Also Noted: Spotlight On... Banks overestimate default rates News From the Fierce Network:
Today's Top News1. The consequences of regulatory competition
Benjamin Lawsky, New York State's top banking regulator, said that, "A dose of healthy competition among regulators is helpful and necessary to safeguarding the stability of our nation's financial system." Lawsky became a well-known figure in the financial industry after he led the charge to levy money laundering charges against the likes of Standard Chartered. His aggressive actions seemed to fly in the face of federal regulators, who were painted as much more passive in their AML enforcements efforts. The New York Times offers an interesting look at the politics behind the incident, based on FOIA documents obtained by a public-interest group. The information doesn't quite clear up the issue of when the state regulator notified their deferral counterparts that they were moving forward against the British bank. No matter what happened -- and there is plenty of spin going on -- it's not an optimal situation when regulators start competing. There may be times when one regulatory entity grows frustrated with the pace of activity by other regulatory entities, but some sort of coordination seems warranted. International banks certainly are better off when they face coordinated action instead of unpredictable action. The issue is relevant on an international scale as well. There's lots of talk of regulatory arbitrage these days, as issues such as ring-fencing and subsidiarization step up in prominence. Banks might be forced to face a thicket of regulations, which in the end will likely prove costly. With that said, the notion of coordinated regulation seems far-fetched. For more: Related Articles: Read more about: regulation, regulatory arbitrage
2. More municipal entities struggle with rate swaps
It's no secret that critics of interest rate swaps are becoming more vocal about the deals that municipal entities entered into with big banks. Back when rates were high and threatening to go higher, swaps made so much sense. But then rates plunged, and municipal entities started to read the fine print, which held some terrible news about escalating rate payments. And the battles began. A great example comes from Chicago Public Schools, which apparently wants to renegotiate some scheduled payments with Bank of America, Goldman Sachs and other banks. The school system reportedly pays approximately $36 million in interest to banks every year, at a time of cringing budget deficits. Banks tend to take a hard line when it comes to these issues, and you can understand why. They had a deal in writing. In any case, restructuring is not cheap. Consider the city of Denver. The local school district paid $146.6 million last month to RBC Capital Markets, Wells Fargo Securities and Bank of America to end interest-rate swaps as part of a second attempt to restructure a 2008 borrowing, notes Bloomberg. With that said, many entities have no choice but to renegotiate. The terms of the rate swaps are even more expensive in some cases. This is engendering lots of ill will among town politicians -- not that such sentiment is anything new. The city of Oakland, for example, has been locked in an acrimonious battle with Goldman Sachs over soured swaps for many years. Goldman Sachs has taken a hard line, and the bank is regularly pilloried by the city council. It is moving ahead with a plan that might end with the city ceasing to do business with the bank permanently. But it'll still owe the swap payments. For more: Related Article: Read more about: Bank of America, Goldman Sachs 3. Blaming the shareholders for JPMorgan vote
JPMorgan Chase's (NYSE: JPM) controversial CEO and (still) chairman Jamie Dimon won a landslide victory at the annual shareholder meeting this month, as the resolution to split the chairman and CEO positions failed. The final results weren't even close. Only about 35 percent of the vote went in favor of the split, compared with more than 40 percent in 2012. The low vote was somewhat surprising in light of the heavy publicity of the issue, the fact that proxy advisory firms were in favor of the split, and the fact that shocking London Whale risk management lapses were still fresh in memory. From the corporate governance advocacy point of view, who is to blame? For the big defeat, ProPublica excoriates the voters, mainly the big institutional investors. It writes that, "Shareholders are part of the problem, not the solution." "No group has skated free of severe (and deserved) criticism in the wake of the financial crisis: financial firms, regulators, credit rating agencies, borrowers and the news media. That is, except one, which happens to be among the most culpable: institutional investors. Yet today, the structure of institutional investing is the same. And so is shareholders' view of their responsibilities." This may be an overly harsh assessment. Shareholders were willing to keep Dimon on as chairman and CEO, but they certainly were not so willing in other areas. They essentially voted out the risk management committee at the bank. While three directors on the committee won small majorities, the margin of victory was untenably low, and they will surely be replaced in due time. All in all, Jamie Dimon maybe a special case, a proven winner who stumbled badly. Voters may not be willing to give him the benefit of the doubt if he continues to stumble with more London Whale-like events. For more: Related Articles:
