Frank Act can produce more
harm than good.
Economic Impact Todd Zywicki, Senior Scholar, New York Times, September 2011 credit is the lifeblood of the economy, and that Dodd-Frank was designed to decrease access to credit. Dodd-Frank is the thing that is
Mercatus Center, George Mason most harming the economy right now. Big business can deal with regulatory uncertainty, but it makes small businesses reluctant to
University take on risk and expand their operations
Economic Impact Javelin Strategy & Research study Regulation Fuels 21% Surge in Checking Fees Average consumer pays about $7.72 in monthly and automated teller machine fees, a jump of about 21% from 2006
Economic Impact American Action Forum American Action Forum on Regulation. March, Current projected annual costs of Dodd-Frank requirements: $7,052,500,000. Projected number of new personnel required to comply
2012. with Dodd-Frank: 26,447
Economic Impact Ignacio Urrabazo, President of Testimony before the Subcommittee on Financial Consumers and small businesses are impacted in negative ways through the Dodd-Frank Act. Such as: higher costs for financial
Commerce Bank Institutions and Consumer Credit Committee on products or limited products or limited credit availability at a higher cost. At some banks, certain types of credit will be completely
Financial Services, March 14, 2012. eliminated and access to credit will be denied.
Economic Impact IHS study The Volcker Rule: Impact assesment on the U.S. The ensuing economic impacts on the segments examined in the report could result in up to 200,000 fewer jobs and $34 billion (2005
energy industry and economy. March, 2012. dollars) less in U.S. GDP on an annual basis over the 2012-2016 period
Financial Stability Industry Council As of 7/26/2012 Page 5
Economic Impact Oliver Wyman Study IRA Study. April 12, 2011. Three likely outcomes would occur if IRA recommendations were held to a fiduciary standard. 1) move to an advisory relationship:
this will not be feasible for all affected investors, as many may be too small to serve economically as part of an advisory relationship.
Indeed, smaller IRA holders with low trading activity levels may experience higher fees in this model; 2) move to a “low support”
brokerage model: this option may not be suitable or even practical for many investors, given the time and expertise needed to
understand tax-advantaged investing without outside support, thus significantly impacting current and future IRA holders; 3) move
existing funds out of the tax-advantaged retirement account market: this could have significant impacts on ultimate savings available
to support the retirement of affected investors.
Economic Impact Peter Wallison, Aurthur F. Burns Chamber of Commerce: Center for Capital Dodd-Frank has halted economic recovery across the nation, especially in three areas: housing, manufacturing, and GDP. Since the
Fellow in Financial Policy Studies, Markets Competitiveness - Cumulative Impacts of passage of Dodd-Frank, each of these areas has seen declines in activity and has not yet recovered to the track of improvement it was
American Enterprise Institute Financial Regulations Panel Discussion, June 20, on.
Economic Impact Fitch Ratings Fitch: CFPB Overdraft Inquiry Keeps Pressure on We anticipate the CFPB inquiry, coupled with regulatory and legislative changes, will further hasten the demise of free checking
U.S. Banks. April 24, 2012. accounts.
Industry Costs Rich Riese, Senior Vice President, Topic A: Compliance--The Growth Side of The Bureau of Labor Statistics’ Occupational Handbook projected that between 2008 and 2010, compliance officer jobs would grow
American Banker's Association, Banking? June 2011 at a faster rate -- by at least 20 percent -- than overall job growth.
Center for Regulatory Compliance
Industry Costs House Financial Services Committee One Year Later: The Consequences of the Dodd- A survey of the Federal Register shows that complying with these new rules will require an estimated 2,260,631 labor hours every
Frank Act. Authored by Chairman Spencer year. To put this number in perspective, to meet the burden of only 10% of the new rules required by the Dodd-Frank Act, it will take
Bachus and Vice-Chairman Jeb Hensarling. July 56,516 work weeks devoted solely to this administrative burden, or more than 1,100 work years. If 1,000 Americans worked full time
2011. all year, every year, with no vacations or holidays, they would still be unable to complete all the work that the rules require.
Industry Costs Mr. Barry Zubrow, Executive Vice Testimony at the House Financial Services At any given time, we at JPMorgan Chase have 75-135 on-site, full-time examiners from the OCC, Federal Reserve and FDIC; the
President and Chief Risk Officer, Hearing: "Financial Regulatory Reform: The U.K. FSA and other regulators have still more examiners overseeing our overseas operations. We underwent 218 examinations in
JPMorgan Chase & Co. International Context." June 2011 2010, and will see more this year. It is difficult to overstate the increase in supervisory oversight for large financial firms.
Industry Costs Tim Ryan, President and CEO, Testimony at the House Financial Services Excessive capital charges make it more expensive for banks to lend money or provide liquidity to U.S. businesses. The result
Securities Industry and Financial Hearing: "Financial Regulatory Reform: The inevitably will be higher cost of credit and less credit and less funding available.
Markets Association International Context." June 2011
Industry Costs The Financial Services Roundtable Hourly Analysis for Three of the Dodd-Frank Act In the first year these three rules (capital plans, stress tests and resolution plans) are implemented, the industry will need to spend
Rulemakings. July 2011 2,249,884 hours to comply with regulations. The estimated annual cost for the industry in the second year of these regulations and
beyond is 759,604 hours. These full-time employees may be new hires or diverted from other areas of the organization. If we
estimate that these employees earn $75,000 annually, this will impose an industry-wide annual cost of $84,375,000.
Financial Stability Industry Council As of 7/26/2012 Page 6
Industry Costs Thompson Reuters Banks Preparing for (and Fearing) Derivatives As regulators hammer out dozens of new rules for the $600 trillion [derivatives] market, the banking industry is collectively spending
Rules. July 2011 billions of dollars to comply with the overhaul.
Industry Costs Government Accountability Office DODD-FRANK ACT: Eleven Agencies' New funding resources related to Dodd-Frank responsibilities during the years 2011–2012 ranged from a low of $0 for FTC to a high
Estimates of Resources for Implementing of around $329 million for CFPB. Funding resources to implement the Dodd-Frank Act accounted for at least 25 percent of the
Regulatory Reform. July 2011 agency’s total budget increase at 9 of the 11 agencies in the most recent year for which data were available… Agencies reported that
most of the costs related to implementing the provisions will be recurring.
Industry Costs Javelin Strategy & Research study Regulation Fuels 21% Surge in Checking Fees The regulations that restrict bank revenue are costing the industry $12.2 billion a year
Industry Costs Congressman Neugebauer Congressman Neugebauer Responds to Chairman “Took 20 million man hours to build the Panama Canal and we seemed to have gotten much better use from the panama canal than
Bernanke's Testimony on the State of the we are with 22 million man hours only 1/3 of the way through major legislation” There are 400 rules required in Dodd-Frank – only
Economy. March 2012 140 have been completed.
Industry Costs Devin Leary-Hanebrink for American CFPB Should Stand for 'Choking Financial While the [CFPB] may have consumers' best interests at heart, it is choking the financial sector. More regulation means increased
Banker Professionals and Businesses." July 13, 2012. compliance costs. Increased compliance costs will, inevitably, drive up prices and reduce services.
