Banks hail Volcker Rule change; Subprime mortgages are back

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Volcker relief
The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency Tuesday approved changes to the Volcker rule that would give banks relief on speculative trading, “one of the industry’s priorities in amending the regulations put in place after the financial crisis.” The Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission “are expected to endorse the changes without any significant revisions,” the Wall Street Journal says.

“Among the changes, firms with less than $1 billion in trading assets and liabilities … will be given the benefit of the doubt by regulators that they comply with the Volcker rule’s trading restrictions," the paper says. "Previously, those companies faced the burden of showing regulators that they were in compliance with the rules. The biggest banks will get limited relief by no longer having to prove to regulators that trades held for less than 60 days weren’t made for the firms’ own short-term profit or otherwise prohibited.”

“Large banks will still be banned from conducting proprietary trading, but the changes are a victory for the financial services industry, which has long complained that complying with the rule took up too much of their time and money,” the Financial Times says.

The debate over the Volcker rule now turns “to whether the agencies had done the right thing, and that is an argument that could endure for some time,” American Banker says.

More, more, more
Goldman Sachs seeks to take a majority stake in its Chinese investment-banking joint venture. The bank has filed with Chinese regulators to increase its stake in Goldman Sachs Gao Hua Securities Co. to 51% from 33%, “with the goal of taking over the local operation completely.” Until two years ago, “Western companies could operate in China only as a minority partner in a securities joint venture with a local company.” The country has been slower than expected in approving ownership increases. Wall Street Journal, Financial Times

Wall Street Journal

How quickly they forget
Subprime mortgage loans are making a comeback, although under a different name. “More than a decade after home loans triggered the worst financial crisis in a generation, the strict lending requirements put in place during its aftermath are starting to erode. Home buyers with low credit scores or high debt levels as well as those lacking traditional employment are finding it easier to get credit.”

But the loans “have been rebranded.” Gone are “liar loans,” so-called because “so many borrowers faked their income and assets. Now they are called non-qualified, or non-QM, because they don’t comply with post-crisis standards set by the Consumer Financial Protection Bureau for preventing borrowers from getting loans they can’t afford.”

Leaving crypto
Robert Cohen, the head of the Securities and Exchange Commission’s Cyber Unit, is joining Davis Polk & Wardwell, “a white-shoe law firm whose clients include some of Wall Street’s biggest banks and stock exchanges.” Cohen “is one of a select few former government officials with expertise in cryptocurrencies to move into the private sector.” His departure “leaves the cyber unit without a leader and comes at a time when the agency was taking on bigger targets in its crypto cases.”

Another Fed critic
The Federal Reserve’s plans to launch a real-time payment service in the next five years “demonstrates that the independent central bank, already one of the most unaccountable agencies in the federal government, is accumulating too much power,” Peter J. Wallison, a senior fellow at the American Enterprise Institute, argues in an op-ed. “Allowing it to go forward with a payment system plan that unnecessarily competes with the private sector makes no sense. Congress should put an end to FedNow and reconsider whether an independent body like the Fed should have the nonmonetary and regulatory powers it has been given.”

Financial Times

Out of service
Several of the U.K.’s largest banks and building societies, including Royal Bank of Scotland, were “hit by an IT outage at U.S. payments company TSYS that left their customers unable to pay credit card bills or access account information. The widespread issues highlight a challenge for banks, which are under pressure to improve their resilience to IT problems but often rely on services from third-party suppliers.” TSYS, which is being acquired by rival Global Payments, apologized for causing the disruption.

Cracking down
Another former precious metals trader at JPMorgan Chase pleaded guilty to federal criminal charges of spoofing, or placing and then canceling orders in order to fool other traders. The trader, Christian Trunz, “admitted placing thousands of orders for gold, silver and other metals futures contracts that he did not intend to execute. The case is the latest in a series of prosecutions brought by U.S. authorities as they have cracked down on spoofing.” Last November, John Edmonds, another former trader at the bank, pleaded guilty to similar charges.

Washington Post

Paying to bank
Banks in Denmark and Switzerland recently announced they will charge wealthy clients for keeping large amounts of cash on deposit in reaction to negative interest rates. “Instead of earning interest, those savers will pay the banks for holding their deposits.”


“The changes finalized today help address the longstanding, bipartisan concern from Congress and the regulators that the Volcker rule, as originally implemented, was too complicated, ultimately making it more difficult to serve the needs of savers and investors.” — Kevin Fromer, CEO of the Financial Services Forum, which represents the heads of the largest U.S. banks, commenting on changes to the Volcker rule approved by two federal agencies on Tuesday

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