Research On The Financial Regulatory Reform In The United States After The Subprime Crisis

The subprime crisis has severely damaged the American economy.It has exposed the defects of American financial regulatory structure system and regulatory framework,and also highlighted the necessity of financial regulatory reform.The financial regulatory reform in the United States after the subprime crisis is the application of macro-prudential regulatory framework in practice.From the perspective of time,the financial regulatory reform in the United States has been divided into two phases since the subprime crisis.The two phases are from July 2010 to April 2018 and May 2018 to the present.The first phase was a period of heavy regulation.On July 21,2010,the United States enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act.On this basis,the U.S.embarked on the toughest and most comprehensive reform of financial regulation since the Great Depression.The second phase is a period of mild deregulation.On May 24,2018,the United States enacted the S.2155-Economic Growth,Regulatory Relief,and Consumer Protection Act.It amended some provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.It loosened regulations on small banks and raised the bar for tougher financial regulation.It has been called the biggest deregulation in America since the subprime crisis.On June 8,2017,the house passed the Financial CHOICE Act,which has been submitted to the senate.This act almost completely negates the Dodd-Frank Wall Street Reform and Consumer Protection Act,and proposes to completely relax financial regulations.While the likelihood of a final vote on the proposal is unknown,it represents the possibility of further financial deregulation in the future.Based on the current situation,American financial regulation is likely to develop towards more transparency,more customized and more simplified regulation in the future.From the perspective of reform content,the financial regulatory reform in the United States after the subprime crisis is mainly divided into two aspects.One of them is the reform of regulatory bodies,that is,the reform of the regulatory system.Based on the unique dual banking system and the multi-headed and dual financial supervision system in the U.S.,the U.S.has carried out the structural improvement of the regulatory authorities and the redistribution of regulatory powers and responsibilities.The financial stability oversight council(FSOC)and the office of financial research(OFR)have been established to monitor and address systemic risk and to facilitate information exchange and regulatory co-ordination between different regulators.The federal office of insurance(FIO)was established,thus forming a system of state and federal insurance supervision,but the supervision authority of the insurance industry was still mainly at the state level.The consumer financial protection bureau(CFPB)was established to centralize the decentralized and ineffective consumer protection functions.Due to its extremely high independence,CFPB has made great achievements in protecting consumer interests and handling consumer complaints.The Federal Reserve's regulatory role has been reshuffled to emphasize its oversight of systemically important financial institutions and limit its authority to make emergency loans in a crisis.Regulators have stepped up oversight of credit rating agencies,improving their accuracy and reducing financial institutions' reliance on credit ratings.At present,the conflicts of interest brought by the credit rating business model have not been eradicated,and the situation that the three major rating agencies have absolute advantages still exists.Executive compensation at financial institutions is regulated.It improves the right of shareholders to have a say in executive compensation and increases the transparency of executive compensation.However,it does not give a judgment on the level of compensation ratio.The executive compensation ratio of large financial institutions is still relatively high.Over-the-counter(OTC)market derivatives have been put under supervision,and bilateral clearing has been gradually carried out for central counterparty clearing,so as to improve the transparency of derivative price information and stabilize market expectations.However,no corresponding arrangements have been made in the reform for the risk concentration or bankruptcy caused by central counterparty clearing.The second is the reform of the object of supervision,that is,the supervision reform of large financial institutions.First,it identifies systemically important entities,including systemically important financial market utilities(FMUs)and systemically important financial institutions(SIFIs).Second,strengthen the operational supervision of systemically important financial institutions,monitor their ability to withstand risks through stress tests,and divest their proprietary businesses through the volcker rule.The indicators set in the severe adverse situation in the stress test have exceeded the severity of the subprime crisis to test the financial institutions' ability to withstand risks.The stress test is decisive for the capital activities of financial institutions,and its binding force is sustainable,making financial institutions pay more attention to their capital conditions.The implementation of the volcker rule is a tortuous process due to its inherent difficulty.Although the final rule was drafted and amended in the S.2155-Economic Growth,Regulatory Relief,and Consumer Protection Act,the implementation of the volcker rule is still difficult.Thirdly,it enriches the exit mechanism of systemically important financial institutions,including the post-disposal of Orderly Liquidation Authority(OLA)and the pre-restraint of living wills.The two measures are conducive to eliminating the moral hazard of financial institutions and promoting the self-reform of financial institutions,but the transparency of the mechanism still needs to be improved.From the perspective of the impact of the reform,the financial market of the United States has changed in many aspects under the financial regulatory reform after the subprime crisis.The efficiency of the big banks has gone through three phases: a sharp fall in the crisis,a recovery rally and then basic stability.Faced with unreasonably heavy regulatory burdens,small banks have closed or pursued mergers and acquisitions,leading to a rapid increase in bank mergers with assets under $10 billion since 2010.In contrast,the largest U.S.banks generally increased their asset size after 2010,forming the Matthew Effect of the banking industry.The Matthew Effect is reflected in the structure of the banking industry.The market concentration(HHI)of the U.S.banking industry increased significantly after 2010,and the market developed away from free competition.The overall robustness of financial markets is increasing,as evidenced by the health of banks,capital adequacy ratios,stress tests,and indicators of contagion.The profitability of financial institutions has been restored,and the supply of credit to the real economy has reached or even exceeded the level before the subprime crisis.From a macro perspective,the financial regulatory reform in the United States after the subprime crisis is characterized by "crisis-oriented" reform,which inevitably brings about problems such as excessive regulatory strength,heavy regulatory burden,policy swing and unstable market expectations.The United States established a macroprudential regulatory framework earlier.In this stage of reform,the United States filled in the regulatory gaps exposed in the crisis,solved the problem of overlapping supervision,and implemented differentiated supervision for different financial institutions,achieving remarkable results,which has certain reference significance for China's financial regulatory reform.China's financial regulatory system has been constantly improved to adapt to the development of the financial market.Macro-prudential supervision has been gradually promoted,and the efficiency of the banking sector has remained stable.However,the industry risks have not been completely eliminated,and incidents of industry risks still occur from time to time.China's financial regulatory reform in the future should further clarify the central and local regulatory authority.China should strengthen supervision of systemically important financial institutions and fill in the regulatory gaps,so as to combine enhanced supervision with comprehensive supervision.China should establish a long-term mechanism and systematic scheme for the prevention of systemic risks to deal with the hidden dangers of systemic risks and solve the problem of lagging supervision.Finally,China should strengthen consumer protection by improving institutional building,improving laws and regulations,and strengthening investor education.