Financial Regulatory Forum

By Bora Yagiz

NEW YORK, July 9 (Thomson Reuters Accelus) - The “living will” resolution plans submitted to U.S. regulators by nine big banks last week suffer from a number of limitations, including narrow scenarios of financial distress and an assumption that regulators will be coordinated in their approach. But there will be plenty of opportunity to perfect the blueprints.

Five major U.S. banking organizations and four foreign-based bank holding companies with $250 billion or more in total nonbank assets submitted on July 2 their resolution plans, or “living wills,” to the Federal Reserve Board and Federal Deposit Insurance Corporation (FDIC) as required by section 165(d) of the Dodd-Frank Act (DFA). This constituted the first of the three waves of submissions of a staggered schedule arranged according to the banks’ sizes and due to be completed by end-2013. These plans to complement the recovery plans that are designed to maintain firms under extreme stress as going concerns, will serve as the official point of entry for bankruptcy. (more…)

By Nick Paraskeva

NEW YORK, Dec. 16 (Thomson Reuters Accelus) – Several recently adopted rules in the U.S. are going into effect for specific types of firms in 2012. These rules include ones released by the Securities and Exchange Commission, Commodity Futures Trading Commission and Federal Reserve, issued to implement the Dodd-Frank Act and as a response to market developments.

The SEC-adopted rules requiring reporting by advisers to hedge funds and by large traders of securities are explained below. We also cover the CFTC final rules on derivative clearing firms in the swaps market and provide a summary of the Fed’s final rules on living wills for large banks, and non-bank systemically important financial institutions (SIFIs), under the Dodd-Frank Act. (more…)

Back in April 2011, Jim Bianco penned a commentary, “Why The Federal Reserve May Have A Hard Time Raising Rates.” He argued that the increase in the FDIC insurance assessment rate for large banks adds to bank funding costs, and thus offsets the impact of Fed ease. Bianco and others infer a roughly 15bp tax or “wedge” on money market assets is created by the FDIC assessment rule.  By way of reference, the Fed’s target band for fed funds is 0 to 25bp but has been at low end of this range for months.

David Kotok of Cumberland Advisors subsequently wrote that the FDIC tax is offsetting the 25 bp paid to banks on Fed reserves and is effectively forcing U.S. banks out of the market.  (See my paper published by Networks Financial Institute at ISU, “What is a Core Deposit and Why Does It Matter?”, which goes into the changes to the deposit insurance made by the Dodd-Frank legislation.)

Let’s agree with the central contention of the “Bianco-Kotok Hypothesis” (or BKH), namely that the new FDIC assessment is affecting the money markets. But is this change the most compelling explanation for the alarming exodus of banks from the institutional credit markets?  Bianco’s research illustrates the collapse of yields in the securities repurchase (or repo) market since April, when the FDIC implemented the new deposit insurance assessment rules. He talks about the task the Fed faces to raise rates given the FDIC assessment:

By Kevin Drawbaugh

WASHINGTON, March 21 (Reuters) – The big U.S. government agencies in charge of policing banks and markets, despite being excoriated over the severe 2008-2009 financial crisis, have successfully dodged a major structural shake-up.

While Congress may yet clamp down on the financial industry from Wall Street to Main Street, a top-to-bottom overhaul of the nation’s regulatory apparatus — which seemed like a certainty a year and a half ago — is not going to happen.

As political reality has tempered reform proposals, plans to reconfigure a patchwork bureaucracy stitched together over decades have faded from view, with just one agency closure still on the negotiating table.

   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…)

– The author is a Reuters Breakingviews columnist. The opinions expressed are her own –

By Lauren Silva Laughlin

DALLAS, Feb 16 (Reuters Breakingviews) – The Federal Deposit Insurance Corp (FDIC) is on the back foot thanks to imperfect disclosure. A web video critical of the U.S. agency’s sale last year of failed IndyMac Bank has elicited a defensive clarification. FDIC could have been clearer when the deal was done.

When FDIC sold IndyMac to OneWest, a bank owned by private equity investors, it agreed to share losses based on the original face value of the loans — while, as the video pointed out, IndyMac’s buyers bought the loans at a discount. The implication was that this structure meant FDIC would over-compensate the buyers for losses on loans.

By Kristina Cooke and Elinor Comlay

NEW YORK, Feb 8 (Reuters) – Banks, investors and industry groups last week discussed creating a backstop insurance fund to lessen the risk a distressed dealer could trigger a crisis in the world’s largest funding market.

The discussions took place at a New York Federal Reserve sponsored industry workshop last Wednesday, according to presentations obtained by Reuters.

Participants in the tri-party repurchase market — a key funding source for dealers that briefly seized up during the financial crisis — have been tasked by the central bank with coming up with reforms to strengthen the market which, at its peak, financed more than $2.8 trillion in securities per day.

LONDON, Jan 22 (Reuters) – The Bank of England said on Friday it had signed an agreement with the U.S. Federal Deposit Insurance Corporation to work more closely when resolving distressed banks with operations in the U.S. and the UK.

(more…)

By Karey Wutkowski

WASHINGTON, Jan 20 (Reuters) – A top regulator on Wednesday told banks to stop dragging their feet and recognize losses on commercial real estate loans, a sector that is due to deteriorate in the coming quarters and drive bank failures.

Sheila Bair, chairman of the Federal Deposit Insurance Corp, said banks should try to modify troubled commercial real estate (CRE) loans, but must recognize losses if such a workout does not maximize value.

“The losses need to be recognized,” Bair stressed to a conference of the Commercial Mortgage Securities Association.

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

By Rolfe Winkler

NEW YORK, Jan 19 (Reuters Breakingviews) – Conan O’Brien is expected to receive $40 million for leaving NBC, the media unit of General Electric, itself among the largest recipients of taxpayer help. While it would be a stretch to compare the American late-night talk show host to a Goldman Sachs or Citigroup banker, he’s only a few steps removed.

Though it wasn’t a recipient of direct aid from the Troubled Asset Relief Program, GE availed itself of perhaps an equally important bailout facility, the Temporary Liquidity Guarantee Program overseen by the Federal Deposit Insurance Corp.