U.S. financial regulation: Three things to watch, and two not to, in 2011 – Complinet column
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By Scott McCleskey, Complinet
The past year was a busy one for those interested in financial reform – you know, Dodd-Frank and all that. But the new year will be even more fateful in shaping the markets for decades to come. It is likely to be the most critical of the post-financial crisis period. The reason is that Dodd-Frank only gave the regulators their marching orders, and 2010 mostly saw just the preliminaries to the really tough regulation. It will be in 2011 that actual rules will be proposed, finalized and implemented – and all by mid-year, if deadlines are met. It will also be when the Republicans hit the beach in the House and attempt to moderate or reverse many of the reforms already underway.
There will be a tidal wave of Dodd-Frank work, and some areas of focus are already obvious. The launch and first steps of the Consumer Financial Protection Bureau will be one, and the rather iffy implementation of derivatives regulation will be another. These items have been and will continue to be covered by this organization and others. But there are other items largely outside the Dodd-Frank ecosystem which bear a close watch over the coming year – and there are also some receiving a lot of press lately which can be ignored. (more…)
FED FOCUS-With broader powers, Fed to face greater scrutiny
By Pedro Nicolaci da Costa
WASHINGTON, June 25 (Reuters) – As officials at the Federal Reserve may soon discover, more isn’t always better.
On the face it, the results of the landmark regulatory reform bill finalized on Friday should have policymakers at the U.S. central bank running victory laps around Congress.
Despite self-professed regulatory shortcomings in the run-up to the worst financial crisis in modern history, the Fed has emerged from legislative reform efforts with its powers greatly enhanced.
But with financial markets still fragile and a debt crisis in Europe showing no sign of easing, the Fed’s beefed-up authority to oversee broad risks to the financial system could come back to haunt it.
Unlike in the recent crisis, where regulators shared the blame, any renewed market meltdown might be laid squarely at the Fed’s feet, even though it may still have to tussle with other agencies over how best to protect the financial system.
Moreover, the central bank’s decisions, which could include tough calls like whether or not to break up a firm deemed to threaten financial stability, would likely draw heavy scrutiny from politicians.
“Don’t fight the Fed” gets new meaning in Senate debate
By Rachelle Younglai and Kristina Cooke
WASHINGTON/PHILADELPHIA, May 12 (Reuters) – The shaping of the U.S. financial reform bill has given a new meaning to the old market adage “Don’t Fight the Fed.”
Five months ago, many lawmakers wanted to confine the U.S. central bank to setting monetary policy and acting as a lender of last resort for banks.
Blaming the Fed for missing the warning signs in the run-up to the financial crisis, senators were preparing to step up their scrutiny of the central bank and strip its authority to examine and supervise all banks.
But fierce lobbying by regional Fed bank chiefs and hundreds of small commercial banks scattered across the country persuaded Congress otherwise.
In a lopsided 90-9 vote on Wednesday, senators approved an amendment to a regulatory reform bill that would preserve the Fed’s power over small state-chartered banks instead of moving them to another banking regulator.
It was the second time in as many days that the U.S. central bank scored at least a partial victory. On Tuesday, the Senate approved an amendment for a one-time audit of the Fed’s emergency lending during the latest financial crisis, though some senators had initially wanted to subject the central bank to repeated reviews.
from MacroScope:
Spitzer: NY Fed “an absolute sinkhole”
To say former New York Governor Eliot Spitzer is no fan of the Federal Reserve Bank of New York would be an understatement.
After arguing financial regulatory reform proposals being discussed in Washington fall short, he said:
"One institution needs to be completely overhauled: The New York Fed," he said.
At a panel in New York, Spitzer lambasted the New York Fed as "an absolute sinkhole when it comes to what went on over the past ten years."
"There wasn't a single person there who knew what was going on because this was all one club," Spitzer said. "Every member of that club wanted to protect what was going on," he said.
"The New York Fed has failed heartily and something has to be done about it," he said.
The New York Fed was at the center of the Fed's crisis management efforts, and has come under fire for decisions made in the bailout of insurer American International Group and the failure of Lehman Brothers.
BREAKINGVIEWS-Far too little stress in U.S. bank reform
– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –
By Rob Cox
NEW YORK, April 6 (Reuters Breakingviews) – Improving U.S. bank regulation may call for a little more stress. The disclosure and discipline imposed by the Federal Reserve’s stress tests of big banks a year ago drew a line under the crisis. The tests separated sheep from goats and led to tens of billions of dollars of new capital being raised. It’s a shame that stress tests aren’t becoming an annual event.
The tests have been overshadowed by the Troubled Asset Relief Program. After all, that $700 billion plan to recapitalize the banking system kept institutions like Citigroup, Bank of America and Morgan Stanley from going under. But the TARP scheme was fraught with conflicts still bedeviling the debate over reform, including the problem of bankers paying themselves handsomely on the back of taxpayer bailouts. As a result, few are calling for a repeat of the TARP experience.
But the Fed’s stress tests have turned out well. The central bank-led analysis of 19 financial companies last April compared their capital strength on a consistent basis across the industry. That, in turn, led to the formation of some $185 billion of new private banking capital, priced accordingly. It also set a precedent for much-needed interagency cooperation on regulation.
