Book SummaryBull by the Horns, by Sheila Bair

1-Page Summary1-Page Book Summary of Bull by the Horns

The author played a key role in developing regulations aimed at preventing subsequent economic downturns.

Bair's book details her central role in shaping financial reforms to prevent future crises. Sheila Bair recounts her efforts to mitigate the decline in capital by advocating for the maintenance of capital requirements, supporting the creation of an international leverage ratio, and successfully delaying the adoption of the Basel II Accord by U.S. banks. She underscores the importance of alignment between the creators of investment products and the investors themselves by ensuring they retain an interest in the securitization process, and she outlines her work with the SEC to increase transparency by implementing disclosure regulations and to raise the quality of loan servicing. Additionally, she calls for the establishment of a requirement ensuring substantial involvement in the credit default swap market to curb speculative activities. Finally, Bair outlines her role in shaping Dodd-Frank, which included closing off paths for bailouts and her ultimately unsuccessful attempt to create an organized method for dealing with the challenges of financial firms.

Sheila Bair's opposition to the lowered bank capital requirements outlined in the Basel II agreement.

Bair recounts her efforts to challenge the sophisticated approaches endorsed by the Basel II Accord, approaches that might have significantly diminished the capital reserves banks held before the financial crisis surfaced. Sheila Bair pushed for a globally enforced leverage ratio and effectively postponed the U.S. banking authorities' acceptance of Basel II, while firmly opposing the idea that American banks should be allowed to reduce their capital reserves to be on par with their European counterparts. This section highlights Bair's early recognition of the importance of retaining adequate financial reserves to prevent the failure of banks and her initial warnings about the risks associated with reduced capital in Europe, which contributed to the financial unrest related to the debts of European countries.

Banks were permitted to employ their internal proprietary models when determining the necessary capital reserves to hold.

The author delves into the complexities of bank capital regulation, underscoring the necessity of strengthening capital buffers, especially for large banks, to prevent failures in the banking sector. Sheila Bair expresses concerns about the intricate tactics devised by global banking regulators, arguing that such tactics allowed banks to reduce the capital they needed to maintain by relying on their own risk evaluations for calculation. Additionally, she contests the prevailing opinion held by other overseers at the time, who were convinced that banks could precisely assess the risk tied to their assets through complex modeling. Bair argues that these models gravely underestimated the risks linked to assets, particularly when it comes to mortgages and financial instruments derived from them. Sheila Bair voiced her apprehensions regarding the excessive focus on past loan performance when assessing risk, which she believed established an unrealistic standard for predicting future results. Sheila Bair highlights the traditional stability of mortgages, noting that the burst of the recent housing bubble and changes to interest rates on adjustable-rate mortgages have caused considerable problems.

The author advocates for the worldwide adoption of a leverage ratio as a means to limit the decrease in capital.

Bair recounts her efforts to promote the implementation of a leverage ratio as a means to limit the decrease in capital among European banks. Bair elucidates that, in contrast to the Basel II capital standards which are based on the perceived riskiness of a bank's assets, the leverage ratio is a measure that directly compares a bank's capital to its total assets. This type of standard, already successfully employed in the U.S., Canada, and Australia, would have provided a basic floor below which capital levels could not be lowered, even if European banks said their investments were very low risk. Additionally, it would have provided protections to maintain capital levels during different economic cycles by setting consistent standards for sufficient capital reserves.

Bair describes her involvement in a meeting in Mérida, Mexico with members of the Basel Committee in October 2006, during which she presented her arguments about the reduced capital requirements and the uneven enforcement of Basel II in various nations, with the goal of persuading her colleagues to adopt a universal leverage ratio for banks. The conversations emphasized the dangers of letting banks self-assess their capital adequacy, emphasizing the risks of inadequate capital in times of economic stress and the danger of nations engaging in competitive deregulation, all while implementing international standards that often led to reduced capital buffers. Despite facing opposition from other regulatory entities and European institutions, Bair was successful in launching a review to determine the impact of Basel II on capital reserves. Bair recalls it as a successful first step that led global regulatory organizations to acknowledge Basel II's shortcomings and ultimately agree on a criterion for evaluating the robustness of banks by examining their capital reserves.

The adoption of Basel II by financial institutions in the United States was postponed by the FDIC.

Sheila Bair, in collaboration with the FDIC, faced significant pressure from powerful political entities and numerous regulatory agencies in the United States, who were strongly pushing for the adoption of Basel II, and succeeded in delaying its approval by American banking authorities. Sheila Bair outlines the negotiation process and details the prerequisites established by the FDIC to prevent American banks' capital reserves from diminishing, which...

Bull by the Horns Summary The author encountered obstacles while striving to implement more rigorous banking oversight and to undo the financial interventions established in 2008, in addition to increasing the mandatory capital holdings for banks.

The primary focus of this section is the author's advocacy for enhanced oversight by regulators and the fortification of financial reserves that banks must maintain. Bair recounts the difficulties encountered while collaborating with banking regulatory bodies, such as the Office of the Comptroller of the Currency and Tim Geithner. Sheila Bair firmly supported the FDIC's push for increased insurance premiums, the requirement for financial institutions to strengthen their capital reserves more than what other regulators had established, and consistently advised that the nation's leading banks should uphold a capital to non-risk-weighted assets ratio of 8%. Bair emphasized the importance of addressing moral hazard by making sure that the fallout from bank failures impacted the investors and lenders, rather than rescuing struggling financial entities.

Ensuring strict criteria for maintaining financial reserves.

Bair details her approach to implementing stringent financial protections, including requiring banks to augment their insurance contributions to the FDIC's depositor protection fund, urging financial institutions to strengthen their capital reserves following their exit...

Bull by the Horns Summary The author concentrated on promoting reforms to the mortgage issuance process and addressing the widespread problem of home repossessions.

This section of the book emphasizes Bair's commitment to decreasing foreclosure rates through modifications to problematic mortgage contracts and her willingness to confront organizations responsible for mortgage servicing and regulatory oversight to achieve her objective. Bair suggests that a well-rounded approach to adjusting loans would benefit homeowners in keeping their homes and also provide substantial economic advantages to the mortgage handlers and investing institutions.

Encouraging loan servicers to modify the conditions of lending agreements.

Bair details her comprehensive work to initiate a strong governmental program mandating significant loan servicers to adjust mortgages in distress. She details a variety of meetings and dialogues convened by the FDIC, which brought together mortgage servicers and investors, underscoring the mutual benefits of creating a program to modify loans and tackling some investors' worries about possible adverse effects on bondholders. She also describes a proposed initiative led by an agency responsible for insuring bank deposits, designed to motivate investors to adjust loans exceeding the value of the underlying properties by...