Fed's Tarullo to Barclays and Deutsche Bank: I See What You Did There

Receiving Wide Coverage ...

Nice Try, Guys: The Fed will require foreign banks with major operations here to house them in entities subject to the same capital rules as U.S. banks, central bank Gov. Daniel Tarullo said. The papers interpret his speech as a thinly veiled repudiation of Deutsche Bank and Barclays, which moved their stateside investment banking shops out of Fed-supervised holding companies to avoid having to inject them with billions of dollars. The Journal's "Heard on the Street" column calls the regulator's move prudent, considering that "the Fed had to lend billions of dollars to foreign banks during the financial crisis … The Fed is rightly taking the view that it, and U.S. taxpayers, can't risk being left holding the bag should parent companies be unable, or unwilling, to provide a backstop" — an unfortunately plausible scenario given the state Europe's in.

More on Housing: The FT's "Lex" column says tight lending standards are retarding the U.S. housing recovery, and warns that the CFPB could make things worse if it defines "qualifying mortgages" too narrowly. Another item in "Heard on the Street" cites a Fannie Mae survey that found many Americans, particularly those with low incomes, don't shop around for their mortgages. Instead, these borrowers take the first offer, often leaving $1,000 or more on the table. (We can't find the item anywhere on the Journal's website, but it's on page C10 of today's print edition. You remember newsprint, right? That stuff you use to make papier-mache art projects and wrap fish? It's also good for wiping mirrors or the screen on your mobile device.) Reuters quotes an investment manager who chalks up much of the recent gains in home prices to institutional, rather than individual, buyers, i.e. hedge funds and private equity firms that are buying foreclosed properties in bulk to rent them out. And look for those historically low mortgage rates to stay historically low for a while. A front page story in the Journal says the Fed is likely to continue its bond-buying program into next year given economic sluggishness and the threat of the fiscal cliff (a big source of agita for businesses). And speaking of the fiscal cliff and housing, here's another "Mortgage-interest deduction could be on the table" story, this time from the Post.

New York Times

Columnist Jesse Eisinger calls the Office of Financial Research a great idea, poorly executed. He fears the Dodd-Frank creation will end up another captured agency, in part because more than half the people on the OFR's advisory committee work in or for the industry. Eisinger also talks to finance professor Ross Levine, who advocates a variation of his "sentinel" idea we told you about in February. In a nutshell, Levine tells Eisinger that the OFR should track and report not only systemic risks but the flaws in regulators' approach to them — for very interesting psychological reasons.