17th Annual Financial Markets Conference: The Devil's in the Details - April 9–11, 2012
Evergreen Conference Center
Stone Mountain, Georgia
A set of urgent financial policy issues, such as sovereign risk and over-the-counter derivatives, has relegated a host of other major policy issues to the level of mere "details" that can be more thoroughly addressed later. Yet the ultimate resolution of these details will have a large impact on the efficiency of the financial system as well as the risk it poses to taxpayers and the macroeconomy.
The 2012 Financial Markets Conference featured keynotes by Fed Chairman Ben Bernanke and former FDIC chairman Sheila Bair, research sessions, and four panel discussions. The topics were shadow banking, money market funds, liquidity regulation, and mortgage finance. Each panel addressed issues related to the safety net provided by underpriced government provision of credit guarantees and liquidity support, including regulatory efforts to limit the private sector's reliance on the safety net.
"Shadowy" Banking: Government's exposure to bank losses via costly regulation can have the counterproductive effect of pushing financial activity out of banks and into the shadows. The panel discussed the concern that shadowy banking will remain unregulated but come to be perceived as so important to the functioning of the financial system that it too will benefit from the safety net.
Paul McCulley interview
Money Market Funds: Money market funds are sometimes described as one of the more important forms of shadow banking, a form that did benefit from government support during the 2008–09 crisis, and the panel addressed the issue of money fund reform.
Karen Dunn Kelley interview
Liquidity Regulation: A variety of new regulations are being adopted to reduce the private sector's reliance on the government for emergency liquidity. The panel considered the overall merits of these regulations and noted both the benefits in the form of safer financial institutions and the costs to the end users of the liquidity.
Philip Dybvig interview
Mortgage Finance: Arguably the biggest "detail" that has not yet been addressed is that of the current mortgage finance system's reliance on Fannie Mae and Freddie Mac, two government-sponsored entities that are deeply in debt to the U.S. Treasury. Panelists addressed the question of the government's role as a provider of credit guarantees and liquidity when this detail is ultimately resolved.