ACA Summit
Salzburg Global Seminar
“New Rules for Global Finance”
Nicholas W. Conger (WVWC) & Nora Myers (UCWV)
October 15, 2011
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 Appalachian
 Mellon
College Association (ACA)
Foundation Fellowship
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Austria
3
Austria
4
Austrian Alps – The Sound of Music
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Grand Tetons National Park
Wyoming
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Schloss Library
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Schloss Dining Room
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Weiner Schnitzel
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Apple Strudel…but…
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Vienna, Austria
1st Time in Vienna
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Belvedere Palace – Prince Eugene
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City Hall
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Schonbrunn Palace - Hapsburg
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St. Stephens Cathedral
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Vienna Opera House
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Vienna Opera House
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University of Vienna
Universität Wien
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Vienna National Library
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Bratwurst & Sauer Kraut
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Café Sacher & Sacher Tort
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Viennese Coffee
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Tram
Hotel
Hotel & Tram to VNB
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Austrian National Bank
Oestereichische National Bank (ONB)
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Federal Reserve Board (FED)
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Government Sponsored Enterprises
(GSE’s)
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Conservatorship of GSEs - September 7, 200829
2008 Global Financial Crisis
Review of the Carnage…
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http://www.cfr.org/world/crisis-guideglobal-economy/p19710
2008 Global Financial Crisis
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2008 Global Financial Crisis
“The Worst Crisis Since 1929”

Commercial Bank Failures in Ireland, UK, Iceland
 Hedge Fund Failures
 Investment Bank Failures or Near Failure
 Two GSE’s placed into Conservatorship
 Global Insurance Company – CDS

Massive U.S. Central Bank & U.S. Treasury
Infusion of Capital
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Architect's of the Multi-Trillion*
Fiscal Bailout
Hank
Paulson – U.S. Treasury Sec
Tim Geitner – NY Fed President
Ben Bernanke – FED Chairman
White House – President’s Bush &
Obama
Congress: Chris Dodd-Barney Frank
New Rules for Global Finance
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Northern Rock
Bear Stearns
Lehman Brothers
Merrill Lynch
Bank of America
Fannie Mae and Freddie Mac
Citibank
AIG
Troubled Global Financial Institutions
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Salzburg Global Seminar
New Rules for Global Finance:
Proposals for Regulatory Reform –
Topics:
Capital Adequacy
 Regulatory Structure Reforms
 Oversight of Derivatives
 Risk Management
 Systemic Risk

Europe – Asia - USA
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Ewald Nowotny – Governor, ONB
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Financial Stability:
The Role of the EU & the UK FSB & FSA

European Union (EU) Stimulus Plan
UK:
Financial Stability Board (FSB) and
FSA (Financial Services Authority)

Starting with the EU…
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 27
Member Nations
 European
Council
 European
Commission
 European
Bank
 Maastricst
1993
Central
Treaty -
The European Union
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The Euro
1€ Coin
The Euro - The Common Currency of 17 of the
27 member countries of the European Union
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The European Central Bank
HQ: Frankfort, Germany -- President: Jean-Claude Trichet
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 November
2008
 €200 Billion = $300 Billion
 Macro
Economic Plan to Limit the
Economic Slowdown:
 S-T Stimulus to increase Demand and
maintain employment
 L-T investment in strategic sectors
(Research & Innovation)
EU Stimulus Plan
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 October
2008
 £500 Billion = $850 Billion
 Restore
Market Confidence and Stabilize
Banks
 S-T: Loans & Guarantees
 Direct Investment in Bank Capital
 Anglo Irish Bank Corp Act 2009
UK Bank Rescue Package
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European Financial Regulatory Reform and
Impact on Banks
 UK: Centre for Regulatory Strategy:
Need for Coordinated Regulatory Framework Reforms

London School of Economics: Capital Adequacy
(Charles Goodhart: Basel II was a “miserable failure”)
 Austrian Financial Market Authority:
Euro Zone Problems are Country Concerns
“We are moving in the right direction”
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Asian Financial Stability and Reform

Asian Development Bank-Manila
(President Kuroda)
Financial Institutions Stability –
Deputy Governor Vanikkul, Bangkok, Thailand


