BankThink

Even if we could trust megabanks to behave, there may be too much at stake to let systemically risky institutions live by self-imposed principles rather than hard and fast rules.

Nine of the largest, most complex financial institutions recently submitted living wills, plans required by Dodd-Frank detailing how they could unwind themselves facing a failure, to regulators.

There are legitimate reasons to want to wind down Fannie Mae and Freddie Mac. Unfortunately, we haven't stopped talking about the specious ones.

The two year anniversary of the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act is approaching and many rules required by the legislation still remain unwritten, according to a report from the law firm Davis Polk.

The Office of Financial Research is not yet fully operational. Critics on the Hill want to gut the agency. Its forthcoming annual report presents a chance to win over lawmakers.

Receiving Wide Coverage ...Regulators Made Us Do It: While we were grilling hot dogs and cracking open cold ones yesterday, our cousins across the Atlantic watched a committee of the U.K. Parliament grill former Barclays CEO Bob Diamond. He made an allegation the Journal calls “explosive” — that during the 2008 crisis the bank’s regulator had (perhaps inadvertently) encouraged it to submit lower quotes to the survey that produces the London Interbank Offered Rate. About a month after Lehman Brothers failed, Diamond told lawmakers, Paul Tucker, a top official at the Bank of England (and a leading candidate to become the central bank’s next governor), phoned him to express concern about the high numbers Barclays was reporting to the survey, which asks banks to estimate what it would cost them to borrow money from other banks. Diamond said he didn’t interpret the call as an order to lower Barclays’ hypothetical Libor rate, but that the subordinates to whom he relayed the information misconstrued it as such. Rolling Stone’s Matt Taibbi, true to form, calls the claim “an awesome piece of political jungle defense by Diamond, tossing a hand-grenade into the seat of Her Majesty's government minutes before he's supposed to be grilled by parliament.” But the FT says the testimony could have been worse for Tucker, since “people close to Mr. Diamond had suggested before his resignation that he would suggest the call was an implicit sanction for the bank to pretend it could fund itself at cheaper rates than reality.” The former CEO also told the skeptical panel he was unaware of Libor manipulation until last month, and he pointed the finger at other banks which, according to the Post, Diamond claimed “were routinely underreporting the rates at which they were borrowing, afraid that revealing how high their costs had soared would spark an investor panic or government nationalizations. He seemed to suggest that regulators were content to see misreporting of interbank lending during times of crisis.” Overall it was a testy hearing, with exchanges like this one recounted in the Journal:

Not adjustable rate, variable rate. Unlike the ARMs we know here in the U.S., Canada's VRMs solve the vexing trade-off between monthly payment risk and interest rate risk. The product deserves a close look here south of the border.

David Hirschmann, the president and chief executive of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, has some suggestions for Richard Cordray. In a letter to the CFPB director he "cited concerns about the new 'abusive' standard that was added to the Dodd-Frank Act, along with the already statutory terms 'unfair and deceptive practices,'" writes American Banker’s Rob Blackwell.

Dodd-Frank has had "crushing impact" on banks and businesses according report from the Georgia Public Policy Foundation and the Competitive Enterprise Institute.

Neither the FSOC nor the OFR is up and running well enough to address systemic risk. The Systemic Risk Council, a new private-sector nonprofit group, will likely change that.