Risk management presentation June 3 2013

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International Association of Risk and Compliance Professionals (IARCP)

1200 G Street NW Suite 800 Washington, DC 20005-6705 USA Tel: 202-449-9750 www.risk-compliance-assoc

iation.com

Top 10 risk and compliance management related news stories and world events that (for better or for worse)

shaped the week's agenda, and what is next

Dear Member,

“During your working lives, you will have to reinvent yourselves many times.

Success and satisfaction will not come from mastering a fixed body of knowledge but from constant adaptation and creativity in a rapidly changing world.”

Who said that?

Chairman Ben S. Bernanke, at Bard College at Simon's Rock, Great Barrington, Massachusetts.

What else did he say?

- The word "graduate" comes from the Latin word for "step."

- Another prediction, just as safe, is that people will nevertheless continue to forecast the end of innovation.

A great speech! Read more at Number 1 below.

At Number 7 …… I enjoyed another speech:


www.risk-compliance-association.com

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“I am very pleased to be here among an audience of professional economists, which is certainly preferable to appearing before an audience of unprofessional economists.”

Who said that?

Sarah Bloom Raskin, Member of the Board of Governors of the Federal Reserve System, at the Society of Government Economists and the National Economists Club, Washington DC.

Well, Sarah … don’t be brutally honest, as professional economists can be as rude as unprofessional economists…

She was brutally honest. She said:

“I like your kind!

Your talents are needed now more than ever as we try to put the tools of the economic profession to work for the common good.

It's easy to be an economist who looks back on crises and crashes and tries to explain why they happened, but much harder to be an economist whose efforts manage to help stop them from happening in the first place.

Economic policymaking, at its best, reflects a continuous struggle to make sure that data and explanations of such data are consistent with real experience.

If we're to engage in this struggle honestly, it's no easy task.

It involves understanding not just the reliability and signal in various data, but also questioning whether the data accords with our understanding of actual experience.

So, to get this right requires many different perspectives, not just on the data but on the underlying realities the data are trying to capture.”

Sara, I like your speech. I agree, to engage in this struggle honestly, it's






















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no easy task. I enjoyed you told all these to professional economists. Read more at Number 7 below.Welcome to the Top 10 list.

Best Regards,

George Lekatis President of the IARCPGeneral Manager, Compliance LLC 1200 G Street NW Suite 800, Washington DC 20005, USATel: (202) 449-9750Email: [email protected] Web: www.risk-compliance-association.com HQ: 1220 N. Market Street Suite 804, Wilmington DE 19801, USATel: (302) 342-8828



mailto:[email protected]




































































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Chairman Ben S. BernankeAt Bard College at Simon's Rock, Great Barrington, Massachusetts

Economic Prospects for the Long Run

“Graduation from college is only one step on a journey, but it is an important one and well worth celebrating.”

Consultation PaperOn Draft Implementing Technical Standards

On Additional Liquidity Monitoring Metrics under Article 403(2) of the draft Capital Requirements Regulation (CRR)

EXPLANATORY MEMORANDUM TOTHE FINANCIAL CONGLOMERATES AND OTHER FINANCIAL GROUPS (AMENDMENT) REGULATIONS

These Regulations implement, in part, Directive 2011/ 89/ EU of the European Parliament and of the Council amending Directives 98/78 /EC, 2002/ 87/ EC, 2006/48 /EC and 2009/ 138/ EC (OJ L 326/113 8.12.2011) asregards the supplementary supervision of financial entities in a financial conglomerate.






















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Who calls the shots? The problem of fiscal dominance

Speech by Dr Jens Weidmann, President of the Deutsche Bundesbank, at the 4th Bank of France - Deutsche Bundesbank Macroeconomics and Finance Conference, Paris.

Solvency I I update for all firms

As part of our commitment to sharing developments in our approach to the implementation of Solvency I I , I thought it would be helpful to write to all firms affected by the Directive to give an update on the current position and what this means for the work that has to be done in the coming months.

As you know, there continues to be significant uncertainty over the timetable and final shape of the Solvency I I regime.

Singapore – pursuing broader and deeper economic integration with major economies

Opening keynote speech by Mr Lim Hng Kiang, Minister for Trade and Industry and Deputy Chairman of the Monetary Authority of Singapore, at Deutsche Bank Access Asia Conference 2013, Singapore.

“In the last 10 years, the centre of gravity of the world economy has been moving away from the US and Europe






















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to Asia.

Asia is expected to continue to prosper in the decades ahead as the middle class expands in line with strong economic growth.

China is set to be the largest economy in the world by 2030 and is already creating megacities of over 10 million at an average rate of one per year.

Besides China, Ind ia’s midd le class is expected to grow to almost 600 million people by 2025.

In Indonesia, almost 60 per cent of Indonesian households, in a country of 240 million people, are expected to reach middle-class status by 2020.”

Prospects for a stronger recovery

Speech by Ms Sarah Bloom Raskin, Member of the Board of Governors of the Federal Reserve System, at the Society of Government Economists and the National Economists Club, Washington DC.

Merely Cracking the Glass Ceiling is Not Enough: Corporate America Needs More than Just A Few Women in Leadership

By Commissioner Luis A. Aguilar, U.S. Securities and Exchange Commission, Women's Executive Circle of New York, The University Club of New York, New York, New York.






















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The Single Resolution Mechanism – why it is needed

Speech by Mr Benoît Coeuré, Member of the Executive Board of the European Central Bank, at the ICMA Annual General Meeting and Conference 2013, organised by the International Capital Market Association, Copenhagen.

“The financial crisis has highlighted the weaknesses of the institutional framework of Economic and Monetary Union.

The negative feedback loop between banks and sovereigns as well as signs of market fragmentation made European leaders take an extraordinary decision last summer, namely to establish the European Banking Union.”

The Important Role of Immigrants in Our Economy

By Commissioner Luis A. AguilarU.S. Securities and Exchange Commission Remarks at the 2013 Annual GalaGeorgia H ispanic Chamber of CommerceAtlanta, Georgia






















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Chairman Ben S. BernankeAt Bard College at Simon's Rock, Great Barrington, Massachusetts

Economic Prospects for the Long Run

Let me start by congratulating the graduates and their parents. The word "graduate" comes from the Latin word for "step."

Graduation from college is only one step on a journey, but it is an important one and well worth celebrating.

I think everyone here appreciates what a special privilege each of you has enjoyed in attending a unique institution like Simon's Rock.

It is, to my knowledge, the only "early college" in the United States; many of you came here after the 10th or 11th grade in search of a different educational experience.

And with only about 400 students on campus, I am sure each of you has felt yourself to be part of a close-knit community.

Most important, though, you have completed a curriculum that emphasizes creativity and independent critical thinking, habits of mind that I am sure will stay with you.

What's so important about creativity and critical thinking?

There are many answers.

I am an economist, so I will answer by talking first about our economic future--or your economic future, I should say, because each of you will have many years, I hope, to contribute to and benefit from an increasingly sophisticated, complex, and globalized economy.






















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My emphasis today will be on prospects for the long run.

In particular, I will be looking beyond the very real challenges of economic recovery that we face today--challenges that I have every confidence we will overcome--to speak, for a change, about economic growth as measured in decades, not months or quarters.

Many factors affect the development of the economy, notably among them a nation's economic and political institutions, but over long periods probably the most important factor is the pace of scientific and technological progress.

Between the days of the Roman Empire and when the Industrial Revolution took hold in Europe, the standard of living of the average person throughout most of the world changed little from generation to generation.

For centuries, many, if not most, people produced much of what they and their families consumed and never traveled far from where they were born.

By the mid-1700s, however, growing scientific and technical knowledge was beginning to find commercial uses.

Since then, according to standard accounts, the world has experienced at least three major waves of technological innovation and its application.

The first wave drove the growth of the early industrial era, which lasted from the mid-1700s to the mid-1800s.

This period saw the invention of steam engines, cotton-spinning machines, and railroads.

These innovations, by introducing mechanization, specialization, and mass production, fundamentally changed how and where goods were produced and, in the process, greatly increased the productivity of workers and reduced the cost of basic consumer goods.International Association of Risk and Compliance Professionals

(IARCP)www.risk-compliance-association.com




















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The second extended wave of invention coincided with the modern industrial era, which lasted from the mid-1800s well into the years after World War I I.

This era featured multiple innovations that radically changed everyday life, such as indoor plumbing, the harnessing of electricity for use in homes and factories, the internal combustion engine, antibiotics, powered flight, telephones, radio, television, and many more.

The third era, whose roots go back at least to the 1940s but which began to enter the popular consciousness in the 1970s and 1980s, is defined by the information technology (IT ) revolution, as well as fields like biotechnology that improvements in computing helped make possible.

Of course, the IT revolution is still going on and shaping our world

today. Now here's a question--in fact, a key question, I imagine,

from yourperspective.

What does the future hold for the working lives of today's graduates?

The economic implications of the first two waves of innovation, from the steam engine to the Boeing 747, were enormous.

These waves vastly expanded the range of available products and the efficiency with which they could be produced.

Indeed, according to the best available data, output per person in the United States increased by approximately 30 times between 1700 and 1970 or so, growth that has resulted in multiple transformations of our economy and society.

History suggests that economic prospects during the coming decades depend on whether the most recent revolution, the IT revolution, has economic effects of similar scale and scope as the previous two.

But will it?






















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I must report that not everyone thinks so.

Indeed, some knowledgeable observers have recently made the case that the IT revolution, as important as it surely is, likely will not generate the transformative economic effects that flowed from the earlier technological revolutions.

As a result, these observers argue, economic growth and change in coming decades likely will be noticeably slower than the pace to which Americans have become accustomed.

Such an outcome would have important social and political--as well as economic--consequences for our country and the world.

This provocative assessment of our economic future has attracted plenty of attention among economists and others as well.

Does it make sense?

Here's one way to think more concretely about the argument that the pessimists are making:

Fifty years ago, in 1963, I was a nine-year-old growing up in a middle-class home in a small town in South Carolina.

As a way of getting a handle on the recent pace of economic change, it's interesting to ask how my family's everyday life back then differed from that of a typical family today.

Well, if I think about it, I could quickly come up with the Internet, cellphones, and microwave ovens as important conveniences that most of your families have today that my family lacked 50 years ago.

Health care has improved some since I was young; indeed, life expectancy at birth in the United States has risen from 70 years in 1963 to 78 years today, although some of this improvement is probably due to better nutrition and generally higher levels of income rather than advances in medicine alone.International Association of Risk and Compliance Professionals





















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Nevertheless, though my memory may be selective, it doesn't seem to me that the differences in daily life between then and now are all that large.

Heating, air conditioning, cooking, and sanitation in my childhood were not all that different from today.

We had a dishwasher, a washing machine, and a dryer.

My family owned a comfortable car with air conditioning and a radio, and the experience of commercial flight was much like today but without the long security lines.

For entertainment, we did not have the Internet or video games, as I mentioned, but we had plenty of books, radio, musical recordings, and a color TV (although, I must acknowledge, the colors were garish and there were many fewer channels to choose from).

The comparison of the world of 1963 with that of today suggests quite substantial but perhaps not transformative economic change since then.

But now let's run this thought experiment back another 50 years, to 1913 (the year the Federal Reserve was created by the Congress, by the way), and compare how my grandparents and your great-grandparents lived with how my family lived in 1963.

Life in 1913 was simply much harder for most Americans than it would be later in the century.

Many people worked long hours at dangerous, dirty, and exhausting jobs--up to 60 hours per week in manufacturing, for example, and even more in agriculture.

Housework involved a great deal of drudgery; refrigerators, freezers, vacuum cleaners, electric stoves, and washing machines were not in general use, which should not be terribly surprising since most urban households, and virtually all rural households, were not yet wired for electricity.






















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In the entertainment sphere, Americans did not yet have access to commercial radio broadcasts and movies would be silent for another decade and a half.

Some people had telephones, but no long-distance service was

available. In transportation, in 1913 Henry Ford was just

beginning the massproduction of the Model T automobile, railroads were powered by steam,and regular commercial air travel was quite a few years away.

Importantly, life expectancy at birth in 1913 was only 53 years, reflecting not only the state of medical science at the time--infection-fighting antibiotics and vaccines for many deadly diseases would not be developed for several more decades--but also deficiencies in sanitation and nutrition.

This was quite a different world than the one in which I grew up in 1963 or in which we live today.

The purpose of these comparisons is to make concrete the argument made by some economists, that the economic and technological transformation of the past 50 years, while significant, does not match the changes of the 50 years--or, for that matter, the 100 years--before that.

Extrapolating to the future, the conclusion some have drawn is that the sustainable pace of economic growth and change and the associated improvement in living standards will likely slow further, as our most recent technological revolution, in computers and IT, will not transform our lives as dramatically as previous revolutions have.

Well, that's sort of depressing.

Is it true, then, as baseball player Yogi Berra said, that the future ain't what it used to be? Nobody really knows; as Berra also astutely observed, it's tough to make predictions, especially about the future.

But there are some good arguments on the other side of this debate.






















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First, innovation, almost by definition, involves ideas that no one has yet had, which means that forecasts of future technological change can be, and often are, wildly wrong.

A safe prediction, I think, is that human innovation and creativity will continue; it is part of our very nature.

Another prediction, just as safe, is that people will nevertheless continue to forecast the end of innovation.

The famous British economist John Maynard Keynes observed as much in the midst of the Great Depression more than 80 years ago.

He wrote then, "We are suffering just now from a bad attack of economic pessimism.

It is common to hear people say that the epoch of enormous economic progress which characterised the 19th century is over; that the rapid improvement in the standard of life is now going to slow down."

Sound familiar?

By the way, Keynes argued at that time that such a view was shortsighted and, in characterizing what he called "the economic possibilities for our grandchildren," he predicted that income per person, adjusted for inflation, could rise as much as four to eight times by 2030.

His guess looks pretty good; income per person in the United States today is roughly six times what it was in 1930.

Second, not only are scientific and technical innovation themselves inherently hard to predict, so are the long-run practical consequences of innovation for our economy and our daily lives.

Indeed, some would say that we are still in the early days of the IT revolution; after all, computing speeds and memory have increased many times over in the 30-plus years since the first personal computers came on the market, and fields like biotechnology are also advancing rapidly.






















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Moreover, even as the basic technologies improve, the commercial applications of these technologies have arguably thus far only scratched the surface.

Consider, for example, the potential for IT and biotechnology to improve health care, one of the largest and most important sectors of our economy.

A strong case can be made that the modernization of health-care IT systems would lead to better-coordinated, more effective, and less costly patient care than we have today, including greater responsiveness of medical practice to the latest research findings.

Robots, lasers, and other advanced technologies are improving surgical outcomes, and artificial intelligence systems are being used to improve diagnoses and chart courses of treatment.

Perhaps even more revolutionary is the trend toward so-called personalized medicine, which would tailor medical treatments for each patient based on information drawn from that individual's genetic code.

Taken together, such advances could lead to another jump in life expectancy and improved health at older ages.

Other promising areas for the application of new technologies include the development of cleaner energy--for example, the harnessing of wind, wave, and solar power and the development of electric and hybrid vehicles--as well as potential further advances in communications and robotics.

I'm sure that I can't imagine all of the possibilities, but historians of science have commented on our collective tendency to overestimate the short-term effects of new technologies while underestimating their longer-term potential.

Finally, pessimists may be paying too little attention to the strength of the underlying economic and social forces that generate innovation in the modern world.






















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Invention was once the province of the isolated scientist or tinkerer.

The transmission of new ideas and the adaptation of the best new insights to commercial uses were slow and erratic.

But all of that is changing radically.

We live on a planet that is becoming richer and more populous, and in which not only the most advanced economies but also large emerging market nations like China and India increasingly see their economic futures as tied to technological innovation.

In that context, the number of trained scientists and engineers is increasing rapidly, as are the resources for research being provided by universities, governments, and the private sector.

Moreover, because of the Internet and other advances in communications, collaboration and the exchange of ideas take place at high speed and with little regard for geographic distance.

For example, research papers are now disseminated and critiqued almost instantaneously rather than after publication in a journal several years after they are written.

And, importantly, as trade and globalization increase the size of the potential market for new products, the possible economic rewards for being first with an innovative product or process are growing rapidly.

In short, both humanity's capacity to innovate and the incentives to innovate are greater today than at any other time in history.

Well, what does all this have to do with creativity and critical thinking, which is where I started?

The history of technological innovation and economic development teaches us that change is the only constant.International Association of Risk and Compliance Professionals





















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During your working lives, you will have to reinvent yourselves many times.

Success and satisfaction will not come from mastering a fixed body of knowledge but from constant adaptation and creativity in a rapidly changing world.

Engaging with and applying new technologies will be a crucial part of that adaptation.

Your work here at Simon's Rock, and the intellectual skills, creativity, and imagination that that work has fostered, are the best possible preparation for these challenges.

And while I have emphasized technological and scientific advances today, it is important to remember that the arts and humanities facilitate new and creative thinking as well, while helping us to draw meaning that goes beyond the purely material aspects of our lives.

