from Financial Regulatory Forum:

U.S. government to enhance municipal market regulation

March 2, 2010

    WASHINGTON, March 2 (Reuters) - The Internal Revenue Service has agreed to work more closely with the Securities and Exchange Commission to regulate the U.S. municipal bond market, the IRS said on Tuesday, adding the two federal agencies had signed memorandum of understanding.
   "This memorandum reflects the commitment both agencies have in using all means possible to ensure the municipal bond market operates in accordance with all the laws that govern it," said IRS Commissioner Doug Shulman in a statement.
   Under the agreement, the two agencies will identify issues and trends in the municipal securities industry and "enhance performance" in regulating the $2.8 trillion market.
   SEC Chairman Mary Schapiro has repeatedly said that she would like to create more investor protections in the municipal bond market, which is uniquely regulated.
   Because of a part of securities law known as the Tower Amendment, the U.S. government cannot regulate how states and public entities sell their debt. Instead, it can only directly regulate the market's broker-dealers and underwriters.
   The Municipal Securities Rulemaking Board, a self-regulatory organization made up primarily of employees of banks and securities firms, writes rules for the brokers that the SEC enforces. In recent years the SEC has entrusted the MSRB to create and operate a clearinghouse of information on trades and new issues.
   The IRS has the power to take away bonds' tax exemption if they are used to commit fraud or generate arbitrage.
   Under Schapiro, the SEC has also created a new enforcement division that focuses on misconduct in the municipal securities market and in connection with public pension funds. (Reporting by Lisa Lambert, additional reporting by Dan Margolies; Editing by Kenneth Barry) ((lisa.lambert@thomsonreuters.com; +1-202-898-8328; Reuters Messaging: lisa.lambert.reuters.com@reuters.net)) Keywords: MUNICIPALS IRS/SEC
  
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 Tuesday, 02 March 2010 20:06:47RTRS [nN02172741] {EN}ENDS

from Financial Regulatory Forum:

U.S. Senate financial reform snags, no bill Monday

March 1, 2010

   By Kevin Drawbaugh and Rachelle Younglai
   WASHINGTON, Feb 28 (Reuters) - Marathon weekend negotiations in the U.S Senate on financial reform failed to result in a bipartisan breakthrough, with disagreement over how much power to give a consumer watchdog office still a key hurdle.
   Key lawmakers from both parties were still hopeful for a breakthrough on an issue that is one of President Barack Obama's top domestic policy priorities, but an aide to Senate Banking Committee Chairman Christopher Dodd said no revised bill will be released on Monday.
   "We continue to hope for a consensus bill," said Kirstin Brost, spokeswoman for Dodd, a Democrat.
   Republican Senator Bob Corker, who has been been continuing talks with Dodd over recent weeks, was also optimistic "that we will be successful in getting a good piece of regulatory reform legislation," said his spokeswoman Laura Herzog.
   (For a Factbox on the key issues in the Senate's compromise bill on financial reform, double-click on [ID:nN27194850])
   Brost emphasized that consumer protection remains a key area for Dodd.
   "Dodd wants a consumer watchdog with teeth," she said. "He will compromise on structure, but he will not accept anything short of real change for consumer protections."
   Nearly a year and a half since a severe financial crisis tipped the U.S. economy into its worst recession in decades, financial regulation has changed little, despite repeated assertions that reform is critical to avoiding another crisis.
   For Congress, time is running short. Midterm elections are approaching in early November. Between now and then, Congress will be in session for perhaps 23 weeks.
   In that timeframe, a bill would have to move out of the banking committee, be debated and voted on on the Senate floor and, if passed, reconciled with a sweeping bill passed by the House of Representatives in December.
   Democrats are keen to see legislation sent to Obama and signed into law before the November elections, giving them a clear achievement after disappointing outcomes on other key issue such as health care reform and climate change.
   Policy analysts said Republicans increasingly sense political danger ahead of November in blocking reforms and being cast as allies of the army of bank and Wall Street lobbyists who for months have been fighting stricter rules.
   "The calendar is starting to become a factor," said Brian Gardner, a policy analyst at investment firm Keefe Bruyette & Woods. "All in all, I think the banking committee is headed toward getting a bill done before the end of the year."
  
