January 16, 2021

DealBook: Deal Reached to Rein In Overseas Trading

President Obama, with Senator Christopher Dodd, center, and Representative Barney Frank, signed an overhaul of financial regulation in 2010.Saul Loeb/Agence France-Presse — Getty ImagesPresident Obama, with Senator Christopher Dodd, center, and Representative Barney Frank, signed an overhaul of financial regulation in 2010.

Regulators in Washington have agreed in principle on a plan to rein in risky trading by banks overseas, according to people briefed on the matter, a truce that follows a messy split in the Commodity Futures Trading Commission.

The potential deal, subject to final approval by the agency, would be reached with only hours to spare before a deadline on Friday. The commission had established the deadline when it set out to decide how to regulate trading by American banks in London and beyond — a major factor in the 2008 financial crisis.

Until now, the trading commission seemed destined to miss the date. Some officials at the agency, which oversees trillions of dollars in Wall Street activity, had warned that a compromise was proving elusive as tension mounted.

The dispute traced largely to the agency’s Democratic chairman, Gary Gensler, and Mark Wetjen, a Democratic commissioner with an independent streak. While Mr. Gensler was adamant that the agency complete its plan on time, Mr. Wetjen recently called the deadline “arbitrary.” And with the agency’s Republican commissioner pushing for a delay, Mr. Wetjen holds the swing vote.

But in recent days, they showed signs of progress. Mr. Gensler and Mr. Wetjen have been meeting in person throughout the week, the people briefed on the matter said, and had struck a preliminary deal by Wednesday.

While both are likely to claim victory, the deal does not come without sacrifice for each side.

The contours of the plan, the people briefed on the matter said, suggest that firms like Goldman Sachs International and Citigroup’s London branch will face a wave of new scrutiny, a sticking point for Mr. Gensler.

In a move likely to appease Mr. Wetjen, Mr. Gensler is expected to phase in the cross-border oversight. And in a concession to Wall Street and foreign finance ministers, the plan would defer to European regulators if they ultimately agree to scrutinize banks in a way that is similar to the monitoring by the trading commission.

Wall Street, while objecting to the new oversight, would exhale at the prospect of a deal being reached by Friday. If the agency fails to produce the guidelines but declines to extend the deadline, some banks feared widespread confusion would ensue.

The people briefed on the matter, who insisted on anonymity to discuss private negotiations, cautioned that the deal was not final. The agency’s lawyers must now draft the plan to reflect compromises hashed out in recent days. If either side makes last-minute changes, the people said, the deal could collapse.

If the deal is approved, it is unclear when the agency might announce the decision. It tentatively scheduled a public meeting for Friday to vote on the plan, though the agency could also vote in private over the next few days.

The agency’s spokesman, Steven Adamske, declined to say whether the commissioners had struck a deal. Instead, he said that “progress is being made,” adding that “we remain hopeful for a vote on Friday.”

The agency and European regulators are also poised to announce a framework for collaborating in the coming years the people briefed on the matter said. The deal, which is expected to be announced this week, could subdue cross-border tensions among the various regulators.

The delicacy reflects the importance of a plan that took shape after the financial crisis highlighted the risk of overseas trading.

Trades by a London unit of the insurance giant American International Group, for example, nearly toppled the company. And JPMorgan Chase’s $6 billion trading loss in London last year reignited concerns that risk-taking could come crashing back to American shores.

The blowups by A.I.G. and others spurred the Dodd-Frank Act, a law that mandated a sweeping overhaul of the $700 trillion marketplace for derivatives, financial contracts that derive their value from an underlying asset like a bond or an interest rate. Under that 2010 law, the trading commission is supposed to extend new derivatives changes — including tougher capital standards — if overseas trading has “a direct and significant connection with activities” of the United States.

That broad template left it up to the agency to draft a plan for how Dodd-Frank applies to everyday trading overseas. Ever since, Wall Street lobbyists have complained to the agency that certain requirements could drive trading business away from United States banks.

In a statement on Wednesday, the co-authors of the law, Christopher J. Dodd and Barney Frank, called on the trading commission to resist Wall Street’s talking points. The former lawmakers, Mr. Frank, a Congressman from Massachusetts who retired in January year, and Mr. Dodd, a Democratic senator from Connecticut who left office in 2011, cited the chaos of 2008 as the impetus for the crackdown.

“Only people who have never heard of A.I.G. can deny that overseas failures by large domestic entities have direct impacts here,” Mr. Dodd and Mr. Frank said in the statement. “The failure to regulate derivatives as their role in our financial system expanded greatly was one of the most serious weaknesses in the regulatory system which we sought to correct.”

The former lawmakers also said they weighed in with the hope of speeding the agency along.

“I respect that getting it right is not easy, but the fact that it’s taken three years sort of stuns me,” Mr. Dodd, who is now chairman and chief executive of the Motion Picture Association of America, said in an interview on Wednesday. “What do you need to know?”

Mr. Gensler echoed Mr. Dodd’s concerns in a meeting last month with Wall Street lobbyists , who urged the agency to extend its deadline past Friday. Mr. Gensler, summoning into his office a pregnant speechwriter at the agency whose due date was Friday, asked her what she thought of the deadline. In reply, she exclaimed, “No delay.”

The speechwriter, Stephanie Allen, gave birth a week later. Some people said that was a positive omen Mr. Gensler and Mr. Wetjen would make their deadline.

Article source: http://dealbook.nytimes.com/2013/07/10/deal-reached-to-rein-in-overseas-trading/?partner=rss&emc=rss

DealBook: Barney Frank, Financial Overhaul’s Defender in Chief

A year ago Thursday, Barney Frank notched the biggest win of his three-decade Congressional career, as he ushered the financial regulatory overhaul that bears his name into law.

