Judge Rules Against Ohio Elections Official in Battle Over Voter Registration

Ok let's start.

First the comment referred me to a News Release from HUD about Bush Signing the American Dream Downpayment Act on December 16, 2003.  So I started there.

http://www.hud.gov/news/release.cfm?content=pr03-140.cfm

Then I had to find this bill to see who Sponsered it.

http://www.govtrack.us/congress/bill.xpd?bill=s108-811

Oh this is looking bad for the Republicans if you stop there.  But let's try to go back to the source remember those wooden arrows.

Looking further down the page we see that this bill also had other names at one time so let's list them and see where they lead.

Pro-Cyclicality of Bank Lending and Agency Supervision
A typical--one may almost say predictable--bank lending pattern is an easing of lending terms as the economy recovers from a cyclical trough and a tightening as the economy peaks and then contracts. At the same time, one can also observe what appears to be less aggressive supervisory criticism of lending policies during the economic expansion and an apparent get-tough policy at cyclical peaks and during contractions. Both of these phenomena can be explained by rising optimism followed by a pulling back and heightened caution. As such, they may be just an implicit part of the dynamics of the business cycle. But neither are demonstrably in the best interests of the economy or the bank’s shareholders. They lead to an unnecessary degree of volatility in earnings and, as such, to a reduced long-term capitalized value of the bank. This, in turn, lessens the effectiveness of financial intermediation. Fortunately, there is some evidence that desirable changes have already begun, changes that both private and public policymakers should reinforce.

Historically, as I have said, loan standards are softened during an expansion, when loan books are growing rapidly. As the economy expands, business and household financing needs increase and projections of future outcomes are optimistic. It is difficult for managers and supervisors to be critical of loan growth in such an environment, particularly one marked by intense competition. In addition, incentives for loan officers and managers traditionally have rewarded loan growth, market share, and nominal profits. In an effort to expand loans in an optimistic environment, potential returns are often not fully adjusted for risk, with the nominally high-yielding credit looking particularly attractive. Moreover, credit specialists at banks--a function often separated from the loan officers-- historically have had difficulty making their case about risk because of their inability to measure and quantify risk. At the same time, with debt service current and market risk premiums cyclically low, and with the same inability to quantify and measure risk, supervisory criticisms of standards are difficult to justify. When the economy begins to slow and the quality of some booked loans deteriorates, loan standards belatedly tighten and supervisors’ criticism of previous standards is taken more seriously, inducing an even greater tightening of credit. In part, the examiners’ observations have often provided a reality check by which some banks came to recognize a deterioration at first denied.

The last few years have had some of the traditional characteristics I have just described: the substantial easing of terms as the economy improves, the rapid expansion of the loan book, the deterioration of loan quality as the economy slows, and a cumulative tightening of loan standards. But this interval has had some interesting characteristics not observed in earlier expansions. First, in the mid-1990s, examiners began to focus on banks’ risk management systems and processes; at the same time, supervisors’ observations about softening loan standards came both unusually early in the expansion and were taken more seriously than had often been the case. The turmoil in financial markets in 1998 associated with both East Asia and the Russian default also focused bankers’ attention on loan quality during the continued expansion in this country. And there was a further induced tightening of standards last year, months before the aggregate economy weakened, in response to early indications of deteriorating loan quality.

All of this might have been the result of idiosyncratic events from which generalizations should not be made. Perhaps. But at the same time another, more profound development of critical importance had begun: the creation at the larger, more sophisticated banks of an operational loan process with a more or less formal procedure for recognizing, pricing, and managing risk. In these emerging systems, loans are classified by risk, internal profit centers are charged for equity allocations by risk category, and risk adjustments are explicitly made. In short, the formal measurement and quantification of risk has begun to occur and to be integrated into the loan-making process. This is a sea change--or at least the beginning of one. Formal risk management systems are designed to reduce the potential for the unintendedacceptance of risk and hence should reduce the pro-cyclical behavior that has characterized banking history. But, again, the process has just begun.

The federal banking agencies are trying to generalize and institutionalize this process in the current efforts to reform the Basel Capital Accord. The proposed foundation approach, intended mainly for regional banks, and the advanced internal risk-based approach, intended mainly for large, complex banking organizations, would require banks to create and use internal risk classifications for their banking book. These classifications would not only be used to establish minimum regulatory capital, but the associated risk profiles would be disclosed by the bank for the review of its creditors and shareholders. How well this process works will depend on the supervisors’ skill and, for lack of a better word, toughness in validating the conceptual and empirical basis of the risk classifications and management system. A weak or misused classification system would destroy the process.