   BILL MAY NARROW
   The struggle in the Senate suggested to some that new legislation -- which many still expect from Dodd next week -- may be narrower in scope than Obama's proposals of nine months ago, and the sweeping bill passed by the House in December.
   "They're going to push real hard to get something out next week," Gardner said. "There's a chance that it could be a little bit smaller" than the House bill and Obama's proposals.
   Provisions that may be dropped could include over-the-counter derivatives regulation, as well as proposals to give shareholders more say in electing corporate directors and determining corporate executive pay, Gardner said.
   One of Dodd's boldest proposals from a November draft bill -- to consolidate the patchwork U.S. banking supervision system into one agency -- was unlikely to make it into the committee's final bill, a source familiar with negotiations told Reuters.
   Sources told Reuters on Saturday that neither Democrats nor Republicans had embraced Dodd's offer on Friday to scale back Obama's proposed Consumer Financial Protection Agency.
   (For a Factbox on key players in reshaping U.S. financial regulation, double-click on [ID:nN17146028])
   Dodd had circulated a proposal to make the consumer protection agency a division of the Treasury Department, instead of an independent agency, which Obama recommended. But in a setback for Dodd, his offer was rejected by Corker and Shelby, sources said.
   The sources said Shelby and Corker objected to the rule-writing power Dodd proposed for the consumer division, but not necessarily to the idea of the division itself being located in the Treasury Department or another federal agency.
   On the opposite side of the consumer watchdog issue, many Democrats were still holding out for an independent agency, said lobbyists and aides close to the talks.
   "In our view, this language will change considerably before the bill advances to the floor of the Senate," said Jaret Seiberg, financial services policy analyst at investment advisory firm Concept Capital. (Editing by Leslie Adler) ((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax))) Keywords: FINANCIAL REGULATION/ 
  
Sunday, 28 February 2010 23:18:12RTRS [nN28215288] {C}ENDS

from Financial Regulatory Forum:

INTERVIEW-Banker sees U.S. failed bank tally hitting 1,000

February 26, 2010

Dunne sees up to 400 bank failures this year

Dunne sees up to 400 bank failures this year

   By Karey Wutkowski
   WASHINGTON, Feb 25 (Reuters) - About 1,000 U.S. banks could fail as a result of the recent banking crisis that saddled financial institutions with large portfolios of bad loans, a leading investment banking executive said on Thursday.
   James Dunne, senior managing principal of Sandler O'Neill, said 300 to 400 banks could be seized this year, especially as institutions start to deal with deteriorating commercial real estate loans.
   "This is going to be a very slow recovery," Dunne said in an interview with Reuters.
   Regulators have seized 185 banks since January 2008. The Federal Deposit Insurance Corp has said the pace of failures is expected to peak this year.
   The agency said earlier this week that its "problem" bank list jumped 27 percent during the fourth quarter to 702.
   Historically, less than 15 percent of the banks on that list end up failing.
   Dunne said the FDIC was doing everything it could to attract responsible investors for troubled banks, including private equity groups.
   Dunne said he disagreed with David Bonderman, co-founder of giant private equity firm TPG [TPG.UL], who said earlier on Thursday that the FDIC's  rules on private equity investment in troubled banks was scaring off potential investors.
   Bonderman, speaking at a conference in North Carolina, said the FDIC was "terrified of private equity guys" and that its rules were accelerating the pace of bank failures.
   Dunne, whose firm undertakes capital-raisings and advises banks on FDIC-related transactions, said FDIC Chairman Sheila Bair welcomed investment as long as it came with a solid management team for the bank and deep funding.
   "I've met personally with the FDIC chairman three times in the last several months. She is open, interested and very well informed in looking for any methodology to raise capital," Dunne said.
   Dunne said the FDIC was also being creative. It was not just looking at private equity groups but also at pension funds as sources of investment for troubled banks, he said.
   Dunne said concerns about ownership limits that restricted private equity investments were more related to the Federal Reserve, which requires that institutions holding more than a certain percentage of a bank's voting shares be subject to stiff bank holding company regulations.
   In August, the FDIC imposed new rules on private equity investment in troubled banks.
   They were softened from an original proposal that investors said would scare the industry away from failed bank assets.
   The rules, which include high capital requirements and long-term investments, are designed to ensure that private equity groups are interested in nursing the banks back to health and not just taking advantage of their assets.
   The FDIC has been having ongoing discussions with private equity groups since putting the rules in place and has said it is considering whether any further actions are appropriate. (Reporting by Karey Wutkowski; Editing by Ted Kerr)
 ((E-mail:karey.wutkowski@thomsonreuters.com +1 202 898 8374))
Keywords: BANKS/DUNNE 
  
Thursday, 25 February 2010 23:33:20RTRS [nN25254958] {C}ENDS

from Financial Regulatory Forum:

Deal on financial reform bill near in U.S. Senate

February 26, 2010

   By Kevin Drawbaugh
   WASHINGTON, Feb 25 (Reuters) - A bipartisan agreement on financial regulation reform was close at hand on Thursday in the U.S. Senate, with lawmakers working to overcome a key obstacle -- creating a new financial consumer watchdog.
   In a sign that serious deal-making was finally getting under way, a Senate aide told Reuters that the two leaders of the Senate Banking Committee were talking again on an issue that is a major priority of the Obama administration.
   Democratic Senator Christopher Dodd, committee chairman, and top committee Republican Senator Richard Shelby met on Wednesday night, Shelby spokesman Jonathan Graffeo said.
   The two had reached an impasse earlier in February. Dodd's task of winning Senate passage for a bill would be much eased by a show of support from Shelby.
   "Senator Shelby and Chairman Dodd met with each other just last night and will continue to seek common ground," Graffeo said. "Senator Shelby has said all along that he wants to reach an agreement on substantive and meaningful financial reform."
   Dodd hopes to introduce a bill early next week, receive amendments by March 5 and hold a working session during the week of March 8, possibly leading to a committee vote.
   More than a year since a severe financial crisis prompted a global push for tighter regulation, most senators concur on the basics of reform -- a better way to deal with big firms in distress that avoids bailouts; sharper detection of risks in the financial system; tougher rules to make banks stronger.
   Streamlining the federal bank supervision bureaucracy and writing rules for the unpoliced over-the-counter derivatives market are key goals, as well, in what will be a huge piece of legislation. The financial reform bill approved in December by the U.S. House of Representatives was 1,279 pages long.
  
   60-PCT ODDS OF COMPLETION
   The odds of Congress sending a comprehensive bill to President Barack Obama's desk to be enacted into law this year are about 60 percent, said Charles Gabriel, policy analyst at investment advisory firm Capital Alpha Partners LLC.
    Moreover, he said, the bill may "mitigate, rather than stoke, investor concerns along the way."
   Through most of February, Republican Senator Bob Corker, a first-term banking committee member, has carried on discussions with Dodd in Shelby's absence. Dodd and Corker are expected to release a bipartisan compromise bill next week.
   (For a Factbox detailing the Dodd-Corker bill's likely contents, double-click on [ID:nN25103579]
   Meanwhile, Shelby has been drafting a Republican substitute bill, parts of which are expected to be offered later as amendments to whatever Dodd and Corker produce.
   A major stumbling block in the way of agreement has been Obama's proposal to create a Consumer Financial Protection Agency. The CFPA would shield Americans from abusive mortgages, deceptive credit cards and other dodgy financial products.
   Republicans and lobbyists for banks and Wall Street have been trying to kill or weaken the proposal, calling it an unwise step that would separate consumer protection from banking supervision. The CFPA also threatens bank profits.
   Democrats say the CFPA is needed to protect consumers from shoddy and deceitful financial products like the wave of subprime mortgages that added so much to the real estate bubble that burst in 2007-2008, triggering the crisis.
   "If we can work out the consumer product deal in some way ... then I believe we'll get together on a bill. If we don't we'll, I guess, be politically estranged," Shelby told reporters after a hearing on Capitol Hill.
  
   CFPA MAY BE A DIVISION
   To bridge the divide over consumer protection, Dodd and Corker were likely to recommend that the CFPA be set up as a division of a new bank regulatory agency, rather than an independent agency on its own.
   Asked about that after a hearing on Thursday, U.S. Rep. Barney Frank, chairman of the House Financial Services Committee, defended the importance of an independent agency,   which the White House favors and which is included in the House bill.
   "I like what I have," Frank said. "If the Republicans want to kill that (an independent CFPA) they should be given a chance to do that with a big public debate."
   White House spokeswoman Jen Psaki said: "Our top priorities on CFPA are ensuring the bill includes independent appointment, an independent budget, and an independent ability to set and enforce clear rules of road to  protect American families."
   Treasury Secretary Timothy Geithner met with financial industry lobbyists on Thursday amid signs that they were increasingly willing to talk after many months of stonewall resistance to the Obama administration's proposed reforms.
   At a congressional hearing, Federal Reserve Chairman Ben Bernanke poured cold water on the idea of a "Volcker rule" that would ban banks from engaging in proprietary trading -- using government-guaranteed capital to make bets for their own accounts -- as the Obama administration has advocated.
   "It would be difficult to do on a purely legislative basis," Bernanke said.
   Congress looks unlikely to adopt the rule as proposed, in any case, leaning instead toward empowering regulators, at their discretion, to ban "prop trading" and other activities at firms judged to pose a risk to financial stability. (Additional reporting by David Lawder, Caren Bohan, Rachelle Younglai, Glenn Somerville, Tim Ahmann and Karey Wutkowski; Editing by Dan Grebler)
 ((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax)) Keywords: FINANCIAL REGULATION/ 
  