I wish you the best in facing the difficult but exciting challenges that lie ahead.

Congratulations.






















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Consultation PaperOn Draft Implementing Technical Standards

On Additional LiquidityMonitoring Metrics under Article 403(2) of the draft Capital Requirements Regulation (CRR)

1.Responding to this Consultation

The EBA invites comments on all proposals put forward in this paper and in particular on the specific questions summarised in 5.2. Comments are most helpful if they:

- respond to the question stated;

- indicate the specific point to which a comment relates;

- contain a clear rationale;

- provide evidence to support the views expressed/ rationale proposed; and

-describe any alternative regulatory choices the EBA should

consider. Please send your comments to the EBA by email [email protected] by 14.08.2013, indicating the reference‘EBA/CP/2012/18’ on the subject field.

Please note that comments submitted after the deadline, or sent to another e-mail address will not be processed.

Publication of responses













































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All contributions received will be published following the close of the consultation, unless you request otherwise.

Please indicate clearly and prominently in your submission any part you do not wish to be publicly disclosed.

A standard confidentiality statement in an e-mail message will not be treated as a request for non-disclosure.

A confidential response may be requested from us in accordance with the EBA’s rules on public access to documents.

We may consult you if we receive such a request. Any decision we make not to disclose the response is reviewable by the EBA’s Board of Appeal and the European Ombudsman.

Data protection

Information on data protection can be found at www.eba.europa.eu under the heading ‘Legal Notice’.

2. Executive Summary

The proposed Capital Requirements Directive/ Regulation (CRR/ CRD) sets out requirements concerning liquidity which are expected to apply from 1 January 2014 and mandates the EBA to prepare draft regulatory/ implementing technical standards (RTS/ITS) in this area.

The EBA has developed these ITS proposals on the basis of the legislative texts for the CRR agreed by the European Parliament and the Council in April 2013, in accordance with the mandate contained in Articles 403(2) of those texts.

These texts will be subject to legal-linguistic review before being formally adopted and the final text published in the Official Journal of the European Union.



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The EBA will review the ITS proposals to ensure that they take account of any changes made in the final text of the CRR, as well as to take account of any changes arising out of the consultation process.

Main features of the ITS

This CP contains the EBA proposal in relation to supervisory reporting of additional monitoring metrics for liquidity.

In defining its proposal, the EBA followed the approach developed by theBasel Committee on Banking Supervision (BCBS).

The EBA’s proposed metrics to be covered by this ITS include the following:

- a maturity ladder (template and instructions). This is similar to the contractual maturity mismatch put forward by the BCBS text and provides insight into the extent to which a bank relies on maturity transformation under its current contracts.

It comprises two separate templates (set out in two worksheets), one for contractual flows and one for behavioural flows.

The maturity of the outflows and inflows to be reported in both templates range from open maturity up to greater than 10 years (13 buckets in total).

- some additional monitoring tools (templates and instructions) related to:

o concentration of funding by counterparty: This is similar to the concentration of funding metric put forward by the BCBS, and it allows the identification of those sources of wholesale and retail funding of such significance that their withdrawal could trigger liquidity problems.

It is proposed that institutions report the top ten largest counterparties from which funding obtained exceeds a threshold of 1% of total liabilities, together with information on the counterparty name, counterparty type






















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and location, product type, currency, amount received, weighted average and residual maturity.

o concentration of funding by product type: This seeks to collect information about the institution's concentration of funding by product type, broken down into different funding types related to retail and wholesale funding.

It is proposed that institutions report the total amount of funding received from each product category, when it exceeds a threshold of 1% of total liabilities.

o prices for various lengths of funding: This seeks to collect information about the average transaction volume and prices paid by institutions for funding with different maturities ranging from overnight to 10 years.

o rollover of funding: This seeks to collect information about the volume of funds maturing and new funding obtained i.e. ‘roll-over of funding’ on a daily basis over a monthly time horizon.

3. Background and rationale The nature of ITS under EU law

The present draft ITS are produced in accordance with Article 15 of EBA regulation. Paragraph 4 of that same article provides that ITS shall be adopted by means of an EU Regulation or Decision.

According to EU law, EU regulations are binding in their entirety and directly applicable in all Member States.

This means that, on the date of their entry into force, they become part of the national law of the Member States and that their implementation into national law is not only unnecessary but also prohibited by EU law, except in so far as this is expressly required by them.

Shaping these rules in the form of a Regulation would ensure alevel-playing field by preventing diverging national requirements and would ease the cross-border provision of services; currently, an institution






















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that wishes to take up operations in another Member State has to apply different sets of rules.

Background and regulatory approach followed in the draft ITS

In January 2013, the Basel Committee on Banking Supervision (BCBS) published its revised text on the liquidity coverage ratio (LCR) and liquidity risk monitoring tools.

These monitoring tools, together with the LCR standard, provide the cornerstone of information that aid supervisors in assessing the liquidity risk of an institution, because they can help competent authorities identify potential liquidity difficulties signaled through a negative trend in the metrics or through an absolute result of the metrics.

The EBA will observe further work conducted by the BCBS in respect of liquidity risk monitoring and consider amendments to its own proposals as necessary.

One such topic may be monitoring tools for intra-day liquidity management.

Within this context, the EBA may consider increasing further the granularity of some of the proposed time buckets covering the period of the first 3 months.

Input from the industry on these last aspects would be welcome.

The CRR provisions related to liquidity reporting translate these BCBS proposals into EU law.

Thus, in addition to the LCR, institutions will have to report to their competent authorities information related to additional metrics.

In this context, the CRR also provides, in Article 403(3)(b), that the EBA shall develop draft ITS to specify the additional liquidity monitoring metrics required to allow competent authorities to obtain a






















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comprehensive view of the liquidity risk profile, proportionate to the nature, scale and complexity of an institution's activities.

This CP contains the EBA proposal in relation to supervisory reporting of additional monitoring metrics for liquidity.

In defining its proposal, the EBA followed the approach developed by the BCBS.

The EBA’s proposed metrics to be covered by this ITS include the following:

- a maturity ladder (template and instructions)

o some additional monitoring tools (templates and instructions) related to:

o concentration of funding by

counterparty o concentration of

funding by product type

o prices for various lengths of funding

o rollover of funding

The metric related to the maturity ladder is similar to the contractual maturity mismatch put forward by the BCBS text.

The template developed in the ITS is designed to capture the maturity mismatch of an institution's balance sheet, and as such, is referred to as the ‘maturity ladder’.

These maturity mismatches indicate how much liquidity a bank would potentially need to raise in each of different time bands if all outflows occurred at the earliest possible date.

This metric provides insight into the extent to which the bank relies on maturity transformation under its current contracts.International Association of Risk and Compliance Professionals





















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The maturity ladder forms part of the package of ‘monitoring tools’ which the EBA has designed.

The maturity ladder is a monitoring tool which comprises two separate templates (which are set out in two worksheets), one for contractual flows and one for behavioural flows (inflows and outflows).

The contractual flows resulting from legally binding agreements should be reported according to the provisions of these agreements, while the behavioural flows should be based upon a base-case economic scenario used by the reporting institution in its current business planning (the scenario that the institution expects to happen, as opposed to pre-defined stressed conditions).

The maturity of the outflows and inflows to be reported both in the contractual template and the behavioural template range from open maturity up to greater than 10 years (13 buckets in total), which allows all relevant maturities to be captured.

The metrics related to the additional monitoring tools are designed to monitor an institution's liquidity risk that falls outside the scope of the reports on Liquidity Coverage and Stable Funding.

The template on concentration of funding by counterparty, similar to the concentration of funding metric put forward by the BCBS text, allows the identification of those sources of wholesale and retail funding of such significance that their withdrawal could trigger liquidity problems.

Excessive reliance on individual counterparties could lead to the crystallisation of liquidity risk, where the funding relationship to cease during a stress scenario.

It is therefore important to provide templates for reporting on these items, so as to help institutions to identify these risks early and seek funding from a wide range of counterparties.

For the purpose of this ITS, it is proposed that institutions are required to report the top ten largest counterparties from which funding obtained






















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exceeds a threshold of 1% of total liabilities, together with information on the counterparty name, counterparty type and location, product type, currency, amount received, weighted average and residual maturity.

The template on funding by product type seeks to collect information about the institution's concentration of funding by product type, broken down into different funding types related to retail and wholesale funding.

Excessive reliance on specific product types could lead to the crystallisation of liquidity risk, were the specific product types proven to be subject to high outflows during a stress scenario.

It is therefore important to provide templates for reporting on these items, so as to help institutions to identify these risks early and seek funding from a wide range of product types.

For the purpose of completing the ITS templates, it is proposed that institutions report the total amount of funding received from each product category, when it exceeds a threshold of 1% of total liabilities.

With regard to the counterbalancing capacity on the assets side, the EBA is considering integrating into the final ITS the template and instructions shown in the appendix of this consultation paper.

This part of the reporting aims at capturing concentrations of assets used to counterbalance outflows and would collect information about the ten largest holdings in those assets issued by a single name.

It is clear that high concentrations may represent a risk of overestimation of the counterbalancing capacity if the markets for the various financial instruments issued by a specific individual issuer fall dry.

Additional information on the issuer/ counterparty location may add insight on interconnectedness.

As part of the total, the template seeks also information on received stand-by liquidity facilities which are seen as part of the counterbalancing capacity by the institution.






















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Insight in these specific types of concentrations cannot sufficiently be obtained from other templates.

The template on prices for various lengths of funding seeks to collect information about the average transaction volume and prices paid by institutions for funding with different maturities ranging from overnight to 10 years.

Finally, the template on the roll-over of funding seeks to collect information about the volume of funds maturing and new funding obtained i.e. ‘roll-over of funding’ on a daily basis over a monthly time horizon.

As a reminder, please note that Article 403(2) of the draft CRR stipulates that an institution shall report separately to the competent authorities of the home Member State the items subject to liquidity risk reporting in a currency when it has

(i)aggregate liabilities in that currency, different from the single currency used for reporting, amounting to or exceeding 5 % of the institution’s or the single liquidity sub-group’s total liabilities; or

(ii)a significant branch as defined in Article 52 of the CRD in a host Member State using a currency different from the reporting currency.

The present ITS have been developed to provide competent authorities with harmonised information on institutions’ liquidity risk profile, taking into account the nature, scale and complexity of institutions' activities.

As the ITS on additional liquidity monitoring metrics will become part of the general supervisory reporting framework requirements, following the introduction of liquidity requirements, formats have been developed with the aim of ensuring consistency where allowed by the CRR proposed text.

Scope/ level of application and frequency






















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The scope and level of application of these ITS seek to be consistent with the scope and level of application of the CRR and of the prudential reporting requirements (COREP), i.e. it applies:

-on a consolidated basis (Article 10(3) of the CRR): to EU parent credit institutions and investment firms and to credit institutions and investment firms controlled by an EU parent financial holding company or by an EU parent mixed financial holding company;

-on an individual basis (Article 5(4) of the CRR) : to all credit institutions and investment firms that are authorised to provide the investment services listed in points 3 and 6 of section A of Annex I to Directive 2004/ 39/ EC.

However, according to Article 7(1) of the proposed CRR text, competent authorities will be allowed to waive in full or in part the application of Part Six of the CRR (Liquidity requirements) to a institution and to all or some of its subsidiaries, if they fulfill a set a predefined conditions, including if the parent institution complies on a consolidated basis with the obligation set forth in Article 401 and 403.

The reporting frequency will be monthly for all monitoring metrics.

Under specific clear and factual criteria, duly framed in the ITS, proportionate to the nature, scale and complexity of an institution's activities, the reporting frequency can be reduced, respectively to a quarterly basis.

These specific criteria relate to the existence of cross-border activities and size of the institution’s balance sheet.

It shall be noted that Article 64 of the CRD related to supervisory powers allows competent authorities to impose additional or more frequent reporting requirements, including reporting on liquidity positions.

For example in periods of stress competent authorities could impose some reporting with a daily frequency.International Association of Risk and Compliance Professionals





















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Timing of ITS development and application date

Considering that the EBA is consulting on this reporting for additional metrics at a later stage than for the other reporting requirements, the EBA may consider further the appropriate application date compared to the application date of other reporting requirements (in particular the reporting requirements for liquidity coverage and stable funding).

According to the draft CRR, the EBA is expected to submit these ITS to the European Commission (EC) by 1 January 2014.

The data point model related to the reporting on additional monitoring metrics will be published for consultation in the course of 2013.

4. Draft implementing technical standards on Additional Liquidity Monitoring Metrics under the Capital Requirements Regulation (CRR)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, Having regard to Regulation xx/ XX/ EU of the European Parliament and of the Council of [dd mmmm yyyy] on prudential requirements for credit institutions and investment firms [CRR], and in particular to Articles......and 403(3)(b) thereof, [ADDENDUM TO THE LEGAL BASES AS PRESENTED IN CP50 AND SUBSEQUENT CPs ON VARIOUS ASPECTS OF REPORTING]

Whereas:

...[ADDENDUM TO THE RECITALS AS PRESENTED IN CP50 AND SUBSEQUENT CPs ON VARIOUS ASPECTS OF REPORTING](xx)

(xx) Reporting for additional metrics relating to liquidity should comprise a maturity ladder, because this is what would allow the maturity






















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mismatch of an institution's balance sheet to be captured; metrics based on the concentration of funding by counterparty and product type, because these metrics identify counterparties and instruments that are of such relevance that withdrawal of funds or declining market liquidity could trigger liquidity problems; metrics based on the prices for various lengths of funding and the rollover of funding because such information will become valuable over time as supervisors would be made aware of changes in funding spreads, volumes and tenors.

(xx) Given that articles 5 to 9 of Regulation xx/ xxx [CRR] specify the level of application of the liquidity coverage, the level and scope of the reporting of that liquidity coverage and on the additional monitoring metrics should be aligned with that, and therefore the reporting on these additional monitoring metrics should be required only at the level of consolidation at which reporting on liquidity coverage is required according to Article 403(3)(a).






















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EXPLANATORY MEMORANDUM TOTHE FINANCIAL CONGLOMERATES AND OTHER FINANCIAL GROUPS (AMENDMENT) REGULATIONS

This explanatory memorandum has been prepared by HM Treasury and is laid before Parliament by Command of Her Majesty.

Purpose of the instrument

These Regulations implement, in part, Directive 2011/ 89/ EU of the European Parliament and of the Council amending Directives 98/78 /EC, 2002/ 87/ EC, 2006/48 /EC and 2009/ 138/ EC (OJ L 326/113 8.12.2011) asregards the supplementary supervision of financial entities in a financial conglomerate.

The Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”) are responsible for implementing the majority of the provisions of this Directive.

The Regulations make a limited number of technical and definitional amendments to existing secondary legislation which imposes obligations on the PRA and FCA with regard to their supervisory functions, in particular concerning information sharing and consultation requirements.

Legislative Context

The Financial Conglomerates Directive 2002 (Directive 2002/ 87/EC), provides the framework for the prudential supervision of financial conglomerates involved in both banking and insurance activities, supplementing the relevant banking and insurance sectoral directives by providing additional supervision at the group level.International Association of Risk and Compliance Professionals





















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The Financial Conglomerates Directive 2002 was implemented in the UK mainly by rules made by the Financial Services Authority (“FSA” – the predecessor to the PRA and FCA) under the Financial Services and Markets Act 2000 (“FSMA”), but certain provisions which imposed obligations on the supervisory authority, were transposed by the Financial Conglomerates and Other Financial Groups Regulations 2004 (S.I. 2004/1862).

Directive 2011/ 89/ EU is the result of a technical review of the 2002 Directive which was commenced by the European Commission in 2008 and makes changes to the Financial Conglomerates Directive 2002 and the relevant sectoral directives to improve the effectiveness of the current rules.

These Regulations transpose those aspects of Directive 2011/ 89/ EU which require amendments to be made to existing secondary legislation, notably the Financial Conglomerates and Other Financial Groups Regulations 2004 and the Capital Requirements Regulations 2006 (S.I. 2006/ 3221), by the transposition deadline of 10 June 2013.

Most of the Directive provisions are being transposed by rules made by the PRA and FCA.

Those provisions of the Directive which relate to alternative investment fund managers, and which also require amendments to the Financial Conglomerates and Other Financial Groups Regulations 2004, but have a later transposition deadline of 22 July 2013, will be transposed by way of a separate set of Regulations which is due to be made for the purposes of transposing the Alternative Investment Fund Managers Directive (Directive 2011/ 61/EU) by that deadline.

These Regulations also update certain cross-references in the Financial Conglomerates and Other Financial Groups Regulations 2004 to provisions in Part 12 of FSMA, which were amended by the Financial Services and Markets Act 2000 (Controllers) Regulations 2009 (S.I. 2009/ 534) as part of the exercise of transposing the Acquisitions Directive (Directive 2007 /44/EC).






