Industry Costs Kathleen L. Casey, Commissioner, Speech by SEC Commissioner: "The Regulatory In addition, the breadth of Dodd-Frank makes it increasingly important that policy makers stay mindful of the costs and effects that
Securities and Exchange Commission Implementation and Implications of Dodd-Frank." the regulation in its totality will have on our markets. The costs of Dodd-Frank will be enormous, and we will have no idea of the
January 2011. actual total costs for years to come. Given prior experience, such as the original estimates about the cost of S-Ox, those actual costs
will prove substantially more significant than legislators and regulators predicted.
Industry Costs Lester Parker, The Testimony before the Subcommittee on Direct compliance costs have increased to over 240% in that last five years – far exceeding the growth of the bank, its loans,
President/CEO/Chairman of United Financial Institutions and Consumer Credit investments and deposits.
Bank of El Paso del Norte Committee on Financial Services, March 14,
Industry Impact Morgan Stanley, Oliver Wyman The Future of Capital Markets Infrastructure Regulatory uncertainty remains the critical risk. The pace of implementation could cause some disruption to trading, and sharp hikes
(PDF). February 2011 in capital requirements (as much as +$2 trillion, we estimate) could have the unintended consequence of reducing market liquidity.
Industry Impact Institute for International Finance “Regulatory Reform Increases Cost of Bank The cost of debt and equity is high, and increasing.
Funding” (PDF). March 2011
Industry Impact Standard & Poors Report What Financial Reform Could Cost The Largest We estimate that the effects of Dodd-Frank will likely lead to a reduction in aggregate pretax earnings at the eight large, complex U.S.
U.S. Banks. November 2010 banks by roughly $19.5 billion to $22.0 billion annually before offsets, based on our projections for 2010 business activity. This loss
represents roughly 18% to 21% of our forecast of 2010 complex-bank adjusted pretax earnings.
We also estimate that the effects of the law will likely reduce pretax return on equity (ROE) at these banks by up to 270 basis points
(bps) and pretax margins by up to 450 bps if applied against 2010 projected adjusted earnings. The Credit Card Accountability
Responsibility and Disclosure Act of 2009 and Regulation E, which the Board of Governors of the Federal Reserve System issued
pursuant to the Electronic Funds Transfer Act, will likely add additional headwinds in the form of operating costs, reducing large,
complex U.S. banks' adjusted pretax earnings by roughly $8.7 billion per year, or about 8.1% of our forecasted 2010 complex-bank
adjusted pretax earnings.
Industry Impact Ernst & Young and the Institute for Survey: Progress in Financial Services Risk Many banks are making significant changes as a result of the still-evolving global and national regulatory reforms. The survey
International Finance Management. 2012. included responses from 75 financial institutions in 38 countries. Results were as follows: The scope, timing, and potential impact of
global and national reforms was the top challenge to institutions’ risk management agendas cited by 73% of respondents; 40% of
banks that gave an estimate of the impact of Basel III expect to raise the price they charge companies for loans by between half and a
full percentage point, and 26% expect to raise the price of loans by more than that; New rules are leading banks to rethink business
models, shown by 65% that reported they are evaluating portfolios, 45% reported that they are moving out of complex or less liquid
instruments, 30% are planning to drop lines of business, and 13% are preparing to leave particular countries; Finally, over 80% of
respondents listed data quality and availability and over 70% listed data and systems as the top challenges to complying with the new
Financial Stability Industry Council As of 7/26/2012 Page 7
Industry Impact Tom Deutsch, Executive Director, Testimony before the House Subcommittee on Since the adoption of Dodd-Frank, the uncertainty associated with complying with new and different capital requirements has made
American Securitization Forum Capital Markets and Government Sponsored many U.S. banks more reluctant to invest in potential securitizations. This has substantially decreased the liquidity of the
Enterprises, July 10, 2012. securitization market, impacting both the availability and cost of the sources of consumer and business credit that would otherwise
have been financed through securitizations.
Industry Impact Thomas C. Deas, Jr. , Vice President Testimony before the House Subcommittee on Any cash margin requirements represent a dollar-for-dollar subtraction from funds that would otherwise be used to…sustain and grow
and Treasurer of FMC Corporation Capital Markets and Government Sponsored jobs. [A study by the Business Roundtable] extrapolated the effects across the S&P 500 to predict the consequent loss of 100,000 to
and Chairman of the National Enterprises, July 10, 2012. 120,000 jobs.
Association of Corporate Treasurers
Industry Impact Treasury and Risk Magazine's Treasury and Risk Magazine's Coalition for Margin rules could reduce capital spending by as much as $5.1 to $6.7 billion among S&P 500 companies alone and cost 100,000 to
Coalition for Derivatives End-Users Derivatives End-Users survey. March 23, 2012. 120,000 jobs.
Industry Impact Albert C. Kelly Jr., American Bankers Testimony at the House Financial Services Historically, the cost of regulatory compliance as a share of operating expenses is two and a half times greater for small banks than
Association Hearing: "The Effect of Dodd-Frank on Small for large banks.
Financial Institutions and Small Businesses.”
March 2, 2011
Industry Impact Professor Hal S. Scott, Director of the Testimony at the House Financial Services Goldman Sachs has been forced to dismantle much of its proprietary trading operation, which analysts estimate will erase about $3.7
Committee on Capital Markets Hearing: "Financial Regulatory Reform: The billion in revenue and $1.5 billion in profit annually—over 50% of revenues and 15% of earnings per share. The same is true for
Regulation, Nomura Professor and International Context." June 2011 Morgan Stanley, which is expected to take a 13% earnings per share hit. Citigroup will have to divest its interest in various hedge
Director of the Program on funds, such as its Mortgage/Credit Opportunity Fund, which climbed 16% in the first four months of 2011, almost doubling its pace
International Financial Systems at last year. About 90% of the $395 million invested in the fund is the bank’s own capital. None of these changes have been made by
Harvard Law foreign competitors.
Industry Impact Wall Street Journal Liz Rappaport Reports: "Goldman Bets Less and The weak performance and tentative talk by what usually is Wall Street's mightiest firm showed how Goldman and rival firms are
Takes Hit." July 2011 struggling to make money in the wake of the crisis. With increasing regulation, financial shakiness in Europe and fiscal uncertainty in
the U.S., Wall Street's office towers are now filled with risk managers, cost accountants and capital allocators rather than the
superhero-like traders of decades past.
Industry Impact Wall Street & Technology Dodd-Frank's impact on IT. February 2011 Modifying systems for compliance with Dodd-Frank will drain resources and divert attention from projects that may help business
growth. Firms do not plan to increase staff to handle requirements for Dodd-Frank, and are trying to meet demands with the same
amount of people.
Industry Impact Reynolds, Bone, & Griesbeck Impact of Financial Reform: Dodd-Frank and Investment bankers and financial industry consultants estimated that Dodd-Frank would lower the return on equity of community
Community Banks. May 6, 2012 banks with less than $500 in assets to between 6-8%. Bank investors usually look for returns near 11-14%.
