February 15, 2018 meeting of the Financial Research Advisory Committee

Registration

Welcome and Opening Remarks

Ken Phelan, OFR Acting Director
Craig Phillips, Counselor to the Secretary, U.S. Treasury Department
Lewis Alexander, Chairman

Updates from Subcommittees and Working Groups

Feedback on Treasury Reports Responding to the Presidential Executive Order on Core Principles for Regulating the United States Financial System

Nonbank Designations

• The Treasury memo on designations by the Financial Stability Oversight Council (FSOC) recommended the Council change its approach to consider the likelihood of a company experiencing material financial distress, instead of assuming all companies fail and analyzing the potential impact of failure. What analytical approaches would you recommend the FSOC consider when assessing the likelihood of failure among different types of nonbank financial companies?
• The Treasury memo also recommended that the FSOC consider the costs and benefits of its designation decisions. What are your specific thoughts about the appropriate approach to analyze designation costs? For example, in your view, have you seen cases of government agencies doing a particularly good (or bad) job of estimating costs and benefits?

Activities-based Approach

• The Treasury report on asset management and insurance found that entity-based evaluations generally are not the best approach for mitigating systemic risk. Instead, Treasury recommended that systemic risk evaluations should be conducted by evaluating activities for heightened systemic risk characteristics. How should primary regulators think about systemic risk evaluations in the context of activities for asset managers and insurance companies? What data would be helpful in their calculations? Which characteristics cause activities to be systemically risky?

Volcker Rule

• The Treasury report on banks and credit unions recommended simplifying the definition of proprietary trading and increasing flexibility for market making. What analytical approaches should we consider to distinguish between market making and proprietary trading? What would you recommend to reduce unnecessary compliance burdens and promote market liquidity? What empirical data exist showing the Volcker Rule’s impact on market liquidity?

CCP Resolution

• The Treasury report on capital markets discussed the potential systemic risks of failure of a central counterparty (CCP) and noted that more work is needed on the resolution process. In particular, the report highlighted liquidity stress, nondefault losses, and international coordination as important areas of focus. What specific actions and what data could be useful to understand the potential systemic risk of a CCP failure?

Closing Remarks

Ken Phelan, OFR Acting Director
Lewis Alexander, Chairman
Randall Kroszner, Vice Chairman

Adjournment