BankThink

What the former Fed chairman does not tell us, because he cannot, is the name of a single bank that went under and required taxpayer support because of proprietary trading gone bad.

Perversely, the proposed compliance framework presumes that a banking entity has violated the Volcker Rule unless the entity can prove otherwise.

Receiving Wide Coverage ...Ratings Review: Moody’s has put Bank of America, Citigroup, JPMorgan and other big financials on review for possible downgrade, citing the headwinds facing the investment banking business. Wall Street Journal, New York Times

Competition between Amex, Discover, MasterCard, PayPal and Visa is fierce and intensifying. What would Facebook's angle be if it aspired to build a broader payments business?

Congress has begun to consider ways to enhance the ombudsman programs at the federal financial regulatory agencies. These programs are an especially important part of the regulatory process, and are deserving of thoughtful ways to increase their efficacy.

On what basis do the MMFs think that they are entitled to run a multi-trillion dollar business, in this day and age, without any capital to stand behind any mistakes they may make?

Receiving Wide Coverage ...Volcker Day: Initial coverage of the public comments filed on the Volcker Rule proposal only scratched the surface of a rich debate. “Heard on the Street” in the Journal suggests that foreign governments objecting to the rule may have a point, since the ban on proprietary trading by banks would include most sovereign debt but would exempt U.S. Treasury bonds – a point that Paul Volcker didn’t quite address in his FT op-ed. The rule’s namesake scoffed at concerns that it would hurt liquidity for foreign government debt, but the carve-out for Treasurys is “an implicit acknowledgment that Washington believes this risk is real,” the Journal column says. A reader follows this train of thought into the realm of geopolitical intrigue, writing in the comment thread that the “unfair” treatment of foreign sovereign debt “could be correctly or incorrectly [interpreted] as hostile,” inviting a “retaliatory response, which will only make the markets less liquid and more expensive and uncertain.” Meanwhile, despite CFO David Viniar’s recent favorable remarks about the Volcker rule, Goldman Sachs wants some changes. A less obvious group of critics are the regional banks — PNC, U.S. Bancorp, Capital One, SunTrust, BB&T, Fifth Third, Regions and KeyCorp — that jointly filed a comment letter. Their main beef is that they’d have to very quickly put in place all sorts of compliance chazerai “simply to ‘prove a negative’ that we are not engaged in impermissible proprietary trading or funds activities.” (We found that one at Politico’s Morning Money, which is worth a look on those days when you have time after your requisite dose of Morning Scan). The FT reports that the big banks, including Bank of America, are lobbying for regulators to revise the Volcker Rule to explicitly allow market making in exchange-traded funds. Or rather, activities that the banks consider market making but don’t fit the proposal’s definition of it. Some market watchers have called the “opaque” ETFs a source of systemic risk, the article notes. Elsewhere, Times columnist Peter Eavis laments that the comment letters on the Volcker rule, both pro and con, are long on abstract arguments but short on hard numbers and real-world examples. And John S. Reed, perhaps seeking to atone for his role in creating FrankenCiti, is urging regulators to make the Volcker rule tougher. For example, a bank’s CEO and top trading, risk management and accounting executives should be required to sign a SarbOx-like statement each quarter “stating that, to the best of their individual knowledge, the operations of the trading unit were conducted within the letter and spirit of the Volcker Rule,” Reed writes. Traders should be paid “based on the results of their market making and hedging activities after those positions are fully unwound,” rather than collecting bonuses for short-term appreciation of assets held in inventory. And penalties for violating Volcker ought to be “severe,” Reed says. You can download a pdf of his letter here.

The Obama administration's reasons for charging banks $61 billion are disingenuous and transparently political. The tax has nothing to do with recouping Tarp costs or making the system safer.

The housing market continues to suffer from a painful and prolonged hangover commensurate with its worst binge in U.S. history and many politicians and Fed officials are anxious for a housing rebound to pull the rest of the economy along.

Rather than wait for government or plaintiff lawyers to find them, banks that were involved in the syndication of mortgage backed securities should control their exposure through a proactive, rigorous self-study program.