Industry Impact Doug Cruickshanks, CEO of Tennessee banks, business struggling with Dodd- The compliance costs associated with Dodd-Frank could marginalize smaller banks. “Any one particular regulation may not be that
FirstBank Frank's impact. May 7, 2012 onerous or expensive, but when you add them up, it raises the cost of doing business for banks, and ultimately the consumer ends up
paying for it.”
Industry Impact John Walsh, Acting Comptroller of the Warning on Bank Rules Reform. June 2011 John Walsh, a top US bank regulator said: 'My view is that we are in danger of trying to squeeze too much risk and complexity out of
Currency banking as we institute reforms to address problems and abuses stemming from the last crisis.’
Financial Stability Industry Council As of 7/26/2012 Page 8
Industry Impact House Financial Services Committee One Year Later: The Consequences of the Dodd- Leaders of Community Banks go on the record concerning Dodd-Frank:Greg Ohlendorf, President of First Community Bank and
Frank Act. Authored by Chairman Spencer Trust: “What we have to understand is we’re already overburdened with regulation. We have significant numbers of regs that we need
Bachus and Vice-Chairman Jeb Hensarling. July to comply with today, and it seems like just one more isn’t going to change the deck a whole lot, but the consistent piling on of
2011. additional regulation is very, very stunning. It’s punishing.”
Jim MacPhee, CEO of Kalamazoo County State Bank (Michigan): "We weren't part of the subprime (mortgage) meltdown. Why
throw more regulations at us?"
Leslie Andersen, president of Nebraska's Bank of Bennington: “Big banks have whole departments that focus on compliance. Small
banks can't afford to do that."
Tommy Whittaker, president of The Farmers Bank (Tennessee): "The cumulative burden of hundreds of new or revised regulations
may be a weight too great for many smaller banks to bear.”
Albert Kelly, Jr, CEO, SpiritBank: “This new bureaucracy[the Consumer Financial Protection Bureau]--expected to hire over 1,200
new staff--will certainly impose new obligations on community banks--banks that had nothing to do with the financial crisis and
already have a long history of serving consumers fairly in a competitive environment. Thus, the new legislation will result in new
compliance burdens for community banks and a new regulator looking over their shoulders."
Industry Impact Mary Schapiro, Chairman, Securities Jean Eaglesham Reports: "Atlas Shrugged. Will [Pressures caused by Dodd-Frank will] affect our ability to police Wall Street effectively. . . [After the bill was signed into law, the
and Exchange Commission Regulators?" July 2011 SEC] workload multiplied several times over.
Industry Impact Ignacio Urrabazo, President of Commerce Bank before the Subcommittee on Financial Community banks will be destroyed across the country as regulators create regulations on top of existing regulations.
Institutions and Consumer Credit Committee on
Financial Services, March 14, 2012.
Indusy Impact Ignacio Urrabazo, President of Testimony before the Subcommittee on Financial In 1992 there were 1,193 banks in Texas – now there are 594; 50% less. “I assume in another decade, will be down another 50% at
Commerce Bank Institutions and Consumer Credit Committee on 300 banks in Texas.”
Financial Services, March 14, 2012.
Small Business Impact U.S. Chamber of Commerce House Financial Services Hearing: "The Effect of There are more than 27 million small businesses in America.
Dodd-Frank on Small Financial Institutions and Very small firms with fewer than 20 employees annually spend 45% more per employee than larger firms to comply with federal
Small Businesses.” March 2, 2011 regulations. Small businesses have generated 64% of net new jobs over the past 15 years, and hire 40% of high-tech workers. This
proportion of small business job creation is even higher in the early stages of an economic recovery.According to research conducted
by the SBA’s Office of Advocacy, 60% used traditional types of loans, such as credit lines, mortgage loans, and others. In 2009,
about 77% of all small businesses used at least one credit card.
Small Business Impact Mr. John M. Schaible, Chairman, House Financial Services Hearing: "The Effect of To make matters worse, Dodd-Frank is specifically focused on financial services, the capital formation engine of the country. The
Federal Atlas Holdings Dodd-Frank on Small Financial Institutions and uncertainty created by the Act is potentially toxic to any financial services start-up, in that it affects the ability of small and early stage
Small Businesses”, March 2, 2011 companies to secure necessary capital.
Small Business Impact Institute for International Finance Interim Report on the Cumulative Impact on the High dependency on banks of small and medium sized businesses, which typically create 70% of new jobs, presents another key
Global Economy of Proposed Changes in the issue.
Banking Regulatory Framework. June 2010
Small Business Impact Andrew Furgatch, Chairman of the Testimony at House Subcommittee on Insurance, Results from a recent PCI/Ward Group survey on the cost of regulatory and corporate compliance found that total compliance
Board, Magna Carta Insurance Housing and Community Opportunity, "Policy expenses grew almost 18 percent from 2008 to 2010. Smaller companies continue to face the most significant challenges due to
Companies Implications for U.S. Consumers, Businesses and increased regulatory requirements--from 2008 to 2010, the cost of compliance grew 36 percent for small companies and 14 percent
Jobs." July 2011 for large companies.
Small Business Impact Senator Bob Corker Tennessee banks, businesses struggling with The Dodd-Frank Act was a major overreach that has created uncertainty throughout the economy and threatens to make credit for
Dodd-Frank's impact. May 7, 2012 consumers and businesses more expensive and less available.
Small Business Impact Paul Merski, Chief Economist at the The Wall Street Journal, August 2011. The No. 1 complaint that we hear from community bankers is that they feel that regulators have gone one step too far and are choking
Independent Community Bankers off lending.
Financial Stability Industry Council As of 7/26/2012 Page 9
Deficit Impact Government Accountability Office Costs of DFA Implementation (PDF) Federal agencies prepare to spend an increasing amount of their resources in accordance with the Dodd-Frank Act. The Office of the
Comptroller of the Currency has submitted a 2012 budget request for $1,040,000, with 22.6% of that being utilized for Dodd-Frank
International Competitiveness Stephen O'Connor, Managing Testimony at the House Financial Services There are large and growing differences in the pace and scope of regulatory reform efforts in the U.S. and other jurisdictions. They
Director, Morgan Stanley Hearing: "Financial Regulatory Reform: The put the U.S. financial markets at a disadvantage by driving up costs and reducing liquidity. And they do so without demonstrating
International Context." June 2011 any clear benefit to equal or outweigh the considerable costs they impose...Disadvantaging foreign institutions and U.S. subsidiaries
of such [competitive] institutions, through divergent capital requirements or otherwise, discourages foreign investment in U.S.
subsidiaries, which leads to fewer jobs and to less competition within our shores....Although the US remains one of the most dynamic,
innovative marketplaces in the world, we note that transaction volume in London already exceeds that in New York. We also note
that the five largest US-based dealers reported a notional amount outstanding equal to only 37% of the total notional amount for
interest rate, credit, and equity derivatives globally.
International Competitiveness Tim Ryan, President and CEO, Testimony at the House Financial Services If implemented in a way that is overly restrictive for market making, hedging, the Volcker Rule could harm liquidity in the U.S.
