BankThink

Receiving Wide Coverage ...A Deluge of EU News: You can tell that a U.S. holiday weekend is on the horizon as Monday's news is largely coming from overseas. Reuters reports that EU regulators have charged Markit, the International Swaps and Derivatives Association and 13 banks with breaching anti-trust rules by blocking rival exchanges in the credit derivatives business. The banks include Bank of America Merrill Lynch, Citigroup, Morgan Stanley, Goldman Sachs, HSBC and JPMorgan. Elsewhere, this FT op-ed criticizes the EU's failure to get its banking union, off the ground despite agreeing on rules to force losses on creditors in failed banks. "In theory, a bail-in rule should shift some of the financial burden away from the bank's home state. But this only works to the extent that some of those shareholders and bondholders are foreigners," writes columnist Wolfgang Munchau. "The trouble is that the banks have become more national since the crisis." And for those paying attention to the ongoing U.S. spying story, the Wall Street Journal and the FT report the National Security Agency has been accused of spying on European Union officials after a German magazine over the weekend cited secret documents obtained by former NSA contractor Eric Snowden.

A recap of the informed opinions (and the discussions they generated) on BankThink this week.

Three federal agencies are competing for the gold medal in a "regulatory Olympics" over deposit advances. Their proposals would severely constrain banks from offering valuable products and assisting customers.

Leverage measures, which can zigzag with sudden inflows or outflows of deposits, should be viewed as a backstop to risk-based capital measures, not as a primary capital constraint.

Receiving Wide Coverage ...Corzine in CFTC Crosshairs: Officials filed a civil lawsuit against John Corzine, the former head of MF Global on Thursday, charging misuse of almost $1 billion in customer funds. The Commodity Futures Trading Commission complaint alleges that the former New Jersey governor and U.S. senator did more than just sit on the sidelines as the company spiraled into bankruptcy, though it's still unclear how deeply he was involved with illegal money transfers. The lawsuit suggests that Corzine was "instrumental in making decisions that put customer accounts at risk," according to the Wall Street Journal. But the New York Times says the CFTC does not accuse Corzine of signing off on the breach of customer funds or "even knowing that the wrongdoing had happened," instead focusing on the claim that he failed to "diligently supervise" the firm and "a more ambitious claim" that he is responsible for the actions of employees below him. The lawsuit also implicates one of Corzine's top lieutenants, Edith O'Brien. Meanwhile, regulators settled with MF Global — the company agreed to pay back all customer funds and fork over a $100 million fine. Wall Street Journal, New York Times, Financial Times, Washington Post

The House Financial Services Committee squared off Wednesday over concerns with "too big to fail" and how the 2010 Dodd-Frank Act could possibly be improved to prevent any future bank bailouts.

Too many banks still make too much money at the expense of their customers, and it is one of the biggest reasons the American public has lost faith in them.

Show me an industry with artificially high barriers to entry, and you will almost certainly find dissatisfied customers paying higher prices to large, protected providers.

Receiving Wide Coverage ...Basel: Tacitly acknowledging that risk-based capital measures are susceptible to manipulation, the Basel Committee announced a supplementary, simple 3% equity-to-assets requirement that banks worldwide will have to achieve by 2018. Disclosures of leverage ratios under the new formula are to start in 2015. Investment banks will have to count derivatives on a gross basis, rather than netting out collateral or offsetting trades. This will make the U.S. firms look more leveraged than they currently appear and bring them in line with their European counterparts, according to Reuters Breakingviews. However, a Times story says "the new rules would probably fall hardest on large European institutions," which may have to raise billions in capital. Another effect, according to the FT, is that "rules that will limit banks' ability to net exposures to the same counterparty will constrain bank payment systems, which tend to maintain large credit and debit balances for customers."

Institutions need to realize that, given the relative health of their asset portfolios and the current regulatory environment, valuations and deal prices will be below historical averages.