Thursday, 25 February 2010 23:56:35RTRS [nN25256740] {C}ENDS

from Financial Regulatory Forum:

ANALYSIS-US ‘dark pools’ marketplace may face pruning

February 25, 2010

   By Jonathan Spicer
   NEW YORK, Feb 24 (Reuters) - The surprising growth of U.S. stock trading venues is set for a pruning as regulators prepare to tighten controls on so-called dark pools and as brokers, still pinching pennies, look to narrow where they send orders.
   Dark pools are a type of alternative trading system, or ATS, that allow investors to anonymously trade larger blocks of stock without tipping their hand to the wider market.
   At more than 40, they've exploded in the last five years to meet investors' growing demand, fragmenting and complicating the marketplace like never before.
   While the U.S. Securities and Exchange Commission is worried this fragmentation could harm public prices and long-term investors, others are concerned about the mounting costs associated with routing orders to the most appropriate of many destinations.
   This all suggests that some ATSs -- particularly the smaller, independent ones -- could disappear in a consolidation, marking a significant shift from the regulation-inspired explosion that has siphoned trading volume from New York Stock Exchange, Nasdaq Stock Market and other traditional exchanges.
   "It makes sense and it's made some sense for a while," said Jamie Selway, managing director of institutional broker White Cap Trading, and a BATS Exchange board member.
   "Potentially the operating costs go up for (ATSs) with the regulatory tightening. There is decreasing marginal return for people running these things, and an even harder market in terms of ... less money for technology projects," he said. "Budgets are tight, particularly technology and regulatory budgets."
   The last industry-wide consolidation came between 2000 and 2006 with the various mergers of alternative venues BRUT, Instinet, Island, and Archipelago, which all ended up acquired by what are now NYSE Euronext <NYX.N> or Nasdaq OMX <NDAQ.O>.
   But new rules in 2005 known as Regulation National Market System (Reg NMS) forced exchanges to electronically route orders to the venue with the best price, sparking another growth spurt that the SEC hoped would curb exchange monopolies, and inspire innovation and diversity in the marketplace.
   It certainly had the desired effect. Perhaps too much so.
   "After having favored ATSs by exempting them from exchange requirements, the commission is now considering whether the success of the ATSs has had another effect of creating (unwanted) fragmentation," and whether they should be brought more in line with the requirements of exchanges, Robert Colby, former deputy director of the SEC's trading and markets division, told the Capital Markets Consortium this week.
   Reg NMS has brought "significant fragmentation of orders and high search costs for large orders," said Colby, who is now counsel at law firm Davis Polk & Wardwell LLP.
  
   DARK POOLS UNDER THE GUN
   The public comment period ended Monday on the SEC's three dark pool proposals: to ban private electronic messages known as indications of interest, or IOIs; lower the threshold at which the ATSs must display quotes for a single stock; and require them to report trading in real time. [ID:nN04224658]
   The SEC also devoted much space to dark pools in a 74-page paper on market structure and high-frequency trading that it issued last month, which also requests public comment. "Whether fragmentation is in fact a problem in the current market structure is a critically important issue ..." the SEC said.
   "Undisplayed" trading accounts for about a quarter of all volume, according to the regulator. Most of that is executed in-house at banks such as Credit Suisse Group AG <CSGN.VX>, Goldman Sachs Group Inc <GS.N> and other broker-dealers that "internalize" orders in their own dark pools.
   Any consolidation, rather, is likely to occur among the independent or consortium-owned ATSs that have a less stable flow of orders, and that are more vulnerable to rule changes.
   "If it's a fragmented dark pool with no electronic liquidity provider, then, standing alone, it may be hard for them to gain a lot of market share," said George Hessler, an industry veteran and former executive vice president at Lime Brokerage.
   There are mixed signals as to whether an ATS consolidation has begun.
   NYFIX, a trading technology firm bought last year by NYSE Euronext, agreed separately in November to sell its Millennium dark pool to BNY ConvergEx Group. Headed in the other direction, trading systems provider Pragma Securities launched the ONECROSS dark pool earlier this month. [ID:nN09189539]
   Big advances in brokerages' order-routing technology is probably why consolidation has not occurred over the last few years, Whit Conary, president of dark pool LeveL ATS, said of the industry in general. "It is unlikely that regulatory changes will bring about consolidation in ATSs."
   But Conary, whose Level launched in 2006 and is backed by five financial companies including Citigroup Inc <C.N> and mutual fund giant Fidelity, added that mergers could work from a business perspective if the ATS models are substantially different and can expand on the offering to the customer. (Editing by Steve Orlofsky) ((jonathan.spicer@thomsonreuters.com; +1-646-223-6253; Reuters Messaging: jonathan.spicer.reuters.com@reuters.net))
   Keywords: TRADING/DARKPOOLS CONSOLIDATION 
  
