Posts tagged 'Dodd-Frank'

S&P says another bank bail-out possible

Officials fighting the next financial crisis may again bail out banks using the public purse, S&P has said, in an opinion that casts doubt on one of the fundamental tenets of US financial reform. The FT reports the rating agency said that the US Treasury, Federal Reserve and Congress might rescue a large financial group rather than allow it to fail like Lehman Brothers. Dodd-Frank, the legislation signed into law a year ago next week, was supposed to prevent bail-outs by allowing the government to seize and wind down safely an ailing “systemically important financial institution”, or Sifi. But in a research note, S&P said: “We believe the government may try to avoid contagion and a domino effect if a Sifi finds itself in a financially weakened position in a future crisis.”

 

Goldman’s on top of the Dodd-Frank talks

A list of financial entities most panicked about upcoming Dodd-Frank rules.

 Read more

Fed allows higher debit card fees

The US Federal Reserve set a higher than expected cap on debit card transaction fees, lifting the shares of electronic payments companies Visa and ­MasterCard. The Fed’s board voted 4-1 on Wednesday to set so-called interchange fees at 21 cents per transaction, above the 12 cents limit the regulator had proposed in December, the FT reports.  The final rules, which were mandated by last year’s landmark Dodd-Frank financial ­services reform legislation, were considered a victory for banks and card payments companies that had lobbied unsuccessfully to delay the Fed’s implementation. Visa shares rose 15 per cent on the news, while Mastercard rose 11 per cent.

Warning on US bank rules reform

John Walsh, a top US bank regulator, warned his colleagues against imposing tougher regulations on financial groups, drawing a furious reaction from a Democratic senator who called for him to be replaced, the FT reports. Calling existing capital levels “extraordinarily high” and proposing a “fundamental rethink” of international liquidity standards, Mr Walsh, acting comptroller of the currency, said: “My view is that we are in danger of trying to squeeze too much risk and complexity out of banking as we institute reforms to address problems and abuses stemming from the last crisis.” His comments on Tuesday come ahead of a crucial meeting of international regulators this week and are the latest sign of banks, politicians and sympathetic regulators becoming more open in criticising reforms. The Office of the Comptroller of the Currency, which oversees more than 1,400 banks, has traditionally adopted a more laisser faire approach to regulation than some counterparts.

Delay for new derivatives rules

US regulators have agreed to delay new rules due to take hold in the derivatives market next month, the WSJ reports, after the Commodity Futures Trading Commission offered a six-month reprieve on Tuesday. Derivatives market participants have flooded regulators with requests about requirements contained in the Dodd-Frank law, while regulators have not yet addressed some aspects of the new rules, such as which non-bank institutions pose a systemic risk. Meanwhile House Republicans on Tuesday proposed a 15 per cent cut in the CFTC’s budget from its current level, or 44 per cent lower than the level sought by President Barack Obama .

Commods traders hit back at futures curbs

A lobby group for some of the world’s largest physical commodities traders has pushed back against US rules that would restrict who would receive exemptions from trading limits in markets from oil to wheat, the FT says. The Commodity Markets Council, whose members include trading houses such as Archer Daniels Midland and hedge funds such as Vermillion Asset Management, said in a letter that the proposed rules were “unnecessarily narrow” and threatened to redefine a large amount of hedging as speculation. Seperately, Bloomberg reports that specialised commodities futures funds are facing headwinds.

Senate votes against debit fee reform delay

The Senate has voted against delaying the implementation of price caps on debit-card fees charged to retailers, dealing a blow to banks and card payment networks, the FT reports. In December the Fed used powers granted to it under the Dodd-Frank Act to drive down interchange fees, which banks have sought to delay by six months if not overturn. However, the delay proposal failed to achieve a super majority of 60 votes in the Senate, despite having made the most legislative progress of any attempt to rewrite Dodd-Frank, the WSJ notes. The ball is now in the Federal Reserve’s court to modify the price cap’s implementation or not, says the NYT.

Dodd-Frank derivatives delays attacked

Markets face a slowdown in over-the-counter derivatives trading if more than 100 new requirements mandated by the Dodd-Frank Act are held up by regulatory delays in finalising rules, the WSJ reports. The Act requires the provisions to take effect by July 16, 360 days after the law’s signing. The CFTC and SEC are meant to finish their guidance on derivatives by July 21 but are racing to supply further clarification before the July 16 deadline. Traders fear that deals made after the deadline could be subject to lawsuits seeking to make them null and void, even if regulators declare that swaps transacted in the period will not be illegal.