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Policy background - What is being done and why

The aim of Directive 2011/ 89/ EU is to act as a quick fix in response to gaps in conglomerate supervision that were highlighted by the experience of the financial crisis and identified in the review of the Financial Conglomerates Directive 2002 carried out by the European Commission in 2008/2009.

The changes are expected to eliminate the unintended consequences and technical omissions in the relevant sectoral directives (covering the supervision of banking and insurance institutions), and improve the consistency of supervision of group risks.

The changes include amendments to the capital calculation methodology for conglomerates, a requirement to include asset management companies and alternative investment fund managers in the conglomerates identification process, and amendments to the identification threshold triggers, as well as providing for conglomerate stress testing.

Most of these substantive changes will be implemented by amendments to PRA and FCA rules.

However, a limited number of amendments are required to existing secondary legislation which imposes obligations on the PRA and FCA with regard to their supervisory functions in relation to conglomerates.

These mainly concern consequential amendments to consultation and information sharing requirements.

A more fundamental review of the Financial Conglomerates Directive 2002 is currently underway.

The aim of this is to provide a wider-ranging assessment of the the financial crisis.

The European Commission published a progress update report on this review in December 2012.International Association of Risk and Compliance Professionals





















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This noted the importance of taking into account the recent and pending changes to sectoral legislation – such as Solvency I I and the Capital Re qu iremen ts Direct ive (“CRD 4”) – as well as the implications of Banking Union proposals for conglomerate supervision.

As a result, the report stated that the Commission does not intend to bring forward legislative proposals in 2013, but will keep the situation under review to determine the appropriate timing for the revision.

Consolidation

There are no current plans to consolidate the amendments to the Financial Conglomerates and Other Financial Groups Regulations 2004 or the Capital Requirements Regulations 2006.

However, the 2004 Regulations are likely to be amended again following the current more fundamental review of the Financial Conglomerates Directive 2002, at which stage further consideration will be given to consolidation.

The Capital Requirements Regulations 2006 are expected to be further amended or replaced as part of the exercise of transposing CRD4 which is due to be adopted later this year.

Consultation outcome

The European Commission undertook a targeted pre-legislative consultation on its review of the Financial Conglomerates Directive in November 2009, prior to issuing its formal proposal in August 2010.

We understand that a UK stakeholder responded but the response was not made public.

Details of the consultation, including published responses, are available at: http://ec.europa.eu/internal_market/consultations/2009/fcd_review_e n.htmInternational Association of Risk and Compliance Professionals


http://ec.europa.eu/internal_market/consultations/2009/fcd_review_e










































































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A draft of these Regulations was subject to a public consultation in the document CP12/40: Financial Conglomerates Directive – Technical review amendments, a joint FSA-HM Treasury consultation, which was published on the FSA website on 21 December 2012, and is available at: http://www.fsa.gov.uk/static/pubs/cp/cp12-40.pdf.

The consultation closed on 21 March 2013 and no responses were received concerning the Treasury’s draft Regulations.

The Treasury also consulted the FSA and its successor authorities prior to making these Regulations, which impose obligations directly on the PRA and FCA, and the FSA was content with the draft Regulations.

Guidance

The Treasury is not planning to issue any guidance on these Regulations, which do not impose obligations directly on business.

The PRA and the FCA are due to issue policy statements detailing their final rules implementing other parts of Directive 2011/ 89/ EU.

TRANSPOSITION NOTE FOR DIRECTIVE 2011/ 89/EU

This transposition note sets out the legislation which transposes into UK law Directive 2011/ 89 /EU of the European Parliament and of the Council amending Directives 98/78/ EC, 2002/87/EC, 2006/48/ EC and 2009/ 138/ EC as regards the supplementary supervision of financial entities in a financial conglomerate.

This Directive makes technical amendments to the Financial Conglomerates Directive 2002 (Directive 2002/ 87/ EC), which deals with the supplementary supervision of financial conglomerates, which are groups which carry out significant activities in both the banking/ investment services and insurance sectors.

It also makes consequential amendments to the relevant sectoral directives dealing with the regulation of banks/investment firms and insurance firms.



http://www.fsa.gov.uk/static/pubs/cp/cp12-40.pdf




























































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The Financial Conglomerates Directive 2002 was originally transposed mainly by way of rules made by the Financial Services Authority (the “FSA”) under the Financial Services and Markets Act 2000, and also in part by the Financial Conglomerates and Other Financial Groups Regulations 2004 (SI 2004/ 1862) made by the Treasury.

The new Directive makes technical changes to the Financial Conglomerates Directive 2002, including changes to the conglomerate capital calculations methodology, changes to include asset management companies and alternative investment fund managers within the process for identifying a financial conglomerate, and changes to the application of identification threshold triggers.

The new Directive is being transposed mainly by the way of amendments being made to the rules of the Prudential Regulation Authority (the “PRA”) and (where necessary) the Financial Conduct Authority (the “FCA”), which were established in place of the FSA with effect from 1 April 2013 (when the Financial Services Act 2012 came into force).

These rules continue to be made under the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012).

The new Directive includes amendments to Directive 2009/138/EC (“Solvency I I”), whose transposition date is currently delayed.

The FSA has consulted on proposed amendments arising from the new Directive to the draft PRA prudential sourcebook (SOLPRU) which will, in due course, transpose aspects of Solvency I I .

References to these draft PRA H andbook rules are shown in this Transposition Note although SOLPRU will not be made until the transposition of Solvency I I takes place.

The Directive is also being transposed in part by way of amendments being made by the Treasury to the Financial Conglomerates and Other Financial Groups Regulations 2004 and the Capital Requirements Regulations 2006 (SI 2006/ 3221), together with consequential amendments being made to other legislation.






















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Most of the provisions of this Directive are due to apply from 10

June 2013. Amendments to the Financial Conglomerates and Other

FinancialGroups Regulations 2004 relating to alternative investment fund managers (which apply from 22 July 2013) will be made separately by way of the Regulations being made to transpose the Alternative InvestmentFund Managers Directive (Directive 2011/61/EU).






















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Who calls the shots? The problem of fiscal dominance

Speech by Dr Jens Weidmann, President of the Deutsche Bundesbank, at the 4th Bank of France - Deutsche Bundesbank Macroeconomics and Finance Conference, Paris.

1. Introduction

Ladies and gentlemen,

I would like to thank you for the opportunity to speak here

today. Indeed, in springtime there is no better place to be

than Paris.

As Henry Miller put it: “God knows, when spring comes toParis the humblest mortal alive must feel that he dwells in Paradise”.

However, other parts of Europe are currently a long way from Paradise.

Numerous countries are experiencing a severe crisis, and many people are going through a time of great hardship.

Thus, our most important challenge is to overcome the crisis, restore growth and lead Europe back to prosperity – without endangering price stability.

To achieve this objective many difficult and far-reaching decisions have to be taken.

Against this backdrop, conferences such as this one are

essential. After all, scientific research is a central pillar of good

decision-making.






















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Thus, I would like to thank the Banque de France for hosting this

event. This session of the conference is titled: “Fiscal Policy in a

MonetaryUnion”.

What is a central banker’s role in such a discussion?

Well, Mervyn King once said: “Central banks are often accused of being obsessed with inflation. This is untrue. If they are obsessed with anything, it is with fiscal policy.”

As so often, Mervyn King was right, we central bankers are indeed obsessed with fiscal policy – and German ones quite probably somewhat more so than those of a different nationality.

This obsession is driven by two interrelated observations:

First, high levels of public debt harbour the risk of higher inflation.

Second, sooner or later high levels of public debt are bound to hurt economic growth.

Given the high levels of public debt in many European countries, one would expect a broad consensus in favour of consolidation – and not just among fixated central bankers.

However, the reality is a bit more complex than I just implied.

There are different views on the dangers and merits of public debt.

In fact, we are currently observing a change of mood that has been dubbed the “austerity backlash”.

Some politicians claim that their countries are dying from mere austerity on its own; others convey the impression that the policy of consolidation has reached its limits.

Consequently, they call for it to be postponed.






















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These “backlashers” argue that in the current economic situation inflationary pressure is only of limited concern.

Along the same lines they argue that consolidation rather than debt hurts growth the most – at least in the short run.

In my speech I would like to discuss these two issues: first, the relationship between public debt and inflation and second, the question of consolidation and growth.

2. Sound public finances as a prerequisite for monetary policy

Public debt and inflation are related on account of monetary policy’s power to accommodate high levels of public debt.

Thus, the higher public debt becomes, the greater the pressure that can be put upon monetary policy to respond accordingly.

Suddenly it might be fiscal policy that calls the shots – monetary policy no longer follows the objective of price stability but rather the concerns of fiscal policy.

A state of fiscal dominance has been reached.

Technically, fiscal dominance refers to a regime where monetary policy ensures the solvency of the government.

The traditional roles are reversed: monetary policy stabilises real government debt while inflation is determined by the needs of fiscal policy.

In the conventional view, fiscal dominance entails the famous“unpleasant monetarist arithmetic”.

In the words of Sargent and Wallace: “…the monetary authority … must try to finance with seigniorage any discrepancy between the revenue demanded by the fiscal authority and the amounts of bonds that can be sold to the public.”






















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In their setup, fiscal policy runs a chronic primary deficit which leads to a corresponding increase in the money supply.

As a simple money demand holds in the model, the price level adjusts to establish equilibrium in the money market.

Put more bluntly: the central bank finances government deficits through the printing press.

Recently, however, another concept of fiscal dominance has gained much attention in the academic literature: the fiscal theory of the price level.

According to this theory, fiscal policy can affect inflation even if it does not monetise public debt along the lines of Sargent and Wallace.

In the words of Woodford: “Fiscal dominance manifests itself through pressure on the central bank to use monetary policy to maintain the market value of government debt.”

The main pillar of the fiscal theory rests on the fact that bonds are claims to nominal payoffs.

Now, if governments are unable to raise sufficient real resources, a new direct link arises between current and expected deficits and inflation.

Intuitively, the logic of the fiscal theory can be described as follows: Let us assume additional expenditure, for instance higher transfers, which are not financed by additional taxes but by issuing additional bonds.

Consequently the value of real debt is now higher than the present value of future tax payments.

Households feel richer and thus consume more, causing output and inflation to increase.

Monetary policy has to stabilise real debt to avoid an inflation spiral, with the result that it responds at a rate of less than 1 to 1 to inflation, thereby violating the Taylor principle.






















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Thus, higher inflation reduces debt in real terms and lower real interest rates reduce the real debt service burden of existing government debt.

In each of the two cases, a regime of fiscal dominance is characterised by higher inflation and probably also more volatile inflation.

Monetary policy is no longer able to control the inflation rate, and therefore welfare losses will occur.

However, the story does not end here.

Remaining within the world of theory, we can continue as follows:

because economic agents are forward-looking, it is quite possible

that theconsequences I have just described could manifest themselves before the economy has entered the regime of fiscal dominance.

Looking ahead, public debt cannot be accumulated forever.

Sooner or later, governments that run large deficits for a long period of time risk hitting a fiscal limit – a point at which government revenues can no longer be increased to stabilise government debt.

This inability to raise revenues might have economic reasons, such as a crossing of the peak of the Laffer curve.

But there might also be political reasons that make it infeasible to raise taxes.

Certainly, the actual fiscal limit is highly uncertain in many ways: it is a probability distribution rather than a point and depends on expectations, shocks and policy measures taken.

And forward-looking agents know: once the government hits the fiscal limit, either an adjustment of fiscal spending or an adjustment of monetary policy needs to occur.

Otherwise debt cannot be stabilised.






















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And as a consequence, monetary policy might come under pressure to step in and stabilise government debt.

Thus, even if fiscal policy has not yet reached its limit, the economic mechanisms attached to the fiscal theory of the price level might already swing into action.

To be specific: let us assume that agents expect, with some probability, that monetary policy will bear the burden of adjustment and stabilise real government debt through higher inflation.

Once inflation expectations start rising, the same might happen with inflation as well.

Thus, even if the fiscal limit has not been reached, it may still affect inflation.

In other words, how policy makers are expected to cope with the fiscal limit, including their efforts to consolidate, not only affects expectations concerning future policy regimes but can also affect today’s welfare.

Against the backdrop of this theoretical analysis, one thing should be made clear from a monetary policy perspective: policymakers should not assume that they are on safe ground just because inflation expectations are firmly anchored.

Only if agents expect deviations from a “virtuous regime” of monetary dominance to be short-lived – say, because policymakers still enjoy high credibility – will inflation expectations remain well anchored.

However, if agents learn that the deviation is going to last for longer than initially expected, their inflation expectations will change.

And this might happen very suddenly.

3. Hence, the case for consolidation

What conclusion can we draw from this theoretical analysis?






















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Well, the right conclusion is that fiscal consolidation is crucially important to keep inflation expectations anchored.

On this basis, one could make a solid case for consolidation.

For it is incumbent on governments to reduce the level of public

debt. Indeed, they have to do this to promote economic growth

and to ensureprice stability.

As Olivier Blanchard put it: we have to get out of the danger zone.

Certainly, over the past three years many countries have made great efforts to consolidate their public finances.

However, the main driver of these efforts was not academic theory but profane market pressure.

As Simon Nixon recently wrote in the Wall Street Journal:

“For euro-zone countries facing high borrowing costs or reliant on international aid to fund their budget deficits, fiscal consolidation wasn’t a choice but a necessity.”

And it still is.

Even so, now that market pressure has eased somewhat, so has the political will to consolidate.

Many argue that consolidation has gone too far and that it will impede growth given the current state of the economy.

But is that a tenable argument against the need to reduce public debt, to get out of the danger zone?

Let us take a closer look at the relationship between consolidation and growth.






















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4. But will consolidation hurt growth?

To put my view in a nutshell: I see no conflict between consolidation and growth.

And, indeed, there is not much controversy regarding the long-term relationship between consolidation and growth.

Various studies have confirmed that, in the long run, solid public finances have a beneficial effect on growth – and I am not just referring to the Reinhart- Rogoff study that has received some criticism recently.

Cecchetti and others, for instance, also find that high debt levels inhibit potential growth.

Nevertheless, the short-term relationship between consolidation and growth is hotly debated.

And this debate is currently obscuring the consensus on the longer-term effects of consolidation.

This is because the debate relates directly to policy decisions and to their short-term effects on which politicians are very strongly focused.

More specifically, the debate is focusing on the appropriate pace of consolidation in the current circumstances.

The discussion, therefore, is revolving around the size of the fiscal multiplier.

The larger the multiplier, the greater the negative effect consolidation has on short-term growth.

In general, the size of the multiplier depends on a number of factors.

It depends on the specific fiscal and economic situation of the relevant country, including the size of the export sector, the exchange rate regime,






















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trust in fiscal sustainability and the concrete design of the consolidation measures.

Recent research has highlighted the fact that the multiplier might also be state-dependent.

This would imply the possibility that the multiplier is larger in a crisis.

One reason for this could be that monetary policy is constrained by the zero lower bound.

Another reason could be that the number of liquidity-constrained households is increasing.

Empirical studies tend to find that multipliers are indeed larger in recessions and in situations where consolidation takes place during a financial crisis.

However, many of these studies suffer from a lack of data as deep recessions tend to be quite rare events.

Moreover, the way in which such studies are set up is often rather basic and fraught with estimation challenges.

Finally, there are also studies which imply that the fiscal multiplier might be smaller when public debt ratios are high and the sustainability of public finances is in doubt.

Now, what does all this tell us about the current situation and the appropriate pace of consolidation?

Blanchard and Leigh, in a recent working paper, suggest that the fiscal multiplier is currently larger than previously thought.

Therefore, they conclude that consolidation would currently be rather costly in terms of growth and more “backloading” would be desirable.

However, the data set from which these results have been obtained is






















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rather small.

Once other control variables are included and variation of the country sample is taken into account, the results are no longer robust.

All things considered, the size of fiscal multipliers seems to be subject to considerable uncertainty – both in general and with regard to the current situation.

Consequently, I think we should look beyond the size of the short-term fiscal multiplier when discussing consolidation.

In general, if consolidation is achieved by reducing public spending, for instance, it will enhance potential growth.

In addition, consolidation will foster fiscal sustainability.

In this regard, it is important to consider how financial markets judge a country’s fiscal situation and translate the results in their risk assessment.

There is widespread agreement that the influence of country-specific fiscal characteristics has risen over the course of the crisis.

The current crisis is, to a large extent, a crisis of confidence – financial markets have lost their confidence in the sustainability of public finances.

Against this backdrop, sustained and credible consolidation would send a clear signal.

Also, with regard to political acceptance, I doubt that turning deferment of consolidation into a never-ending story will find more public support than a fairly swift correction.

And this is why I believe that determined consolidation would help convince the markets that the future fiscal position is going to be sound.






















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This, in turn, would bring down long-term interest rates or ensure that they remain at a low level, which would be beneficial for economic growth.

By delaying consolidation, on the other hand, governments would risk an increase in market uncertainty.

As a consequence, sovereign bond spreads would remain high or go up even further.

