Publications

How Main Street Businesses Use Financial Services

As part of the 7th Annual Capital Markets Summit, CCMC released data detailing how non-financials use the capital markets. We interviewed and surveyed more than 200 corporate treasurers and CFOs.

Key-Findings:

• Choice & Diversity Are Paramount: 95% of Main Street businesses surveyed use 5 or more financial services.
• Choice + Diversity = Flexibility:  They use multiple institutions of different sizes to meet their needs. Among Main Street businesses that issue debt, 84% use global institutions, 34% use national institutions and 21% use a regional/ local bank.
• Ineffective Regulations = Reduced Choices And Increased Costs: More Main Street businesses say Dodd-Frank is reducing choice, rather than creating more choice.
• As A Result, Main Street Businesses Tend  To Favor Trends & Policies That Preserve Choice

Financial Regulatory Reform: 2013 Report Card

This report card evaluates the progress being made by regulators and policymakers to achieve modern, well-regulated, fair, transparent, and vibrant capital markets. It looks both at the implementation of The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 as well as key regulatory reform issues not addressed by the law. By all accounts, regulatory reform is still incomplete. So, for those unfinished reforms outlined in this report, CCMC assigns a grade, in addition to an incomplete, based on regulators’ progress to date. This report also provides suggestions for how regulators and Congress can bring up the grade to ensure that the ultimate outcome of regulatory reform is a robust capital formation system that benefits consumers, investors, and job creators. Failure to get this right will deprive job creators of the investments, loans, and other forms of credit they need.
 

 

 

 

FAR Agenda: Ensuring Competitive Markets and Preserving Access to Capital

We released the “Fix, Add, Replace (FAR) Agenda” outlining the Center’s priorities for meaningful financial regulatory reform. The FAR agenda tackles specific provisions of Dodd-Frank that need to be fixed, such as margin rules for derivatives, either because they are not working as intended or because regulators have indicated they need additional guidance or legislation from Congress.  It also identified financial regulatory reform areas that were left unaddressed in Dodd Frank, such as improving coordination among regulators.  And, it identifies some areas that need to be replaced because they simply do not work – such as the Volker Rule. 
 
The FAR Agenda aims to examine and answer some basic questions:

• Are there areas where Dodd-Frank simply isn’t working as intended or where regulators need further clarity from Congress?  How do we fix these?
• What additional steps should we take in areas that were left unaddressed in Dodd-Frank?  For example, should we consolidate regulators or at a minimum ensure more effective coordination among the dozens of financial regulators?
• Are there provisions of Dodd-Frank that simply don’t work and need to be replaced?

 

Best Practices and Core Principles for the Development, Dispensation and Receipt of Proxy Advice

We believe that voting standards and advice issued by proxy advisory firms need to be grounded in fact and reflect reality.  With the release of these principles, we hope to initiate a dialogue among companies, investors, and proxy advisory firms to create a system that brings transparency and accountability to proxy advisory firms and fosters strong corporate governance.

At the core of the principles are that proxy advisory firms and advice:

• Are free of conflicts of interest that could influence vote recommendations;
• Ensure that reports are factually correct and establish a fair and reasonable process for correcting errors;
• Produce vote recommendations and policy standards that are supported by data driven procedures and methodologies that tie recommendations to shareholder value;
• Allow for a robust dialogue between proxy advisory firms and stakeholders when developing policy standards and vote recommendations;
• Provide vote recommendations to reflect the individual condition, status and structure for each company and not employ one-size-fits all voting advice; and
• Provide for communication with public companies to prevent factual errors and better understand the facts surrounding the financial condition and governance of a company.

The Importance of Cost-Benefit Analysis in Financial Regulation

Released on Tuesday, March 12, 2013, this report concludes that, while regulators sometimes currently fail to use cost-benefit analyses appropriately, financial regulations grounded in rigorous, transparent analytical standards are not only more efficient and effective but also promote good governance and accountability. Click here to read the full report.

 

 

Financial Stability Oversight Council Process

As established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 the Financial Stability Oversight Council (FSOC) provides for the first time comprehensive monitoring to ensure the stability of our nation’s financial system. The council is charged with identifying threats to the financial stability of the United States, promoting market discipline, and responding to emerging risks to the stability of the U.S. financial system.

Money Market Mutual Funds (MMMF) and the FSOC: On August 22, SEC Chairman Mary Shapiro announced that she did have not the necessary votes to move forward with a proposal to reform money market funds and pointed to FSOC to propose and implement reforms. FSOC could take one of two paths to reform MMMFs. Click here to download an graphic explaining the two paths.
 

