Paul H. Kupiec is a resident scholar at the American Enterprise Institute (AEI), where he studies systemic risk and the management and regulations of banks and financial markets. He also follows the work of financial regulators such as the Federal Reserve and examines the impact of financial regulations on the US economy.
Before joining AEI, Kupiec was an associate director of the Division of Insurance and Research within the Center for Financial Research at the Federal Deposit Insurance Corporation (FDIC), where he oversaw research on bank risk measurement and the development of regulatory policies such as Basel III. Kupiec was also director of the Center for Financial Research at the FDIC and chairman of the Research Task Force of the Basel Committee on Banking Supervision. He has previously worked at the International Monetary Fund (IMF), Freddie Mac, J.P. Morgan, and for the Division of Research and Statistics at the Board of Governors of the Federal Reserve System.
Kupiec has edited many professional journals, including the Journal of Financial Services Research, Journal of Risk, and Journal of Investment Management.
He has a bachelor of science degree in economics from George Washington University and a doctorate in economics — with a specialization in finance, theory, and econometrics — from the University of Pennsylvania.
Chairman, Research Task Force, Basel Committee on Bank Supervision, 2010–13
Director, Center for Financial Research, FDIC
Associate Director, Division of Insurance and Research, Center for Financial Research, FDIC, 2004–13
Deputy Chief, Division of Banking Supervision and Regulation, Department of Monetary and Financial Systems, IMF, 2000–04
The Treasury’s Office of Financial Research issued a study on asset management companies. It paints an alarmist portrait of an industry that has never caused the failure of a large bank, let alone a systemic financial crisis, and so it is unclear why it should be the target of increased scrutiny by the Financial Stability Oversight Council.
Though meant to minimize risk of a future crisis, the new rules’ complexity will degrade supervision and reduce financial stability. Simple “bright line” rules are the most easily understood and enforced.
The new Basel III regulations will require significantly higher minimum capital levels for banks and bank holding companies. Although many applaud higher capital levels for large institutions, it is unclear that there are good economic reasons to apply these rules to small banks.
The Dodd-Frank Act gave the Financial Stability Oversight Council the power to designate non-bank financial firms as systemically important financial institutions. But there is no economic analysis that demonstrates that FSOC-designated non-bank financial SIFIs will pose reduced financial stability risks if they are required to follow standards similar to those required by bank SIFIs.
In a financial intermediary, risk managers can expend effort to reduce loan probability of default and loss given default, but effort is unobservable. Incentive compensation (IC) can induce manager effort. When deposit insurance is subsidized, the demand for risk management declines. Regulatory policy should then reinforce incentives to offer risk mangers appropriate IC contracts.