Securities Industry and Financial Hearing: "Financial Regulatory Reform: The market, constrain capital formation, restrict credit availability to the consumer and business, and thus, undermine the nation‘s fragile
Markets Association International Context." June 2011 recovery. Further, it could hasten further loss of U.S. market share in debt and equity issuance to other nations since issuers and
investors demand liquidity as a function and preference of markets in which they issue and list.
International Competitiveness Mr. Barry Zubrow, Executive Vice Testimony at the House Financial Services None of the world’s five largest banks is a U.S. bank. U.S. banks represent 24 percent of the market share of the 50 largest global
President and Chief Risk Officer, Hearing: "Financial Regulatory Reform: The banks, down from over 50 percent only eight years ago; Chinese banks now hold 22 percent. These trends are likely to continue as
JPMorgan Chase & Co. International Context." June 2011 emerging markets continue to expand. If large U.S. banks are hobbled by uneconomic capital levels or risk restrictions, a U.S.
company is not going to turn to smaller U.S. banks to [. . .] lend it $200 million; rather, it is going to turn to our foreign bank
International Competitiveness John Walsh, Acting Comptroller of the Testimony at the House Financial Services First, if capital and liquidity standards are set too high, we may unneccessarily restrict financial intermediation and economic
Currency Hearing: "Financial Regulatory Reform: The performance. Second, if some countries do not adopt the same high standards and enforce them with the same rigor, we could wind
International Context." June 2011 up with an unlevel playing field that gives an advantage to firms in countries with less stringent standards.
International Competitiveness Professor Hal S. Scott, Director of the Testimony at the House Financial Services It will likely be late 2012 or 2013 before the E.U. completes its rules. If trading in the U.S. is more expensive, even for a year,
Committee on Capital Markets Hearing: "Financial Regulatory Reform: The participants may shift trading abroad in order to incur lower costs, and once trading has moved abroad it will be difficult to get back.
Regulation, Nomura Professor and International Context." June 2011
Director of the Program on
International Financial Systems at
International Competitiveness Government Accountability Office GAO STUDY: Regulators Will Need More According to interviews with foreign regulatory bodies, many countries are looking at changing capital requirements for proprietary
Comprehensive Information to Fully Monitor trading activities, but no other industrialized countries in Europe or around the world plan to enact provisions that parallel the U.S.
Compliance with New Restrictions When restrictions. The foreign regulators we spoke with indicated that if the U.S. restrictions were implemented in a way that restricts the
Implemented. July 2011 ability of U.S. banking entities to serve their clients through market-making, underwriting, or in other ways, that U.S. banking entities
could lose business to their competitors in Europe and elsewhere.
International Competitiveness Gary E. Hughes, Executive Vice Testimony at House Subcommittee on Insurance, A number of non-U.S. regulators have asserted that there are no G-SIFIs in their home country jurisdictions, thus protecting their
President & General Counsel, Housing and Community Opportunity, "Policy domestic insurers from heightened regulation.
American Council of Life Insurers Implications for U.S. Consumers, Businesses and
Jobs." July 2011
International Competitiveness Daniel E. Nolle, Federal Reserve U.S. Domestic and International Financial Reform The differences between <G20 commitments and the Dodd-Frank Act> in their emphasis on nonbanks could alter the competitive
Policy: Are G20 Commitments and the Dodd- landscape for U.S. nonbank financial firms relative to their foreign counterparts.
Frank Act in Sync? July 2011
Financial Stability Industry Council As of 7/26/2012 Page 10
International Competitiveness Andrew Furgatch, Chairman of the Testimony at House Subcommittee on Insurance, Insurers are quite concerned that international non-governmental bodies without legislative accountability and transparency are
Board, Magna Carta Insurance Housing and Community Opportunity, "Policy moving from developing best practices to attempting to impose binding standards. This poses the risk that European Union systems
Companies Implications for U.S. Consumers, Businesses and will be applied to US insurers when those systems have been developed for different markets and corporate structures that are less
Jobs." July 2011 conducive to economic growth than the US structure. Such systems also fail to recognize that the US system is partially regulated
through general corporate law and an expensive tort system. The conflict could result in the addition of new layers of duplicative and
inefficient regulation for US insurers atop the currently effective, but expensive US model.
International Competitiveness McKinsey&Company The State of Global Banking – In Search of a The return gap between growing markets and markets where growth will remain sluggish stands to widen over the coming decade.
Sustainable Model. September 2011. Asian banks in particular are likely to achieve annual revenue growth of around 10% over the next decade – double the rate of
developed markets. Those banks that can tap into emerging market growth will be at a significant advantage.US banks will need to
grow net profits from $121 billion in 2010 to $312 billion in 2015 if they are to achieve 12% ROE on new capital levels, implying
annual profit growth of almost 20% and profit levels almost double our forecasts for 2015.
IMPACT OF SPECIFIC PROVISIONS
Topic Source Title/Date Key Takeaways
Basel III Jamie Dimon, Chief Executive, Financial Times, September 2011 I’m very close to thinking the United States shouldn’t be in Basel any more. I would not have agreed to rules that are blatantly anti-
JPMorgan Chase & Co. American.
Interchange David S. Evans, Robert E. Litan, Economic Analysis of the Effects of the Federal According to our analysis and research, banks and credit unions will pass on much of the $33.4-$38.6 billion reduction in interchange
Richard Schmalensee, Reserve Board’s Proposed Debit Card fees to consumers and small businesses in the form of higher fees or reduced services during the 24 month period following the
Interchange Fee Regulations on Consumers and implementation of the regulations.
Small Businesses. February 2011
Interchange Drs. Bill Longbrake, Clifford Rossi, Assessing the Impact of Proposed Federal The narrow definition of “allowable costs” in the Federal Reserve’s proposal to cap debit card interchange fees, which limits them
University of Maryland Reserve Debit Interchange. March 2011 principally to direct variable costs of production, will exacerbate the negative and potentially far-reaching consequences of market
pricing intervention for consumers and small businesses and could slow down the economic recovery at a time when the economy is
Interchange Richard Davis, President and CEO, U.S. Bancorp Says Regulations May Cost More The caps on debit-card transaction fees alone may cost the Minneapolis-based bank $400 million in annual revenue, said Davis, 53.
U.S. Bank than $1 Billion. June 2011
Interchange Kevin Foster, Erik Meijer, Scott The 2008 Survey of Consumer Payment Choice. The average U.S. consumer makes 76.7 payments in a typical month. Consumers use cards most often for payments. In a typical
Schuh, and Michael A. Zabek, April, 2010. month, 52.9 percent of consumer payments are made using cards, and only 36.5 percent are made using paper instruments. The
Consumer Payments Research Center, remaining payments are made electronically or directly from income. These are percentages of the number of payments, not the dollar
Federal Reserve Bank of Boston value of payments. More than half of U.S. consumers (51.6 percent) said that they wrote fewer checks in 2008 than they did in 2005.
In contrast, during the same time period 49.5 percent of consumers reported an increase in their use of debit cards.
