October 26, 2020

Bank Regulators to Allow Leeway on Capital Rule

The oversight panel of the Basel Committee on Banking Supervision, an international organization of financial regulators, met on Sunday and issued a statement saying that while more capital was always better, that did not mean banks would never be allowed to dip below required levels.

“During a period of stress, banks would be expected to use their pool of liquid assets, thereby temporarily falling below the minimum requirement,” the statement said. Among the main topics of the meeting were proposals on the so-called liquidity coverage ratio, which is intended to ensure that financial institutions have enough liquid assets to ride out a crisis.

In 2008, at the peak of the country’s most recent financial crisis, banks ran short of capital and the government stepped in to lend them billions of dollars of taxpayer money. Lehman Brothers, which failed in September 2008, ran short of capital, prompting it to file for bankruptcy, the largest such filing in United States history.

The panel said it would issue more detail on its statement to clarify the liquidity coverage ratio, or L.C.R., rules “to state explicitly that liquid assets accumulated in normal times are intended to be used in times of stress.”

It continued: “It will also provide additional guidance on the circumstances that would justify the use of the pool. The Basel Committee will also examine how central banks interact with banks during periods of stress, with a view to ensuring that the workings of the L.C.R. do not hinder or conflict with central bank policies.”

While the statement may not have been surprising — regulators have pushed for banks to hoard capital so they have enough in times of stress — it will still interest Wall Street executives.

The decision by regulators to require banks, including those in the United States, to raise capital levels has eaten into profits. The money banks must set aside cannot be deployed elsewhere, potentially for higher rewards. This is one reason banks have been less profitable since the financial crisis.

While banks have already been working to increase capital levels, a number of the Basel requirements do not take effect until 2015.

Article source: http://feeds.nytimes.com/click.phdo?i=b849e363434bcbc7545af3e49fba43ae

DealBook: Wall Street Continues to Spend Big on Lobbying

As the Dodd-Frank Act reaches its one-year anniversary, Wall Street’s army of lobbyists continue its aggressive campaign to tame the financial regulatory law.

The financial industry has spent more than $100 million so far this year to court regulators and lawmakers, who are finalizing new regulations for lending, trading and debit card fees. During the second quarter, Wall Street spent $50.3 million on lobbying, a small dip from the prior period, according to an analysis by the Center for Responsive Politics.

“In 2010, the Dodd-Frank financial reform was one of the biggest shows in town, and that continues this year,” said Michael Beckel, a spokesman for the center.

Big banks are among the most prolific spenders. JPMorgan Chase’s team of in-house lobbyists spent $3.3 million, a slight uptick over last year. The biggest war chest among organizations focused primarily on Dodd-Frank belongs to the American Bankers Association, which so far spent $4.6 million on lobbying. The organization wrestled the top spending spot from the Financial Services Roundtable, a fellow trade group that represents 100 of the nation’s largest financial firms.

Overall lobbying is down about 5 percent from last year when lawmakers were writing Dodd-Frank, though spending remains high as financial regulators carry out the broad mandate. Rather than dictate the minutiae of every rule, lawmakers instructed regulators to write some 300 new rules for Wall Street.

“Until it is chiseled in stone, the lobbying continues,” Mr. Beckel said.

Lobbyists focused their fight in recent months on the first major batch of Dodd-Frank deadlines that loomed in July, the law’s one-year anniversary. The milestone was supposed to be Day One for many Dodd-Frank derivatives rules.

But under pressure from industry lobbyists, regulators backed off the deadlines. In June, the Commodity Futures Trading Commission and the Securities and Exchange Commission agreed to delay the derivatives rules for up to six months. Meanwhile, The Commodity Futures Trading Commission is also backing off a plan curb banks’ control over the derivatives market, according to people with knowledge of the matter.

Wall Street’s campaign also yielded results from the Federal Reserve. In late June, the Fed softened restrictions on fees that banks charge retailers for debit card purchases, saving the financial industry an estimated $3.5 billion a year.

Much of the wrangling over the rules has played out during closed-door meetings in Washington. Over all, regulators held more than 2,100 Dodd-Frank meetings since the law passed last July.

