Receiving Wide Coverage ...
(Systemic) Risk Management: In its first annual report to Congress, the Financial Stability Oversight Council branded a handful of industry clearinghouses and utilities — such as CHIPS and the Depository Trust Co. — “systemically important.” Just as a reminder: “important” is not meant as a compliment here. It’s a euphemism for “too big to fail” (which in turn is really a misnomer for “too big to be allowed to fail”). As systemically important financial institutions, these organizations will now be subject to tighter regulation by the SEC and the CFTC, the Journal notes. (Allan Grody writes on BankThink this morning that the scarlet SIFI undermines the case for making the DTC the storehouse for Legal Entity Identifiers, a system of bar code-like numbers that will help global regulators monitor exposures throughout the financial system.) Also in its annual report, the FSOC identified the top threats to American financial stability, including the European crisis, the precarious U.S. fiscal situation, the continued housing slump, and cyber-attacks. Wall Street Journal, New York Times
Operation Repo: Continuing in the same “protecting the world from another Lehman-like disaster” vein … the New York Fed prodded securities dealers to reduce their reliance on the tri-party repo market for funding, and to submit plans and timetables for doing so by summer’s end. Regulators are concerned about dealers’ dependence on intraday clearing bank credit, for which there are but two providers in the tri-party repo market, JPMorgan and Bank of New York Mellon. The FSOC said in its annual report that the industry’s desire to take several years to kick the intraday credit habit is “unacceptable” — regulators want meaningful change in the next six to 12 months. Wall Street Journal, Financial Times
Liborama: Having punished Barclays for rigging Libor, investigators have now set their sights on four other big European banks that they believe colluded with the British firm: Credit Agricole, HSBC, Deutsche Bank and Société Générale. Meanwhile, the Journal’s “Heard on the Street” considers a scary thought: what if the reputational risk scares banks enough to stop participating in the surveys that produce Libor and other indexes? What if one morning we wake up and there’s no Libor? What happens to all those loans and derivatives pegged to the benchmark? How should the payments be calculated? Imagine renegotiating all those skidillions of contracts individually… Fortunately, the column says this nightmarish scenario is unlikely: “With regulators now watching Libor like hawks, the risk of abuse is probably very low.” There are plenty of greater dangers to worry about — see the two items above. Wall Street Journal, Financial Times, New York Times
What’s in Your Coffers? In its first major enforcement action, the CFPB fined Capital One $210 million for deceptive marketing of payment protection and ID theft monitoring services to cardholders. Wall Street Journal, New York Times, Washington Post
Wall Street Journal
“Global financial companies are preparing to chop thousands of banking and trading jobs,” on top of the 18,000 positions slashed by the six largest U.S. financial firms over the past year. “The search for savings underscores the enduring weakness of the banking industry four years after the financial crisis” — a weakness displayed in profits that rely on reserve releases, anemic revenues and lending volumes, and of course rising regulatory costs.
The paper considers U.S. banks’ “love-hate” relationship with home mortgages. The love comes from the current refinancing wave, which has been mightily contributing to profits. The hate has to do with the legacy of the bubble years, as repurchase requests for dicey loans continue to take their toll on the bottom line.