Interchange Joanna Stavins, Senior Economist and Potential Effects of an Increase in Debit Card The cost of using debit cards seems to be an important factor affecting consumer payment decisions: consumers who rated the cost of
Policy Advisor, Federal Reserve Bank Fees. September, 2011. debit cards as low relative to the cost of using other payment methods were significantly more likely to adopt and to use debit cards.
of Boston In regressions of payment use, the relative cost of debit cards had a significant effect on the use of credit cards, and vice versa,
indicating that credit cards were viewed as the closest substitute for debit cards. If the cost of using debit cards rises, consumers are
most likely to substitute credit cards for some of their debit card transactions. Consumer reaction depends on the type of fee
increases: a specific increase in the cost of debit cards is expected to have a greater effect on debit card use than would a broader
increase in the cost of bank accounts. An increase in the one-time cost of setting up a debit card could lead to a substantial decrease in
the rate of adoption of debit cards.
Financial Stability Industry Council As of 7/26/2012 Page 11
Interchange Todd Zywicki, Mercatus Center, THE ECONOMICS OF PAYMENT CARD Efforts to regulate credit card networks in other countries have not produced net benefits, even though they may have benefited
GMU INTERCHANGE merchants at the expense of some consumers and banks.
FEES AND THE LIMITS OF REGULATION,
Interchange Claes Bell, Bankrate 7 Ways Checking Accounts Cost You More, Consumers are facing higher bank fees. Just 45 percent of noninterest checking accounts are free of maintenance charges, down from
September 2011. 65 percent in 2010 and 76 percent in 2009. "The entire model of free checking has been turned upside down because of <Regulation
E and the Durbin Amendment>," said Ajay Nagarkatte, managing director of Chicago-based BAI Research, in the Bankrate survey
Interchange Direct Response Forum Consumers May Not See Much Durbin Benefit 41% of merchants reported they do not intend to pass on lower debit card costs to consumers, when asked about the Durbin
from Card-Not-Present Merchants, Septemeber Amendment. 56% of merchants in the survey reported they don’t know yet what they will do.
Interchange Bankrate 7 Ways Checking Accounts Cost You More, 30% of banks surveyed the year before had terminated their debit reward programs in 2011. Free checking offers have decreased
September 2011. 30% since 2010.
Interchange Electronic Payment Coalition Where’s the Debit Discount? Durbin Price Retail prices actually increased 1.7% since the Durbin Amendment.
Controls Fail to Ring Up Savings for Consumers.
Interchange Pulse Network's 2011 Debit Insurers 2011 Debit Insurers Study: Amid Strong Market, 54% of institutions report looking to re-structure or terminate rewards programs due to Durbin
Survey Insurers Bracing for Pending Changes. June 2011.
Interchange Ignacio Urrabazo, President of Testimony before the Subcommittee on Financial Elimination of fee incomes through Durbin and limitations of overdraft fees are hurting community banks. These fees are critical to
Commerce Bank Institutions and Consumer Credit Committee on the survival of community banking: it is key that noninterest income helps provide many of our banking products and services for
Financial Services, March 14, 2012. consumers
Interchange Cliff McCauley, Senior Executive VP Testimony before the Subcommittee on Financial The Durbin Amendment will cause some of the smaller institutions to cease offering debt cards to their consumers.
of Frost Bank Institutions and Consumer Credit Committee on
Financial Services, March 14, 2012.
Interchange Devin Leary-Hanebrink for American CFPB Should Stand for 'Choking Financial No longer can the average consumer open a free checking account. Due to ever-increasing compliance requirements under Dodd-
Banker Professionals and Businesses,' July 13, 2012. Frank, most banks elected to pass these costs along to the consumer by eliminating free checking.
Interchange Bankrate 2011 Checking Account 7 Ways Checking Accounts Cost You More. While economic factors contribute to the trend, "the entire model of free checking has been turned upside down because of new
Survey September 2011. regulations."
Interchange Fitch Ratings Fitch Ratings survey. April 24, 2012 If regulators tighten restrictions on bank overdraft policies, it could threaten a major source of bank revenue and speed up the end of
free checking accounts.
Financial Stability Industry Council As of 7/26/2012 Page 12
Interchange Javelin Strategy & Research Regulation fuels 21% surge in checking fees. Overdraft and interchange rules have cost the industry about $12.2 billion annually, translating into 20% higher fees for consumers.
Interchange Brett King, Fine Extra Why Durbin will Kill the Branch. March 26, As it has been seen, community banks are closing all across the country. It seems the impact of Dodd-Frank, specifically the Durbin
2012. Amendment your local Bank of America Branch may close now too. The unintended consequences of Durbin may very well be the
rapid unwinding of branch banking in the US. It takes a long time to turn the ship, but once that turn starts the momentum of branch
closures will speed up rapidly.
Derivatives/CFTC Office of the Inspector General An Investigation Regarding Cost-Benefit We were also troubled at the lack of available (and verified) data pertaining to compliance costs borne by the industry, at least at the
Analyses proposed rulemaking stage. Staff indicated that industry and market participants historically have not provided compliance costs to
Performed by the Commodity Futures Trading the Agency. However, information is being provided to the Commission at this point that does quantify costs. In addition to the rule
Commission comments cited throughout this report discussing costs (and we did not cite them all), we would recommend review of the transcript
in Connection with Rulemakings Undertaken of the Third meeting of the CFTC Technology Advisory Committee presented by the Commission earlier this year. At that meeting,
Pursuant to the the Commission was presented with a $1.8 billion cost estimate to implement compliance with information technology requirements
Dodd-Frank Act. April 2011 necessitated under Dodd-Frank, for the top 15 large dealers. We believe the Commission will have a formidable task verifying
estimated costs submitted by industry sources, and squaring them with the apparent staff view that the Dodd-Frank rules (or at least
the four we reviewed) largely document current practices.
Derivatives Institute for International Finance Interim Report on the Cumulative Impact on the This would have a substantial effect on the profitability of banks that are heavily involved in derivatives businesses, and on
Global Economy of Proposed Changes in the derivatives markets. This point is expected to be hotly debated in the conference process leading up to a final law. There is no global
Banking Regulatory Framework. June 2010 consensus about the appropriateness of such a measure and little prospect that it would be adopted more widely.
Derivatives International Swaps and Derivatives Letter filed February 28, 2011 in response to the “We respectfully submit that the Commission’s estimate of the cost of compliance with the Proposed Regulations is too low. The
Association notice of proposed rulemaking: “Confirmation, Commission pegs the upfront cost for technological improvements at $2400 for each SD and MSP, whereas at this juncture we
Portfolio Reconciliation, and Portfolio believe that initial compliance with the Proposed Regulations will cost each such entity approximately $5-10 million.”
Compression Requirements for Swap Dealers and
Major Swap Participants.” 75 FR 81519.
CARD Act NY Daily News Banks quicker to lower customers' credit ceilings Despite the Credit Card Accountability, Responsibility and Disclosure Act - which in 2009 imposed new notification rules on
despite excellent track record (April 2011) companies and banned unfair fees and rate hikes - card companies are still allowed to chop credit limits without notice.