5. Conclusion

Ladies and gentlemen High levels of public debt are one of the major economic policy challenges of our times – especially from a central banker’s point of view.

Sustainable public finances are a necessary prerequisite for a stable currency – a prerequisite that monetary policy itself cannot create.

Given that high levels of public debt also hurt economic growth, there is a solid case for consolidation.

True, in the short run, consolidation can dampen growth; that is undisputed.

Nevertheless, a credible commitment to sound public finances will also inspire confidence.

And confidence is what is lacking in the euro

area. Thank you.






















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Solvency I I update for all firms

As part of our commitment to sharing developments in our approach to the implementation of Solvency I I , I thought it would be helpful to write to all firms affected by the Directive to give an update on the current position and what this means for the work that has to be done in the coming months.

As you know, there continues to be significant uncertainty over the timetable and final shape of the Solvency I I regime.

We are very conscious of the implications for the industry of the continuing delays in terms of complexity and cost.

We cannot yet provide the clear timetable but we are acting in two ways to help the UK industry, both in the European negotiation and in our approach to implementation for UK firms.

I will take each of these points in turn.

European timetable

We are actively engaging with European colleagues to support the timely resolution of policy issues.

Earlier this year we invited firms to take part in the long-term guarantees assessment and we submitted data to the European Insurance and Occupational Pensions Authority (EIOPA) at the end of April.

EIOPA is currently analysing data from Member States with a view to preparing a report for European co-legislators in June.

This is expected to be followed by a report from the European Commission which will inform the development of the Omnibus I IInternational Association of Risk and Compliance Professionals





















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Directive which is currently scheduled for a vote in the European Parliament on 22 October 2013.

On 27 March 2013, EIOPA published its consultations on preparatory guidelines for Solvency I I .

The guidelines cover areas that EIOPA considers to be the most stable and fundamental to ensure effective preparation by Member States starting from 1 January 2014.

It is important to note that the guidelines focus on preparedness rather than bringing forward elements of Solvency I I early.

The four areas are:

i)systems of governance;

ii)forward-looking assessment of the undertaking’s own risks (based on the ORSA principles);

iii) submission of information (reporting); and

iv) pre-application for internal models.

We are very much aware of the concerns raised by industry, in particular, with regards to the cost of potential duplication of work and parallel running stemming from the reporting guidelines.

The EIOPA position on the reporting guidelines will be clearer towards the end of the year, and we very much support the review clause in EIOPA’s cover note to the consultations designed to remove the potential for an extended period of parallel running.

We will be responding to EIOPA’s consultations by the deadline of 19 June, and I would like to thank firms for their attendance and constructive input which will inform our response.






















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EIOPA will consider all responses to the consultations with a view to producing final guidelines in the autumn; and National Competent Authorities (NCAs), including the PRA, will have two months to respond as to whether they will comply or intend to comply with each of the guidelines, and/ or give reasons for non-compliance where needed.

We appreciate that the timing is difficult as it leaves little time for us and for you to prepare.

We will provide as much information to the UK industry as soon as we can.

The work on the long-term guarantees assessment, the Omnibus I I Directive and the EIOPA preparatory guidelines should come together in the autumn.

There is, therefore, unlikely to be any certainty about the timetable before then.

Approach to implementation

In October 2012 I acknowledged the EU delay to the implementation of Solvency I I and set out a new planning horizon of 31 December 2015 for UK firms.

We have rephased and scaled back our plans for future work on Solvency I I and we believe that the action we have taken is both sensible and pragmatic.

It has reduced considerably the cost to industry under the special project fees this year.

Since my letter to firms about ‘ICAS+’ in January this year, we have received requests from just under half of the firms in our internal model approval process (IMAP) that wish to leverage the investment in their Solvency I I internal models to meet the current regulatory requirements.






















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We have started to deliver the new approach with the first firms in the process.

It is too early to share learnings from ICAS+ as we are still at a preliminary stage, but we plan to do so as soon as we can, particularly developments used by firms in their modelling techniques.

As I have said previously, given the complexity inherent in modelled approaches, we continue to believe in the importance of non-modelled cross checks.

To that end, we have been developing early warning indicators (EWIs) to monitor the continuing appropriateness of the firm’s internal model to deliver the Solvency I I calibration requirement (i.e. 99.5% over a one-year period).

I am sending a separate letter to IMAP firms today on the introduction of those indicators we will use in the ICAS regime to inform and assist our supervision, and test the calibrations of the EWIs in the run up to Solvency I I .

For standard formula firms, we are currently considering a number of areas and circumstances in which the standard formula may not be appropriate; for example, in capturing pension risk.

The data submitted by firms last year has informed our approach together with our assessment of firms’ preparedness for Solvency I I .

Our conclusions will also depend on the finalised standard formula calibrations in the Level 2 text.

Our eventual approach will need to be consistent with the PRA’s approach to supervision and reflect our response to EIOPA’s guidelines on preparing for Solvency I I .

We will update the industry more fully on our approach when we have greater certainty of the European timetable later this year. International Association of Risk and Compliance Professionals





















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In the meantime, firms should continue to ensure that their chosen method to calculate their Solvency I I Solvency Capital Requirement (SCR) is suitable, and where necessary, consider whether it is appropriate to use undertaking specific parameters, or a partial internal model, where the standard formula does not adequately reflect the firm’s risk profile.

Finally, at the end of this month we will be writing to a number of life and general insurance firms with data requests for their responses by end July.

The requests will include a comparison of ICAS to the standard formula SCR and internal model SCR, a credit benchmark portfolio survey and a request for standardised risk information.

This will allow us to identify trends and outliers, and we need your input to make our reviews efficient and up to date across the sector.

It is essential for us, and the industry, that the data is

consistent. Ultimately, these numbers are critical in our

judgements.

Details of the data collection exercise, including the scope, purpose and firms affected, are available at the PRA’s Solvency I I webpages.

We will continue to give as much feedback as we are able at both firm and industry level.

Next steps

We remain committed to updating you of developments in our approach to implementation of the Solvency I I Directive, and sharing early developments and feedback from our work as far as possible.

We are looking to hold an industry briefing later this year, and will provide further information in September.

I attach a timetable, based on information available at the time of writing, that we hope you will find useful.






















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Please continue to raise issues and questions with your usual supervisory contact so that we can consider them in the planning of our future communications.Yours sincerely Julian






















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Dear Firm

Monitoring levels of capital and early warning indicators

I wrote to you in June and again in September last year outlining our intention to monitor the on-going appropriateness of Solvency I I internal models post approval through the use of early warning indicators (EWIs).

These would act as a non-modelled cross check to ensure firms’ models continue to meet the Solvency I I calibration requirement (i.e. 99.5% over a one-year period).

I am writing to you now to set out our implementation plan.

We propose to use the period before the formal implementation of Solvency I I to trial the use of EWIs in the ICAS regime for all firms using an internal model for regulatory capital assessment.

This will meet two objectives.

It will:

assist our supervision to monitor any downward drift in

capital; and inform our use and test the calibrations of the

EWIs.

Based on analysis of the data returned by firms in response to our request in Q3 2012 and feedback from the industry to my letters in 2012, we have developed separate indicators for life (excluding with-profits),with-profits funds, and general insurance business, incl. London markets.

Life and general insurance business, excluding with-profits

We consider the ratio between the modelled Solvency Capital Requirement (SCR) and the Solvency I I pre-corridor Minimum Capital






















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Requirement (pMCR) to be an appropriate EWI for life (excluding withprofits) and general insurers.

In the interim period we will use firms’ Individual Capital Guidance (ICG) as the capital requirement, and the pMCR will be calculated using the long-term guarantees assessment specifications published by EIOPA in January 2013.

Based on further analysis of data provided by firms, the ICG to pMCR indicator threshold has been set at:

300% for life business (excluding with-profits); and

175% for general insurance business, including London markets.

These thresholds have been set at a level which should mean that approximately 10% of firms will fall below them.

This will allow the PRA to understand better the behaviour of the EWIs.

With-profits business

The data submitted by firms based on a 2011 year end and responses from firms to my previous letters have suggested that the simple pMCR may not be appropriate for with-profits funds as it does not accurately take into account the economic cost of contractual guarantees or the nature and composition of free assets or non-profits business contained within the fund.

In addition to the simple ICG to pMCR ratio, we will therefore also use the interim period to test an alternative modified indicator that reflects these factors.

At the end of this period we will assess whether the additional complexity in the with-profits EWI is warranted.






















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I attach a technical note with the details of the modified indicator which you may wish to share with others as appropriate.

Based on analysis of data provided by firms, the with-profits indicator thresholds have been set at:

125% for the original (ICG to pMCR) ratio for with-profits business; and

200% for the alternative modified indicator.

Next steps

From September 2013 onwards we expect you to be aware of the performance of your internal model against the EWIs and to be prepared to discuss it with your supervisor.

You should also be prepared to discuss reasons for any significant actual or projected change in position and the causes of those changes, especially any actual or projected fall below the thresholds.

For the first calculation we plan to use the information contained in a data request being sent to a number of life and general insurance firms on 31 May 2013.

In future we will need to request a small amount of relevant data to calculate the EWI but we will seek to rationalise this as part of other requests.

In addition to the six monthly reviews across sectors, we plan to use the indicator as an input to ICAS or ICAS+ review panels.

However, we do not intend fundamentally to alter the way in which the PRA sets ICG.






















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EIOPA is also considering early warning indicators as part of the tools to be developed to monitor the ongoing appropriateness of internal models post approval in a Solvency I I regime.

We are contributing to this work.

Please continue to discuss your developing internal model, and any questions you may have, with your usual supervisory contact.

Yours sincerely






















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Technical note to the alternative with-profits indicator

We want to investigate whether a more reliable EWI can be constructed for with-profits funds.

To this end, we are proposing to test an alternative indicator based on the following three key factors that contribute to the variability in the economic capital position of with-profits funds:

1.the cost of contractual guarantees within the fund;

2. the level of free assets; and

3. the amount of non-profit business written in the fund.

Our analysis shows that variability in these three factors acrosswith-profits funds caused highly dispersed results against the original pMCR-based EWI indicating that this may not be a sufficiently reliable indicator for our purpose.

1. Economic cost of contractual guarantees

The cost of guarantees is the key driver of risk-based capital requirements for with-profits funds.

In stressed economic conditions, declining asset values in a with-profits fund lead to a reduction in policyholders’ discretionary benefits.

The extent to which this reduction impacts the cost of guaranteesand hence the capital requirement depends on whether the guarantees bite, i.e. whether the guarantees are in the money or not.

We believe that the reliability of the EWI could be improved if an approximate allowance was made for both the cost of the guarantees and the extent to which they are in the money.






















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Management actions can be taken to reduce the capital impact of the stress scenario on with-profits business in both the ICA and the realistic balance sheet and can differ between these assessments.

For EWI purposes no adjustments should be made to the management actions assumed under either assessment.

2. The level of free assets

For assets that back policyholder liabilities, in stressed economic conditions, generally the fall in asset values is offset in part by a fall in liabilities (the difference broadly being the capital requirement).

For ‘free assets’ there are no associated policyholder liabilities and hence the impact of economic stresses flows straight through to capital requirements.

Our analysis shows that an allowance for the level of free assets could enhance the reliability of the EWI for with-profits funds.

It is worth clarifying the treatment of the level of free assets in respect of closed with-profits funds.

For such funds, free assets are included in realistic balance sheets as “planned enhancements” rather than excess capital.

For the alternative EWI, such planned enhancements should be treated in the same way as excess capital in the fund.

3. Non-profit business

Non-profit business within the with-profits fund is usually backed by assets that are well matched to the liabilities so its contribution to the capital requirements is often comparatively modest compared to the size of the business.






















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Despite this, we feel that due to the wide range of the proportion of non-profit business written in with-profits funds, an allowance for the level of non-profit business improves the reliability of the EWI for with-profits funds.

The alternative with-profits EWI formula

In order to reflect these factors contributing to capital requirements in with-profits funds, the alternative EWI formula has been developed as the ratio of the capital requirement to:

15% x Cost of guarantees +10% x size of the free assets + 2% x Non-Profit Liabilities

Moneyness of guarantees

As with our other EWIs, the ICG will be the capital requirement for the interim EWI.

The percentage weights (15%, 10% and 2%) have been chosen to reflect the relative importance of the data item as described above in its contribution to the overall capital requirement and the sensitivities to changes in stress scenarios.

The percentages were derived so that EWI factor calculated for most withprofits funds lay in the range 1 to 5.

The factor which attempts to capture the extent to which guarantees are in the money is calculated as the formula in the table below.

This is an approximate formula to represent the average moneyness of guarantees of the different types and generations of with-profits business in the with-profits fund.

For clarification, the source of the data and their descriptions are given in the table below.






















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Data collection exercises in 2013

We have considered techniques and tools that are informative, cost effective and straightforward to implement for us and firms when we are assessing models and model output.

The techniques and tools are also designed to gather and use data efficiently to perform industry analysis, and to use that information for firm-specific reviews as appropriate.

We have developed the following quantitative techniques and tools, which apply to life and general insurance firms.

These tools are very similar to those used previously in 2011 and 2012 when information was gathered and analysed in the third and fourth quarters.

The analysis of the information was particularly useful and it helped inform and focus our discussions with firms.

We recognise that firms’ internal models and calibration work have developed further since then.

As such, we set out our intention to repeat the analysis and extend various tools to cover more firms.






















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Minor changes have been made to these tools to increase their usefulness in 2013.

We may repeat some or all of these information requests in the future.

What we are asking you to do

On Friday 31 May 2013, we will send two emails to firms affected by the data collection exercises – one to life insurance firms and one to general insurance firms – requesting responses by cob Wednesday 31 July 2013.

If the firm has both life and general insurance operations, they will receive two emails with supporting materials.

We will collate all responses and perform our analysis in Q3 and Q4 2013.

The results will allow efficient industry analysis and will assist our discussions with firms during ICAS and ICAS+ reviews (including ICG assessments), and both the pre-application and submission phases of IM AP.

For these exercises, we are asking for information as at 31

December 2012. Where this is not possible then a suitable date

should be chosen that is asnear to 31 December 2012 as possible.

It is imperative that data at the same valuation date is used for all templates.

Life insurance firmsComparison of ICAS, standard formula Solvency Capital Requirement (SCR) and internal model SCR

We will ask all life IMAP firms to provide us with the capital requirements from their ICAS, standard formula SCR and internal model SCR calculations (based on the technical specifications published by EIOPA on 28 January 2013 as part of the long-term guarantees assessment, with






















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liabilities calculated using the scenario 1 matching adjustment and zero Counter-Cyclical Premium), split by risk factor, along with an explanation of the material differences.

This will help us to identify assumptions, methodologies or other areas for potential further review during both the pre-application and submission phases of IM AP.

In addition we are seeking indicative information on capital resources (own funds), and the difference in asset and liability values between the internal model and ICA.

This will help us to understand the changes in capital

requirements. We will also be using this information to

support our ongoingdevelopment and monitoring of early warning indicators (EWIs).

Standardised risk information

This request will ask all life IMAP firms to provide information (e.g. percentiles of distributions) for key risk variables in a standardised format for their UK solo life entities.

Credit benchmark portfolio survey

The request will ask firms to disclose the impact (i.e. the fall in asset value) of specified stresses on a benchmark portfolio of corporate bond assets. This is an extension of a pilot study conducted earlier this year to all Category 1 and 2 life IMAP firms with material credit risk exposure.

Stochastic simulations survey

We will also include a request to Category 1 and 2 life IMAP firms with stochastic internal models, asking them to provide the stochastic simulation files used to calculate their capital requirements, including additional standardised risk variables.International Association of Risk and Compliance Professionals





















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This is an extension of a pilot study conducted earlier this year.

General insurance firms

Comparison of ICAS, standard formula SCR and internal model SCR

As for life IMAP firms, we will ask all general insurance IMAP firms to give us the capital requirements from their ICAS, standard formula SCR based and internal model SCR calculations (based on the technical specifications published by EIOPA on 28 January 2013 as part of the long-term guarantees assessment, with liabilities calculated using the scenario 1 matching adjustment and zero Counter-Cyclical Premium), split by risk factor, along with an explanation of the material differences.

This will help us to identify assumptions, methodologies or other areas during both the pre-application and submission phases of IM AP.

In addition we are seeking indicative information on capital resources (own funds), and the difference in asset and liability values between the internal model and ICA.

This will help us to understand the changes in capital

requirements. We will also be using this information to

support our ongoingdevelopment and monitoring of EWIs.

Standardised risk information

As part of firms’ ICA submissions, we have previously required firms to provide a standard template of percentiles of claim distributions.

We have found this information very useful and have now decided to request this information from general insurance firms (IM AP and non-IM AP) at a common date, i.e. year end 31 December 2012.






















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Singapore – pursuing broader and deeper economic integration with major economies

Opening keynote speech by Mr Lim Hng Kiang, Minister for Trade and Industry and Deputy Chairman of the Monetary Authority of Singapore, at Deutsche Bank Access Asia Conference 2013, Singapore.