Dick Bove says folks at the Federal Reserve have ‘lost their minds’

Really.

And it’s all because of one little speach by Daniel Tarullo. The Federal Reserve Board governor took to the Peterson Institute stage on Friday to recommend that systemically-important financial institutions (SIFIs) increase their capital ratios by 20 per cent to 100 per cent over their current levels. Read more

Credit rating cliff risk, redux

And the slow drain of financial crisis support from formerly ‘TBTF‘ banks continues apace.

On Thursday, Moody’s announced it would be putting the credit ratings of Bank of America, Citigroup and Wells Fargo on review for downgrade after taking a closer look at incoming financial reform: Read more

How dare you, I’m a sovereign

Don’t mess with a non-US sovereign. They still have the power, even if they have deficits.

Risk reported reported in April that US regulators were proposing to make collateral-posting for sovereigns compulsory. Read more

How the Basel III sausage gets made

Otto von Bismarck may have been talking laws when he made his first sausage analogy, but it’s well-suited to the creation of Basel III banking rules. Just think of all the toing and frowing over things like upcoming Liquidity Coverage Ratios (LCRs) and Net Stable Funding Ratios (NSFRs).

It shouldn’t surprise readers that these various acronyms are subject to push and pull. Read more

US finance groups win curbs delay

Tighter supervision and higher capital requirements for the largest and riskiest US financial institutions will be postponed for up to three months, US officials said on Thursday, reports the FT. Hedge funds, buy-out firms and insurers have been lobbying regulators and lawmakers to avoid being designated “systemically important”, a categorisation that could potentially restrict profits. Banks with more than $50bn in assets are automatically designated under the system introduced by last year’s Dodd-Frank reforms. The delay, to allow more time for public comment on the mechanism for designating companies, is a victory for institutions that argued they should not be subject to designation by regulatory fiat. At a Senate hearing for financial regulators on Thursday, Ben Bernanke, Fed chairman, said “more details are necessary” on the proposals.

Banks anxious over Fed regulations

Wall Street banks are warning they may have to cede much of the European derivatives market to the likes of Deutsche Bank and Barclays Capital if US regulators follow through on proposals to apply new regulations extraterritorially, the FT says. The Fed and other regulators recently proposed rules that would force the non-US arms of US banks to collect collateral, or “margin” in the form of cash or securities, “without regard to whether the counterparty is located inside or outside the US”. Some banks said it was the first inkling that US regulators wanted to enforce the Dodd-Frank Act beyond US shores. Seperately, Bloomberg reports that two federal committees are scheduled to this week take action on 11 pieces of legislation aimed at changing, delaying or repealing sections of the Dodd-Frank Act.

Deutsche Bank to restructure in US

Deutsche Bank is moving to reorganise its US operations to meet new financial regulations and avoid having to raise billions of dollars in extra capital, reports the FT, citing people familiar with the matter. The German lender aims to shed the bank holding company status of Taunus, a US division that would currently fall short of capital standards under the landmark Dodd-Frank financial reform legislation. Two of the division’s operating units, its US securities and trust arms, would be folded into the German parent group, while Taunus would continue to house other US-based entities. The WSJ notes that the move would enable Deutsch to operate with a thinner capital cushion than the new rules envision.

Premium capture is the new 436(g), Citi says

The repeal of Rule 436(g) sent the securitisation industry into a tizzy in the summer of 2010.

Now a component of last week’s proposed risk retention rules for Mortgage-Backed Securities (MBS) is sparking comparisons from some analysts, in relation to the commercial MBS market. The troublesome bit is called “premium capture” — and it’s pretty much the only thing that came as a surprise to the securitisaton industry in the 233-page proposal published by US regulators last week. Read more

Greenspan: Dodd-Frank fails ‘test of our times’

Former Federal Reserve chairman Alan Greenspan has penned a fiery broadside against the Dodd-Frank Act that may embolden Republicans seeking its repeal, the FT says. ‘The act may create the largest regulatory-induced market distortion since America’s ill-fated imposition of wage and price controls in 1971,’ writes Greenspan in an op-ed for the FT. ‘The vexing question confronting regulators is whether this rising share of finance has been a necessary condition of growth in the past half century, or coincidence. In moving forward with regulatory repair, we may have to address the as yet unproved tie between the degree of financial complexity and higher standards of living.’

