Receiving Wide Coverage ...

Regulatory Reform Redux: The New Yorker’s financial columnist, James Surowiecki, frames the Libor-rigging scandal as a textbook example of the financial industry’s inability to regulate itself. Reputation risk has proven an insufficient incentive for bankers to behave, he writes; an “intrusive and overbearing” approach is “exactly what the financial industry needs.” But Reuters’ blogger Felix Salmon finds Surowiecki’s new-sheriff-in-town prescriptions (jail time for fraudsters and preventive measures inspired by urban policing strategies) a bit naïve. Noting that prosecutors and regulators face “serious institutional and legal constraints” that prevent them from being as tough as Surowiecki and others would like them to be, Salmon seconds John Kay’s call for a deeper restructuring of the financial industry itself. (That’s John Kay the economist, by the way, not the singer from Steppenwolf.) In the Journal, columnist Francesco Guerrera says the armies of on-site examiners stationed at banks “are fast becoming an anachronism that should be ended or at least sharply downsized.” Instead, more regulatory resources should be allocated to data-driven, industrywide supervisory methods, Guerrera writes, citing the “success” of the recent stress tests. “Successful” how, though? “No amount of stress testing would have caught the mortgage lending practices that caused the meltdown,” says a Journal reader in the comment thread. “Regulatory agencies continue to expand their stress-testing rigor, at enormous cost to the banking system — but a stress-testing exercise provides little or no insight into how the bank is actually conducting its business.” (Warning: you have to wade through a lot of predictable knee-jerk reactions from people who apparently didn’t read past the headline — e.g. “of course, let's turn all the banks loose to do whatever they want. We don't have enough banking scandals” — to get to that more nuanced criticism of Guerrera’s thesis.) Similarly, Tony Hughes of Moody’s Analytics, writing on American Banker’s BankThink blog, doubts that the stress tests, as currently designed, would have flagged the dangers of WaMu’s mortgage binging in time to prevent its failure. Hughes recommends that the stress-test exercise be reconfigured to reflect, among other things, the reality that no bank is an island — “collective actions by many banks can dramatically increase the odds of failure of any individual bank,” and “not only does the economy affect the banking sector; the reverse is also true.” The Journal also reports today that Fed Governor Sarah Bloom Raskin wants a tougher version of the Volcker rule with narrower exemptions than the draft interagency proposal issued last year. Finally, don’t judge a magazine by its cover. The latest issue of The Freeman bears the headline “CASINO BANKING,” with an illustration of a Las Vegas-style neon sign that says “Welcome to Fabulous Wall Street.” Is this an Occupy pamphlet? The New York Times Sunday business section, perhaps? Not quite. The article, which focuses on JPMorgan’s multibillion-dollar trading loss is by Gerald P. O'Driscoll, Jr., a senior fellow at the libertarian Cato Institute, and the magazine is published by the Foundation for Economic Education, which has been flying the don’t-tread-on-me flag longer than Cato. What gives? Shouldn’t these be the last people to care about a private company’s stumbles? “Some commentators have argued that politicians and the public have no business in Morgan’s losses,” O’Driscoll writes. In this view, “only Morgan’s stockholders, who saw its share price drop over 9 percent in one day, and senior management and traders who lost their jobs should have an interest. But in fact losses incurred at major financial institutions are the business of taxpayers because government policy has made them their business.” To O’Driscoll, big banks are the result of government intervention, not of its absence. “If ordinary market forces were at work, these institutions would shrink to manageable sizes and levels of complexity. Ordinary market forces are not at work, however. Public policy rewards size (and the complexity that accompanies it).”

Liborama: The Journal unearths new details about the international Libor-rigging probe, specifically what investigators are learning about alleged collusion between traders at different global banks. Meanwhile, the House Financial Services Committee’s oversight panel requested still more information from the New York Fed regarding what it knew about the manipulations, the Times reports. Wall Street Journal, New York Times

Wall Street Journal

The paper profiles Michael O’Neill, Citigroup’s new chairman, who’s been taking a more hands-on approach in his first three months on the job than his predecessor Richard Parsons.

Bank of America is now putting EMV chips in some of its credit cards — not just for frequent travelers and big spenders (who’ll need the technology when they visit Europe, where mag stripes don’t always work) but also an option for hoi polloi cardholders.

Though not about banking specifically, this article’s definitely relevant: Should companies unify their financial information systems all at once, do it in dribs and drabs, or wait until a merger or corporate restructuring requires an overhaul? The benefits of systems consolidation are considerable — management gets a 360-degree view of the organization, allowing for nimbler decision-making — but a “big bang” switch risks disrupting operations.

The Kenyan telecom carrier Safaricom’s M-Pesa is widely considered one of the great success stories in mobile money, but the World Bank worries about a monopoly developing in this space and wants to promote interoperability across networks.


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