Amortized Cost Accounting is “Fair” for Money Market Funds

This paper examines more than 30 years of accounting standard setting and Securities and Exchange Commission regulation to support the use of the stable

value at which money market funds (MMFs) trade.  Authored by Dennis Beresford, former chairman of the Financial Accounting Standards Board, this paper diffuses the argument that the long-standing use of a stable net asset value (NAV), an essential aspect of MMFs for investors, is simply “accounting fiction” and must be changed to a floating NAV.

Click here to download the report.

 

Money Market Funds Since the 2010 Regulatory Reforms:
More Transparency, Increased Liquidity, and Lower Credit Risk

Released at an event on October 16, this paper analyzes how money market mutual  funds (MMMFs) performed leading up to the 2008 financial crisis and after the implementation of additional regulations in 2010, including the EuroZone crisis which followed a year later.

Authors Dr. David W. Blackwell, Professor of Finance at the University of Kentucky, Dr. Kenneth R. Troske, Professor of Economics at the University of Kentucky, and Dr. Drew B. Winters, Chair in Finance at Texas Tech University, analyzed the changes made to regulations of MMMFs in 2010 and found that:

 

• MMMFs are now more liquid and better able to handle a significant change in redemptions;
• Dramatically increased transparency and disclosure frequency allows investors to now obtain timely, accurate data on the risk of any fund in which they invest;
• Overall, there is no evidence that the CP market experienced a “freeze” despite substantial redemptions in 2011;
• Funds experienced net-inflows during the Summer of 2011, as both institutional and retail investors sought the liquidity and resilience of MMMFs;
• Based on existing research, there is no evidence that any retail investor was affected by a run on MMMFs;
• The variance in monthly redemptions means a ‘one-size-fits-all’ rule limiting redemptions will be extremely difficult to adopt.

Click here to download the report. 

Click here for the Executive Summary.

 

 The Economic Consequences of the Volcker Rule

This report examines the numerous unintended, but nonetheless harmful, effects of the current Volcker Rule proposal, particularly on main street businesses.

The analysis, authored by Washington University Finance Professor Anjan Thakor, surveys existing academic research and empirical evidence, and reveals that restrictions imposed under the Volcker Rule proposal will extend beyond Congressional intent to impact both financial and non-financial businesses  by:

1. Reducing the ability of companies to raising capital by issuing debt:  A negative effect on market making and liquidity provision for many securities.
2. Increasing the cost of raising capital, resulting in reduced investments:  Likely higher costs of capital for businesses and potentially lower capital investments by borrowers.
3. Reducing the choices and options available for companies to raise capital:  Possibly greater focus on riskier or more short-term investments by borrowers.
4. Reducing the diversity and availability of capital providers to businesses:  Some banks that never had proprietary trading desks but do help companies raise capital by issuing debt, may choose not to continue to provide those services.

Click here to download the report.

Money Market Mutual Fund "Reform": The Dangers of Acting Now

Money Market Funds (“MMF”) are an important vehicle that investors rely on and that business, as well as state and local governments, use for short-term cash management. In fact, MMF’s encompass 40% of the commercial paper market. 

 The Report finds that now is not the time to engage in further MMF regulations because additional regulations will:

•  Increasing costs in a low yield environment that will drive many MMRs out of business harming investors;
•  increase borrowing costs, while impeding capital formation and cash management for businesses ultimately harming economic recovery;  
•  increase borrowing costs and restricting cash management for state and local governments potentially leading to tax increases;
•  concentrating and increasing the threat of systemic risk.

Click here to download the report.

Financial Regulatory Reform: 2012 Report Card

The Report Card evaluates the progress being made, by Congress and regulators to achieve modern, well-regulated, fair, transparent, and vibrate capital markets down into four areas critical to ensuring the vitality of our markets:

• Protecting the Diversity of Capital Formation
• Reforming Corporate Governance
• Ensuring U.S. Competitiveness Through Financial Regulatory Reform
• Preserving the Integrity of Accounting and Auditing

In addition to grading the four areas, the report also provides suggestions on how regulators and Congress can bring up the grade to support capital formation system that benefits consumers, investors, and job creators.  

Download the Report Card

 

The Economic Impact of the Current IASB and FASB Exposure

The report was commissioned by several of the leading nonprofit and commercial organizations concerned with economic growth in the United States and in the health of the real estate sector in particular. The members of the coalition include the U.S. Chamber of Commerce, The Real Estate Roundtable, NAIOP, Commercial Real Estate Development Association, NAIOP Inland Empire Chapter, NAIOP Southern California Chapter, the National Association of Realtors and the Building Owners and Managers Association International. The coalition’s objective in sponsoring the study is to ensure that the analysis of costs and benefits of proposed new accounting standards for leases includes a thorough consideration of the economics of commercial and industrial real estate leasing and development, so thatchanges to financial reporting do not distort market behavior and cause damage to both the real estate market and the national economy.

Click Here to download the report.

 

Money Market Funds: Helping Businesses Manage Cash Flows