Banks have backed off a bit since the depths of the recession, but in January 2011, 11% of them still reported cutting customers'
credit card limits in the prior three months, according to a survey by the Federal Reserve.
Volcker Frank Keating, President and CEO, American Bankers Association Statement on Regulators' own estimates indicate banks will have to spend nearly 6.6 million hours to implement the Volcker rule, of which more
American Bankers Association Proposed Volcker Rule. October 2011. than 1.8 million hours would be required every year in perpetuity. That translates into 3,292 years, or more than 3,000 bank
employees whose sole job will be complying with this rule. They will be transferred to a role that provides no customer service,
generates zero revenue and does nothing for the economy.
Volcker Financial Stability Oversight Council Study & Recommendations on Prohibitions on N/A
Propritary Trading & Certain Relationships with
Hedge Funds & Private Equity Funds. January
Financial Stability Industry Council As of 7/26/2012 Page 13
Volcker Congressional Research Service The Status of the Basel III Capital Adequacy The Basel III trading-book rules may be in conflict with the Volcker rule that prohibits a bank or institution that owns a bank from (1)
Accord. October 2010 engaging in proprietary trading (buying and selling securities and equities) that is not at the behest of its customers, (2) owning or
investing in a hedge fund or a private equity fund, and (3) limiting the liabilities that the largest banks could hold. Because other
member countries of the Basel Committee have not embraced the Volcker
rule, its implementation in the United States may lower U.S. bank profits domestically. If bank profits drop at home because of the
Volcker rule, U.S. banks may move their proprietary trading activities to their foreign operations. This transfer could have a negative
impact on U.S. trade in financial services.
Volcker Mr. Barry L. Zubrow, Executive Vice Testimony at the House Financial Services The Volcker Rule has been rejected by every country to have considered it. . .
President and Chief Risk Officer, Hearing: "Financial Regulatory Reform: The
JPMorgan Chase & Co. International Context" June 2011
Volcker Institute for International Finance IIF Volcker Rule Comment Letter. February 2012 The [Volcker Rule of the Dodd-Frank Act] would result in a decrease in liquidity and increase in price instability in many markets in
the U.S., but will also have negative effects on markets globally, as banks will be forced to reduce the quality of their market-making
services to comply.
Volcker Institute for International Finance Interim Report on the Cumulative Impact on the In the event of “Volcker” being adopted, the macro economic implications could be considerable—over a considerable time scale.
Global Economy of Proposed Changes in the The ability of affected banks to extend credit (in all its forms) would be reduced and regulatory arbitrage would inevitably result in a
Banking Regulatory Framework. June 2010 reconfiguration of financial intermediation. The macro economic effects would be substantial but are difficult to quantify at present.
In addition, the Volcker plan in the US would put an additional cap on the size that any bank group could attain in the US, and there
has been discussion of more radical plans to limit bank size and market share.
Volcker Oliver Wyman Study The Volker Rule: Considerations for The Volker Rule cost American businesses up to $315 billion, increase borrowing costs by up to $43 billion per year, require
Implementation of Proprietary Trading 6,600,000 hours for implementation, dramatically reduces liquidity, lower investment returns for mutual funds, pension plans, etc.,
Regulations. January 2012. increase the cost of credit for consumers, and put U.S. banking institutions at a competitive disadvantage
Volcker George Friedlander City Group Global Market Study, January 2012. (Regarding exempting all municipal bonds from the Volker Rule restrictions) This would ultimately force investors to rely on non-
bank third parties to provide liquidity and partially mitigate otherwise massive price volatility. In our view, this would result in a
dramatic increase in volatility and reduction in market liquidity that would ultimately cause borrowing costs for all municipal issuers
Volcker IHS study The Volcker Rule: Impact assesment on the U.S. Natural gas investment reduced by $7.5 billion leading to 182,000 job losses. Electricity costs increase by $5.3 billion per
energy industry and economy. March, 2012. year. Closure of two additional refineries impacting local economy along East Coast. Gasoline prices increase $2 billion per year.
Energy consumers impacted by high prices and increased price volatility.
Consumer Financial Protection Mercatus Center THE EFFECT OF THE CONSUMER Make it harder and more expensive for consumers to borrow, and would risk reversing the decadeslong trend towards the
Bureau FINANCIAL PROTECTION AGENCY ACT OF democratization of credit; Create a “supernanny” agency that is designed to substitute the choice of bureaucrats for those of
2009 ON CONSUMER CREDIT. March 2010 consumers; and Jeopardize financial recovery by reducing credit during a severe economic recession; a time when the economy is
fragile and there is already too little credit.
Capital Institute for International Finance The Macroeconomic Implications of Basel III. 3% impact on GDP
Financial Stability Industry Council As of 7/26/2012 Page 14
Capital OECD Macroeconomic Impact of Basel III. February The estimated medium-term impact of Basel III implementation on GDP growth is in the range of -0.05 to -0.15 percentage point per
2011 annum. Economic output is mainly affected by an increase in bank lending spreads as banks pass a rise in bank funding costs, due to
higher capital requirements, to their customers. To meet the capital requirements effective in 2015 (4.5% for the common equity ratio,
6% for the Tier 1 capital ratio), banks are estimated to increase their lending spreads on average by about 15 basis points. The capital
requirements effective as of 2019 (7% for the common equity ratio, 8.5% for the Tier 1 capital ratio) could increase bank lending
spreads by about 50 basis points. The estimated effects on GDP growth assume no active response from monetary policy. To the
extent that monetary policy will no longer be constrained by the zero lower bound, the Basel III impact on economic output could be
offset by a reduction (or delayed increase) in monetary policy rates by about 30 to 80 basis points.
Capital McKinsey & Company Basel III and European banking: Its impact, how The capital need is equivalent to almost 60 percent of all European and US Tier 1 capital outstanding, and the liquidity gap equivalent
banks might respond, and the challenges of to roughly 50 percent of all outstanding short-term liquidity. Closing these gaps will have a substantial impact on profitability. All
implementation. November 2010 other things being equal, Basel III would reduce return on equity (ROE) for the average bank by about 4 percentage points in Europe
and about 3 percentage points in the United States. The retail, corporate, and investment banking segments will be affected in
different ways. Retail banks will be affected least, though institutions with very low capital ratios may find themselves under
significant pressure. Corporate banks will be affected primarily in specialized lending and trade finance. Investment banks will find
several core businesses profoundly affected, particularly trading and securitization businesses. Most banks with substantial capital
markets and trading business will likely face significant business-model challenges in the next few years.
Capital Congressional Research Service The Status of the Basel III Capital Adequacy Basel III would significantly raise the capital requirement on banks. At the end of the implementation period, Basel III could require a
Accord. October 2010 minimum total requirement of 13% of a bank’s risk-weighted assists. This is a level very few large U.S. banks were able to achieve at
the height of their record level of profits in 2006.
