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Morning Scan: Dodd-Frank Turns Four; Subprime Auto Loans Boom

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Wall Street Journal

New York Attorney General Eric Schneiderman isn't alone in his concerns about Barclays' dark pool activities. Trading firms including RBC Capital Markets and T. Rowe Price Group worried in the months before Schneiderman sued Barclays that their orders were getting subpar treatment on the dark pool because of high-frequency traders. What's more, "a number of Barclays employees privately expressed concerns to top stock-trading executives that the firm was giving high-frequency traders too much access to its dark pool without fully informing clients," the Journal reports.

The Dodd-Frank Act is four years old today, and House Republicans got it a present: a roughly 100-page report criticizing the law for neglecting to solve too big to fail. A separate article takes a look at Dodd-Frank reforms that have yet to be implemented, "including standards for the mortgage-securities market and tougher regulations for credit-rating firms." The Securities and Exchange Commission is particularly behind on new rules, with only 44% finalized or close to it.

A new working paper on the effects of the Volcker rule finds that big banks have cut back on proprietary trading but kept up their risk-taking. "Risk at banks is like a balloon," according to "Heard on the Street": "If you squeeze one end, the other bubbles and bulges." Banks have until July 2015 to fully comply with the Volcker rule.

Financial Times

Leaders of the Group of 20 major economies are hitting a stumbling block in their efforts to agree on a solution to too big to fail banks. One big source of dissent is the amount of "bail in" bonds that big banks should be required to issue in order to absorb losses in the event of a crisis. "Japan is one of the countries with problems with the bail-in plans amid concerns that they are not easily compatible with the structure of its banking system," according to the FT. China and France are also holdouts.

Private equity investor Christopher Flowers tells the FT that new regulations are stifling bank profits, which are in turn driving away investors. "Nobody is going to invest in an industry with returns of [5%]," Flowers says.

New York Times

The Times takes an in-depth look at a recent surge in subprime auto lending. "Auto loans to people with tarnished credit have risen more than [130%] in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime—people with credit scores at or below 640," the Times reports. The boom is being fueled in part by investors eager to take on more risk in exchange for higher returns. In another parallel to the subprime mortgage crisis, auto loan securitizations are also on the rise. The article prompted a huge response from commenters, many of whom criticized both used car dealers and lenders for taking advantage of low-income borrowers for whom vehicles are a necessity. "Traversing long distances to work, doctors' offices and other appointments is a must for most of us," writes one reader. "Car loan gouging practices are another example of how the working poor stay poor."

Dell's decision to start accepting Bitcoin is indicative of the digital currency's growing foothold in major retailers, the Times suggests. "Retailers have very low margins, and online especially, and they're in a constant battle with credit cards and banks to lower those fees," one analyst says. "Now that they see this avenue for fees to go away, that's really their big motivation."

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(Image: Bloomberg News)

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