Wednesday, 24 February 2010 18:22:58RTRS [nN24149666] {C}ENDS

from Financial Regulatory Forum:

U.S. SEC delays plan to adopt IFRS

February 25, 2010

   By Rachelle Younglai
   WASHINGTON, Feb 24 (Reuters) - U.S. securities regulators on Wednesday delayed plans to allow domestic companies to use international accounting standards because it will take businesses at least four years to switch to new rules.
   The soonest U.S. companies could start using the International Financial Reporting Standards, or IFRS, would be in 2015 instead of 2014, but even that date is not certain.
   The Securities and Exchange Commission is grappling with how to move to one set of high-quality, globally accepted accounting standards.
   Under the previous plan, the SEC would have allowed U.S. companies to use the international rules as early as 2014. But industry and investors told the SEC that U.S. companies would need about four to five years to implement the changes successfully, thus pushing the date out to 2015.
   A host of issues remain, such as whether the international rules are sufficiently developed, whether the United States is prepared to convert to IFRS and ensuring that the international rules are set by an independent standard setter.
   "We do not have all the information necessary to make these decisions today," said SEC Chairman Mary Schapiro at a public agency meeting.
   Next year, the SEC will decide whether to incorporate IFRS into the U.S. financial reporting system. The agency will only proceed if it is satisfied that progress is being made on issues such as improving IFRS.
   The U.S. audit and business community said it was pleased that the SEC reiterated support for a single set of high-quality global accounting standards. However, the vagueness of the plan frustrated some foreign accountants.
   "The current cautious approach does not offer the much-needed certainty required by U.S. companies and the many jurisdictions still in the process of making final decisions about switching to IFRS reporting," said the Institute of Chartered Accountants in England and Wales.
   U.S. companies are required to use U.S. Generally Accepted Accounting Principles, or U.S. GAAP, which are considered more prescriptive than the international rules.
   Meanwhile, the rest of the world is adopting the international standards, which could potentially leave the United States and global companies at a disadvantage if they have to comply with two sets of rules.
   Financial centers such as Hong Kong and the European Union already require international accounting rules.
 (Reporting by Rachelle Younglai; Editing by Andre Grenon and Steve Orlofsky)
 ((rachelle.younglai@thomsonreuters.com; +1 202 898 8411)) Keywords: SEC IFRS 
  
Wednesday, 24 February 2010 22:00:18RTRS [nN24108779] {C}ENDS

from Financial Regulatory Forum:

US’ Geithner repeats call for financial reform bill

February 24, 2010

    WASHINGTON, Feb 24 (Reuters) - U.S. Treasury Secretary Timothy Geithner on Wednesday repeated his call for Congress to pass financial reform legislation that curbs risk-taking by big financial firms and ensures they can absorb their own losses.
   Geithner, in prepared testimony on the Obama administration's fiscal 2011 budget plan that was identical to earlier written remarks, told the U.S. House of Representatives Budget Committee that comprehensive reforms were needed to ensure growth and ensure Americans' financial safety.
   "We need a financial system that is safer, in which financial firms, especially large ones, have more capital to absorb their own losses and cannot take risks that threaten the whole economy," Geithner said. "Consumers need to be given the information they require to make the decisions that are right for them and they need to be protected from unfair and fraudulent practices."
   He added that the government needs to have the authority that it did not have during the financial crisis to "break apart and unwind failing firms in ways that limit damage to the system as a whole."
   But his testimony did not provide any specifics on the mechanisms for providing such protections. Geithner is scheduled to meet later on Wednesday with U.S. senators Christopher Dodd, the Connecticut Democrat who heads the Senate Banking Committee, and Republican Bob Corker, who has taken a lead role in negotiations on a Senate financial reform bill, to hash out details of the bill.
   Key sticking points are Republican opposition to curbs on proprietary trading by Wall Street banks and to the creation of a new consumer financial protection agency. (Reporting by David Lawder, Editing by Chizu Nomiyama)
 ((david.lawder@thomsonreuters.com; +1 202 898 8395; Reuters Messaging: david.lawder.reuters.com@reuters.net))
   Keywords: USA BUDGET/GEITHNER 
  