Distinguished guests, Ladies and gentlemen, A very good morning to all of you.

It is my pleasure to join you at Deutsche Bank’s Access Asia Conference 2013.

Let me first thank Deutsche Bank for the invitation to speak at your conference.

This is the largest event hosted by Deutsche Bank each year globally, and a huge turnout is a clear indicator of the strong corporate and investor interest in Asia.

In the last 10 years, the centre of gravity of the world economy has been moving away from the US and Europe to Asia.

Asia is expected to continue to prosper in the decades ahead as the middle class expands in line with strong economic growth.

China is set to be the largest economy in the world by 2030 and is already creating megacities of over 10 million at an average rate of one per year.

Besides China, Ind ia’s midd le class is ex pected to grow to almost 600 million people by 2025.






















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In Indonesia, almost 60 per cent of Indonesian households, in a country of 240 million people, are expected to reach middle-class status by 2020.

Being a very small state, Singapore has and will continue to maintain an open economy.

We will participate actively to propagate free and open trading alliances as Asia grows and becomes more economically integrated.

In this way, we help to unlock the value, spin off new opportunities and create good jobs for Singaporeans.

ASEAN and AEC 2015

One key market for Singapore is ASEAN.

ASEAN is a growing region and has a combined population of 600 million people.

ASEAN also has a GDP that is the third largest in Asia, after China and Japan.

In recent years, ASEAN has embarked on an enterprise to integrate our economies into a regional bloc.

ASEAN today, through initiatives like the ASEAN Free Trade Area, has resulted in virtually no tariffs for flows of goods between our countries.

Going forward, ASEAN is making good progress towards becoming the single market and product base envisioned in the ASEAN Economic Community (AEC).

The realisation of the AEC by 2015 will result in an even more tightly integrated region, and this has opened up more opportunities for corporates as well as investors.

A key principle underpinning the AEC 2015 is the free flow of goods, services and investment within the region by 2015.






















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Let me update you on the progress so far.

•On trade in goods, virtually all goods in ASEAN already move throughout the region tariff-free.

We are now working on reducing non-tariff barriers.

•On services, ASEAN Member States have recently completed the eighth package of commitments under the ASEAN Framework Agreement on Services.

What this means is that we can expect the reduction of services barriers, such as foreign equity limits in the ASEAN countries.

•On investment, the ASEAN Comprehensive Investment Agreement entered into force in March last year.

This agreement has established stronger, pro-business rules, with enhanced investment protection for both ASEAN-owned investments and also foreign-owned investments based in ASEAN.

Singapore’s multilateral agreements

However, to enable businesses to access major markets more easily, Singapore has also broadened our engagement with Asia Pacific beyond ASEAN.

By doing so, we aim to reduce trading costs.

To this end, Singapore actively participates in negotiations of several multilateral trade agreements.

One example of such a multilateral trade agreement is the Regional Comprehensive Economic Partnership, or RCEP, which is a partnership between ASEAN and six other countries, namely Australia, New Zealand, China, Japan, India and South Korea.






















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Regional Comprehensive Economic Partnership (RCEP) and Renminbi (RMB) Internationalisation

This agreement builds upon the existing ASEAN+1 free trade agreements (FTAs) FTAs by bringing together ASEAN’s existing FTAs with its key partners into a single comprehensiveagreement.

RCEP will be one of the biggest FTAs in the world, covering 3 billion people and accounting for one-third of the world’s GDP.

RCEP is a significant agreement for ASEAN.

It is an ambitious attempt to deepen regional economic integration and to link ASEAN’s various trading partners, many of whom do not have existing trade agreements with one another.

One key partner for ASEAN in RCEP is China.

China will continue to play an increasingly important role in trade with ASEAN, and this will grow even further with its participation in RCEP.

In 2012, ASEAN-China trade volumes reached a record high of US$400 billion, and by 2015, ASEAN is expected to be China’s top trading partner.

As a result, in the next few years, we can expect a greater acceptance and use of the Renminbi (RMB) as a trade settlement currency, especially in ASEAN.

What does this mean for us?

China has already signed bilateral currency swap arrangements with key ASEAN countries, such as Singapore, Malaysia and Indonesia.

Corporates, investors and financial institutions need to be prepared if they are to capitalise on the opportunities brought on by the increasing internationalisation of the RMB.International Association of Risk and Compliance Professionals





















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In February this year, Singapore became the first country outside Greater China to have a Renminbi clearing bank when the Singapore branch of the Industrial and Commercial Bank of China (ICBC) was designated as such.

This was followed by MAS and the People’s Bank of China signing an enhanced bilateral currency swap agreement in April.

The appointment of a Renminbi clearing bank in Singapore brings new functionality to the Singapore financial system.

The build-up of Renminbi liquidity in Singapore will encourage financial institutions in Singapore to develop and offer a wider range of Renminbi products and services.

This will help meet the financing, investment, and risk management needs of the market.

It will also strengthen the role of Singapore as a leading global financial centre that serves Asia and beyond.

Trans-Pacific Partnership (TPP)

Besides the RCEP, Singapore is also actively engaged in the Trans-Pacific Partnership, or the TPP.

The TPP negotiations currently involve 11 countries: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States.

It aims to bring comprehensive duty-free market access as well as reduced restrictions on services, investment and government procurement.

It also seeks to enhance regional connectivity by reducingbehind-the-border non-tariff trade barriers and promoting consistency in regulation across all the member countries.






















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Singapore views the TPP, along with the RCEP, as complementary tracks that will lead towards increased regional integration, and eventually, to a Free Trade Agreement of the Asia Pacific.

The recent decision by Japan to join the TPP will further reinforce the TPP as a platform for broader economic integration across the Pacific.

With Japan’s inclusion, the TPP’s membership has now expanded to 12 countries.

This represents nearly 40 per cent of the global economy and one-third of world trade.

As you all know, joining the TPP is a key element of the three-arrow strategy embodied in Abenomics.

The prognosis for Japan has improved considerably compared to six months ago.

After stagnating for much of last year, the Japanese economy rebounded strongly in the first quarter of this year, with GDP growth of 3.5 per cent on a pick-up in consumer spending.

Growth forecast for the whole of this year has been progressively raised, with room for further upward revision.

Sentiments have improved strongly since the announcements of aggressive monetary and fiscal policy measures to revive the Japanese economy.

The sharp depreciation of the Yen has also helped to boost expectations for GDP growth and corporate profits.

One example of this is Toyota Motor.

It has reported consolidated operating profit of 1.3 trillion yen for the 2012 business year, about 3.7 times that of the previous year.






















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Toyota’s worldwide car sales have also increased by some 20 per cent to8.9 million units.

As a result of the economic policies being implemented by the government of Prime Minister Shinzo Abe, we may increasingly see some spillover effects on ASEAN and other Asian economies.

ASEAN, however, is unlikely to be too negatively affected and may instead benefit from a weaker yen given its role as a “downstream producer” for Japan.

For example, countries that serve as a production hub for Japanese companies are likely to benefit from Japan’s increased export competitiveness.

Overall, stronger Japanese growth is expected to stimulate its imports from ASEAN.

In contrast, economies with a high degree of export similarity to Japan, such as Korea, and to some extent Taiwan, could face greater competition in the short run due to the negative substitution effect favouring relatively cheaper Japanese goods.

We may also see increased capital inflows into the region, as Japanese institutions are increasingly hard-pressed to secure adequate returns at home.

As long-term interest rates decline further in Japan due to the Bank of Japan’s new asset purchase programme, we can expect more “search for yield” activities.

As interest rates are already very low in the region and asset price inflation is becoming a concern in many economies, ASEAN policy makers need to remain vigilant against a build-up of domestic financial and asset market excesses.






















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EU-Singapore FTA (EUSFTA)

Finally, as we seek to maintain an open economy and to stay relevant, Singapore will work on deepening our engagement beyond the Asia Pacific, for example, with the EU.

Negotiations on the EU-Singapore FTA were recently

concluded. This is the first FTA which the EU has

concluded with an ASEANcountry.

The EU-Singapore FTA can serve as a pathfinder FTA for EU’s on-going bilateral FTA negotiations with other ASEAN countries, such as Malaysia and Vietnam, and it signals the EU’s interest to engage with the region.

When implemented, the EU-Singapore FTA will enhance Singapore’s attractiveness as a gateway for EU companies seeking to tap the opportunities in our region.

Conclusion

So ladies and gentlemen, to summarise, Singapore is pursuing a strategy of broader and deeper economic integration with major economies through multilateral agreements, such as the RCEP, TPP andEU-Singapore FTA.

In addition, we are enhancing our role as a trusted and modern financial hub by expanding into new services, such as offshore Renminbi trading.

These initiatives will help investors and companies based in Singapore to“open doors” and “unlock value”.

Let me once again express my appreciation to Deutsche Bank for holding the annual Deutsche Bank Access Asia Conference in Singapore and bringing together thought leaders, investors and policy makers together to find ways to tap the opportunities that are being created by Asia’s economic growth.






















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I wish you all a very fruitful

conference. Thank you.






















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Prospects for a stronger recovery

Speech by Ms Sarah Bloom Raskin, Member of the Board of Governors of the Federal Reserve System, at the Society of Government Economists and the National Economists Club, Washington DC.

Thank you. I am very pleased to be here among an audience of professional economists, which is certainly preferable to appearing before an audience of unprofessional economists.

I like your kind!

Your talents are needed now more than ever as we try to put the tools of the economic profession to work for the common good.

It's easy to be an economist who looks back on crises and crashes and tries to explain why they happened, but much harder to be an economist whose efforts manage to help stop them from happening in the first place.

Economic policymaking, at its best, reflects a continuous struggle to make sure that data and explanations of such data are consistent with real experience.

If we're to engage in this struggle honestly, it's no easy task.

It involves understanding not just the reliability and signal in various data, but also questioning whether the data accords with our understanding of actual experience.

So, to get this right requires many different perspectives, not just on the data but on the underlying realities the data are trying to capture.

Government economists understand that non-economists bring something valuable to the table in policymaking – a grounded perspective in what is happening in the economy.






















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With that said, what is really happening now in the American economy?

What do the economic data we see at the Federal Reserve currently show, and how do we think these data line up with the economic realities of most American households and businesses?

In my remarks today I will offer my assessment of recent economic developments and the economic outlook, and I will discuss the actions that the Federal Reserve has been taking, in light of its view of developments and the outlook, to support the economic recovery.

Before I begin, I should note that the views that I will be presenting are my own and not necessarily those of my colleagues on the Federal Open Market Committee (FOMC) or the Board of Governors.

Recent Economic and Financial Developments

For the past three and a half years the U.S. economy has been in a recovery – albeit a very weak one – from a severe financial crisis and the deepest recession of the post-World War I I period.

The unemployment rate, which reached a high of 10 percent in the fall of 2009, has since come down 2-1/ 2 percentage points, to 7.5 percent in April.

The increase in economic activity and the decline in the unemployment rate are, of course, welcome, but we still have a long way to go to reach what feels like a healthy economy.

In fact, the pace of recovery has been slower than most had

expected. The gap between actual output and the economy's

potential remainsquite large, according to estimates from the Congressional Budget Office,and the unemployment rate today remains well above levels seen prior to the recession, and well above the level that the Committee thinks can besustained once a full recovery has been achieved.






















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In addition, the number of long-term unemployed – people who have been unemployed for 27 weeks or more – remains historically high.

My interpretation of the economic data that we have received over the past few quarters is that the recovery has continued to gain traction.

The Bureau of Economic Analysis reported last month that real gross domestic product (GDP) rose at an annual rate of 2-1/ 2 percent in the first quarter of this year after barely expanding at all in the fourth quarter of 2012.

The step-up in growth in the first quarter partly reflected a rebound from last year's drought and Hurricane Sandy.

Smoothing through these factors, real GDP was about 1-3 /4 percent above its year-earlier level in the first quarter, a modest gain that is about in line with the pace of growth during much of the recovery.

The strength of the recovery among the components of GDP has been mixed recently.

In terms of the housing sector, there is no question that many communities and neighborhoods were devastated by the effects of the financial crisis.

Recently, we see that overall demand has been strengthening, with both home sales and prices rising markedly in many areas.

Both new and existing home sales have moved up, on net, since late 2011, and housing starts averaged an annual rate of nearly 1 million units in the first quarter of this year, up considerably from the extremely low levels that prevailed through 2011.

Inventories of new homes for sale have become quite lean in most markets over the past year, a notable change from earlier in the recovery.

The increase in activity in the housing sector has been driven by historically low mortgage rates, growing optimism about future house






















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prices, continued gains in the job market, and sizable purchases of homes by investors.

Elsewhere in the household sector, consumer spending – abouttwo-thirds of overall final demand – has continued growing at a moderate pace.

On the whole, families have benefited from the modest improvement in the labor market, and rising stock prices and rebounding home values have helped some households recoup part of the wealth they lost during the recession.

However, overall wage growth has been anemic, and many households have not seen their circumstances improve materially.

As I described in a speech last month, globalization and technological change have continued to shift the occupations and industrial distribution of new jobs available.

These currents of globalization and technological change continue on their path, making it more likely that workers who were laid off during the recession would be unable to find reemployment that is of comparable quality to their previous jobs.

About two thirds of all job losses in the recession were in middle-wage occupations – such as manufacturing, skilled construction, and office administration jobs – but these occupations have accounted for less than one-fourth of the job growth during the recovery.

By contrast, lower-wage occupations, such as retail sales, food service, and other lower-paying service jobs, accounted for only one-fifth of job losses during the recession but more than one-half of total job gains during the recovery.

As a result of these trends in job creation, which could well have been exacerbated by the severe nature of the crisis, the earnings potential for many households likely remains below what they had anticipated in the years before the recession.International Association of Risk and Compliance Professionals





















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Moreover, as you all know, the temporary payroll tax cut has now expired, and many households have seen their disposable incomes reduced for this reason as well.

Spending in the business sector recently has increased only modestly, perhaps due in part to the effect of these recent tax changes on consumers.

Real spending on equipment and software rose about 4 percent over the past 12 months, according to the most recent GDP report, a modest gain for this category of spending.

Indicators for capital investment in the months ahead, including new orders for durable capital goods and survey measures of business sentiment, suggest that growth in business spending on new equipment and software is likely to remain modest in the coming quarters.

Turning to the government sector, the legislated reduction in spending by the federal government is exerting a clear and continuing drag on economic activity.

Even prior to the bulk of the spending cuts associated with sequestration, real purchases by the federal government were reported to have dropped at an annual rate of more than 8 percent in the first quarter of this year, following an even larger drop in the fourth quarter of last year.

These cuts in federal spending are likely to be an important influence on the near-term prospects for economic growth, and I will say more about this issue in a moment.

In contrast to the federal government, the budget outlook for state and local government continues to improve, and the drag on economic activity from this sector's cutbacks in spending has diminished considerably.

Reflecting some of these mixed influences, as I already noted, real GDP has been rising at a very modest rate, and the labor market has shown






















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similarly modest gains over the past year, with the unemployment rate coming down about 1/2 percentage point.

To more fully understand the experience of the 11.7 million Americans who can't find work, we look to broader measures of labor underutilization, which take into account job seekers who have stopped looking for work because they have become discouraged, and people working part time but who would prefer to work full time.

Recently, these numbers seem to be coming down.

The gains in payroll employment over this period have been about in line with the decline in the unemployment rate, although, as is typical, the pace of job gains has been somewhat erratic in recent months.

Since the beginning of the year, the increases in payroll employment have averaged 196,000 per month, a little above the 183,000 average monthly gains observed during 2012.

Other indicators from the labor market have also shown some improvement recently.

Initial claims for unemployment insurance have declined since last summer, and the number of job openings appears to be increasing.

I hope these indicators mean we are turning the corner on some of the painful costs associated with being unemployed or underemployed in America.

Turning to inflation, recent data show that price pressures have remained subdued.

Both total and core inflation were only about 1 percent over the 12 months ending in March, below the FOMC's long-run objective of 2 percent.

Inflation is being restrained by the continued slack in labor and product markets, while stable inflation expectations have offset disinflationary pressures to some extent.






















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Moreover, the increase in gasoline prices that we saw earlier in the year appears to have fully reversed, and the path of oil futures prices is downward-sloping, suggesting that energy prices are likely to hold down headline inflation rates in the years ahead.

The economic outlook

Let me now turn to the outlook.

As my Federal Reserve colleagues and I have noted in the past, the pace of the economic recovery has been restrained by lingering effects of the financial crisis.

Assessing the current strength of the headwinds related to these lingering effects is an important determinant of the economic outlook for the coming years.

Unfortunately, current federal fiscal policy is one headwind to the recovery that has intensified this year.

In fact, federal fiscal policy has been tightening since 2011, after having been quite expansionary during the recession and early in the recovery.

More recently, actions by the Administration and the Congress to reduce the budget deficit have led to further tightening of federal fiscal policy.

As I already mentioned, both the tax legislation signed into law in January and the sharp spending cuts associated with sequestration will likely significantly hinder GDP growth this year.