The commodities commission, in particular, has been a hot spot for lobbying action. The agency’s chairman, Gary Gensler, has held at least 165 meetings on Dodd-Frank — the most of any regulator, according to the Sunlight Foundation, a watchdog group that monitors lobbying in Washington. Next in line with 106 meetings is Elizabeth Warren, the Obama administration official who helped start the new Consumer Financial Protection Bureau.

The petitioners include a range of banks, Wall Street lobbying firms and consumer groups. Goldman paid 83 visits to regulators, the most of any bank, to discuss derivatives among other topics.

But Dodd-Frank meetings are not limited to technical discussions of arcane financial products.

The Banking Agency of the Federation of Bosnia-Herzogovina met with the Federal Reserve about “implications of the Dodd-Frank Act to emerging economies,” according to the Sunlight Foundation. The Democratic Republic of Congo also dispatched officials to huddle with the S.E.C. about Dodd-Frank’s little-known requirement that corporations disclose whether they manufacture products using so-called conflict minerals from Congo. A cross section of corporate interests — including 7-Eleven, Target, the Burlington Northern Santa Fe Railroad and JetBlue Airways — also weighed in.

“It’s amazing how far-reaching Dodd-Frank is, and how much impact it will have beyond the financial sector,” said Bill Allison, Sunlight’s editorial director.

Article source: http://feeds.nytimes.com/click.phdo?i=d6c0b08b5cd92466a5873ad969db54d7

DealBook: Trader Pleads Guilty to Threatening Financial Regulators

Mary L. Schapiro, the S.E.C.'s chairwoman, and Gary Gensler, the C.F.T.C.'s chairman.Andrew Harrer/Bloomberg NewsMary L. Schapiro, the S.E.C.’s chairwoman, and Gary Gensler, the C.F.T.C.’s chairman.

Vincent McCrudden, a former trader, pleaded guilty to charges that he threatened to kill more than 40 current and former regulatory officials, including Mary Schapiro of the Securities and Exchange Commission and Gary Gensler of the Commodity Futures Trading Commission.

Mr. McCrudden, 50, admitted on Monday to using e-mails and Internet posts to threaten various officials.

“This defendant crossed the line when he directly threatened to kill public officials who were working to keep our financial markets fair and open, and invited others to join him,” Loretta E. Lynch, United States Attorney for the Eastern District of New York, said in a statement. “He thought he could hide in the shadows of the Internet and disseminate his threats and instructions. He was wrong.”

He sent one email to the vice president and chief operating officer at the National Futures Association, with the subject line “You’re a Dead Man,” according to the release by the Justice Department. On a website operated by Mr. McCrudden, he implored others to join the cause, telling them to go “buy a gun.” The website also included an “execution list” with more than 40 current and former officials at the S.E.C., the C.F.T.C., the N.F.A., and the Financial Industry Regulatory Authority, the Justice Department release said.

“The conduct of McCrudden was way beyond mere speech. By his admission, he not only directly threatened to kill government and regulatory officials, but he also listed dozens of officials and offered a reward to others to kill them,” Assistant Director-in-Charge at the Federal Bureau of Investigation Janice K. Fedarcyk said in a statement. “This outrageous conduct is not only dangerous, but an affront to civil society.”

Mr. McCrudden, who will be sentenced by United States District Judge Denis R. Hurley, faces a maximum prison term of 10 years.

Article source: http://dealbook.nytimes.com/2011/07/18/trader-pleads-guilty-to-threatening-to-kill-financial-regulators/?partner=rss&emc=rss

DealBook: Morgan Keegan Settles Mortgage Securities Case and Is Put on the Block

Robert Khuzami, director of the S.E.C.’s enforcement division, in February.Lucas Jackson/Reuters Robert Khuzami, director of the S.E.C.’s enforcement division, in February.

As financial regulators announced a $200 million settlement with Morgan Keegan in a mortgage securities case, its parent company put the brokerage firm on the block.

Morgan Keegan’s agreement with the Securities and Exchange Commission and the Financial Industry Regulatory Authority resolves a civil action brought last year by the S.E.C. accusing it and two of its executives of defrauding investors by inflating the value of mortgage-backed securities in its mortgage bond funds.

