JPMorgan case puts Volcker Rule and SIFIs back in the spotlight
By Patricia Lee
NEW YORK, May 23 (Thomson Reuters Accelus) – The massive losses which resulted from JPMorgan Chase hedging its positions against derivatives has once again cast the spotlight on the Volcker Rule and whether systemically important financial institutions (SIFIs) are too big to fail, industry observers said. Questions have also been raised about the firm’s hedging strategy, and what constitutes hedging in the first place.
Industry officials in Asia suggested that JPMorgan’s $2 billion hedging losses might embolden regulators to strengthen the Volcker Rule, on the premise that it would be of benefit to SIFIs. The rule, named after former Federal Reserve chairman Paul Volcker, forms part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and has proposed the separation of proprietary trading from commercial banking activity. Most notably, it has argued against investing in derivatives or using derivatives as a hedge on investments. The rule has, however, faced strong opposition from many of the large global financial institutions. (more…)
JPMorgan AGM punctured by thorny hedge issues
By Christopher Elias
LONDON/NEW YORK, May 17 (Business Law Currents) - JPMorgan’s disastrous $2 billion hedge loss has raised some thorny issues on management oversight, corporate governance and the effectiveness of the Volcker Rule, as division at the banking giant’s annual general meeting highlight a growing tension between its shareholders and management.
Little more than a week ago, prior to Tuesday’s annual general meeting (AGM), JPMorgan announced that it had incurred a $2 billion loss as a result of a hedge gone wrong from its London offices with the possibility of $1 billion in additional losses to follow. (more…)
JPMorgan may tip Wall Street’s hand on ploys to beat Volcker
NEW YORK, May 14 (Thomson Reuters Accelus) - JPMorgan Chase & Co’s revelation that it had trading losses of at least $2 billion on a failed hedging strategy may have tipped the hand to one way Wall Street executives plan to get around the Volcker Rule.
The incident shows how firms could use the pending rule’s hedging exemption to do proprietary trades and still technically be compliant with Volcker. It could allow firms to keep some proprietary trading desks, but portray them to regulators as something else, such as portfolio hedging. (more…)
The derivative hedging game played by JPMorgan Chase is no different than that played by AIG in 2008.
Yet, Jamie Dimon tells us that Chase had merely “made a terrible, egregious mistake.”
He might as well have said that Chase was wrong in raising in a game of poker, when it would have been more prudent and folded. But why was Chase busy gambling in the first place — right after our economic meltdown, and while fighting government regulation?
One answer is because Chase could bear the gambling losses.
That’s right. With $2 trillion at hand, Chase can yawn when $3 billion goes down the tube.
Nonetheless, Dimon tells us that he sees no problem with the government dismantling big failing banks. This is nice to know because the government should start dismantling big banks before they fail — and before they have another chance to take us down with them.
The important lesson then from this Chase episode is not that stringent regulations are needed to reign in on derivatives, but that banks big enough to take huge hits standing up are ripe enough for us to chop down to size.
SOPA, FATCA and the Volcker Rule: the border busters
(Business Law Currents) – The global nature of business has perhaps never been more evident than in the wake of the U.S. housing crisis, the natural disasters in Japan and the ongoing European sovereign debt ruckus. Industries and national economies do not exist in a vacuum, nor do the regulatory changes which nations seek to implement in order to address widespread concerns.
The most recent example of the “extraterritorial” impact of a nation’s laws is a rule being promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Released last October, the Volcker rule is a proposal to prohibit proprietary trading and hedge or private equity fund investments by banking entities. (more…)
I just wonder what will happen if every country in the world would expect that the US Banks will do the same to their dual and alien residents citizens.
Global regulation 2011: a review of policies that shaped the business world
Jan. 10 (Business Law Currents) — Global regulators have been anything but idle in 2011. Predictably, the U.S. regulatory landscape was dominated by the 800-lb. statutory gorilla, the Dodd-Frank Act. Canada busied itself trying to accommodate Basel III’s coming capital requirements. Anti-bribery regulation managed to elbow its way into UK headlines in spite of a phone hacking scandal and a royal wedding. China cracked down on loopholes for variable interest entities, while Australia’s new tax regime found few friends in the mining sector down under. (more…)
Banking on Volcker: Big Crisis, Big Rule
By Thomson Reuters Accelus staff
NEW YORK, Oct. 19 (Business Law Currents) – Banking lawyers should be forgiven if they’re not returning calls right away: they’re busy trying to digest the Volcker Rule (or “the rule”). The proposed rule’s 298-page doorstop represents the collective efforts of the Treasury Department, Fed, FDIC and SEC to implement §619 of the Dodd-Frank Act, which itself added a new §13 to the Bank Holding Company Act of 1956 (the BHC Act). The intent of the Volcker Rule is to “generally prohibit any banking entity from engaging in proprietary trading or from acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a hedge fund or private equity fund (“covered fund”), subject to certain exemptions.”