Read more about: Annual Shareholder Meeting, JPMorgan Chase 4. Goldman Sachs now subject to maritime law
Banks have chafed openly about the pain of government regulation passed in the wake of the financial crisis, notably Dodd-Frank. Goldman Sachs has been among the least active complainers as of late, preferring to let others carry the public load, notably JPMorgan Chase, led by Jamie Dimon. Still, Goldman Sachs is no fan of many provisions of the law, and it has been active on the lobbying front. So it would seem odd that the bank would willingly subject itself to more regulation, in the form of the Merchant Marine Act of 1920. By dint of its new posh ferry service between lower Manhattan and New Jersey, which the bank owns outright to provide commuter services to employees and the public, Goldman Sachs is now bound by the terms of the law. According to the Financial Times, the law has led to one significant change in that the bank has increased the number of directors required to hold a valid board meeting. "From now on at least seven of the bank's 12 board directors will be needed to form an official quorum, as opposed to the six required before the announcement," it reported. With Stephen Friedman stepping off the board, "Goldman now has nine US citizens and three non-US citizens on its board. The non-US board members are Claes Dahlback, from Sweden, Lakshmi Mittal, the Indian-born chief executive of ArcelorMittal, and Mark Tucker, the English businessman and chief executive of AIA. Without Tuesday's change, these non US-citizens would have constituted half of the board's quorum, breaching the" law's requirements. The bank could have used its considerable lobbying might to fight these provisions, but compliance seems to be easier. Goldman Sachs may run into some headaches with other provisions. For example, the law requires that at least three-fourths of crew members be U.S. citizens. That may be increasingly difficult. The law also allows injured sailors to make claims and collect from their employers for negligence. Hopefully, the ferry service will remain drama-free. For more: Related Article: Read more about: Goldman Sachs, regulation 5. Swiss to make U.S. investigations easier
Swiss banking has undergone a sea change in the past decade that has left it a mere shadow of what it once was. No longer can it tout the anonymity and secrecy that was once so sacred to these banks and their customers. The real world has intruded and the industry will never be the same, to the disgust of the old guard in the country, who abhor the demise of institutions like Wegelin & Co., which was recently indicted by U.S. prosecutors. The Swiss government, to its credit, is reading the writing on the wall. The latest news is that the Swiss government has agreed to create a legal basis that will allow its banks to settle investigations by U.S. authorities into their role in helping U.S. citizens evade taxes. According to Reuters, the agreement would give Swiss banks the right to reach settlements that will likely "require them to pay fines totaling billions of dollars to the U.S. authorities." Special permission will be granted "to allow banks to turn over new information about the behavior of their staff and clients, although the government said no changes would be made to rules protecting clients' identities." This proposal could be voted on as early as June. This is good news for U.S. prosecutors. If there are still U.S. residents with lots of undeclared holdings in these accounts, the noose continues to tighten. You have to think that the bulk of evaders have been dealt with already, but maybe not. You get the feeling that another generous amnesty program will not be forthcoming. For more: Related Articles: Read more about: Swiss Banks, Taxes Also NotedSPOTLIGHT ON... Banks overestimate default rates Predicting defaults on loans isn't an exact science, and some have charged that banks underestimate defaults to make their loans look more sound. But recent research from Barclays, as noted by Reuters, shows the exact opposite. Actual default rates are more than 50 percent lower than what banks thought. "This matters because banks use their predictions to come up with risk weighted asset figures, a key metric used to assess bank health, and even in the contracts for contingent capital bonds." Article Company news:
©2013 FierceMarkets This email was sent to kumaresan.selva.blogger@gmail.com as part of the FierceFinance email list which is administered by FierceMarkets, 1900 L Street NW, Suite 400, Washington, DC 20036, (202) 628-8778. Contact Us Editor: Jim Kim Advertise Advertising: Jack Fordi or call 202.824.5040 Email Management Unsubscribe from FierceFinance Explore our network of publications: | |||||||||||||||||||||||||||||||||||
Friday, May 31, 2013
| 05.31.13 | The consequences of regulatory competition
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment