It’s no secret that we’re big fans of Andy Haldane on this blog.
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It’s the product of all those Select Committee hearings, including appearances by Messrs. Diamond and Tucker. It is only a preliminary report. But it does not have kind words for the authorities who failed to stop the attempted manipulation of Libor before and during the financial crisis. (Barclays management is of course completely coruscated.) As jaded as we’ve all become by the Libor scandal, it’s pretty damning. Read more
HSBC came in for a kicking in the Senate Subcommittee on Investigations into anti-money laundering and exposure of the US financial system to drug and terrorism financing.
Some of this is old news; as the FT notes, HSBC has not been formally accused of wrongdoing in connection with the most recent investigation, but it has twice been ordered by US regulators to take action on deficient anti-money laundering practices. However investigation by the US Department of Justice, the US Treasury and the Manhattan district attorney, is under way into many of the allegations raised in the Senate report, and some analysts expect fines of up to $1bn to result. Read more
What’s a bank to do when it has to sit on exposures that it doesn’t like?
Sell them of course! Especially if those exposures are expensive to hedge and costly in terms of regulatory capital charges. Read more
Click for Goldman’s ‘living will ‘ for regulators, listing how it would try to resolve by selling parts of its business under bankruptcy:
The WSJ reported on Thursday that JPMorgan’s regulators will conduct a thorough review of the bank’s models, according to “people close to the situation”.
Thanks to a letter from the the Office of the Comptroller of the Currency to Senator Sherrod Brown, we know that one particular model — the VaR model that JPMorgan’s Chief Investment Office switched to in January 2012, and which failed to alert management to outsized risks the division was taking — did not require regulatory approval before being used. Read more
As I watched the intricate social ballet that occurred as cars and bikes slowed to enter the circle (pedestrians were meant to cross at crosswalks placed a bit before the intersection) Monderman performed a favorite trick. He walked, backward and with his eyes closed, into the Laweiplein. The traffic made its way around him. No one honked, he wasn’t struck .Instead of a binary, mechanistic process – stop, go – the movement of traffic and pedestrians in the circle felt human and organic.”
The above quote is from the ever-readable Dylan Grice’s latest missive in which he argues that regulation acts much like traffic-lights, in that it lulls market participants into a false sense of security. Read more
It’s a commonly-held belief that the bailout of Spain’s banks won’t be sufficient to solve the country’s problems. It will increase the government’s borrowing, and may not be large enough anyway.
The real solution is
fiscal banking political some kind of union. See if you can spot one of the barriers to moving forward with that: Read more
The full story of why JPMorgan entered into the trades that cost it so much money may never become public. However, thanks to Jamie Dimon’s testimony on Wednesday, we can conjecture a little more about the motivations behind the synthetic credit trades entered into by the bank’s Chief Investment Office.
The story begins with surplus deposits. JPMorgan was perceived as safe thanks to its size and relatively good record during the 2008 crisis, so it attracted significant deposit inflows. Much of this money was lent out, but not all of it was, giving rise to the problem of what to invest it in. With government bonds paying record low rates, the bank decided, understandably, to invest some of the funds in corporate and asset-backed securities. The CIO bought over $380bn of these bonds, a very substantial position. Read more
April 2012 was a pretty big month in Dodd-Frank Act rulemaking; the SEC and CFTC agreed how to define “swap dealer”, “major swap participant”, et al. under Title VII of the Act, dealing with over-the-counter derivatives.
Still a way to go though. Read more
In Part 1, we discussed the interest Spanish banks, and the likes of JP Morgan, have shown in securitisations that may lower their regulatory capital burdens by bundling up assets and selling the riskiest pieces of the resulting structures to investors.
Here, we look at another worrisome and expensive exposure on bank balance sheets, and discuss how the treatment of these deals has varied from regulator to regulator — something the Basel Committee has recently started to cast a critical eye on. Read more
Regulations set forth by the Basel Committee that govern the amount of capital that banks have to hold are meant to set a level playing field round the world.
Or at least, we thought harmonisation was the point. Read more
For this, our final post covering FT Alphaville’s meeting with Yves Smith of Naked Capitalism, we asked her about the regulations that have arisen from the ashes of the financial crisis. Not wanting to leave the series on a depressing note, we (gently) prodded Ms Smith to also share with us something to be optimistic about.
AV: What do you think some of the biggest pitfalls/missteps have been since the crisis in terms of regulation? Read more
In his latest move to support the development of China’s capital markets, Guo Shuqing, the newly installed head of the China Securities Regulatory Commission, will oversee the creation of a new body to
control facilitate short-selling. The regulator is also going to be the largest shareholder of the new organisation.
FT Alphaville tips our hat to this rather neat piece of controlled capitalism. The venture will likely be a nice little money spinner for the CSRC, once the fees and transaction costs start rolling in. Read more
Fifty money managers ranging from Warren Buffett to Carl Icahn have used exemptions from the SEC to avoid disclosing large investments in companies this year, affecting 154 quarterly filings, the WSJ reports. While the SEC usually requires that managers owning more than $100m disclose acquired stakes in quarterly filings, this can be waived if the disclosure would cause “substantial harm” to their competitiveness. Other investors argue that the SEC is not doing enough to explain why it gives the exemptions. Warren Buffett’s recent disclosure of a $10.7bn stake in IBM has reignited debate over the practice.