“The falsification of fund values misrepresented critical information exactly when investors needed it most – when the subprime mortgage meltdown was impacting the funds,” Robert Khuzami, director of the S.E.C.’s enforcement division, said in a statement. “Such misconduct does grievous harm to investors.”

State regulators from Alabama, Kentucky, Mississippi, South Carolina and Tennessee were involved in the settlement.

Morgan Keegan’s parent, Regions Financial, announced that it was putting Morgan Keegan up for sale in a effort to raise money to repay its loan from the government’s Troubled Asset Relief Program.

Regions still owes the government $3.5 billion, more than any other bank that remains in the bailout program.

“The resolution of this legacy regulatory matter gives Regions greater flexibility with respect to the Morgan Keegan franchise and the ability to explore opportunities that are consistent with our strategic and capital planning initiatives,” Grayson Hall, Regions’ chief executive, said in a statement.

The bank has retained Goldman Sachs to advise it on a sale.

Regions agreed in December 2000 to acquire Morgan Keegan for $789 million. Based in Memphis, Morgan Keegan has more than 300 office in 20 states.

Regions, which has a market value of $7.9 billion, has itself been viewed as a possible takeover target. In the wake of PNC Financial Services’ $3.45 billion deal for the United States subsidiary of the Royal Bank of Canada this week, Bank of America-Merrill Lynch analysts noted the speculation and wrote that Regions “could potentially provide considerable upside in a takeout” if it was to repay TARP by year-end.

Article source: http://feeds.nytimes.com/click.phdo?i=f601603fc25a7d9cb810f4e262bc4483

Too Big to Fail, or Too Trifling for Oversight?

But over the last several months, executives from more than two dozen financial companies and their trade groups have paraded into the Treasury Department, the Federal Reserve and other government agencies to try to persuade top regulators that they are not large or risky enough to threaten the financial system if they should ever collapse.

Big insurers like the Mass Mutual Financial Group and Zurich Financial Services; hedge funds like Citadel and Paulson Company; and mutual-fund companies like BlackRock, Fidelity Investments and Pacific Investment Management Company have all been making the rounds, according to documents filed by the regulatory agencies.

What they are all hoping to avoid is being designated “systemically important” by a council of financial regulators. That would require them to face stricter federal oversight and keep more cash on hand, which they fear would erode profits.

Jeffrey A. Goldstein, the Treasury undersecretary for domestic finance, finds the arguments so familiar that he has opened some meetings by asking the firms if they would like to designate themselves as systemically important. “I can’t recall a firm that came in and said yes,” he said.

Hedge fund managers, for example, normally pride themselves on being Masters of the Universe. But armed with PowerPoint presentations and financial studies, representatives from some of Wall Street’s most powerful funds, including D.E. Shaw and Company, Elliott Management and Caxton Associates, met with Federal Reserve staff members earlier this year to make one point: We’re too small to matter.

The hedge funds insisted their activities would not threaten the financial system because they control $1.7 trillion in assets, a drop in the bucket next to the $21.4 trillion overseen by the global mutual fund industry, according to documents they filed with regulators that cited figures from 2010.

Two insurance giants took even stronger steps. They unloaded savings banks they owned as a preemptive strike against tougher federal supervision.

Regulators involved in the determination process say they are skeptical. “It is as if they are the Sisters of the Charity,” said one government official who has participated in meetings with financial companies. “They present themselves as if they don’t do anything complicated. They are playing a very interesting strategy game that nobody believes.”

It’s no secret that big banks with more than $50 billion in assets — Bank of America, Goldman Sachs, Citigroup, Wells Fargo, among others — are automatically part of the club. But a wide variety of financial companies that are not banks are trying to avoid membership — or at least reduce their burdens. Besides the big insurers, hedge funds and mutual fund companies, major commercial lenders like General Electric have revved up their lobbying efforts.

There have also been a few surprises, like Boeing, I.B.M. and Caterpillar, which operate large finance businesses for their customers. Student lenders like Sallie Mae, auto finance companies like Ford Motor Credit and even quasi-government enterprises like the Federal Home Loan Banks have raised concerns about the designation process.

