Financial Regulatory Forum

The following is a guest post by Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University School of Law, and a former assistant general counsel to the Federal Reserve Board of Governors. The opinions expressed are his own.

As Scott Brown and Barney Frank hash out the difference between a tax and an insurance premium, it’s important to return to the very basics of banking. Banks are in the business of buying and selling money.

They buy money as deposits and other borrowings. They sell it as loans and investments. If someone with deep pockets is foolish enough to guarantee a bank’s deposits and borrowings, that bank can buy money more cheaply. Further, if that person gives his guarantee for free, the bank would have a competitive advantage.

If I told you that an elite class of banks has found such a fool to guarantee their debts, you’d probably want to know who it is. Well, it’s you and me, the taxpayers.

Then you’d want to identify the elite banks so that we could cut off the guarantee, or at least begin charging them for what we’re giving away. Does “too big to fail” ring a bell?

A House-Senate conference committee must find a middle ground between financial regulation bills passed by the two chambers. The committee’s final report could differ from earlier versions.

Once approved by both chambers, the compromise legislation will go to President Barack Obama to sign it into law. That could happen by July 4, analysts say.

Here’s a look at the status of major points in the House and Senate financial regulation bills.

    BERNE, April 22 (Reuters) – Switzerland may have to force its large banks UBS<UBSN.VX> and Credit Suisse<CSGN.VX> to change their structure in order to limit the risks for the economy should either collapse, a government commission said on Thursday. (more…)

If you want less of something, tax it.

That truism is often used as an argument against a tax on profits, or health benefits, or employment, but in the case of the rents extracted from the economy by the financial services industry here's hoping it proves more of a promise than a threat.

The International Monetary Fund has put forward two new taxes on banks to pay the costs of future rescues, one of which is a fairly conventional "Financial Stability Contribution," with an initial flat levy on all banks, to be refined later into something with more precise institutional and systemic risk adjustments.

More interestingly, the IMF is also proposing a "Financial Activities Tax," (FAT) a tax on bank pay and profits which, if correctly designed, could serve as a tax on rents -- the unwarranted spoils -- of the financial sector.

    DUBLIN, April 21 (Reuters) – Ireland’s financial regulator said the strict new capital levels Irish banks must meet will cushion losses on smaller loans and not just the riskier batches being moved to the country’s “bad bank.” (more…)

The International Monetary Fund has done what it was bid by the G20  and come up with proposals for getting banks to pay for the government help they receive when they get in trouble.  You can read the actual wording here, but it comes down to this:

1) A "Financial Stability Contribution" which would be pooled into a fund that would use it to help weak banks, or just go into general government revenues.

2)  A "Financial Activities Tax" -- perhaps intentionally known as FAT -- to be levied on combined bank profits and remuneration (for which read "bonuses") and paid to governments.

By Caren Bohan

WASHINGTON, March 25 (Reuters) – Fresh from his victory on landmark healthcare legislation, U.S. President Barack Obama is ready to take on Wall Street.

In the same week Obama signed into law his sweeping healthcare plan, his administration began a publicity blitz to sell his proposal to reshape the financial regulatory system.

Obama held a strategy session on Wednesday with two Democrats, Senate Banking Committee Chairman Christopher Dodd and House of Representatives Financial Services Committee Chairman Barney Frank, who are leading the effort to pass the plan in Congress.

   By Karey Wutkowski
   WASHINGTON, March 11 (Reuters) – U.S. bank regulators  extended a policy on Thursday that protects securitized assets in the event that a bank fails and is seized by regulators. (more…)

    PRAGUE, Feb 23 (Reuters) – The Czech banking system will maintain sufficient capital adequacy in all projected scenarios of economic and market development, central bank stress tests showed on Tuesday. (more…)

    VIENNA, Feb 22 (Reuters) – Banks should contribute toward financial stability measures, but a blanket levy on total assets could worsen future crises, the vice president of Germany’s Bundesbank was quoted as saying on Monday. (more…)