There’s no shortage of concerns about the impact that new regulations will have. Basel 2.5 hitting the bond market, the prohibition of ratings under Dodd-Frank hurting the beleaguered mortgage market, and the restrictions on prop trading by the Volcker Rule — which may lead to a giant sucking sound where the liquidity of several markets used to be.
The concern surrounding this last one is so great that the EU is planning to complain to US Treasury Secretary Tim Geithner about it next month. Read more
The level of suspicious trading ahead of UK mergers and acquisitions fell sharply last year to 21 per cent, the lowest level since 2003, the FT reports. Last year, timely trades – defined as abnormally large share price movements in a company in the two days before a regulatory announcement – preceded 25 of 118 UK-announced deals. That was down almost one-third from the past four years, when the level hovered around 30 per cent. The fall comes as the FSA has increased its efforts to detect, prosecute and punish such trades. Read more
Tim Geithner, US Treasury secretary, warned overseas markets against undercutting American financial regulations, urging them to avoid following the “tragic” example that the UK set in light-touch oversight, writes the FT. In outspoken remarks that outlined the US position on a range of international regulatory issues, Mr Geithner called for a global deal on derivatives and endorsed forcing the largest banks to hold more equity capital. But such a surcharge need not be “excessive”. Read more
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 Politico. Read more
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
The new regime of financial regulation will hit annual profits at the US’s eight biggest banks by between $19.5bn and $22bn, according to one of the first assessments of the new law. Standard & Poor’s analysts say there will be a noticeable loss of income as a result of restrictions on proprietary trading, credit card fees and derivatives activity at Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, PNC Financial, US Bancorp and Wells Fargo, the FT reports. “We think that these banks will eventually be able to offset these deficits by making smaller additions to loan-loss reserves and raising prices for some products and services,” the report said. “A return to more typical banking conditions would, in our view, mitigate most, or even all, of the financial costs of Dodd-Frank for these banks.” Read more
Is this what went wrong with Basel II?
Is this what will go wrong with Basel III? Read more
The Bank of England’s executive director of financial stability has a refreshingly straight-forward answer to his self-imposed question “The Contribution of the Financial Sector: Miracle or Mirage?”
His response: Read more
FT Alphaville has only one thing to say about the following note from JP Morgan economist James Glassman: ouch. In the note, Glassman deplored US lawmakers’ “unnerving ignorance of fundamental principles of market economics”, among other criticisms. Read more