China Banking Regulatory Commission
Fan Wenzhong
“My SGS A-Ha - OMG Moment”
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Asian Development Bank: President Kuroda
 Global
Challenge is Economic Growth & Economic
Reform Concurrently (Stimulus & Restraint)
 Implementation
Challenge Within and Across All
Regions of the World
Financial Stability Reforms - Asia
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Thailand
Financial Institutions Stability – Governor
Vanikkul
 1997
Currency Crisis (Baht) – Lessons Learned
 Traditional
Conservative Banking Model:
10% Growth (ROE)…

…Not 25% (Western Target)
Financial Stability Reforms
Asia
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China
China Banking Regulatory Commission
Fan Wenzhong
 1997
Currency & Crisis (Baht) - Russia
LTCM
NPL @ 25%
 China Hired Banking Experts
 New
Business Model & Risk Management…
Financial Stability Reforms - Asia
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 Basel
III - Already Implemented
Staggered Implementation (2019) (12% Average)
 Regulatory
 New
Agencies Centralized
Risk Management Metrics:
Risk Adjusted-ROE
NPL’s now at 1-2%
Capital @ 12%
PLL > 200%
China Banking Regulatory Commission
(CBRC)
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U.S. Financial Regulatory Reforms
Center for American Progress (David Min)
The Brookings Institution (Douglas Elliott)



History of US Banking System – Glass Steagall
Regulatory Structure Fractured – Needs Harmonized
Large Banks Getting More Concentrated = ^ Risk
 Lesson Learned: Due Diligence for PLS
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US Financial Regulatory Response

Initial Stimulus Packages (TARP): $700 Billion

Multiple Follow-On FED Programs:
Asset-Backed Commercial Paper
 CP Funding Facility
 GSE Debt & MBS Purchases
Money Market Investor Funding Facility
 Term ABS Loan Facility
 US Gov’t Bond Purchases


Over $3 Trillion…and still counting
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US Financial Regulatory Reforms
 Financial

Crisis Inquiry Commission (2009)
Financial Crisis Inquiry Report (2011)*
 Dodd-Frank
Bill (July 21,2010)…
* Scope: to examine the causes of the crisis . Membership: 6-D &
4-R. No Policy Recommendations and no specific violations cited.
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Dodd-Frank Bill: Objectives*
An Act: (1) to promote the financial stability of the
United States by improving accountability and
transparency in the financial system; (2) to end
"too big to fail", (3) to protect the American
taxpayer by ending bailouts, (4) to protect
consumers from abusive financial services
practices, and for other purposes.
*Senator Christopher Dodd (D-Conn) & Representative
Barney Frank (D-Mass)
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Dodd-Frank Bill Accomplishments
Key areas left unaddressed
Derivatives
 Credit Rating Agency Reform
 Hedge Fund Accounting and Oversight


Unlike European System of Legislative Streams
Weaknesses
Too Political
Too Fragmented
 Too Broad


Tries to do too much
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So…are the various global
regulatory reform
measures good enough to
prevent a future crisis?
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NO…
”The proposals are better than we had
before, but they do not go far enough”
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Other Issues & Proposals
 Strengthen
Corporate Governance
 Regulation
of Non-Banking
Institutions
(Shadow Banking)
 Global
Convergence & Coordination of
Regulatory Reforms
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Key Takeaways

Current Regulatory Proposals Do Not go Far Enough
(Basel III Bank Capital Adequacy - 2019)


“Too Big to Fail Banks” are even Bigger - US
Global Regulatory Structures Need To Be Reformed

Many Derivatives Markets remain Unregulated

Asian Banks have Learned Their Lesson Well
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Discussion Questions…
Where Do We Go From Here?
Critical Thinking Needed
 Leadership and Hard Decisions Need to be Made

New Business & Financial Models Needed…
…or maybe a return to the old fashioned ones?

“Earn a Reasonable Return on your
Investment”
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Closing Thought*
“Annual income: twenty pounds. Annual
expenditure: 19 pounds, nineteen and six,
result happiness.
Annual income: twenty pounds. Annual
expenditure: twenty pounds, ought and six,
result misery.”
Source: David Copperfield, by Charles Dickens (1850). Quote by
Wilkins Micawber, modeled on Dickens father, John Dickens who
was incarcerated in debtor’s prison after failing to meet his
creditor’s demands.
*Micawber Principle
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Questions…
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