Indeed, the Congressional Budget Office has estimated that these changes in fiscal policy would reduce GDP growth by 1-1/2 percentage points this year relative to what we otherwise would have achieved.

Looking further ahead, fiscal policy seems likely to remain restrictive at the federal level.






















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The headwinds from the housing sector have eased, and housing market activity is likely to continue to contribute to GDP growth over the next few years.

These headwinds had been substantial, as the aftermath of the financial crisis and housing bubble left many homeowners underwater on their mortgages, a large overhang of vacant homes, and mortgage credit very hard to obtain for anyone without an excellent credit record and a sizable down payment.

The rise in house prices over the past year or so has lifted household net worth and pushed some homeowners above water on their mortgages.

These developments may help to ease credit for many households as well, although mortgage credit remains very tight.

In a speech last month, I described how the net decline in housing wealth since the recession has had particularly acute effects on the balance sheets of lower- and middleincome households, which tend to hold a relatively high share of their total wealth in their homes.

Households at the bottom of the income distribution have also had a harder time than others finding jobs during the recovery and their wages have continued to stagnate.

In my view, the large and increasing amount of inequality in income and wealth, which has been an ongoing development for decades, may have exacerbated the crisis and I think more research is required to determine whether it may also pose a significant headwind to the recovery from the crisis for years to come.

So, while I am hopeful that pressures will ease further as home prices continue to rebound, I also believe that some of the restraints on the recovery may be quite long-lasting.

The headwind from the financial sector also has diminished somewhat over the past year and should present less of a restraint on economic growth than has been the case in the recent past.






















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U.S. equity prices are up more than 10 percent so far this year following last year's 13 percent increase.

Risk spreads embedded in the interest rates paid by many American businesses, although still above their pre-crisis levels, have also moved down substantially over the past year to levels that are moderate, given the state of the broader economy.

The situation in Europe, although still uncertain, appears to have improved since last summer – aided importantly by the policies of the European Central Bank (ECB) – and these developments have led to an improvement in financial conditions globally.

Policy actions and promises, including the ECB's program to purchase the sovereign debt of vulnerable euroarea countries and discussions about creating a banking union, appear to have helped market participants negotiate past some recent hurdles, including the challenges in forming a governing coalition in I taly and the severe banking difficulties in Cyprus.

If policymakers in Europe can follow through on their commitments to financial integration and structural reforms, among other things, financial stress in Europe should continue to lessen, and European economies should gradually recover from their current slump.

If the economy in Europe were to begin to grow again, it could support global economic growth more broadly.

The financial condition of the U.S. banking sector has also continued to improve from the perspective of regulatory capital.

While much work remains for regulators and banks implementing pending capital requirements, most large, medium-sized, and community banks are in stronger capital positions today than they were prior to the financial crisis.

Although not all, some consumers at least, are seeing the benefits of improvements in financial markets.






















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In combination with low interest rates, the easing of financial stress has allowed some homeowners to refinance their mortgages to lower their monthly payments, and some types of loans, such as those for purchasing a new or used car, have become available to more people.

That said, we clearly still have a long way to go in assuring that Americans have access to affordable credit.

As I noted, an especially large number of people are unable to obtain mortgage credit, and credit card borrowing is also tight.

Taken together, the incoming data and my own analysis of recent developments in fiscal policy suggest that the recovery will continue at a moderate pace, and the unemployment rate will fall gradually.

According to the Summary of Economic Projections that was released by Federal Reserve Board members and Reserve Bank presidents after the March FOMC meeting, my colleagues and I expected real GDP growth to step up moderately this year, rising roughly 2-1/ 2 percent after having risen 1-3/ 4 percent in 2012.

In the projection, participants also expected the unemployment rate to be in the range of 7.3 to 7.5 percent by the end of the year.

Looking a bit further ahead, FOMC participants largely expected the unemployment rate to continue receding, but it was expected to remain above its long-run sustainable level for several years.

Meanwhile, inflation was expected to remain close to or a little below the Committee's objective of 2 percent, consistent with ongoing slack in the labor and product markets and well-anchored inflation expectations.

Monetary policy developments

In light of this outlook and the risks around the outlook, it has been appropriate for the Federal Reserve to continue to pursue a highly accommodative monetary policy.






















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As you all know, during the financial crisis and at the onset of the recession, the Federal Reserve took strong easing measures, cutting the target for the federal funds rate – the traditional tool of monetary policy – to nearly zero by the end of 2008.

During the recovery, we have provided additional accommodation through two non-traditional policy tools aimed at putting downward pressure on longer-term interest rates even with short-term rates stuck at zero:

(1) purchases of Treasury securities and mortgage backed securities and

(2) communication about the future path of the federal funds rate.

Our most recent policy actions have sought to strengthen the recovery in the face of only slow improvements in labor market conditions and subdued inflationary pressures.

After last September's policy meeting, the FOMC announced that the Federal Reserve would continue asset purchases until the outlook for the labor market has improved substantially in the context of price stability.

Then, at the meeting in December, the FOMC voted to continue purchasing longer-term Treasury securities at a pace of $45 billion each month and agency mortgage-backed securities at a pace of $40 billion each month, and we have maintained that pace of asset purchases so far this year.

In considering changes to the pace of asset purchases in the future, we take into account judgments about both the efficacy and potential costs of these purchases, including potential risks to inflation and financial stability, as well as the extent of progress toward our economic objectives.

At its December meeting, the FOMC also recast its forward guidance to clarify how the target for the federal funds rate is expected to depend on future economic developments.






















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Specifically, we said that we anticipate that an exceptionally low funds rate is likely to be warranted at least as long as the unemployment rate remains above 6-1/2 percent, inflation over the period between one and two years ahead is projected to be no more than ½ percentage point above 2 percent, and longer-term inflation expectations remain well anchored.

These thresholds are intended to make monetary policy more transparent and predictable to the public by making more explicit our intention to maintain policy accommodation as long as needed to promote a stronger recovery in the context of price stability.

Although it is still too early to assess the full effects of the most recent policy actions, available research suggests that our previous asset purchases have eased financial conditions and provided meaningful support to the economic recovery.

Given its statutory mandate, the FOMC's policy actions and communications have naturally sought to lower interest rates as a means of strengthening aggregate demand, promoting the pace of recovery in the labor market, and keeping inflation from falling further below the rate preferred by the Committee over the longer run.

We will continue to calibrate monetary policy – including both the ongoing pace of asset purchases and communications about the likely path of the federal funds rate – in light of our interpretations of the latest data and the implications of those interpretations for the outlook for economic activity, labor market conditions, and inflation.

Conclusion

In summary, the U.S. economy has continued to recover from the effects of the financial crisis and deep recession, though at a pace that has been disappointingly slow.

The recovery does appear to have picked up steam in some sectors, most notably in housing, likely reflecting the easing of some of the headwinds that had been holding back the pace of the recovery in earlier years.






















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However, federal fiscal policy remains an important source of

restraint. In light of these factors, most members of the FOMC

project a modestimprovement in the pace of the recovery this year and next, and, accordingly, a modest decline in the unemployment rate.

The Federal Reserve will continue to conduct monetary policy so as to promote a stronger economic recovery in the context of price stability.






















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Merely Cracking the Glass Ceiling is Not Enough: Corporate America Needs More than Just A Few Women in Leadership

By Commissioner Luis A. Aguilar, U.S. Securities and Exchange Commission, Women's Executive Circle of New York, The University Club of New York, New York, New York.

Thank you for that kind introduction.

I am honored to be here with the Women’sExecutive Circle of New York (the “WECNY”) to discuss a topic that’s critical to our country’s future.

Before I begin my remarks, let me issue the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views of the U.S. Securities and Exchange Commission (the “SEC” or “Commission), my fellow Commissioners, or members of the staff.

Throughout my tenure as an SEC Commissioner, I have spoken out repeatedly on the subject of diversity – and the benefits it can bring to our economy.

I strongly believe in the importance of diversity and inclusion.

I continue to be deeply concerned with the lack of significant progress in the recruitment, retention, and promotion of women and persons of color– whether in corporate boardrooms, Wall Street, or at my own agency, theSEC.

Today, although much of what I will say applies equally to other forms of diversity such as race and ethnicity, I will focus my remarks on the important issue of gender diversity in corporate America – particularly:

- The wealth of talent and positive impact of gender diversity;






















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- The dismal lack of progress in increasing gender diversity on corporate boards; and

- Improving disclosures about diversity, or the lack thereof.

The Wealth of Talent and Positive Impact of Gender Diversity

As our nation looks for ways to grow economically, it is clear to me that we must build an environment that utilizes the abilities of a significant portion of our nation’s skilled population – women.

World Bank President, Robert Zoellick, once stated that gender equality is simply “smart economics.”

I completely agree.

Let me highlight a few interesting facts:

First, women make up the majority of our nation’s college graduates.

A recent report from the U.S. Department of Education found that in the current graduating class of 2013, women will earn:

61.6% of all associate’s degrees; 56.7% of all bachelor’s degrees; 59.9% of all master’s degrees; and 51.6% of all doctorate degrees.

Today, women earn more than 36.8% of new masters’ of business administration (“MBAs”) degrees.

Overall, 140 women will graduate with a college degree at some level this year for every 100 men.

This is not a new development.International Association of Risk and Compliance Professionals





















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From 1982 through 2012, women have earned almost ten million more college degrees than men.

Currently, women are clearly a significant portion of our nation’s college-educated labor force.

Clearly, there is a wealth of talent available to corporate America.

Second, as it relates to corporate boards, gender diversity on boards gives businesses a distinct competitive advantage.

A 2011 study found that:

The business case for increasing the number of women on corporate boards is clear … and that companies with a strong female representation at board and top management level perform better than those without and that gender-diverse boards have a positive impact on performance.

It is clear that boards make better decisions where a range of voices, drawing on different life experiences, can be heard.

That mix of voices must include women.

Numerous other studies have also found that there is a connection between greater board diversity and improved corporate governance and financial performance.

These studies are considered quite robust.

Nonetheless, I recognize that certain studies have been criticized for methodological flaws such as not controlling for industry or size, or having data samples that are geographically limited or cover short periods of times.

However, an August 2012 report by Credit Suisse controlled for both market-cap and sector, and examined 2,400 companies over a six-year period, from December 2005 through December 2011. International Association of Risk and Compliance Professionals





















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The Credit Suisse report found that, for large-cap stocks (which includes a market cap greater than $10 billion) “companies with women board members outperformed those without women board members by 26% over the past six years.

For small-to-mid cap stocks, [companies] with women on the board outperformed those without by 17% over the same period.”

This same report also found that net income growth over the last six years averaged 14% for companies with women on the board, compared to 10% for those with no female directors.

In addition, a July 2012 report found that companies with the most women board directors, especially those where there is a critical mass of three or more women board directors, had better financial performance than those with just one or two women directors.

Research has shown that companies with three or more women on their boards scored higher on a number of performance metrics than companies with fewer female board members.

Third, studies have shown that companies with women directors deal more effectively with risk.

A survey of more than 600 board directors showed that women are more likely to make decisions by taking the interests of multiple stakeholders into account in order to arrive at a fair and moral decision.

The study also found that women directors will also tend to use cooperation and consensus-building more often in order to make sound and prudent decisions.

Fourth, companies that have gender diverse boards improve their ability to attract and retain other talented women.

One study has shown that companies that had women elected to their board are more likely to see a subsequent increase in their percentage of women in senior leadership.International Association of Risk and Compliance Professionals





















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It is overwhelmingly clear that the presence of female directors has been linked to better organizational performance, higher rates of return, and more effective risk management.

For these and other reasons, in recent years, investors, academics, consultants, and some corporate insiders have asked for companies to become more diverse.

As one investor put it:

Diversity is a critical attribute to a well-functioning board and an essential measure of good governance.

In an increasingly complex global marketplace, the ability to draw on a wide range of viewpoints, backgrounds, skills, experience and expertise internally increases the likelihood of making the right decisions.

Director and nominee diversity that includes race, gender, culture, age, and geography helps to ensure that different perspectives are brought to bear on issues, while enhancing the likelihood that proposed solutions will be nuanced and comprehensive.

Yet, despite the evidence of the positive impact women directors have on entities, there has not been a significant improvement in the number of women directors in corporate America.

A number of reports continue to show that women – and persons of color– continue to be severely under-represented on corporate boards and in corporate leadership.

The Dismal Lack of Progress in Increasing Gender Diversity on Corporate Boards

To be clear, the numbers have inched up.

In 2002, only 13% of the more than 5,000 corporate board seats for S&P 500 companies were occupied by women.






















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Ten years later, that number modestly increased to 17%.

As to the Fortune 500 companies, according to a recent report, women held 16.6% of board seats in 2012, compared to 16.1% in 2011.

Another report found that the percentage of new board members in S&P 500 companies that were women in 2012 was 21%, as compared to 18% in 2011.

While it is a positive that the rate of women joining U.S. boards is increasing, it’s hard to get excited about the slow pace of progress.

It is clear that it will take many years for there to be meaningful board diversity.

We need to shatter the glass ceiling that keeps women out, not merely put cracks in it.

In fact, even with the modest improvement, the statistics are far below what should be the case given the percentages of women in the labor force, those with higher education, and those that have graduated with advanced degrees.

These statistics also fly in the face of multiple studies that show that diverse boards perform better than non-diverse boards.

These statistics are particularly disappointing given the efforts of many groups working to improve board diversity, and the increasing efforts by institutional investors to get women on boards.

Nations around the globe seem to understand the benefits associated with the important goal of gender diversity and have decided not to wait for a change that may never happen.

For example, in 2002, Norway passed a law requiring that 40% of board members be women.International Association of Risk and Compliance Professionals





















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Iceland, France, the Netherlands, Spain, I taly, Malaysia, and Belgium have passed similar laws.

On January 1, 2011, the Australian Stock Exchange adopted “comply or explain” corporate governance guidelines, setting benchmarks for progress and reporting on gender diversity by listed companies.

By the end of 2011, 40% of new additions to Australian corporate boards were women.

Additionally, the European Union has recently proposed legislation that sets an objective that, by 2020, boards of large publicly-listed companies in Europe have 40% of their non-executive board seats held by women.

Another disappointing statistic for the United States is that, in 2012, only 18 women served as CEOs of Fortune 500 companies.

In India and Brazil, 11% of CEOs of large companies are women, compared with the 3% of Fortune 500 CEOs in the United States.

Moreover, another study found that 32% of senior managers in China are women, compared with 23% in the United States.

As a nation, these statistics should cause us to re-examine why, in light of the benefits that gender diversity appear to have, so many companies in our country fail to have a significant number of women on their boards or in senior leadership positions.

To my mind, there really are not any good answers to this question.

I also believe that this lack of women in leadership positions also makes it easier for women to be treated worse than men – such as denying them equal pay for equal work.

Proof of that difference can be found in the Presidential Memorandum issued by President Obama on May 10, 2013, to address the gender pay gap in the federal workplace by requiring a full review of pay and promotion policies.






















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The Presidential Memorandum states:

Almost 50 years ago, when President John F. Kennedy signed the Equal Pay Act of 1963, women were paid nearly 59 cents for every dollar paid to men.

Today, women are paid 77 cents for every dollar paid to men.

At the same time, nearly two-thirds of women are breadwinners or co-breadwinners for their families.

Unjust pay disparities are a detriment to women, families, and our economy.

Thus, even today, women continue to be paid significantly less than men for equal work.

Having women at the top can be a real remedy for this pervasive

problem. This is just one more reason why boards and their

nominatingcommittees need to urgently address this lack of diversity.

There is no excuse for delay.

Board nominating committees often say that the small number of women on boards is due to the small number of perceived candidates in the pipeline.

However, there are many resources available to public companies to help them achieve greater gender diversity on their corporate boards.

A number of organizations spend considerable time and effort to train and identify potential diverse candidates.

Some executive search firms are also noted for their expertise in diversity searches.






















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In addition, there are databases that act as clearinghouses for potential director candidates, with emphasis on a more diverse range of backgrounds, perspectives, skills, and experience.

It is my view that there are plenty of qualified female candidates if you look for them.

It is critical that nominating boards spend more time and effort identifying potential female board directors.

Improving Disclosures about Diversity or the Lack Thereof

I also think that boards need to be more transparent about their

activities. As an SEC Commissioner, I understand that our system

does not workunless investors have clear, adequate, and transparent information regarding their investments.

One such area where there has been some progress, albeit limited, involves additional disclosure by public companies regarding the diversity of corporate boards.

As some of you may know, in response to the demands of shareholders and others seeking greater information about diversity on corporate boards, in 2009, the SEC adopted a new rule that requires U.S.publicly-traded companies to disclose in their annual proxy statements whether, and if so how, a corporate board or nominating committeeconsiders diversity in identifying nominees for director.

If the company has a policy regarding the consideration of diversity in identifying director nominees, the proxy statement must disclose how this policy is implemented, as well as how the company assesses the effectiveness of its policy.

