March 20, 2003
U.S. SHADOW FINANCIAL REGULATORY COMMITTEE
2002 Annual Report
c/o Professor George G. Kaufman
Loyola University Chicago
820 N. Michigan Avenue
Chicago, Illinois 60611
In 2002, the U.S. Shadow Financial Regulatory Committee completed its seventeenth year of operation. As in most of its previous years, the Committee meet quarterly. It issued eleven policy statements. The Committee experienced one change in membership during the year. Marshall Blume, the Howard-Butcher Professor of Financial Management and Director of the Rodney White Center for Financial Research at the Wharton School, University of Pennsylvania, joined the Committee. (Current and past members of the Committee are listed in Appendix A.)
In addition to the U.S. Shadow Financial Regulatory Committee, similar committees currently operate in Europe, Japan, and Latin American. Local organizing committees are exploring establishing Shadow Regulatory Committees in East Asia and Canada. The existing four committees operate independently, but keep each other informed of their activities generally meet jointly once a year. In 2002, the four committees met in October in Washington, D.C. The membership and statements of all the committees are posted on the U.S. Committee’s website at the AEI --www.aei.org-- and scroll to Shadow Financial Regulatory Committee.
As usual, the Committee met quarterly for two days -- all day Sunday and on Monday morning. The 2002 meeting dates were on Sunday-Monday, February 24-25, May 5-6, September 22-23 and December 8-9. All meetings were at the offices of the American Enterprise Institute in Washington, D.C.
At its February meeting, the Committee discussed proposals for deposit insurance reform, recent costly bank failures, conflicts of interest in banking, the role of bank auditors, and this IMF proposal for sovereign debt default resolution. In May the Committee discussed the implications of Enron, Anderson, and other corporate scandals, terrorism, insurance, Basel’s proposal for bank operational capital regulation, GSE disclosure and regulation, and the IMF sovereign debt bankruptcy proposal. In September, the Committee discussed the recently enacted Sarbanes-Oxley Act, the interest rate risk exposure Fannie Mae, and terrorism insurance. In December, the committee outlined a agenda in financial markets and institutions for the new Congress and discussed large FDIC losses in bank resolutions, the need for better transatlantic securities markets, and the SEC’s proposal for more frequent reporting by mutual funds and for a review of credit rating agencies. At these meetings, the Committee followed its usual practice of devoting part of the session to meeting with guests. Guests are usually representatives of policy-makers, regulatory agencies, financial ser4vices firms, and trade associations. These meetings are private, closed-door exchanges of ideas on issues of current concern to both parties.
In addition, the U.S. Committee met jointly with the European, Japanese, and Latin American Committee at the AEI in Washington on October 5 and 6, 2002. The meeting was well attended. After brief reviews of each committee’s activities during the year, the committees discussed the IMF’s proposal for sovereign debt bankruptcy resolution. Experts in the area representing different views, including from the IMF, were invited as guests to present their positions. After discussion, the committee issued a policy statement entitled "Reforms in the Process of Restructuring International Sovereign Debt." The meeting was followed by the public symposium on the same topic with guest speakers Anne Krueger (IMF), Glenn Hubbard (CEA) and Allan Meltzer (AEI) and a press conference.
The Committee continues to serve as a major independent public watchdog for monitoring and evaluating events affecting the efficiency and safety of the financial services industry. The primary means of disseminating its views on these issues is through policy statements adopted at its meetings after thorough discussion. A listing of all policy statements since its establishment in 1986 appears in Appendix B. Through 2002, the Committee has issued 185 policy statements.
Four of the 11 policy statements issued dealt directly or indirectly with legislative and market initiatives in response to the corporate and accounting scandals. Two statements concerned the GSEs and one each focused on bank capital regulation, terrorism insurance, reporting by mutual funds and deposit insurance reform. The last statement outlined a proposed agenda for the incoming Congress on financial markets and institutions. As noted above, the U.S., European, Japan, and Latin American Committees jointly issued a statement on sovereign debt bankruptcy resolution.
Dissemination and Public Service
The Committee seeks both to raise the level of debate on public policy affecting the financial services industry and to improve public policy itself largely through its policy statements and the underlying analytical reasoning. The policy statements are released at a press conference immediately following most quarterly meetings. The press conferences, which are attended by Committee members, serve two purposes. One, they provide the representatives of the media with an opportunity to obtain additional information about the statements, including background information and the underlying reasons through both an introductory briefing and asking questions directly of Committee members. Two, the conferences provide the Committee with an opportunity to educate the press on the underlying economic arguments for each statement and to assist them in formulating appropriate questions. The policy statements and the press conferences receive regular coverage in financial trade publications, such as the daily American Banker and the daily and weekly BNA Banking Reports, and occasional coverage in major national daily and weekly publications, such as the Wall Street Journal and Washington Post. In addition, segments of the press conferences and interviews with Committee members at the conferences have in the past been broadcast on a number of TV and radio stations, including CSPAN, PBS, CNBC and CNN. A
press conference also followed the joint meeting of the four Shadow Committees and the accompanying public conference in October in Washington.
The policy statements are delivered the same day to the appropriate policy-makers, regulatory agencies, and other interested parties. To the extent that the statements pertain to specific issues and proposed regulations on which agencies have requested public comment, they are submitted to the agency. The new as well as all Committee statements along with other information about the Committee are available on the AEI’s website shortly after the press conference. The policy statements are also sent to designated members of the media that do not attend the press conference, policy-makers, regulators, and members of the general public that request to be on the mailing list. In addition, a large number of requests for policy statements and other information were made by telephone and letter through the Committee’s administrative office at Loyola University Chicago.
The other three Shadow Financial Regulatory Committees also met throughout the year and released a number of policy statements. These statements are available on the U.S. Shadow Committee’s AEI website.
Administrative and Financial
The Committee is a tax-exempt 501(c)(3) nonprofit organization. The Committee's administrative office is at Loyola University Chicago. Beginning in 1999, the Committee has been financially supported entirely by the American Enterprise Institute and has held all of its meetings there, but retains its policy independence.
Appendix A: Statement of Purpose and Membership
The Shadow Financial Regulatory Committee is a group of independent experts on the financial services industry and its regulatory structure.
The purpose of the Committee are: (1) to identify and analyze developing trends and ongoing events that promise to affect the efficiency and safe operation of sectors of the financial services industry, (2) to explore the spectrum of short- and long-term implications of emerging problems and policy changes, (3) to help develop appropriate private, regulatory and legislative responses to such problems, and (4) to assess and respond to proposed and actual public policy initiatives with respect to their impact on the public interest.
The results of the Committee's deliberations are intended to increase the awareness and sensitivity of members of the financial services industry, public policy markets, the communications media and the general public to the importance and implications of current problems, events and policy initiatives affecting the industry.
Members of the Shadow Financial Regulatory Committee are drawn from academic institutions and private organizations and reflect a wide range of views. The Committee is independent of any of the members' affiliated institutions or of sponsoring organizations. The recommendations of the Committee are its own. The only common denominators of the members are their public recognition as experts on the industry and their preferences for market solutions to problems and the minimum degree of government regulation consistent with efficiency and safety.
Past and Present Members (1986-2002)
George G. Kaufman, (1986-)
Loyola University Chicago
Appendix B: Policy Statements
1. The Baker Plan and LDC Lending, Feb. 15, 1986