Capital Institute for International Finance Interim Report on the Cumulative Impact on the The imposition of tighter regulatory controls over the next five years raises core Tier 1 capital requirements for US banks by about
Global Economy of Proposed Changes in the $250 billion by 2015. This, and a variety of other changes in funding costs, would lead to an increase in bank lending rates of about
Banking Regulatory Framework. June 2010 193 basis points by 2014. This is all the more the case as it is not apparent that the leverage-ratio proposals have taken into account
the effects of the liquidity requirements, which will likely push banks to more lower-yielding government obligations. The
requirements as currently drafted are extremely strict—in terms of both the calibration of the pressures on firms’ likely liquidity needs
and the assets eligible to be counted as liquid. It will certainly have effects on both short-term and medium-term markets and also
change the market among banks for other banks paper, which is generally treated less than favorably. It is likely that contingent
capital—that is debt which is convertible into equity in certain prescribed stressed conditions—will be allowed or possibly even
Capital Institute for International Finance Net Cumulative Economic Impact of Banking Redefinition of capital and timing will cost US banking system $80 billion
Sector Regulation: Some new Perspectives.
Financial Stability Industry Council As of 7/26/2012 Page 15
Capital Macroeconomic Assessment Group Assessing the macroeconomic impact of the In its Interim Report, the MAG concludes that, for each percentage point increase in the target capital ratio implemented over a four-
transition to stronger capital and liquidity year horizon, the level of GDP relative to the baseline path declines by a maximum of about 0.19%.
requirements - Interim Report. August 2010
Capital Jamie Dimon, President and CEO, Dimon to Shun Mortgage Ownership Under JPMorgan, the most profitable U.S. bank, won’t make “an adequate return” on certain products under the proposed rules and reduce
JPMorgan Chase & Co. Proposed Capital Rules, June 2011 portfolio assets, including mortgages, that require higher levels of capital, Dimon said. The proposal may disadvantage U.S. banks
that compete globally, as Dimon said he’s heard that Japan, China and India may be excluded from the rules, giving banks based in
those countries a competitive edge.
Capital Bank for International Settlements, An assessment of the long-term economic impact The FSB-BCBS MAG assessment of the macroeconomic transition costs, prepared in close collaboration with the International
Basel Committee on Banking of stronger capital and liquidity requirements. Monetary Fund, concludes that the transition to stronger capital and liquidity standards is likely to have a modest impact on aggregate
Supervision August 2010 output. If higher requirements are phased in over four years, the group estimates that each one percentage point increase in bank's
actual ratio of tangible common equity to risk-weighted assets will lead to a decline in the level of GDP relative to its baseline path by
about 0.20% after implementation is completed. In terms of growth rates, this means that the annual growth rate would be reduced by
an average of 0.04 percentage points over a four and a half year period, with a range of results around these point estimates. A 25%
Capital Neil Weinberg, Columnist AmericanBanker, September 2011 Fewer and liquid banks: Because found to have an be so effect less than half that associated with a one-percentage ever to
increase in bigger asset holdings isthe legislation willoutput costly to comply with, banks will have more incentive thanpoint increase in
consolidate into the sort of too-big-to-fail banks the bill was designed to stamp out. "Dodd-Frank has raised the cost of financial
transactions in America and that encourages consolidation because it's the only way you can spread the costs over larger assets," said
Tom Hoenig, president of the Federal Reserve Bank of Kansas City.Drawing lines in the sand: Under Dodd-Frank the Federal
Reserve is charged with deciding whether mergers would create too-big-to-fail institutions. Capital One now faces the first such
review. As editor at large Barbara Rehm wrote earlier this week, the Fed may feel compelled by approve Cap One's acquisition of
ING's online operations precisely to avoid stranding even bigger banks in a no-man's land where any and all M&A is deemed
unacceptable.Higher consumer costs: With higher regulatory costs, including debit card fee caps imposed by government fiat, banks
are hiking fees elsewhere. SunTrust and others are adding new annual fees, TD Bank has begun charging customers to use other
banks' ATMs and U.S. Bank is increasing what it charges for paper statements, noted Friedman Billings Ramsey analyst Paul Miller.
"It has become more expensive for consumers to use banks," added Elizabeth Robertson of Javelin Strategy & Research.Fewer
mortgages: With Dodd-Frank, negative press and pressure to buy back soured home loans, big banks are becoming increasingly
Capital Vikram Pandit, Chief Executive, Wall Street Journal, Setember 2011 inclined to pull out of the system cannot be Miller added.Tighter trade credit: One largely overlooked Dodd-Frank provision will
The safety of the financialmortgage business,guaranteed solely or even mostly through high capital requirements on banks.
Citigroup Inc Paradoxically, the higher we set capital requirements for banks, the more money flows into unregulated or less regulated sectors of
the system, thereby increasing systemic risk
Capital Clearing House Association "How Much Capital is Enough?" Capital Levels Since 4Q 2007, U.S. banks have added approximately $200-250 billion in additional Tier 1 common equity and, with Basel III fully
and G-SIB Capital Surcharges. September, 2011. phased-in, an additional $300 billion more will be added; Relative to pre-crisis levels, banks will hold 100% more capital, or $525
billion in common equity, to meet Basel III’s common equity capital requirement; If the global systemically important bank (G-SIB)
surcharge is imposed, these banks will need to raise approximately 20% more capital, or $200 billion beyond those levels required by
fully-phased-in Basel III requirements; Using the Federal Reserve’s adverse stress scenario (March 2011), we found that, if banks
Capital Bloomberg Government Study Basel III: How U.S. Banks Will Fare Under New Increasing capital levels by the amounts required under Basel III might affect long-term profitability, loan growth and economic
Capital Requirement, June 2011 growth.
Financial Stability Industry Council As of 7/26/2012 Page 16
Systemic Risk Designation Insurance Information Institute Property/Casualty Insurance and Systemic Risk. Inappropriate inclusion of P/C insurers could cause harm not only to insurers, but to consumers and the efficacy of financial
April 2011 institution regulation in general. The report reviews specifically how this inclusion could do economic harm and concludes that P/C
insurance is fundamentally different from banking, posing no systemic risk to the financial system.
Systemic Risk Designation Institute for International Finance Systemic Risk and Systemically Important Firms: While it is essential to come to grips with the complexities of systemic risk, it is equally important to do so in a balanced way which
An Integrated Approach. May 2010 does not sacrifice the benefits that global firms bring. Well-run large international firms bring incalculable benefits to the global
economy. They intermediate savings and investments from around the world, provide financial support to firms and countries—both
emerging and established—on competitive terms, share good practice, and are an indispensable source of resilience
in times of stress. Most of these benefits could not be replicated by smaller firms—at least on any competitive basis. Recent policy
debates, while understandably focusing on risk, have tended to overlook these benefits.
Systemic Risk Designation Bank for International Settlements / Guidance to Assess the Systemic Importance of This paper responds to the request of the G-20 leaders for guidelines on how national authorities can assess the systemic importance
International Monetary Fund / Financial Institutions, Markets and Instruments: of financial institutions, markets, or instruments. Reflecting the current state of analysis and country practices, the paper outlines
Financial Stability Board Initial Considerations. October 2009 conceptual and analytical approaches to the assessment of systemic importance and discusses a possible form for general guidelines.