If applied seriously, and when operational near the middle of this decade, the revised accord, Basel II, promises to promote not only better risk management over a wider group of banks but also less-intrusive supervision once the risk management system is validated. It also promises less variability in loan policies over the cycle. To be sure, banks’ risk appetites can change as they decide to increase or decrease the riskiness of their loan portfolios. In addition, minimum regulatory capital might tend to be pro-cyclical as loans migrate from less- to more-risky classifications as the economy weakens, in the process increasing minimum capital requirements. This tendency must, however, be balanced against what should be the reduction in cyclical reserving and write-offs that traditionally have come with the late recognition of excess risk taken earlier. Moreover, if, as promised, better risk-management reduces the variance of charge-offs and earnings, bank equity values, to repeat, are likely to be rewarded with higher price-earnings ratios. Put somewhat differently, better risk management and supervision may well focus bank management on its real objective: maximizing shareholder wealth.

Building on Market Practice
In setting boundaries and minimum standards for banks, we typically look at industry practices to identify what works well and what does not. In almost all cases, that’s the correct approach--to build on industry practice. Indeed, the development of the Basel II capital proposals I have just discussed has been constructed on the principles developed initially by the best-practice banks.

We should encourage all banking organizations to continually strengthen their systems and controls as their operations and market practices evolve. But we need not expect--and surely not require--significant numbers of banks to develop risk management systems that are more complex than they need. Simplicity can work well, too, and for most banks that is likely to be the best approach. For the vast majority of U.S. banks, current practices, as I noted, seem fine.

It is, of course, our belief that, for the larger banks, improving the measurement and management of risk will provide bank supervisors with more reliable and efficient ways to evaluate a bank’s financial health. That thought underlies the concept of risk-based supervision and our increased focus on internal processes and controls. If we can gain greater confidence in a bank’s operating procedures and in its own evaluation of risk, we should be able to reduce our oversight role--certainly when compared with what would otherwise be required.

Innovative Banking System
The management principles adopted by U.S. banks, our capital market system, and our oversight regime have worked well, I believe, in providing this country with a healthy and responsive banking system and probably the most efficient allocation of financial resources in the world. Much of that success relies on the effective measurement of risk, on high levels of competition, and on arm’s length transactions. Indeed, these elements support one another: competition requires institutions to correct mistakes quickly and assess risks as accurately as they can, while independent decision-making helps ensure that pricing reflects risk. Sound pricing, in turn, produces good returns to investors and spurs further competition.

Despite more than a decade of consolidation, the U.S. banking system remains highly competitive on virtually every front. With enhanced technology and deregulation we now have global and national markets for a growing number of banking products, while low barriers to entry encourage competition in more sectors than ever before. The pace of bank creation has actually increased in recent years, despite the contraction in the overall number of insured commercial banks. Interstate banking has also brought new competitors into previously settled markets, and Gramm-Leach-Bliley has the prospect of adding more competition, as nonbank firms seek entry into the banking business. Even when these events simply change the ownership of existing banks, one could still argue that, in most cases, they introduce stronger, more aggressive competitors into a market.

The role of bank regulators is, of course, to ensure that all of these activities do not reduce the safety and soundness of banks. In recent years, state bank regulators have worked well together and with their federal counterparts in accommodating interstate banking and minimizing oversight costs to both the supervisors and to state-chartered institutions. Now, Gramm-Leach-Bliley has introduced nonbank activities and functional regulators into the mix. In moving forward into new areas, the Federal Reserve will strive to build on the long tradition of coordination and cooperation with state bank supervisors in ensuring that the broader activities of financial holding companies remain adequately supervised and regulated.

On numerous occasions last year, Federal Reserve staff met with staff members of the Securities and Exchange Commission, various state insurance commissions, and other state and federal bank supervisors in a mutual effort to learn more about each other’s interests and how our role as umbrella supervisor can mesh best with their activities. It is important that we maintain this cooperative process and work to make supervision as efficient as it can be.

Conclusion
In recent years, we have incorporated innovative ideas and accommodated significant change in banking and supervision. Institutions have more ways than ever to compete in providing financial services. Financial innovation has improved the measurement and management of risk and holds substantial promise for much greater gains ahead.

It seems clear that, building on bank practice, we are in the process of developing an improvement in both lending and supervisory policies that will not only foster better risk management but could also reduce the pro-cyclical pattern of easing and tightening of bank lending, and accordingly increase bank shareholder values. It is not an easy road, but it seems that we are well along it.

I want to thank the person who left the comment for me.  I am sure my research did not turn out to prove the point he was trying to make.  Infact it has only pointed back to some Democrats and Republicans.

I enjoyed this research as I hope all who read this post will.  Please feel free to link back to it or to copy and use as you desire.