B of A Settles with Fannie, Foreclosure Pact Within Reach, Regulators Agree to Make Basel More Flexible

Breaking News This Morning ...

B of A Settles with Fannie: B of A has agreed to pay $10.3 billion to settle claims that it sold bad loans to Fannie Mae. Under the terms of the settlement, the bank will pay Fannie $3.6 billion, and will also spend $6.75 billion buying back mortgages from the housing giant at a discount to their original value. The settlement is likely to wipe out B of A's earnings for the quarter, the FT reports. New York Times, Wall Street Journal

Receiving Wide Coverage ...

Basel Eased: Some good news for bankers this Monday morning: global regulators have decided to implement more flexible Basel III liquidity requirements. Specifically, they have relaxed the "liquidity coverage ratio" requiring banks to have enough capital on hand to survive a 30-day market crisis. Changes to the rule will now allow banks to use less-traditional assets, including equities and high-quality (ahem) mortgage-backed securities, to satisfy up to 15% of their requirements. According to the FT, "calculation methods have also been changed in ways that will significantly reduce the total size of the liquidity buffers" many banks will have to "hold against outflows from possible depositor runs and corporate and interbank credit lines." Regulators have also elected to give banks more time to meet the rule's requirements. Now, it will not take full effect on Jan. 1, 2015, as originally planned, but will be phased in gradually until Jan. 1, 2019. European bank stocks surged, following the announcement, the FT reports.

The easing follows years of hard-lobbying from banks, based on the belief the rules were impossibly stringent for and would be the end of many community banks. (You can find more detailed arguments from industry experts against Basel III here, here and here on our BankThink blog.) This FT article also attributes the easing to the "eurozone crisis" and traders' persistent warnings "that there simply weren't enough safe assets to go around."

Comments on the Journal's article about the decision indicate at least some of the general public view the easing as another win for the "financial mafia" whose constant lobbying once again led to the weakening of another rule meant to stave off future crises. But Mervyn King, the Bank of England governor who led the negotiations, ensured reporters at a news conference that the rule had not simply been watered down, saying "Nobody set out to make it stronger or weaker, but to make it more realistic." The Journal also points out the changes don't fully address all of bankers' concerns. Still to be decided is the fate of the "net stable funding ratio," which is meant to keep banks from relying too heavily on short-term borrowing to fund long-term loans — and it looks as if that rule isn't, as many executives have postulated, simply being scrapped. King made sure to describe it as "absolutely crucial" to financial stability.