Deciding which firms should be deemed “systemically important” is at the heart of a package of new financial rules that aim to prevent a repeat of the recent financial crisis. But the lack of specific criteria from regulators so far has created uncertainty about who will get tagged.

More clarity may come later this summer when regulators are expected to put out a more detailed proposal. Criteria like size, how connected the firms are to each other, and overall risk levels will be more carefully defined.

Then, after regulators analyze the data, the designated companies will be notified and given a chance to argue why they do not pose a major financial threat. This means final determinations will not be made until the middle of 2012, at the earliest. That, of course, is just fine with many of the companies involved.

Article source: http://feeds.nytimes.com/click.phdo?i=686a8d4e81c327b01ce1049244e14e85

DealBook: What a Government Shutdown Means for Wall Street

This is not exactly what Wall Street had in mind when it asked the government to stay out of its business.

As the federal government moved closer to shutting down, the financial industry on Friday morning was bracing for the impact. Wall Street needs the government for everything from guaranteeing mortgages to processing regulatory filings. On the other hand, a shutdown could also protect some firms from regulatory scrutiny in the short term — at least those facing investigations.

Top financial regulators like the Securities and Exchange Commission would have to send all “non-essential” staff home. The policy does not mean Mary Schapiro, the S.E.C.’s chairwoman, will get some vacation time. Ms. Schapiro and the agency’s four other commissioners are allowed to stay at work, along with some employees of their choosing.

The agency would keep a skeletal staff “to respond to emergency situations involving the safety of human life or the protection of property,” according to the S.E.C.’s Web site.

At the Commodity Futures Trading Commission, only 25 employees could keep working. That accounts for less than 4 percent of the agency’s staff. Not even the agency’s two administrative law judges can come to work. The remaining employees are not allowed to travel.

E-mail and BlackBerrys will not be shut down, although furloughed C.F.T.C. employees “may not check e-mail or use voice capabilities or conduct any work,” according to the agency.

“In our agency, we are preparing to let markets and market participants know what we will not be able to do during a lapse,” Bart Chilton, a C.F.T.C. commissioner, said in a statement. “This is dangerous territory.”

The S.E.C. and C.F.T.C. would continue to oversee the markets, albeit in a diminished capacity. The online database Wall Street uses to submit regulatory filings about securities would continue to operate, too.

But that’s about it.

The S.E.C. would halt such activities as processing regulatory filings, providing advice to publicly-traded firms and approving new financial products. “As a result, new or pending registration statements or applications for exemptive relief will not be processed regardless of the status of any review of those filings,” the agency said.

This could delay investment advisory applications from getting approved, keep banks from issuing securities and prevent firms from getting guidance on mergers and other regulatory matters.

And let’s not forget about the hundreds of Wall Street number-crunchers and stock analysts. They rely on government data to make predictions about public companies and the markets.

Banks also rely on the government to keep mortgage business flowing. The Federal Housing Administration, which had a hand in about 20 percent of new mortgage loans in 2010, will stop guaranteeing loans to low-income borrowers. JPMorgan Chase plans to stop making new F.H.A. loans during a shutdown.

That said, a government shutdown is not all bad news for Wall Street.

Both the S.E.C. and the C.F.T.C. would effectively halt their implementation of more than 100 new rules facing the industry as part of the Dodd-Frank Act.

In the event of a shutdown, the S.E.C. also would cut its enforcement staff to 178 employees, down from around 1,000. If the S.E.C. feels it needs to immediately file charges against a firm to avoid damage to life or property, it can do so.

“Insufficient funding for the S.E.C. means an investor protection effort hobbled at a time when the events of the last decade have proved that effective enforcement of the securities laws is more important than ever,” Ms. Schapiro said in a speech on Friday to the Society of American Business Editors and Writers.

A few regulators will still be up and running. The Federal Deposit Insurance Corporation, the Federal Reserve and the Office of the Comptroller of the Currency — which oversee the banks — are all funded by the financial industry, not Congress, and thus will remain open.

Article source: http://feeds.nytimes.com/click.phdo?i=1134270664ad1e6b186ef812817a2bfe