This requirement is not limited to companies with a written policy; and companies with de facto policies regarding board diversity must disclose such policies as well.






















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This disclosure requirement is an important first step in providing investors with the diversity disclosures that they have been requesting. However, it is really only a first step.

Because the rules do not define diversity, and companies may define diversity in various ways – companies are not always providing the disclosures investors have wanted.

Numerous investors have made it clear that they are particularly interested in board policies regarding gender, racial, and ethnic diversity.

And, for our capital markets to work, it is that information that they want to have in making voting and investment decisions.

It is important that investors receive the specificity of disclosure that they seek.

This type of disclosure, which investors are requesting, should not be controversial.

In fact, many companies are already providing such data as to their board.

For example, The Coca Cola Company, Wells Fargo & Company, and Citigroup Inc. were among the companies that provided disclosure in their latest proxy statements as to how their corporate boards considered diversity in identifying nominees for director seats and the number of minorities serving on their respective boards.

A recent study has shown that 51 of S&P 100 companies disclosed gender and/ or ethnic diversity as a desirable characteristic of their board of directors.

Moreover, this same report found that over half (54) of S&P 100 companies disclose some level of workforce diversity data, such as the percentage of women employees or number of new minority hires.






















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I commend the companies that are bringing greater transparency to their diversity, including their board diversity – and I look forward to 100% of the companies doing so.

Given the evidence of the impact diversity on boards has on the bottom line and the boardroom changes taking place with our counter-parts across the globe, gender diversity – and diversity in general – should be a priority for U.S. companies and their boards.

I encourage companies to prioritize and implement practices to increase diversity on boards.

To do this, it is critical to have processes in place to be able to identify women and minority board candidates.

For example, a nominating committee should follow policies and procedures that require the proactive development of a diverse slate of board candidates in advance of a board opening becoming available.

In today’s environment, diversity in the boardroom is a business necessity that companies need to take seriously. In order to achieve greater diversity in the corporate boardroom there must be a commitment to change.

I look forward to the day when corporate boards reflect the diversity of our nation.

Conclusion

Our country is growing more and more visibly diverse and yet, leading institutions of power and leadership do not reflect these realities. It is incumbent upon us to ask why this is the case.

I don’t think there is a good answer to justify the current lack of diversity.

The dialogue in our country has to change from the discussion of why diversity is important, to a focus on why our institutions – corporations, government agencies, banks, etc. – are not diverse?International Association of Risk and Compliance Professionals





















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And then, we need to aggressively demand change.

As a nation, we cannot afford to have corporate leadership that lacks gender diversity.

The impact women have on our economy is beyond question.

Women expect – deservedly so – to have full equality in the workplace.

Unfortunately, that expectation is eroded when women cannot achieve equal status at the highest level of the corporate ladder – particularly in corporate boardrooms – and when they’re not treated and paid the same as men.

Today, women comprise about 47% of the total U.S. workforce, and more than half of all managers are women.

There are more than ten million majority-owned, privately-held,women-owned firms in the U.S., employing more than 13 million people and generating more than $1.9 trillion in sales.

There are many highly-qualified women who have the ability and talent to serve on boards and to lead companies.

That’s also true in other fields.

For example, I urge corporate America to learn from the progress that has been made in the world of classical music.

In the 1970s, 95% of musicians in symphony orchestras were

white males. By the mid-2000s, orchestras were on average 35%

female.

What changed?International Association of Risk and Compliance Professionals





















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Researchers attribute the change, in part, to some orchestras implementing a blind audition process, a process adopted following lawsuits charging racially discriminatory practices.

During these auditions, the candidates perform behind a screen so that they are not visible.

They also walked onto a stage covered with carpet to muffle the

sound. The judges could no longer identify whether the

candidate was wearinghigh heels or flat shoes.

Researchers found that blind auditions increased the probability that a woman would advance from preliminary rounds by 50%.

This process worked to mitigate biases in hiring, and put the focus on the talent.

Clearly more can be done to mitigate or correct for bias in the hiring and promotion process in corporate America. The talent is there – and it needs to be utilized.

I will conclude my remarks with a quote from the American novelist Fannie Hurst, who died in 1968.

Ms. Hurst once said that, “A woman has to be twice as good as a man to go half as far.”

In 2013, this is unfortunately still true in corporate America.

Obviously, there is much that needs to be done to develop proactive and effective programs to identify and recruit existing qualified women to be among the leadership in corporate America.

There is no shortage of

candidates. Thank you.






















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The Single Resolution Mechanism – why it is needed

Speech by Mr Benoît Coeuré, Member of the Executive Board of the European Central Bank, at the ICMA Annual General Meeting and Conference 2013, organised by the International Capital Market Association, Copenhagen.

I wish to thank Barbara Attinger, Cécile Meys, and Pär Torstensson for their contributions to these remarks.

I remain solely responsible for the opinions contained

herein. Ladies and Gentlemen,

The financial crisis has highlighted the weaknesses of the institutional framework of Economic and Monetary Union.

The negative feedback loop between banks and sovereigns as well as signs of market fragmentation made European leaders take an extraordinary decision last summer, namely to establish the European Banking Union.

This is a historic step forward, but not unprecedented.

As some of you might know, before the National Banking Act of 1864, banks in the United States were state-chartered corporations, subject to the oversight and resolution regime in the state in which they operated.

And only the Banking Act of 1933, often referred to as the Glass-Steagall Act, established a system of federal deposit guarantees and created a new entity, the Federal Deposit Insurance Corporation (FDIC).International Association of Risk and Compliance Professionals





















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Of course, one important difference is that in the United States, the banking union came after, and not before the fiscal union.

Establishing a banking union without a fiscal union is certainly more challenging.

Nevertheless, and as I will argue later, it is desirable and possible, provided the right sequence is in place.

In this respect, today I would like to outline my thoughts on the three pillars of a true European Banking Union:

(i) The Single Supervisory Mechanism (SSM);

(ii) The Single Resolution Mechanism (SRM); and

(iii) A common system of deposit protection.

I would like to emphasise that for there to be a genuine banking union, by which I mean a situation where confidence in deposits is independent of the jurisdiction in which they are located, all three pillars have to be in place.

While good progress is being made on the supervisory mechanism, therefore, there should be no doubt in anybody’s mind that the single resolution mechanism is its indispensable complement.

The two have to proceed in parallel.

They can be complemented at a later stage by a common system of deposit protection, but eventually all three pillars will need to be in place for the banking system to be truly one.

The Single Supervisory Mechanism

The first pillar of the banking union will be the Single Supervisory Mechanism.






















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A strong and independent supranational supervisor will contribute significantly to the smooth functioning of the monetary union and to restoring confidence in the banking sector.

This restoration of confidence in the banking sector is key to restarting a well-functioning interbank market and to amplifying recent developments towards financial reintegration.

The Single Supervisory Mechanism will comprise national competent authorities from the euro area as well as the ECB, with the possibility of non-euro area members participating.

The scope of the proposed regulation is very broad, covering all of the more than 6,000 credit institutions in the euro area.

However, not all of them will fall under the direct responsibility of the ECB.

The ECB will directly supervise those banks and banking groups that are considered to be significant.

The national authorities will retain their responsibilities for prudential supervision of the other banks.

However, the ECB may at any time, on its own initiative and after consulting with, or at the request of, a national competent authority, decide to exercise direct supervision.

The banks falling under direct supervision will be identified by using a methodology based on the criteria mentioned in the Regulation.

We expect that it will cover more than 80%, or more than 25 trillion euro, of the euro area’s banking assets.

It will represent the largest single supervisory jurisdiction by assets.






















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The precise assignment of tasks within the Single Supervisory Mechanism will be specified in a Framework Regulation that the ECB will publish six months after the publication of the SSM Regulation.

A public consultation will precede this publication – it will be very important to have input from the industry on this matter.

As you may know, the current position is that a political agreement was reached on 18 April between the European Council and the European Parliament on a Regulation conferring supervisory tasks on the European Central Bank.

In our view, the Regulation will provide an effective framework for the ECB to exercise prudential supervision, while also providing for the necessary separation between the supervisory and monetary policy tasks of the ECB, as well as setting a high level of democratic control on the SSM.

The Single Resolution Mechanism

The second pillar of the banking union will be a Single Resolution Mechanism (SRM).

Although the framework for the SRM still needs to be defined as part of a collective effort by the European Commission, the European Council and the European Parliament, I would like to discuss why the SRM is needed, what its main components should be and how it can be established.

The crisis has shown the importance of having a framework in place for resolving failing banks swiftly and impartially.

As the ECB stated in its Opinion on the Commission’s proposed Bank Recovery and Resolution Directive (BRRD): “…all financialinstitutions should be allowed to fail in an orderly manner, safeguarding the stability of the financial system as a whole”.

This will provide the right incentives to financial market participants and minimise public costs and economic disruption.






















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A timely resolution of a bank should avoid that problems in one bank spill over to other banks, possibly affecting European financial stability.

Moreover, the uncertainty surrounding the use of ad hoc solutions in Europe, as we all saw recently in the case of Cyprus, has shown the importance of establishing a clear and credible legal framework to underpin the resolution of banks.

Without such a framework, decisions are often taken late and in an improvised way.

Any solution which does not imply an outright bailout seems to take creditors and markets by surprise.

This will need to change.

I would say that after the events of Cyprus, markets should be convinced that Europe is serious and committed to bailing in and thus ending the bailout culture.

While Europe has already demonstrated that it has the resolve, the establishment of a credible resolution framework will ensure that it will also have the powers and the tools.

Ending bailouts is key not only to enhancing market discipline, but also to ensuring that those who appropriate the gains are also those who cover the losses.

It would, however, be a mistake to assume that there will be no more troubled banks once the SSM is in force and supervisory responsibility is transferred to the ECB.

So if the Single Supervisory Mechanism is to be effective, it needs to be complemented by a Single Resolution Mechanism to deal with non-viable banks.

It is thus crucial that the SRM framework is in place once the SSM is operational.






















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From the ECB’s point of view, only if the SSM is complemented by a Single Resolution Mechanism with a common backstop can the negative feedback loop between sovereigns and banks be broken, ensuring thereby that monetary policy transmission is fully restored.

The SRM would need several components to be effective.

Although the European Commission is still defining the framework for the SRM, let me nevertheless mention what, from my point of view, the main features of such a mechanism should be.

First, the SRM should be based on a strong and independent Single Resolution Authority (SRA) entrusted with the necessary powers.

This would enable prompt and coordinated resolution action to be taken, specifically where cross-border banks are concerned.

Experience has repeatedly taught us that mere coordination between national authorities does not suffice in a cross-border bank resolution.

Successful resolution needs prompt and decisive action.

Although the organisational aspects of the SRA still need to be decided, in order to achieve its objectives, the SRA should be strong, independent and preferably a standalone authority and should collaborate closely with the SSM and the European Commission.

Second, the SRA should have adequate funds for resolution

financing. Indeed, for the resolution framework to work well and

be credible, theSRA must have access to a privately funded European Resolution Fund.

This Fund should be pre-funded by levies from the private sector.

This would ensure that the SRA has access to the necessary financing to take resolution action and achieve least-cost solutions, as the Federal Deposit Insurance Corporation (FDIC) does in the US.






















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Third, in order to ensure the credibility of the Fund, it should have access to a temporary and fiscally neutral fiscal backstop at euro area level, to be used only as a last resort.

Indeed, in order for the SRM to be effective, it will require a common resolution framework, containing comprehensive powers and tools.

A harmonised toolbox of resolution powers is foreseen in the Bank Recovery and Resolution Directive, so it is crucial that this Directive is adopted as an immediate priority and passed into law before the SSM is operational.

A key resolution tool included in the Directive, one that all authorities should have, is the possibility of bailing in by creditors.

Bailing-in is conducive to achieving a specific policy goal, namely that the burden of bank failures should be borne first and foremost by the private sector, rather than the taxpayer.

In accordance with the Financial Stability Board’s Key Attributes of Efficient Resolution Regimes for Financial Institutions, which have been incorporated in the BRRD, resolution authorities should be able to write down or convert into equity liabilities in a manner that respects the hierarchy of claims in a liquidation.

Thus, when a bail-in by creditors takes place, legal certainty and predictability are essential.

Despite the limited spillovers, the idiosyncratic aspects of the bail-in by uninsured depositors in Cyprus may remain a cause for concern among investors.

Creditors need to have a clear picture of what could happen in the event of a bank failure.

This is key to avoiding excessive market volatility, bank runs, underprovision of capital and liquidity and/ or overpricing of risk.International Association of Risk and Compliance Professionals





















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This can be done by respecting the hierarchy of creditors in the event of insolvency, i.e. the order in which creditors will suffer losses in a bail-in.

In order to enhance legal certainty and predictability, a clear pecking order has to be established regarding the financing of resolution measures.

Losses and resolution costs should first and foremost be borne by the shareholders and subsequently by the creditors of the failing institution.

Only at that point should the private sector be called in to finance resolution via the resolution fund.

Then and only as a last resort in case the accumulated funds in the resolution fund are insufficient, should there be a temporary public backstop providing credit to the resolution fund.

But any such support should be fiscally neutral and recouped through ex-post levies on banks.

This will ensure that financial sector repair is ultimately financed by the private sector itself.

As regards the use of bail-in, let me stress that it should not create wrong incentives to the original entity by just continuing with “business as usual”.

Following the resolution process, only the critical functions and “good parts” of the original entity should survive, either because they are sold to a private sector purchaser – as commonly done by the FDIC with the Purchase & Assumption approach used in the US – or because they are transferred to a bridge bank.

It needs to be clear that the aim of resolution is not to preserve the failing institution as such, but to ensure the continuity of the functions that are critical for the financial system as a whole.






















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Another important way of providing legal certainty and predictability in resolution would be to introduce harmonised depositor preference for eligible deposits in the EU.

Currently, deposits have a preferential status in the hierarchy of claims in some Member States, while in others the deposits rank alongside any other senior unsecured creditor of the bank in insolvency.

This may imply different treatment of depositors depending on the location of their deposits and lead to further market fragmentation.

Introducing harmonised depositor preference for eligible deposits in the EU would lower the risk of bank runs as it reduces the incentive for uninsured depositors to withdraw deposits.

In addition, it would aid the resolvability of banks, since it avoids the cumbersome task of splitting the eligible deposits into covered and uncovered parts.

It would also enable uninsured deposits to be transferred or sold along with the insured deposits and thus increase the franchise value of the bank under resolution and its essential parts.

Nevertheless, it should be acknowledged that depositor preference may lead to increasing secured lending and decreasing maturity of the funding of banks.

However this can be limited

(i)By introducing a minimum requirement for bail-in-able instruments, calibrated to provide an adequate buffer of loss absorbency as foreseen in the draft EU framework; as well as

(ii)By the introduction of the Net Stable Funding Ratio that banks will have to fulfil.

Another argument often raised against deposit preference is that it may also raise the cost of senior unsecured funding for banks.International Association of Risk and Compliance Professionals





















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This is a discussion that we need to take

seriously. However I would make here two

observations.

First, one has to recognise the change in the liability structure of banks that is brought about by the deleveraging of the system.

With generally lower loan to deposit ratios in the future relative to the pre-crisis period, and a clearer priority ranking of bank creditors, the role of senior unsecured wholesale funding for banks has evolved and will likely continue to evolve.

If we accept that a smaller and less leverage banking system is desirable, then this evolution is not to be feared or resisted.

Second, the overall effect on funding costs of banks is not straightforward, given the potential offset provided by cheaper deposit funding.

Currently, more than half of the G20 countries already have depositor preference, among them the US, with no appreciable cost difference to banking systems without depositor preference.

Furthermore, deposit preference can in principle reduce the probability of default of financial institutions.

Depositor preference could further strengthen the incentives of unsecured creditors to exercise more effective discipline over banks’ risk-taking.

This implies that while the loss given default for senior unsecured creditors increases as a result of depositor preference, the probability of default is likely to decrease.

Also, as I argued before, lowering the risk of bank runs also reduces the future probability of default.






















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Clearly, when applying the pecking order, the Single Resolution Authority should take into account all relevant factors. Particularly, it should consider

(i) the least-cost principle for the taxpayer,

(ii) financial stability considerations and

(iii) the impact on the real economy.

These elements call potentially for some flexibility in the application of the bail-in tool.

But despite the undisputed need for flexibility, consistency should be ensured at the European level and exemptions should be clearly defined and strictly limited.

Finally, the third pillar of the banking union is an integrated framework for deposit protection.

A first step towards this aim would be the adoption of the pending legislative proposal of the Commission on a Directive for Deposit Guarantee Schemes (DGS).

This framework should ensure depositor confidence and enable the national guarantee schemes, built on common EU standards, to interact with the SRM.

Bail-in rules, with a clear treatment of depositors in resolution and insolvency, and with depositor preference making it less likely that the DGS is drawn upon, will make this interaction much easier in a real crisis, and will facilitate the implementation of a common DGS at a later stage.

