Financial Regulatory Forum

Regulatory forbearance looms as next big supervisory risk for financial giants

By Susannah Hammond

LONDON/NEW YORK, Sept. 9 (Thomson Reuters Accelus) – Regulatory forbearance is not a concept that has hit many headlines. It is, however, emerging as an underlying theme in publications by a range of bodies, from the International Monetary Fund (IMF) to the European Union and beyond. Regulatory forbearance is not about supervisory incompetence but, rather, the potential for a fully briefed regulator to decide not to intervene. There may be many legitimate occasions when non-intervention is the right call but, when judged with the benefit of hindsight, more supervisory interventions, made sooner, could have ameliorated some of the worst of the issues arising out of the financial crisis.

As Bank of England governor Sir Mervyn King stated, taking away the punchbowl when the party is in full swing is never an easy decision to make. Regulators, however, must be both capable and willing to take tough interventionist action. Regulators making such difficult decisions need to be assured that they have the backing of the international financial services community, the support of their domestic political masters and, perhaps to a lesser extent, the understanding of the public.

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FACTBOX-How the EU plans to shake up financial services

Sept 27 (Reuters) – European Union central bankers, lawmakers and ministers meet in Brussels this week for the annual Eurofi symposium to discuss the bloc’s financial reform plans.

Representatives of European Union states and the European Parliament also meet separately on Monday in a further bid to agree new rules to regulate managers of hedge funds and private equity groups. (more…)

OPINION-The heavy lift of harmonization-CFTC’s Chilton

–The author is Bart Chilton, a commissioner at the U.S. Commodity Futures Trading Commission. The opinions represent the view of the author and not that of Reuters.

By Bart Chilton

Now that the U.S. has approved the largest financial regulatory reform ever undertaken, it’s time for other nations to join in to ensure more efficient, effective market systems. Here is what we know: free markets without sufficient sideboards led to the global economic collapse.

Banks moved away from traditional lending and into exotic mortgages and foolhardy bets — like naked credit default swaps — and ultimately the American taxpayer was left with the bill for bailing out large institutions previously thought of as too big to fail.

ANALYSIS-Frustrated EU carbon traders play waiting game

By Michael Szabo

COLOGNE, Germany May 28 (Reuters) – Major changes proposed to the European Union’s emissions market could dramatically alter the landscape for traders, who are increasingly frustrated by regulatory uncertainty and political stalemate.

A deeper 2020 EU greenhouse gas reduction commitment, qualitative and quantitative restrictions on carbon offset eligibility and details on carbon permit auctioning in the scheme’s third phase are among the decisions expected to be made this year by the 27-nation bloc’s executive.

But policymakers at this week’s annual Carbon Expo conference in Cologne were tight-lipped, and the uncertainty caused gloom among traders.

ANALYSIS-EU faces battle over closer economic union

By Timothy Heritage

BRUSSELS, May 21 (Reuters) – Agreeing on a $1 trillion safety net may prove the easy part of saving the euro now the European Union’s leaders are turning to the divisive issue of tightening economic policy coordination.

The European Commission wants to reinforce economic surveillance and budget discipline to strengthen the euro zone and prevent a repeat of Greece’s debt crisis in any of the other 15 countries that use the single currency.

But a battle is looming over the proposals even before the first meeting on Friday of a task force set up by EU President Herman Van Rompuy to come up with ideas on how to toughen EU budget rules and improve policy coordination.

FACTBOX – Comparing EU and U.S. financial reform

LONDON, May 21 (Reuters) – The U.S. Senate approved a reform of Wall Street on Thursday and President Barack Obama may be signing into law the most sweeping changes to financial rules since the 1930s as soon as next month.

It implements pledges the United States, the European Union and other leading countries in the Group of Twenty made in 2009.

With the United States set to adopt its reform soon — and thus easily meet G20 deadlines — the EU has to play catch-up in some cases. Banks are watching carefully as transatlantic differences are emerging that will affect business models.

ANALYSIS-Europe won’t go as far as Germany on CDS, bonds

By Huw Jones and John O’Donnell

LONDON/BRUSSELS, May 19 (Reuters) – The European Union, struggling to calm volatile financial markets, intends to curb speculation in government debt but remains very unlikely to imitate harsh steps announced by Germany.

The difficulty of enforcing any prohibition on speculative trade, and concern that any ban might backfire by depriving investors of ways to hedge their risks, mean many governments are reluctant to try to introduce regional or global bans.

Instead, the EU is likely to focus on increasing transparency in the markets — forcing traders to disclose more information about their activities, so that regulators can see risks emerging — and on introducing limits to the size of derivatives positions which traders can hold.

FACTBOX-How European rules will curb hedge funds

May 19 (Reuters) – The European Union’s 27 countries and the bloc’s parliament agreed to tighten controls of hedge funds and private equity this week.

Negotiations will now begin between the two to hammer out a final version of the law to regulate the secretive industries by 2012.

Although some issues remain contentious, such as how the new law will treat foreign funds, both parliament and European countries have committed to set up broad controls on a sector many suspect exacerbated the financial crisis.

EU says won’t copy U.S. bank plan; bank ethics face scrutiny over Greece

Watching the banks

Watching the banks

  BRUSSELS, Feb 16 (Reuters) – Banks in the European Union won’t face a ban on proprietary trading, the bloc’s executive body said on Tuesday, but warned the sector to check its ethics.

Securitised products and derivatives, two areas where banks have raked in revenues over the years, will also come under closer EU scrutiny, officials said.

U.S. President Barack Obama has proposed banning some banks from trading on their own account and limiting their size by forcing divestments of any hedge fund and private equity operation to make them less likely to need public bailouts.

EU states cool to Obama proprietary trading ban for big banks -document

BRUSSELS, Feb 15 (Reuters) – If U.S. President Barack Obama’s plan to ban proprietary trading at some banks was applied in the European Union, it could be problematic for the bloc’s universal banks, an EU document obtained by Reuters said.

EU finance ministers, following a call from the Netherlands which backs the proposal, will discuss its possible impact on Europe at a meeting on Tuesday but no consensus is expected.

The plan, dubbed the “Volcker rule,” was drafted by White House adviser and former Federal Reserve Chairman Paul Volcker, stunned global markets last month and is already facing resistance in Congress.

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