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 Wednesday, 24 February 2010 15:00:00RTRS [nNYS007798] {EN}ENDS

from Financial Regulatory Forum:

W.House recommits to ‘Volcker rule’ bank trade ban

February 24, 2010

   By Kevin Drawbaugh
   WASHINGTON, Feb 23 (Reuters) - The Obama administration said on Tuesday it is still committed to the "Volcker rule" to ban risky trading by banks, although Congress looks increasingly unlikely to adopt the rule as proposed.
   The White House's forceful support for the rule came after the Treasury Department said earlier in the day that it backed "mandatory limits" on banks trading for their own account.
   President Barack Obama had originally framed the proposed Volcker rule on Jan. 21 as an outright ban, which stunned markets and complicated extended negotiations in Congress over legislation to tighten bank and capital market regulation.
   "We're not walking away from and we're not watering down that proposal one bit," White House spokesman Robert Gibbs told reporters when asked about the outlook for the rule authored chiefly by White House economic adviser Paul Volcker.
   "We're not walking away from what the president outlined on the Volcker rule," Gibbs said at a briefing.
   As he spoke, the U.S. Senate Banking Committee continued negotiating long-awaited regulatory reform legislation. Release of a bipartisan bill by two key lawmakers had been expected this week, but lobbyists said it may wait until next week.
   The committee is considering including a watered-down version of the Volcker rule in the bill, which will also propose new rules to protect financial consumers, rein in derivatives markets and tackle the "too big to fail" problem.
   Financial services industry lobbyists said senators may add language to their bill from a bill approved in December by the House of Representatives.
   The House bill would allow, but not require, regulators to restrict proprietary trading at firms judged to pose a risk to the stability of the financial system. Regulators could also order firms out of the hedge fund business under the Democratic House bill, which got no votes of support from Republicans.
   Obama's January proposal was tougher. He proposed that banks "no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers."
   The Volcker rule could affect as much as 10 percent of net revenues at Goldman Sachs <GS.N>, said a senior executive of the Wall Street giant earlier this month.
   In response to questions about the administration's commitment to the proposal, the Treasury Department on Tuesday restated its position that simply allowing regulators to act to curb banks' proprietary trading was not enough.
   "We believe that rather than merely authorize regulators to take action, we should impose mandatory limits on proprietary trading by banks and bank holding companies."
   The statement, which was in keeping with testimony from a top Treasury official on Feb. 2, also reiterated the Treasury's support for "related restrictions on owning or sponsoring hedge funds or private equity funds, as well as on the concentration of liabilities in the financial system."
   Former New York Federal Reserve official Ernest Patrikis, a foe of the Volcker rule, said the Treasury's language suggested a shift in the stance of the administration, which has still not released draft legislative language for the Volcker rule.
   "They realize they are off track and that the original proposal was misdirected, too strong and ill-advised," said Patrikis, a specialist in bank regulatory issues at the law firm White and Case in New York.
   Senate Banking Committee members are considering giving regulators the power to impose limits on a bank's proprietary trading only if the regulator thinks the bank's activities threaten its safety and soundness. The rules would apply only to banks with assets over $50 billion, the sources said.
  
   HOUSE BILL CLOSELY SIMILAR
   Those parameters align closely with the House bill. One of its chief authors, Representative Paul Kanjorski, chairman of the House Capital Markets Subcommittee, told reporters on Tuesday he would support keeping the "measured" language in the House bill or the White House's proposal.
   Either way, he said, "I don't think that it hurts anybody except those who want to speculate very quickly. ... Let's be honest, some of these people just don't learn.
   "When your dog just keeps wetting the carpet, there's only one thing to do, you've got to whack him on the nose to let him know that's not what he's supposed to do. Maybe the regulators have to whack the banks a little bit to make them respond."
   The U.S. government reported on Tuesday that the number of "problem" U.S. banks jumped 27 percent during the fourth quarter of 2009 to 702, the highest level since 1993.
   At the same time, the New York State comptroller reported that bonuses on Wall Street rose 17 percent last year to $20.3 billion even as the industry faced a public backlash over pay.
   Average taxable bonuses on Wall Street rose to $123,850 in 2009. Compensation at Goldman Sachs, JPMorgan Chase & Co <JPM.N> and Morgan Stanley <MS.N> rose 31 percent.
   Separately, Senate Agriculture Committee Chairman Blanche Lincoln said on Tuesday the panel will unveil a draft bill in the next couple of weeks to crack down on over-the-counter derivatives, an area also addressed in the House-passed bill.
   In another financial regulation issue, a senior Treasury official on Tuesday said at a conference that it is vital to set up a separate financial consumer watchdog agency.
   Obama's proposed Consumer Financial Protection Agency is a major obstacle to bipartisan Senate agreement on reforms.
   Michael Barr, the department's assistant secretary for financial institutions, said the Treasury was well aware that lobbyists were trying to "slow progress or weaken reform."
  