The assessments would involve a high degree of judgment, and the guidelines should be sufficiently flexible to apply to a broad range
of countries and circumstances. More detailed guidelines could be developed as the state of knowledge in this field evolves and
Systemic Risk Designation Institute for International Finance SIFI Surcharges: Fundamental Additional regulation imposed on SIFIs could have detrimental economic implications. The paper provides an illustrative quantitative
Issues and Empirical Estimates. April 2011 assessment of the effect of SIFI surcharges. A surcharge involving a 1-3 percentage point increase a year in the core tier 1 capital
ratio for SIFIs, over and above the capital requirements of Basel III, would result in additional average capital needs of 8-27% for a
sample of countries including the G3, Switzerland and the U.K.. Over the first 2 years of implementation of the surcharge, growth
could be reduced by as much as 0.2 percentage points compared to the growth impact of the Basel III regulation. This impact estimate
is purely illustrative and highly dependent on the assumptions and methodology used (in particular, it concentrates on the costs of the
surcharge, without discounting the potential benefits). But it suggests that the potential economic effects of a SIFI surcharge could be
important and should be taken into account when debating SIFI regulation.
Systemic Risk Designation Brookings Institute Identifying and Regulating Systemically There will be both positives and negatives for institutions designated as SIFIs, but the negatives (more regulation) are likely to
Important Financial Institutions: The Risks of outweigh the positives (potentially lower funding costs) in most cases. The major reason for this, we believe, is that once an
Under and Over Identification and Regulation. institution is designated it is subject not only to what may be a current set of additional regulatory measures, but to a continuing
January 2011 process of possibly strengthened oversight in the future. This uncertainty about the course of future regulation alone is a cost that
most institutions would probably want to avoid if they could.
Risk Retention Paul Vanderslice, President of Testimony before the House Subcommittee on Imposition of the PCCRA would decrease loan origination volume from current levels. Almost 62% of those respondents said that
Commercial Real Estate Finance Capital Markets and Government Sponsored volume decreases would be more than 50%. Some indicated reductions would be as high as 90-100%.... All respondents indicated
Council Enterprises, July 10, 2012 that the cost of liquidity to borrowers would increase – over 92% said the cost increase would be 50 basis points or more; 46%
indicated that the cost increase would be more than 100 basis points.
Risk Retention Christian deRitis, Director, and Mark Special Report: A Clarification on Risk Retention, With respect to Risk Retention (the Premium Capture Cash Reserve Accounts (“PCCRA”)) the PCCRA requirement would
Zandi, Chief Economist, Moody's September 20, 2011. significantly increase the cost of credit for borrowers “on the order of an increase of 1 to 4 percentage points depending on the
Analytics parameters of the mortgages being originated and the discount rates applied.”
Systemic Risk Designation Karen Petrou. Federal Financial A New Framework for Systemic Financial "We have concluded that what we call complexity risk – the burden on financial institutions and regulators of complex, cross-cutting
Analytics, Inc Regulation: Simple, Transparent, Enforceable and and sometimes incomprehensible rules – may well now be the most significant impediment to financial-market recovery and robust
Accountable Rules to Reform Financial Markets economic growth."
Resolution/Recovery Davis Polk/ McKinsey & Company Credible Living Wills: The First Generation Living wills, if designed and implemented properly, have the potential to be a highly effective tool for improving risk management,
(PDF). April 2011 reducing systemic risk and mitigating the too big to fail and too big to save problems.
Financial Stability Industry Council As of 7/26/2012 Page 17
Resolution/Recovery Institute for International Finance Interim Report on the Cumulative Impact on the These plans would entail three types of costs. Putting in place the elements of the plan itself – making improvements to ‘knowing your
Global Economy of Proposed Changes in the business’, responding to the information needs of regulators and colleges involve some cost. To the extent that firms are then obliged
Banking Regulatory Framework. June 2010 to make changes to the business—to simplify structures, develop new IT and reporting, or to put in place additional assured sources
of liquidity or capital, this will involve significant additional costs, including higher tax burdens, on the institutions concerned. The
third, and probably most substantial, set of costs arises from the resolution or winding down of failed institutions. Such costs may
Stress Tests Federal Reserve Bank of New York The Information Value of the Stress Test and Our from a suggest that the stress test helped quell the financial panic by producing vital information about banks
arisefindingsvariety of sources, including the need for working capital or the costs associated with transferring systemically important
Bank Opacity, July 2010
Concentration Limits Financial Stability Oversight Council Study & Recommendations Regarding N/A
Concentration Limits on Large Financial
Companies. January 2011
Fiduciary Responsibility Oliver Wyman In current sample, high-level estimates suggest that 3.8 million accounts could exit the retirement market under the proposed
Assessment of the impact of the Department of
rule…..Based on this study sample, a significant share of brokerage accounts may be able to continue receiving investment help and
Labor's proposed "fiduciary" definition rule on
IRA consumers (PDF, not online). April 2011guidance by moving to an advisory relationship. Such investor would then face increased annual costs, due to the higher cost of
servicing and maintainin these accounts. Investors would pay an average of 73% to 19% more in direct costs in a fee-based advisory
European Regulation Barclays, Equity Research Can you trust risk weightings at European What this means is potentially two things. Firstly, that there will remain an important role for the nominal balance sheet as an
banks? PDF, April 2011 additional capital adequacy measure. Indeed, to this point we are supportive of the Basel III proposals requiring banks to comply with
weighted and nominal leverage ratios. Secondly, in all likelihood it will mean that international bank equity investors will continue to
require higher risk-weighted capital ratios from banks in Europe than might be required in the US, in part reflecting unease over the
calculations of these risk weightings.
Mortgage Lending Cliff McCauley, Senior Executive VP Testimony before the Subcommittee on Financial Inflexible loan to value ratios and repayment ability criteria are likely to have the effect of putting home ownership out of reach for
of Frost Bank Institutions and Consumer Credit Committee on many Americans.
Financial Services, March 14, 2012.
Lending Institute for International Finance Multiple Layers of Financial Regulatory Reforms Real lending rates in the U.S. are projected to increase by 468 basis points, (or 701 basis points if reform is implemented rapidly),
Hold Back Economic Growth and Will Continue exponentially increasing the cost of education, loans, home loans, commercial loans, etc.)
to Do So for Some Time, September 6, 2011.
Liquidity The Clearing House The Basel III Liquidity Framework: Impacts and The shortfall is primarily driven by the specific prescriptions and quantitative calibrations of the Basel III framework that are neither
Recommendations, November 2nd, 2011 based on sound empirical research nor supported by industry experience during the 2008 financial crisis. The mere fact that the U.S.
banking industry’s liquid asset shortfall under the LCR increased between year-end 2009 and 2010, while during the same period
banks increased the proportion of their assets consisting of cash, cash equivalents, Treasury securities and other liquid assets and
reduced their net cash outflows over a 30-day horizon, illustrates the importance of revisiting and revising elements of the LCR.
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