Financial Regulatory Forum

ANALYSIS – EU focus on credit default swaps may not yield bans

By Huw Jones

LONDON, March 5 (Reuters) – European governments are exploring ways to curb trade in credit default swaps but may have to settle for requiring greater disclosure rather than banning certain forms of speculation.

France, Germany and Luxembourg say “speculators” — typically code for hedge funds — used CDS contracts to bet on Greece defaulting and send the euro lower.

Faced with such political pressure, the European Commission has called national supervisors, credit rating agencies, hedge funds and investors to meetings in Brussels on Friday to help it decide if European Union action is needed in the CDS market.

The U.S. Justice Department is also investigating if hedge funds might have acted together in betting against the euro.

Credit default swaps are privately-negotiated “insurance” contracts between two parties. Unlike normal insurance, the buyer can go “naked”, not owning what is being insured, a situation regulators say is perverse.

ANALYSIS – Hedge funds get smart to avoid bonus barriers

By Laurence Fletcher

LONDON, March 2 (Reuters) – Hedge fund investors could be left out of pocket as managers conjure up shortcuts to earn once again the lucrative bonuses based on performance fees that were a feature of the industry before the credit crisis.

Despite 20 percent returns last year, big losses in 2008 mean that between a half and two-thirds of hedge funds are below high-water marks — performance levels they must hit before claiming a 20-percent fee on a fund’s profits.

This could persuade more managers to move to new firms where they can start earning these bumper fees straight away, forcing clients to decide whether the quality of the managers justifies the additional cost and disruption needed to follow them.

State Street says U.S. requested info on funds

   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. (more…)

Spain tightens proposed hedge fund rules

SPAIN    By Huw Jones
   LONDON, Feb 16 (Reuters) – European Union president Spain tightened proposed rules to regulate hedge funds and private equity groups, prompting accusations of protectionism from within the industry but potentially speeding up moves towards a deal. (more…)

UK’s Darling calls for global coordination -report

Darling: don't go it alone

Darling: don't go it alone

    MILAN, Feb 5 (Reuters) – British Finance Minister Alistair Darling reiterated that breaking up banks and going it alone was not the way to fight the crisis, preferring global coordination, he told Italian daily Il Sole 24 Ore in an interview on Friday. (more…)

ANALYSIS – Shadow banks hold key to post-Basel bank profits

By Kevin Drawbaugh

WASHINGTON, Jan 26 (Reuters) – Bank profits are set to come under serious pressure at the end of 2012 from higher global capital and liquidity standards, but just how bad it gets depends greatly on the future of the “shadow banking system”.

U.S. banking sector analysts are increasingly focused on the interplay between the setting of global capital standards and parallel efforts to bring non-bank financial institutions to heel and moderate their resurgence in credit markets.

The ability of regulators to bring “shadow banks” — investment firms, hedge funds, insurers, special investment vehicles — under a new oversight regime will help determine the pricing power banks have to raise rates on future loans.

Europe welcomes Obama bank plan, won’t imitate it

By Keith Weir and Crispian Balmer

LONDON/PARIS, Jan 22 (Reuters) – Major European economies offered support on Friday for U.S. President Barack Obama’s plan to limit banks’ size and trading activities but indicated they had no plans to follow suit.

Obama’s dramatic proposals could rewrite the world financial order but experts said they were light on detail and could cloud the global approach fostered by the Group of 20 nations.

The European Union will not imitate Obama’s plan, because it aims to reduce risk in the sector through other means, an EU source said on Friday.

SCENARIOS-How Obama’s bank reforms could affect banks

NEW YORK, Jan 21 (Reuters) – U.S. President Barack Obama is looking at limiting risk-taking at banks.

But his proposals on Thursday were tantalizingly vague. He said he wanted to limit the amount of borrowing that banks can do relative to their peers and limit their trading activities to buying and selling securities to customers.

But it is not clear whether relative borrowing limits will be low enough to force banks to reduce their debt. And the line between buying and selling securities on behalf of customers, and doing so on behalf of the bank, can be blurry.

Obama threatens fight with banks on new risk rules

By Jeff Mason and Kevin Drawbaugh

WASHINGTON, Jan 21 (Reuters) – U.S. President Barack Obama threatened to fight Wall Street banks on Thursday with new proposals to limit financial risk taking, sending stocks and the dollar tumbling.

Obama, a Democrat who is struggling to advance his agenda after a key election loss this week, laid out rules to restrict some banks’ most lucrative operations, which he blamed for helping to cause the financial crisis.

“If these folks want a fight, it’s a fight I’m ready to have,” Obama told reporters at the White House, flanked by his top economic advisers and lawmakers.

ANALYSIS – Caymans woos investors with immigration incentives

Ugland House (R), which houses the office of the Cayman Islands' largest law firm Maples and Calder and is the registered office of some 18,000 companies, on Grand Cayman Island is seen in this handout released September 25, 2009. By Shurna Robbins

GEORGE TOWN, Cayman Islands, Dec 28 (Reuters) – The Cayman Islands are promising immigration incentives to keep foreign firms from quitting the Caribbean hedge fund hub, but locals want a bigger share of jobs in the lucrative financial sector.

The British overseas territory, a beach-lined island group south of Cuba that is legal home to most of the world’s hedge funds, has seen a drop during the global credit crisis in the number of companies located there, industry experts say.

Caymans Prime Minister McKeeva Bush and other local policy makers want to prevent any exodus of companies in the strategic financial industry, that accounts for more than half of the national economy, by offering more attractive, flexible immigration regulations in the islands.