Conclusion

Let me conclude. The decision to establish a genuine banking union is a fundamental step towards completing the architecture of Economic and Monetary Union, therefore making it more effective and more resilient.International Association of Risk and Compliance Professionals





















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It goes without saying – but it goes perhaps better with saying it – that it is not the only step.

It will have to be complemented itself by the completion of the Union in the fiscal, economic and political fields, as identified by President van Rompuy last year.

In the area of banking policy as in those other fields, we have to heed the lessons of the past: we have to make the new architecture comprehensive and internally consistent.

We cannot again leave the project half-completed.

It is for that reason that we, at the ECB, have been insisting that the Single Supervisory Mechanism must be completed with the other pillars of the banking union, and the banking union must be completed with action in other areas too.

So while we have made considerable progress, there is still much work to be done.






















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The Important Role of Immigrants in Our Economy

By Commissioner Luis A. AguilarU.S. Securities and Exchange Commission Remarks at the 2013 Annual GalaGeorgia H ispanic Chamber of Commerce Atlanta, Georgia

Thank you for that kind introduction. I am glad to be back in Atlanta, and I am delighted to be at the Georgia H ispanic Chamber of Commerce’s (“GHCC”) 2013 Annual Awards Gala.

Before I begin my remarks, let me issue the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views of the U.S. Securities and Exchange Commission (“SEC” or “Commission”), my fellow Commissioners, or members of the staff.

I note that this year marks the 29th anniversary of the GHCC’s

founding. Congratulations on this milestone.

As some of you know, I have had a long history with the GHCC.

I proudly served on its Board of Directors and as Parliamentarian, and had the honor to be named the GHCC Businessman of the Year in 1994 and the GHCC Member of the Year in 2005.

Like many of you in this room, I share GHCC’s commitment to the goal of promoting and supporting the economic development of Hispanic businesses and individuals.

And I commend your efforts to make sure that the Hispanic community is given every opportunity to contribute to our nation’s progress and economic prosperity.International Association of Risk and Compliance Professionals





















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Tonight I would like to spend my time with you discussing:

The crucial role that immigrants have played in the economic growth of the United States; and

How the SEC can enhance opportunities for small businesses to access capital and grow their businesses.

The Positive Impact of Immigrants on the U.S. Economy

President Obama recently stated that “[t]he lesson of [the past] 236 years [in our country’s history] is clear — immigration makes America stronger. Immigration makes us more prosperous. And immigration positions America to lead in the 21st century.”

I completely agree with the President.

Let me highlight a few interesting facts about the impact of immigrants on our national economy.

First, immigrants are business owners.

According to the National Venture Capital Association, over the last 20 years, immigrants have founded, or helped to found, 25% (88 out of 356) public U.S. companies that were backed by venture capital investors.

This list includes Google, eBay, Yahoo!, and Sun Microsystems.

In addition, while first generation immigrants are only 12% of the U.S. population, they represent 16.7% of all new business owners in the United States.

First generation immigrants own businesses in a variety of industries and make substantial contributions to both low-skilled and high-skilled sectors.

For example, first generation immigrants:






















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Own 28.4% of businesses owned by those with less than a high school education;

Own 12% of businesses owned by those with a college education;6 and

Own 10.8% of all firms with employees, providing job opportunities for thousands of Americans.

Second, immigrants create jobs.

The Fiscal Policy Institute found that small businesses owned by immigrants directly employed an estimated 4.7 million people in the United States.

According to the latest estimates, these small businesses generated more than $776 billion in revenue annually.

Third, immigrants increase our nation’s capacity to develop new

ideas. The Partnership for a New American Economy found that

foreign-borninventors were credited with contributing to more than 75% of patentsissued to the top ten patent producing universities.

Fourth, immigrants contribute to American competitiveness.

This is especially true in the technology-intensive and service industries.

Compared to U.S.-born Americans, immigrants are more likely to hold an advanced degree and are almost twice as likely to hold a Ph.D.

Many of our most productive scientists and engineers are foreign-born, keeping the United States at the forefront of global innovation.

A recent study found that 40% of Fortune 500 firms were founded by immigrants or their children.

The study also found that seven of the ten most valuable brands in the world were founded by such individuals.






















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Thus, it is clear that immigrants have furthered employment, productivity, and income in our economy.

In fact, study after study has shown that immigration and economic growth go hand in hand.

The data overwhelmingly provides that immigrant-owned businesses contribute greatly to the U.S. economy.

Of course, today, Hispanics make up the largest segment of the immigrant community.

As a group, H ispanics have made significant contributions to our economy, by starting new businesses, creating jobs, and utilizing their purchasing power as consumers.

For example:

Nationally, there are over three million Hispanic-owned companies with over $500 billion in revenue;

Hispanic immigrants make up 28% of small business owners nationally;

New Latino entrepreneurs nearly doubled, from 10.5% to 19.5%, between 1996 and 2012;

The Immigration Policy Center estimates that the purchasing power of Hispanics alone will reach $1.5 trillion a year by 2015;

The numbers of H ispanic firms are growing more than four times faster than the overall number of U.S. firms; and

If it were a nation in itself, the U.S. H ispanic market would be one of the top ten economies in the world.

Clearly, the contribution to our national economy by the immigrant community in general, and the Hispanic community in particular, is without question.






















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Immigrants have high business formation rates, and many of the businesses they create are very successful, hire employees, and export goods and services to other countries.

Immigrants are the engine of true capital formation in the United States.

Access to Capital

The positive role that immigrants play in our economy underscores the importance of making sure that immigrants and all small business owners have access to the capital that they need to start and grow their businesses, create jobs, and increase production.

Although personal savings is the largest source of capital for most start-ups, external capital is also important to many small and medium-sized businesses.

The need for outside investment is even greater among minority entrepreneurs, who tend to have lower personal wealth than their non-minority counterparts.

Many entrepreneurs max out their credit cards, or take loans or investments from friends and family; others rely on trade credit and other forms of vendor financing, or seek commercial bank loans and lines of credit.

Other businesses, including the fastest growing small businesses, often seek outside equity investments for early-stage capital.

These fast growing firms, sometimes called “gazelles,” are extremely important to job growth.

One study reported that 43,000 fast-growing businesses between three and five years old — about eight-tenths of 1% of all U.S. businesses — were responsible for about 10% of overall net job creation in the economy.

Many small businesses, however, can have a difficult time finding external financing.






















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The recent financial crisis and its aftermath still affect the availability of credit, and many small business owners report having difficulty getting credit from banks.

A 2012 study by the National Small Business Association found that 43% of small business owners surveyed could not get the financing they needed.

Moreover, and unfortunately this is no surprise, people of color and women face additional burdens to raising capital for their small businesses.

Given this background, it is important that we consider ways for small businesses to access the capital markets.

This is where the SEC can have a positive impact.

As many of you know, the SEC is the Federal agency responsible for regulating our nation’s capital markets.

This includes oversight of approximately 25,000 entities, including 10,600 investment advisers managing nearly $54 trillion in assets, 9,700 mutual funds and exchange traded funds (ETFs) with over $13 trillion in assets, and over 4,600 broker-dealers, and approximately 460 transfer agents.

The SEC also oversees 17 national securities exchanges and seven active registered clearing agencies.

The average transaction volume cleared and settled by the seven active registered clearing agencies is approximately $6.6 trillion a day.

It goes without saying that our capital market is the largest and most complex in the world.

The SEC is also responsible for establishing the disclosures required to be made by public companies and for ensuring that investors receive the information they need to make informed decisions about their investments.International Association of Risk and Compliance Professionals





















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Of course, the SEC is well-known as a law enforcement agency. SEC enforcement actions against those who engage in fraud and misconduct are essential to strong capital markets.

The SEC has no stronger mission than the protection of

investors. Part of the SEC’s mission also includes facilitating

capital formation.

As an SEC Commissioner, my focus is on building a regulatory environment that allows companies to raise money in a way that protects investors and enhances our country’s capacity to continue to produce goods and provide services, and the ability of our citizens to earn a living wage.

Tonight, I want to focus on two provisions of the recent JOBS Act that are intended to enhance the ways that small businesses are able to raise equity capital.

Crowdfunding

One provision that is receiving a great deal of attention is

crowdfunding. As you may know, crowdfunding is the use of the

Internet to raise moneyin small individual amounts from a large number of investors.

Globally, crowdfunding platforms raised almost $2.7 billion in 2012, an increase of more than 80% from the prior year.

Today, crowdfunding platforms in the U.S. generally operate on a “pre-sale” or “d on ation -and-reward ” mod el , in which participants contribute to a project they wish to support in exchange for a copy of thefinished work or some other token of thanks.

Currently, crowdfunding may not be used to sell company shares in the United States.






















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Under current laws, that would be a public offering and would require registration with the SEC, a process that, admittedly, can take time and money, but is designed to inform and protect investors.

The proposed exemption for crowdfunding would allow companies to comply with specific requirements applicable to crowdfunding, in lieu of the full public offering registration process.

Although the SEC’s crowdfunding rules are a work in progress, some specific criteria are set forth in the JOBS Act itself.

Two important points to note are:

First, businesses using the crowdfunding exemption will be permitted to raise up to $1,000,000 in a 12-month period.

I expect that this limit will keep crowdfunding focused primarily on providing capital to small business.

Among other requirements, crowdfunding offerings will need to provide investors and the SEC with specified disclosures; however, these disclosures are expected to be substantially less fulsome than those currently required from issuers in registered public offerings; and

Second, the crowdfunding exemption will allow any individual investors to participate, regardless of their wealth or sophistication — although aggregate crowdfunding purchases by an individual investor will be subject to annual limits, based on annual income and net worth.

Crowdfunding may turn out to be a very useful mechanism by which small businesses can raise needed capital, by harnessing the power of the Internet and social media to connect entrepreneurs with individuals.

Nonetheless, many observers are concerned that unscrupulous persons will try to take advantage of this innovation for nefarious purposes.

For example, one state securities regulator is concerned that the so-called “wisdom of the crowd” won’t be enough to protect unsophisticated






















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purchasers, because crowdfunding provides investors with “almost no bargaining power and little information.”

In addition, the president of the national association of state securities regulators has expressed concern that investors will be stuck with any shares they buy through crowdfunding, as trading markets for the shares may never develop.

Clearly, all investments bear some degree of risk, and it may never be possible to do away entirely with fraud.

However, to the extent that Internet crowdfunding increases the risk of fraud, it will be incumbent upon the SEC and state securities regulators to counter such increased risk through robust investor education and outreach efforts, and through strong enforcement efforts, when fraud occurs.

Regulation A-Plus

A second provision of the JOBS Act geared towards small business is the so-called “Regulation A-plus” offering that will permit companies to raise up to $50,000,000 in any 12-month period by publicly offeringfreely-tradable equity, debt, or convertible securities.

Companies issuing securities in reliance on Regulation A-plus will be required to provide an offering circular to purchasers with relevant information about the company.

The Regulation A-plus process and related disclosures are required to include audited financial statements, but will not be as broad as the requirements applicable to offerings that are fully-registered with the SEC.

I expect that state securities regulators will work with the Commission to develop a uniform offering circular intended to meet both federal and state law requirements under the proposed exemption.






















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The principle underlying Regulation A-plus is that it will be used by companies that are likely to be smaller than companies that opt to register with the Commission, which typically raise amounts that exceed$50,000,000.

However, I intend to take a watchful approach to this rulemaking to make sure that investor protection is maximized to the extent possible.

The Need for Regulatory Caution

Crowdfunding and Regulation A-plus have the potential to change the landscape for financing small businesses.

These developments may ultimately bring benefits to entrepreneurs, and particularly to women and minorities who have traditionally had difficulty in finding financing.

In fact, Title VII of the JOBS Act specifically requires the SEC to conduct outreach to inform minority and women-owned businesses of the changes made by the Act.

If these new capital-raising methods are implemented with thoughtful rules that protect investors and maintain a fair and level playing field, investors will have the confidence they need to participate in those offerings, and companies will benefit from having less expensive methods to raise capital.

However, these new exemptions also call for a degree of regulatory caution — if they become instruments of fraud and manipulation, the resulting harm to investors may impair future capital formation, cost jobs, and hurt entrepreneurs and small business owners.

That harm can be particularly devastating to women and minorities.

Conclusion

The potential for immigrants to grow our economy is enormous.International Association of Risk and Compliance Professionals





















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This is particularly true of the Hispanic community, the fastest growing segment of the immigrant population.

In 1968, Latinos represented only about 4½% of the total U.S. population.

Today, the Census Bureau estimates that Hispanic-Americans make up 16.7% of the U.S. population.

Clearly, Hispanic-Americans will continue to play an important role, as our nation faces the challenges of the 21st Century.

Today’s young H ispanic-Americans will be our teachers, our doctors, lawyers and engineers, our business leaders and entrepreneurs, and our elected officials and community leaders of tomorrow.

There is no doubt that young H ispanic-Americans will continue to contribute in greater numbers to the success of this nation.

In 2011, for the first time, the number of 18- to 24-year-old H ispanics enrolled in college exceeded two million, reaching a 16.5% share of all college enrollments.

This milestone represented not just population growth, but also increasing high school graduation rates, which rose from just 64% in 2000 to 78% in 2010.

And just last week, a report by the Pew Research Center found that a record 69% of all Hispanic-American high school graduates in the class of 2012 enrolled in a two-year or four-year college that fall.

That is a college enrollment rate higher than that of white high school graduates.

The important contribution of H ispanic-Americans and other immigrants to our future is clear.






















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That’s why I ’m hopeful that we will finally see real immigration reform that will bring people out of the shadows and allow them to flourish and contribute to our society.

Freeing that powerful human capital can take our country to new levels of prosperity.

That’s particularly true of young Latinos and Latinas that came to this country as children and know no other country as their own.

We need immigration reform that will allow them to fulfill their dreams and, in so doing, take our country to greater heights.

I have a profound faith in the United States. Like many immigrants, I came to this country with very little and I am grateful to this country for the opportunities it has provided.

I arrived as a refugee from Cuba as a six-year-old child with little more than the clothes I was wearing, and did not speak a word of English.

Fortunately, I was reunited with my parents a few years later, and I was able to pay my way through college and law school by taking on jobs ranging from being a “stock boy” in a yarn store to loading baggage and cargo into airplanes at the Miami International Airport.

It is a long way from the hot tarmac of the airport in Miami to the halls of our nation’s capital, but I carry that experience with me.

In my view, there is no greater country than the United States.

I also believe that our country’s diversity, and our nation’s tradition of welcoming new generations of immigrants with “open arms,” is a significant reason for that greatness.

Thus, our government needs to have common sense policies that will utilize all of our talents — regardless of race, ethnicity, or gender — and help enhance our country’s economic development.International Association of Risk and Compliance Professionals





















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People from around the world are drawn to America for its promise of freedom and opportunity.

Truly, we are an immigrant nation.

Those that are fearful about the influx of newcomers only need to remember the contributions that immigrants have made to American prosperity.

I’ll end my remarks where I began. I’m delighted to be here. Organizations like the GHCC help support and strengthen our businesses, our communities, and our country. Thank you for all that you do.






















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Disclaimer

The Association tries to enhance public access to information about risk and compliance management.

Our goal is to keep this information timely and accurate. I f errors are brought to our attention, we will try to correct them.

This information:

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Certified Risk and Compliance Management Professional (CRCMP) distance learning and online certification program.

Companies like IBM, Accenture etc. consider the CRCMP a preferred certificate. You may find more if you search (CRCMP preferred certificate) using any search engine.

The all-inclusive cost is $297.What is included in the price:

A. The official presentations we use

in our instructor-led classes (3285 slides)

The 2309 slides are needed for the exam, as all the questions are based on these slides. The remaining 976 slides are for reference.

You can find the course synopsis at:www.risk-compliance-association.com/Certified_Risk_Compliance_ Training.htm

B.Up to 3 Online Exams

You have to pass one exam.

If you fail, you must study the officialpresentations and try again, but you do not need to spend money. Up to 3 exams are included in the price.

To learn more you may visit:

www.risk-compliance-association.com/Questions_About_The_Certif ication_And_The_Exams_1.pdf

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C.Personalized Certificate printed in full color

Processing, printing, packing and posting to your office or home.



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D. The Dodd Frank Act and the new Risk Management Standards (976 slides, included in the 3285 slides)

The US Dodd-Frank Wall Street Reform and Consumer Protection Act is the most significant piece of legislation concerning the financial services industry in about 80 years.

What does it mean for risk and compliance management professionals? It means new challenges, new jobs, new careers, and new opportunities.

The bill establishes new risk management and corporate governance principles, sets up an early warningsystem to protect the economy from future threats, and brings moretransparency and accountability.

It also amends important sections of the Sarbanes Oxley Act. For example, it significantly expands whistleblower protections under the Sarbanes Oxley Act and creates additional anti-retaliation requirements.

You will find more information at:www.risk-compliance-association.com/Distance_Learning_and_Cert ification.htm



http://www.risk-compliance-association.com/Distance_Learning_and_Certification.htm





































































Risk management presentation June 3 2013

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