The RMBS risk retention exemption, qualified

US federal agencies on Tuesday published 233 pages of proposed rules around credit risk retention for sponsors of asset-backed securities, a requirement laid down in the Dodd-Frank legislation.

Sexy lede, right? Wait, come back… Read more

CDS options market multiplies alongside questions

What’s over-the-counter, a derivative, and expands despite financial crises?

The CDS index options market. Read more

Bank dividend day

And so it begins, again.

No surprise that the KBW Bank Index and the financials component of the S&P 500 both beat the broader index (red line below) on the day: Read more

US banks plead to limit range of swap rules

US banks are urging regulators writing new rules for the derivatives markets under 2010’s Dodd-Frank Act to keep their hands off the banks’ swaps businesses in London and other overseas financial centres, the FT reports. The lobbying efforts highlight the fact that regulations are being written at different speeds in different countries, allowing for “regulatory arbitrage”, which officials have sought to stamp out.

The where and what of regulatory arbitrage

Get the little flags at the ready: on Tuesday JP Morgan Cazenove published the final installment of its trio of reports on regulatory arbitrage.

It is stirring patriotic sentiment up on Capitol Hill, with some lawmakers worried that the US’s comparative advantage will be blunted, according to PoliticoRead more

More for less, regulatory edition

A late (for Congress) night on Thursday left the Obama administration’s budget request for the SEC in tatters. According to Politico’s David Rogers:

Democrats failed to restore $131 million for the Securities and Exchange Commission, facing new responsibilities under Wall Street reforms enacted in the last Congress. Read more

Dodd-Frank de-funding debate hots up

The first Senate Banking Committee hearing under new chairman Tim Johnson will convene on Thursday with Republicans pushing more than ever to delay the implementation of Dodd-Frank financial reforms, says Reuters. Republicans argue that comment periods for some rules are far shorter than normal and are calling for ‘rigorous’ cost-benefit analysis, the Bond Buyer reports. The real battle may lie in funding for the Consumer Financial Protection Bureau, which may be capped at $80m rather than a pencilled-in $143m budget, should House Republican changes go ahead.

Regulators set to miss Dodd-Frank deadline

US regulators will miss a July deadline set by Dodd-Frank legislation for some of the rules on newly policed swaps markets, the head of the main derivatives regulator has said. Gary Gensler, chairman of the Commodity Futures Trading Commission, said the regulator was still working towards the deadline, the FT reports. Bloomberg adds that Gensler also told the House Agriculture Committee that the CFTC doesn’t have the budget to enforce new derivatives regulations required under the Dodd-Frank Act.

SEC downgrades credit rating agencies

The first of the 12 steps is to admit powerlessness; the second is to believe that a power stronger than yourselves can restore sanity.

While Dodd-Frank recognised the addictive and palliative qualities of CRA ratings, it felt it wasn’t yet able to restore sanity. Apparently this has changed. Read more

The earnest importance of being systemic

It’s the question that’s seemingly stumped Tim Geithner: how to identify a priori systemically important non-bank financial institutions.

The Federal Reserve on Tuesday suggested further rules regarding who might be considered for attention by the Financial Stability Oversight Council (FSOC) as per section 113 of Dodd-Frank. In short, they need to be “financial” and “significant”. Read more

Dodd-Frank vs Damien Hirst

Remember magic-eye pictures?

You know, the ones where you would stare, squint, relax your eye muscles and hey presto, a 3D picture emerges from a 2D psychedelic fuzz. Read more

CMBScurviness by originator

Iffy commercial loans pre-financial crisis? Blame the conduits.

A new Federal Reserve discussion paper takes a look at 30,000 loans that were eventually turned into Commercial Mortgage-Backed Securities (CMBS) to figure out whether mortgages originated by certain types of lenders were more risky. Read more

Volcker rule — coming, slowly, to a bank near you

Look on the bright side, we now know which rules the rulemakers will follow to get us to the Volcker rule. Some of them, at least.

The Financial Stability Oversight Council on Tuesday released its six-month study into the Volcker rule and held its third public meeting. Read more