Despite the success of the Supervisory Capital Assessment Program, as the scheme was called, neither of the financial reform bills wending their respective ways through the House of Representatives and the Senate argues for making stress tests an annual tradition. That’s a shame.
At their most basic, the stress tests afforded investors their first-ever convenient opportunity to judge the ability of systemically important financial firms to confront a host of adverse economic conditions. Massive financial institutions and regional banks were thrown into the mix alongside credit card issuers, auto financiers and Wall Street firms.
Thanks for posting this one! It did help me a lot!
Bank Reviews
ANALYSIS-Deck chairs secure aboard USS Financial Regulation
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.
Only the Office of Thrift Supervision — smallest and newest of the big seven agencies — is likely to be closed with regulatory reform bills in both the Senate and the House of Representatives targeting it for shutdown.
Otherwise, thousands of workers will stay in place at the Securities and Exchange Commission, the Federal Reserve, the Office of the Comptroller of the Currency and other agencies ensconced in stately, federal buildings across Washington.
Some of their work assignments may change — if Congress actually produces a bill this year and President Barack Obama signs it.
US senators wrestle with Fed bank oversight issues
By Kevin Drawbaugh and Rachelle Younglai WASHINGTON, March 8 (Reuters) – The Federal Reserve could retain oversight of large bank holding companies under a scaled-back regulatory reform plan being considered by key senators, but important questions remained unanswered, lobbyists said on Sunday. (more…)
Bipartisan US financial reform deal uncertain – Sen. Dodd
By Kevin Drawbaugh
WASHINGTON, March 5 (Reuters) – Senator Christopher Dodd, chief negotiator for the Democrats in U.S. Senate talks on financial regulation reform, said on Friday he was uncertain whether bipartisan support for a compromise bill could be achieved.
With one of the Obama administration’s top domestic policy priorities in the balance, Dodd sounded wary but hopeful following weeks of discussions that have snagged on a proposal to create a new financial consumer watchdog.
“While we do not have a bipartisan agreement yet at all, we’re getting there, we’re trying. I don’t know if it will happen or not,” Dodd said in remarks on the Senate floor.
“I’m optimistic it can happen, but I’ve been around here long enough to know these things can fall apart very easily. It’s fragile, it’s complex … It’s one of the hardest tasks I’ve ever been asked to undertake,” he added.
Embracing most of the recommendations for tighter bank and capital market regulations made in mid-2009 by President Barack Obama, the House of Representatives in December approved a bill proposing the biggest U.S. regulatory changes since the 1930s.
But the Senate has yet to act and almost a year and a half since a severe banking crisis tipped the U.S. economy into a deep recession, financial regulation has changed little.
US Fed seeks limit on credit card penalty fees
WASHINGTON, March 3 (Reuters) – The U.S. Federal Reserve on Wednesday proposed another new rule to strengthen consumer protections against abusive practices by credit card issuers, including limiting penalty fees and requiring them to reconsider past interest rate hikes.
The proposed rule would prohibit card issuers from charging late payment fees or other penalty charges that exceed the dollar amount of a consumer’s violation of the account terms.
For example, card issuers would be banned from charging a $39 fee when the card holder is late in making a $20 minimum payment. In such a case, the late fee would be limited to $20, to be paid in addition to the minimum payment.
“The rule would prevent credit card issuers from charging large penalty fees for small missteps by consumers and would require issuers to re-evaluate rate increases imposed since the beginning of last year,” Federal Reserve Governor Elizabeth Duke said in a statement.
The rule, which implements parts of the Credit Card Accountability and Disclosure Act of 2009, would require card issuers to inform consumers of the reasons for interest rate increases. The issuers must re-evaluate the reasons for rate hikes made after Jan. 1, 2009, every six months and if the review finds that circumstances have changed, they must reduce the rate where appropriate.
The proposed rule, which would take effect on Aug. 22, would also prohibit issuers from charging multiple penalties for a single late payment or other violation of account terms. It would ban issuers from charging inactivity fees on accounts based on the consumer’s failure to make purchases with a card. (Reporting by David Lawder; Editing by Dan Grebler) ((david.lawder@thomsonreuters.com; +1 202 898 8395; Reuters Messaging: david.lawder.reuters.com@reuters.net))
PENPIX – Whom will Obama name to fill U.S. Fed vacancies?
WASHINGTON, March 3 (Reuters) – President Barack Obama is sifting through candidates for three vacant seats on the Federal Reserve Board, including the No. 2 spot that comes open when Vice Chairman Donald Kohn departs on June 23.
The White House on Tuesday said Obama will move quickly to fill the vacancies on the seven-person board.
The president’s picks will be in position to influence when the Fed raises interest rates and how aggressively it takes on its post-financial-crisis regulatory responsibilities.
With mid-term elections a possible referendum on his administration, Obama may aim for a Fed that pushes hard to reduce unemployment and clamps down on risky financial practices. But he must avoid rattling markets with nominees seen as giving insufficient weight to preventing inflation.
Following are possible picks for the vice chairmanship and the other two open board seats.
CHRISTINA ROMER
Romer is currently chair of the White House Council of Economic Advisers. A University of California, Berkeley economics professor before joining the Obama administration, Romer has written about the Great Depression and about the impact of tax policy on economic growth. Some observers believe it unlikely that Romer would take a board seat, unless it was the vice chairmanship that Kohn is vacating. A nominee closely associated with the White House could face stiff Republican opposition.
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