Agencies who investigated MF Global before its collapse will give different accounts of when they first became concerned about its trades, when they appear before a Congressional hearing later on Thursday, the FT reports. Terry Duffy, chief executive of CME Group, said that MF Global seemed to be in “full compliance” with segregating its customers’ funds until the day before its collapse, only for CME and CFTC auditors to be told on 2am on the day the broker filed for bankruptcy that some funds had been transferred. The CBOE said it was receiving data from the broker in August, while Finra said it had been watching MF Global’s trades in euro sovereign debt since May. A”turf war” may meanwhile be opening between Chicago and New York prosecutors on bringing criminal charges over the collapse, Reuters says.
President Barack Obama will lend his weight to the nomination fight for Richard Cordray to head the Consumer Financial Protection Bureau, in advance of a Senate vote this week, Bloomberg reports. Without a full director, the CFPB’s ability to regulate non-banks, including pay-day lenders, is limited. The campaign to induce Senate Republicans to accept Cordray, former attorney-general of Ohio, will also bolster the White House’s push to present the president as an economic populist ahead of the 2012 election, Reuters says. Newt Gingrich’s rise to the top of the Republican presidential race has benefited from his insistence to voters that he will be the “paycheck president” to Obama the “food-stamp president”, notes the Economist.
Teams of global regulators will fan out across the world from next year to ensure that new tougher capital and liquidity standards are enforced correctly, the chairman of the Basel Committee on Banking Supervision said on Wednesday, the FT reports. “The financial crisis resulted in a bold response by the committee,” Stefan Ingves told an audience of North and South American banking supervisors in San Francisco. “However, these efforts will have been in vain if they are not globally implemented on a consistent and timely basis.” The US notably has not yet fully implemented the 2004 Basel II agreement. However, the country hope to have a draft for the implementation of Basel III by the end of the year, according to an earlier report by the FT.
Citigroup, JP Morgan Chase, BNP Paribas, Royal Bank of Scotland and HSBC could face the steepest capital surcharges of 2.5 percentage points, in provisional plans drawn up by global regulators, Bloomberg reported. The list has been fleshed out as part of G20 plans to force banks to boost their reserves above minimum levels previously agreed by international regulators in a bid to further reduce systemic risks. Bank of America, Barclays and Deutsche Bank might face surcharges of 2 percentage points, Bloomberg said, citing a confidential draft of the plan. A simplified version of the plan of global systemically important financial institutions, which did not include surcharge plans for individual banks, was published on Friday 4 after the conclusion of the G20 meeting by the Financial Stability Board, FT Alphaville reported.
The UK’s financial regulator has acknowledged for the first time that new European capital rules for insurers are now likely to come into force in January 2014, a year later than expected, the FT says. However, it stopped short of saying UK insurers would avoid running two sets of capital models and reporting standards in parallel during 2013, when the Financial Services Authority runs its triennial capital adequacy test of the industry. European political authorities are expected to delay the full implementation of Solvency II, the new capital regime for insurers, by 12 months to the start of 2014 to give more time for many countries’ regulators and local industries to prepare for the rules.
Britain has withdrawn its objections to a key piece of European Union financial regulation after winning a series of last-minute concessions over the rules for derivatives markets, the FT reports. While failing to achieve his most ambitious goals, George Osborne, the UK chancellor of the exchequer, hailed a clutch of “significant steps forward” in talks where he was at one point “outnumbered 26 to one”. However, he dropped Britain’s most controversial demand – to extend the scope of the regulation package to exchange-traded derivatives. The concession enables EU member states to agree to begin talks with the European parliament on new rules for over-the-counter derivatives.
The committee behind Basel III is set to press on with introducing extra capital requirements for the world’s 28 biggest banks, countering heavy lobbying in recent months, the WSJ says. Regulators will meet this week to consider comments on the capital surcharge, which would require banks to hold between 1 and 2.5 per cent more capital against risk-weighted assets in addition to a 7 per cent global minimum. US officials have swung behind the surcharge as it becomes clear that the rule will both remain largely the same and become finalised later this year, despite criticism of the capital regime by JPMorgan’s Jamie Dimon.
Federal officials are probing Oracle’s software sales to governments in Africa for possible violations of bribery laws, the WSJ says. The Justice Department has led a criminal investigation for at least a year while the SEC is conducting a civil inquiry. The probes focus on whether Oracle or its agents made improper payments to officials in order to secure sales. Enforcement of the Foreign Corrupt Practices Act has markedly stepped up in recent years, with $2bn of fines collected in 2009 and 2010 versus $11m in 2004.
Google has reached a $500m settlement with US prosecutors over advertising for Canadian pharmacies selling drugs into the United States, Reuters reports. The forfeiture represents Google AdWords revenue from the pharmacies, and pharmacies’ sales of drugs in US markets. Google was aware as long ago as 2003 that it was illegal in most cases for pharmacies based in Canada to ship prescription drugs into the US, according to an agreement between prosecutors and the company that was made public on Wednesday. Google had set aside $500m in unspecified legal charges in May.