The American Bankers Association is recommending more transparency in the creation of international banking standards and says US officials should provide advance information on upcoming negotiations.
The trade group sent a white paper to the Treasury Department saying that the process of developing standards by international bodies such as the Basel Committee on Bank Supervision (the only body named) is being done “with little public input.” The results contravene US interests, the group wrote.
The ABA said the domestic process of seeking comment before adopting internationally agreed-upon standards nationally is “a formality” because “the global plans are accorded deferential treatment by U.S. regulators.” The group summarized, “They have already made up their minds and committed themselves to the global design that they helped negotiate.”
The international processes are deficient, the ABA said:
Some international bodies, such as the Basel Committee, do issue proposals for a degree of comment. However, these efforts often come relatively late in the process, after the basic framework has been substantially developed, options have been narrowed, compromises have been made, and a bulwark of international commitment to a new regulatory regime has been formed by the regulatory participants.
Moreover, because the discussions usually take place outside of the United States and are described as intended to affect institutions that compete at the global level, the vast majority of U.S. banks, and the American public in general, are unaware of the international proposals and do not monitor or participate in the limited international comment opportunity. Neither does it appear that Congress is brought actively into the process before U.S. regulators take up implementation of the agreement.
The group also complained about “peer review programs” that evaluate whether participating countries are implementing the standards. The ABA paper doesn’t include suggestions for reform at the international bodies, but does propose a domestic fix.
The ABA recommended that the government seek public comment before undertaking any international standard-setting project. An Advance Notice of Proposed Rulemaking (ANPR) should provide detail on specific issues or problems to be addressed, the nature of the standards being, the various options likely to be considered and the anticipated general impact of those options on U.S. citizens, businesses and the economy. The ABA did not made suggestions for altering procedures at international organizations.
Congressional Pressure
Republican Congressman Patrick McHenry from North Carolina in January sent a letter to US Federal Reserve Board Chairwoman Janet Yellen demanding that the Federal Reserve immediately cease participation in international financial regulation forums such as the Financial Stability Board (FSB), The Basel Committee on Banking and Supervision (BCBS), and the International Association of Insurance Supervisors (IAIS). He complained of their “secretive structures.”
Yes, But, Professor Comments
Republican criticisms and the operations of the international bodies is addressed a comprehensive article by Lee Reiners. Concurring with some of the complaints, he notes such problems as the failure to publish the membership lists of committees, but he paints a nuanced picture.
Reiners’s March article appeared in The FinReg Blog, sponsored by Duke Law’s Global Financial Markets Center, of which he is the director.
His conclusion:
Even if the above recommendations are enacted, Republican opposition to U.S. participation in the FSB, BCBS, and IAIS is unlikely to dissipate entirely. Frankly, I find many of their complaints baseless; driven more by political opportunism than facts. Rather than the Europeans using the FSB and BCBS to foist their standards upon the U.S., as many Republicans claim, it has clearly been U.S. regulators pushing the FSB and BCBS to adopt more stringent standards, oftentimes to the chagrin of the Europeans. The Europeans fierce resistance to the BCBS’ proposed changes to the methodology for calculating risk-weighted assets is a case in point. Furthermore, U.S. regulators have, in many instances, implemented more stringent standards than what was agreed upon at the international level and implemented in Europe. Such is the case for capital and liquidity standards.
But there is some validity to the claims that international standard-setting bodies like the FSB, BCBS, and IAIS are too secretive and lacking in transparency. This perception is partly due to their intentional design and soft-law characteristics, and partly due to their inbred penchant for secrecy. Based upon my experience, the FSB and BCBS would benefit from some simple changes that would provide the public, and policymakers, greater visibility into how these institutions are structured and how they make decisions.
These changes wouldn’t silence all of their critics, but it would disarm the arguments of some of the more conspiratorially minded. However, the White House is now occupied by a man known for his embrace of conspiracy theories, and the U.S. appears set to play a much more limited role in international fora going forward. This may lead to a rollback of post-crisis rules and regulations, and if it does, the FSB and BCBS will bear some responsibility.
In December of 2103, Freedominfo.org reported that the Financial Stability Board, a small organization with significant influence on the world’s financial sector, has moved to be more open in recent years, but is still considered too secret.
Filed under: IFTI Watch