Our Perspectives

    View Authors November 2018
    For more than eight years, the Our Perspectives Newsletter has been providing insights on the economy and public policy issues affecting the financial services industry. This edition summarizes some of the most recent developments that might be of interest.

    The Longbrake Letter – October/November

    By Bill Longbrake, guest author and Executive-in-Residence at the University of Maryland Robert H. Smith School of Business

    While the US economy has just put together the best two consecutive growth quarters of the current economic expansion, Europe and China have clearly lost momentum and are pulling emerging markets economies along with them. In Europe, monetary and fiscal stimulus impulses are weakening, and in China, containment of wealth management products, slowing credit growth and US tariffs are imposing formidable head winds. History tells us that good times do not last forever. When the economy is operating at full capacity, bottlenecks emerge and slow momentum and drive up inflation. But, optimism can overwhelm prudence and foster speculative excesses. Blatant excesses of the sort that preceded the Great Recession and contributed to its virulence are not visible today. But that does not mean there are no risks. To the contrary, there are several that bear watching, which Bill Longbrake discusses in this month’s letter. They include US corporate debt, Brexit, Italy, China, tariffs and monetary policy. Individually, Bill believes that today’s risks do not appear to pose extreme danger to the US economy just yet. But a combination of risks and interconnected responses that correction of excesses could unleash, while difficult to foresee, could result in recession and more difficult economic times than most expect.

    The Longbrake Letter – October/November 2018 Outlook Assessment

    By Bill Longbrake, guest author and Executive-in-Residence at the University of Maryland Robert H. Smith School of Business

    US growth continues to be strong and exceeds potential, but global growth, while still above potential, is slowing. The October/November Outlook Assessment evaluates US and global 2018 forecasts made at the beginning of the year. Practically all economies are growing above potential and little to no slack remains in most. While US data remain firmly in boom territory, recent global data, especially for Europe, China and emerging markets countries, point to potential challenges in 2019.

    What Is the Right Amount of Capital for Fannie Mae and Freddie Mac
    ?
    By James C. Sivon

    The answer depends upon whom you ask. In an earlier issue of this publication, I summarized a proposed capital framework for Fannie Mae and Freddie Mac (the Enterprises) that the Federal Housing Finance Agency (FHFA) released for public comment this past July 1. The comment period has now ended, and the comments submitted highlight a tension between advocates for capital requirements that captures the systemic risk posed by the Enterprises and advocates for capital requirements that do not overly constrain mortgage credit.

    Determining Your Company’s Legal Risk Tolerance
    By Alison LaBruyere

    Successfully managing legal risks can mean the difference between celebrating business success and being tied up in endless litigation. Yet, of all the risks faced by organizations today, legal risk is among the most difficult to measure, manage and align with an organization’s risk tolerance. This article explores how to define and classify legal risk, so that organizations can develop and implement effective legal risk management strategies.

    Is CFPB Curtailing its Own Supervisory Authority
    ?
    By Keith Bradley

    On August 10, 2018, The New York Times reported that the Consumer Financial Protection Bureau plans to stop conducting supervisory examinations for violations of the Military Lending Act. As significant as that decision is in its own right, it has much broader implications. Companies subject to Bureau supervision now have the opportunity to push back on a wide range of supervisory activity, on the basis of the legal theory that must be the basis of the Bureau’s decision.

    NAIC Suitability Model Regulation – Chicago Revision Meeting Report
    By Mary Jo Hudson

    On October 22 and 23, 2018, the Annuity Suitability (A) Working Group of the National Association of Insurance Commissioners (NAIC) met in Chicago to revise the Suitability in Annuities Transactions Model Regulation (#275) (Model Regulation). The current Model Regulation, as adopted in a majority of the states, requires insurance agents to collect personal and financial information from consumers and document that annuity sales are suitable to the consumer’s needs and financial objectives. Over the past several years, the Model Regulation has received mounting criticism as being inadequate to protect consumers from questionable annuity sales. In this regard, consumer advocates and others, including state and federal governments, have proposed to require that agents disclose conflicts of interest and act solely in the consumer’s best interest.