So does the Volcker Rule satisfy its mandate? To paraphrase ‘The Simpsons’: yes with an “if,” no with an “unless.” The rule carves out significant exemptions from the proscription against proprietary trading, but each of these exceptions has a number of criteria required to take advantage of the exemption. Moreover, a number of the rule’s measures provide for rebuttable presumptions of non-compliance for certain types of trading activity. (more…)
Where to put the ring-fence: implications of the UK bank report
By Peter Elstob
LONDON, April 12 (Complinet) – The Independent Commission on Banking said on Monday that separating retail and wholesale banking in some way might have “a number of potential benefits”, and it invited views on the best design for a “retail ring-fence”.
In an annex to its interim report, the commission illustrated one way to devise such a ring-fence. This is to divide banking business into three broad categories: activities which must take place within the ring-fence; activities which may take place within it; and those which may not take place within it.
But the example leaves a lot of room for interpretation. (more…)
Wall Street reform gridlock seen after US elections
By Kevin Drawbaugh
WASHINGTON, Oct 28 (Reuters) – If Republicans make big gains in U.S. Congressional elections on Tuesday, as expected, Wall Street and big banks will have sweet, but incomplete, revenge on Democrats who drove through sweeping financial reforms against industry opposition.
The likeliest outcome of Democrats losing control of one or both chambers of Congress will be divided government and two years of legislative gridlock on issues important to the financial services sector, said policy analysts and aides.
That means the sector’s regulatory headaches — near migraine level following the enactment in July of the Dodd-Frank Wall Street Reform and Consumer Protection Act — won’t get worse, but probably won’t get much better, either.
“We expect two years of deep gridlock … Nibbling at the edges of Dodd-Frank and some cosmetic changes to the new law are possible. Fundamental changes are highly unlikely,” said Brian Gardner, policy analyst at Keefe, Bruyette & Woods.
That outlook could shift if a new breed of far-right Tea Party activists being swept into power pushes the Republican Party to confrontational extremes, which is a possibility. One scenario might be an effort to strangle Dodd-Frank by depriving regulators of funding needed to implement it, aides said.
“It’s hard to predict what this iteration of the Republican Party is going to do. They’re being driven to the far right by the Tea Party. Normal rules of fiscal responsibility and governance may not apply,” said David Min, associate director at the Center for American Progress, a liberal think tank.
ANALYSIS-Even with new rules, life goes on for Wall Street
By Steve Eder
NEW YORK, June 25 (Reuters) – U.S. lawmakers have hammered out a law that is designed to fundamentally change Wall Street, but financial professionals largely yawned.
Legislators took steps that at first blush could change the industry, including limiting banks’ swaps-dealing operations and their investments in private equity and hedge funds.
But in the end, banks like Goldman Sachs Group Inc, JPMorgan Chase & Co and Morgan Stanley won concessions that watered down the proposals that could have been most damaging to their profits, staving off a watershed overhaul like the one that took place after the Great Depression.
One former executive at a major bank estimated that profits for the biggest dealers could fall by 3 to 5 percent because of the bill, which is far better than some had expected.
“It really could have been worse,” one banking lobbyist said on Friday morning, calling the process “grueling” and saying that just 24 hours earlier the proposals were more damaging for banks.
“People are going to have to make changes and it is going to cost money, but it’s not going to ultimately change their ability to do business.”
ANALYSIS-Key US senator gains clout on Wall Street bill
WASHINGTON, June 8 (Reuters) – U.S. Senator Blanche Lincoln, an Arkansas moderate Democrat, is buoyed by winning nomination to a third term in the Senate but not sure of victory for her hot-button Wall Street reform — forcing big banks to spin off their swaps desks.
The proposal is one of the salient disputes for House-Senate negotiations that could begin this week on a financial regulatory reform law. The Senate endorsed the idea. The House is silent on the question.
Well said this is why small firms are going to grow out of this debacle there job is to invest for there clients not themselves.
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