A list of financial entities most panicked about upcoming Dodd-Frank rules.
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A list of financial entities most panicked about upcoming Dodd-Frank rules.
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.
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.
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 .
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.
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.
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.
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
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
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.
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 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.
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
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.’
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 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.
Get the little flags at the ready: on Tuesday JP Morgan Cazenove published the final installment of its trio of reports on regulatory arbitrage.
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
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.
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.
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
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
A new type of derivatives trading platform would allow pension funds and industrial companies to transact off-exchange derivatives between themselves, cutting out banks that have long acted as intermediaries in such deals, reports the FT. The move breaks new ground in the push to regulate the vast over-the-counter derivatives markets. Reforms stemming from the Dodd-Frank act in the US and similar proposals by the European Commission require many OTC derivatives to be traded on exchanges and other types of platforms, and processed through clearing houses. The aim is also to reduce the role of big Wall Street and European banks that have controlled dealing in, and pricing of, OTC derivatives and to boost transparency.