Today, the Dodd-Frank act is under siege and behind schedule. As worries mount that new regulations could hamper the nation’s economic recovery, lobbyists are conducting a full-on attack to try to undo or significantly weaken the law.

Despite the setbacks, the Massachusetts Democrat is still confident Dodd-Frank will help prevent a repeat of the financial crisis.

“I think we have a very good structure in place that will diminish the likelihood of another collapse caused by financial irresponsibility,” Mr. Frank said during a recent interview on Capitol Hill, looking disheveled in his customary dark suit and red-and-blue striped tie. “On the whole, I’m very pleased with how it worked out.”

Last summer, Mr. Frank overcame fierce opposition from Republican lawmakers and Wall Street lobbyists to remake the financial regulatory landscape.

Named after Mr. Frank and Senator Christopher Dodd, the Connecticut Democrat who has since left Congress, the law was intended to rein in the opaque derivatives market, tighten lending standards and address other structural problems that led to the crisis.

A year later, Mr. Frank has positioned himself as the law’s chief defender. Since leaving the Senate early this year, Mr. Dodd has shied away from discussing the measure. (He declined to comment for this article.)

Now that Mr. Dodd is a registered lobbyist representing the motion picture industry, federal law prohibits the two men from chatting about their law for a year. Just this month, Mr. Frank said he went to pick up the phone to call his former colleague before remembering the ban.

Mr. Frank, a 16-term representative who was chairman of the House Financial Services Committee during the fallout from the crisis, said the regulatory overhaul was “clearly the best we’ve ever done in the history of the country to protect consumers and investors from abuses.”

Not surprisingly, Wall Street is less fond of the new rules. Bank executives have torn into the law, claiming it will cost them billions of dollars. They also warn that some regulations will push business overseas, where international regulators have yet to enact similar rules.

But the army of banking industry lobbyists will not find a sympathetic ear from Mr. Frank.

“To some extent, financial institutions have latched onto the motto of a 14-year-old child of divorced parents playing mommy off against daddy: ‘Well, if you don’t treat me better, I’m going to England,’ ” said Mr. Frank, known for his sarcastic wit.

“I hate to say this, but the impression I get most is that their feelings are hurt,” he continued. “Mostly what I get is, ‘Oh, you were rude to us. You said we were fat cats.’ ”

His response? “Get over it. I’m in the kind of business where people say rude things about us all the time.”

Despite the rhetoric, Mr. Frank says Wall Street has gradually adjusted to the new reality. Most banks have spun off their proprietary trading desks, as required, and many are rethinking their derivatives business.

Mr. Frank says he believes the greater threat to Dodd-Frank comes from Congressional Republicans. Over the last several months, conservative lawmakers have moved to chip away at crucial components, the derivatives rules among them. Some two dozen bills are pending in Congress to delay, dismantle or repeal the law altogether.

Under pressure from lawmakers and lobbyists, the Commodity Futures Trading Commission recently decided to postpone some derivatives rules for up to six months. The agency, like other regulators, has already missed many rule-making deadlines.

“They are trying to stall,” Mr. Frank said of the Republicans, “and then hope that they will win the 2012 election with the support of the financial people.” Once in control of Washington, he said, Republicans would “then undo what we were able to do, and then, yes, the system would be at risk.”

Eager to act, Republicans are already taking aim at financial regulators and their budgets. In June, a House committee approved a plan to keep the Securities and Exchange Commission budget flat. And some lawmakers are now seeking outright cuts. Without increased funding, regulators say they lack the resources to enforce Dodd-Frank.

Some critics of the law contend that it skimped on the details, leaving regulatory agencies with too heavy a burden. Mr. Frank said Congress had no other choice.

“We didn’t punt anything,” he said. “It’s precisely because we knew we couldn’t get everything exactly right that we did leave room for the regulators.”

The agencies have yet to disappoint, he said. So far, the S.E.C., the commodities commission and other agencies have proposed dozens of new rules under difficult conditions, earning a grade of “A” from Mr. Frank.

“I think the regulators have done very well, with the exception of the Comptroller of the Currency,” which he said had a reputation for forming cozy relationships with the national banks under its purview. Mr. Frank would give the comptroller a “D.”

An agency spokesman declined to comment.

Mr. Frank, a stubborn advocate for Dodd-Frank, is quick to acknowledge its shortcomings. “If I were writing it all by myself,” he said, “it would have looked a little different.”

He said he never liked the provision to cap the fees banks could charge retail stores every time a consumer swiped a debit card, a measure inserted by Senator Richard Durbin, Democrat of Illinois.

He also wanted to give the Consumer Financial Protection Bureau, the new watchdog created by the law, authority over car dealerships. But the dealers rallied allies in Congress and won an exemption from the agency’s oversight.

The battle over the bureau has since shifted to its leadership. After a delay of nearly a year, President Obama this week nominated the bureau’s enforcement chief, Richard Cordray, to lead the new agency. He was chosen over Elizabeth Warren, the Harvard professor who is currently setting up the bureau.

Mr. Frank supports Mr. Cordray, though he is not shy about saying that Ms. Warren was his “first choice.” He had urged the president to appoint Ms. Warren since early this year, most recently during a private meeting about a month ago.

Mr. Franks hopes the ongoing battles will soon fade, in part so he can move on to the next fight. Even he admits that arcane financial matters were never his strong point.

“I know more now about repos and derivatives than I ever wanted to know,” he joked. “I hope I’ll some day be able to forget it.”

Article source: http://dealbook.nytimes.com/2011/07/20/barney-frank-financial-overhauls-defender-in-chief/?partner=rss&emc=rss