   * Wall St not heeding anger over exec pay -W.House, double-click on [ID:nWEN0591]
   * W. House says not watering down "Volcker rule," double-click on [ID:nWEN0588]
   * US Senate ag committee to soon unveil OTC bill, double-click on [ID:nN23105612]
   * US Senate panel mulls narrow, weak Volcker rule, double-click on [ID:nN23104224]
   * US FDIC reports 27 pct jump in problem banks, double-click on [ID:nN23103175]
   * US Treasury pushes call for consumer watchdog, double-click on [ID:nN23248516]
   * US Treasury says backs limits on bank trading, double-click on [ID:nN23246650]
   (Additional reporting by Matt Spetalnick, Glenn Somerville, Rachelle Younglai, Caren Bohan, Karey Wutkowski and David Lawder, with Steve Eder and Jonathan Stempel in New York) (Reporting by Kevin Drawbaugh; editing by Carol Bishopric)
 ((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax)) Keywords: FINANCIAL REGULATION/ 
  
Wednesday, 24 February 2010 00:26:44RTRS [nN23101102] {C}ENDS

from Financial Regulatory Forum:

Financial watchdog’s power crucial — Obama aide

February 23, 2010

   By Kevin Drawbaugh and Caren Bohan
   WASHINGTON, Feb 22 (Reuters) - An Obama administration spokesman on Monday stressed the importance of "independent authority" for a proposed U.S. financial consumer watchdog and said where it was "housed" was another issue.
   The comment from Robert Gibbs, spokesman for the White House, came as two U.S. senators tried to forge a bipartisan agreement on tighter financial regulation, with analysts watching closely for signals of compromise.
   The biggest obstacle to a Senate deal is President Barack Obama's proposed U.S. Consumer Financial Protection Agency.
   Democrats want a powerful, independent financial consumer watchdog, saying it is needed to shield Americans from predatory mortgages and abusive credit cards.
   Republicans want to block the CFPA or weaken it, an objective shared by the financial industry, whose profits would be directly threatened by the proposed agency.
   Two disputes remain on the CFPA proposal. One is whether it will be an independent agency, or a division of some larger  regulatory body. Another is how much power it will have, either as a stand-alone organization or as a unit of something else.
   "The elements of this ... have to include the independent authority of a CFPA," Gibbs told reporters at a briefing.
   "Whether it's housed some place, I think, is one thing.  But does that -- does the office of the CFPA have the independent authority to act without the permission of wherever that is housed?" he said.
   After the worst banking and capital market crisis since the 1930s, Obama in mid-2009 proposed the CFPA. The House of Representatives endorsed the idea, reducing its scope somewhat, in December as part of a sweeping financial reform bill.
  
   DODD-CORKER BILL IMMINENT
   Senate Banking Committee Chairman Christopher Dodd, a Democrat, is working closely with Republican Senator Bob Corker, a committee member, on a broad financial reform agreement. Its release is expected within days.
   "I'm very optimistic we can get a bill, a good bill," Dodd told reporters on Monday, adding he believes the pending measure would win Senate passage.
   Senator Richard Shelby is leading other Republican banking committee colleagues on drafting substitute legislation. That proposal and whatever Dodd and Corker produce are expected to collide in early March at a committee working session that will likely lead to a decisive vote.
   "It's unclear whether the proposal will include language on enhanced consumer protection, although Shelby's alternative bill -- which Dodd may ultimately have to steer close to -- will almost certainly reject the notion of creating an independent" CFPA, said policy analyst Charles Gabriel at investment advisory group Capital Alpha Partners.
   Shelby told reporters, "Conceptually, we are probably very close together on all the main issues," except for the proposed creation of an independent consumer watchdog agency.
    Treasury Secretary Timothy Geithner said on Monday the administration is still fighting "to consolidate the fragmented authority of seven separate agencies into a single, independent and accountable Consumer Financial Protection Agency."
   His remarks came in a statement marking implementation on Monday of new rules for the credit card industry, signed into law last year by Obama as his first financial reform victory.
   As originally proposed, the CFPA would centralize consumer protection laws and staffs now located and managed within the Federal Reserve, the Federal Deposit Insurance Corp and other agencies criticized for doing a poor job ahead of the crisis.
   Seeking compromise, Dodd in recent weeks has discussed multiple options with Republicans, but has not struck a deal.
  
