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Morning Brief: Fed Plans to Include Small Banks in Basel III

by Renewing America Staff
June 8, 2012

A man enters the headquarters of the Bank for International Settlements, which sponsors the international Basel Committee on Banking Supervision that issued the Basel III rules (Christian Hartmann/Courtesy Reuters). A man enters the headquarters of the Bank for International Settlements, which sponsors the international Basel Committee on Banking Supervision that issued the Basel III rules (Christian Hartmann/Courtesy Reuters).

The Federal Reserve proposed applying “core” Basel III rules to all U.S. banks by 2019 (WSJ). Experts had expected small banks—less than $1 billion in assets—to be exempted from the new international bank-capital standards. While the Fed favors a capital surcharge on the biggest banks and exempting small banks from some Basel III requirements, many analysts believe the proposal would hurt the competitiveness of small banks, whose share of all assets fell from 31 percent in 1992 to below 10 percent.

In December of 2010, the CFR’s Maurice R. Greenberg Center for Geoeconomic Studies held its World Economic Update, a panel discussion in which experts analyzed the effect of the Basel III accords and new U.S. federal regulations. Meeting videos and a transcript are available.

ETFs Can Expose Investors to Complex Risks

Exchange traded funds (ETFs) began almost twenty years ago as a cheap and easy way for investors to own a broad basket of stocks, but today many are vehicles for investment strategies that can carry complex risks (Bloomberg Businessweek). In 2006, the first ETFs based on derivatives emerged to aid sophisticated investors such as hedge funds, but, retail investors can purchase them too, even if risks are murky. In 2009, the Securities and Exchange Commission stopped approving new derivative-based ETFs, and debate continues over how to regulate them.

Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform.

Education and Human Capital

California Mulling Reduced Science Requirement

Governor Jerry Brown proposed eliminating $250 million in annual subsidies to school districts by cutting California’s high school graduation science requirement from two years to one (LA Times). A principal with a largely low-income student population explained why she is trying to increase investment in science education: “We think science is the gateway to technology, and that’s where the jobs are. We want our students to be prepared.” Students with only one year of science education would be unqualified for enrollment in California’s public universities.

Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies.

Infrastructure

Opening Up an Energy Financing Vehicle to Renewable

Freshman Senator Chris Coons (D-DE) suggested allowing renewable energy to take advantage of an energy financing vehicle that avoids corporate taxes for pipelines (Reuters). Several alternative energy tax breaks will expire at the end of this year, and the large budget deficit and political tensions make their renewal uncertain. Coons’s proposal would open up master limited partnerships (MLPs) to all types of energy. Taxes on the profits of MLPs are only applied to shareholders, avoiding the double taxation of corporate taxes; this difference helps oil and gas companies raise investment funds.

Scott Thomasson, the president of NewBuild Strategies and an expert on infrastructure funding, recently authored “Encouraging U.S. Infrastructure Investment,” a Policy Innovation Memorandum released by the CFR’s Renewing America initiative. Thomasson proposes new initiatives to address crumbling U.S. infrastructure.

Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness.

Innovation

IPv6 Launch Day in the Books

Earlier this week, major websites promoted their adoption of IPv6 on World Launch Day. IPv6 is a new internet address standard (WashPo); every device connected to the internet is required to have an address, so the current IPv4 protocol’s maximum of 4.3 billion addresses threatens device growth. This 2008 infographic from Cisco explains how IPv6 will allow a world of smart things that communicate. U.S. wireless devices already outnumber the American population (CNN). IPv6 adoption has been slow, however. Techcrunch reports that less than half of a percent of total internet traffic used the new protocol but experts predict global IPv6 share of 17 percent by 2015 (PC Magazine).

Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth.

The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.

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