   OPTION STILL ON TABLE
   The only compromise proposal still in play, aides said, is one that would make the CFPA a unit of a new bank super-cop that Dodd favors, the Financial Institutions Regulatory Administration (FIRA). Still disputed, however, is how much autonomy and rule-writing power to give the CFPA director.
   Corker has said that failure to work out the CFPA issue could prevent Congress from producing any reform bill.
   On another issue, the Dodd-Corker bill was expected to call for formation of an inter-agency council of regulators to monitor financial risk to the stability of the economy. Its chairman would be the Treasury secretary, with the head of the Fed as vice-chairman. Other details are being worked out.
   "Dodd has endorsed the idea of a systemic risk council chaired by the Secretary of the Treasury, with the Fed chairman serving as vice chair," said Dodd spokeswoman Kirstin Brost.
   The same approach was backed by the House in December. In a similar approach, Dodd had initially proposed forming a new agency governed by a council to oversee systemic risk.
   Substantive disagreement remains among lawmakers over the  council's powers, said Senate aides.
   Dodd initially proposed allowing the council to mandate existing regulators to take specific policy actions.
   Some Republicans agree that the Treasury should chair the council, but want to limit its power to issuing recommendations regulators could reject, subject to congressional oversight.
  
   RELATED NEWS
   * TAKE A LOOK-Global changes in financial regulation, please double-click on [ID:nLDE61F22A]
 
 (Additional reporting by David Lawder and Jeff Mason, and Thomas Ferraro; Editing by Chizu Nomiyama) ((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax))
       Keywords: FINANCIAL REGULATION/ 
  
Tuesday, 23 February 2010 00:19:10RTRS [nN22150585] {C}ENDS

from Financial Regulatory Forum:

State Street says U.S. requested info on funds

February 23, 2010

   By Svea Herbst-Bayliss
   BOSTON, Feb 22 (Reuters) - State Street Corp <STT.N> reported on Monday that federal securities regulators and federal prosecutors had asked it to supply information about several of its funds.
   The requests were made public only a few weeks after State Street, the world's second largest institutional money manager with $1.9 trillion in assets under management, settled other federal and state charges related to investments in sub-prime mortgages.
   In the filing, State Street said the U.S. Attorney's office in Boston has requested information in connection with State Street's active fixed income strategies.
   The company did not say when the federal prosecutor asked for the information or give any other details about what may happen next.
   In the same filing, State Street also said the U.S. Securities and Exchange Commission had requested information regarding two registered funds that invested in sub-prime securities.
   It also did not say when the U.S. financial regulator asked for the information.
   The company said these funds were not covered by the settlement announced earlier this month and added that the SEC has "declined to advise us of the status of its inquiry."
   Earlier this month the company agreed to reimburse investors over $300 million to settle federal and state charges that the company had misled clients about its investments in sub-prime mortgages.
   The commission charged that the Boston-based company's investment arm had selectively disclosed information to investors in its Limited Duration Bond Fund about the portfolio's plunging returns in 2007.
   The fund, which had managed $1.4 billion, was aimed at pension funds and other investors who wanted slightly better returns than what money market funds were paying, but with only slightly more risk. The fund's returns tumbled about 37 percent during the first three weeks of August 2007.
   State Street, an icon in the investment industry since its founding 218 years ago, had already paid out about $350 million to settle lawsuits brought by private investors.
   The payments under the settlement announced earlier in the month will be covered by State Street's legal reserve fund, which it originally set up in 2007 and stocked up last year.
   In the regulatory filing made on Monday, State Street sad that of the seven seven lawsuits filed, the company settled three, including an $89.75 million Employee Retirement Income Security Act (ERISA) class action settlement. (Reporting by Svea Herbst-Bayliss; Editing by Richard Chang) ((Svea.Herbst@Reuters.com; +1 617 856 4331; Reuters Messaging: svea.herbst.reuters.com@reuters.net)) Keywords: STATESTREET/ 
  
Tuesday, 23 February 2010 00:55:21RTRS [nN22221054] {C}ENDS