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Unease with Easing: How low can interest rates go? Maybe no lower than where they are now.

That's one plausible take-away from news that members of the Federal Open Market Committee are split over whether to continue through year's end the Federal Reserve's third round of quantitative easing, known as QE3.

"Several" FOMC members want "to slow or to stop purchases well before the end of 2013" and one member opposes them altogether, according to minutes of the FOMC's December meeting. A "few" of the 12 voting FOMC members want to keep buying assets until the end of 2013 and are backed by a "few" more who want "considerable accommodation" but did not set a date, the minutes indicate.

Under the QE3 program, launched last September, the central bank announced plans to buy $40 billion in mortgage bonds each month until the outlook for the labor market "improved substantially." In December, the Fed said it would also expand its holdings of Treasuries by $45 billion a month, replacing a program in which it acquired that amount of long-term Treasuries each month by selling the same amount of short-term Treasuries (aka operation twist). That left the total size of its portfolio unchanged, according to the New York Times.

"While almost all members thought that the asset purchase program begun in September had been effective and supportive of growth, they also generally saw that the benefits of ongoing purchases were uncertain and that the potential costs could rise as the size of the balance sheet increased," the meeting account said.

"Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet," the account continued, before concluding, "One member viewed any additional purchases as unwarranted."

In standard Fed language, "a few" means two or three, while "several" might be four or five, suggesting that the committee is evenly split, according to the Financial Times. New voting members will rotate on to the FOMC in 2013, but they are unlikely to change its behavior much, the paper added.

The New York Times quoted Diane Swonk, chief economist at Mesirow Financial, as stating that four of the dozen FOMC members will be replaced this month and that two new arrivals — Charles L. Evans, president of the Federal Reserve Bank of Chicago, and Eric S. Rosengren, president of the Federal Reserve Bank of Boston — have been outspoken supporters of asset purchases.

If the financial markets' immediate reaction is any indication, the FOMC split immediately added to expectations that U.S. interest rates will rise; a dollar index gained 0.7% on the heels of the news, the Financial Times noted. U.S. stocks fell, while Japanese stocks rallied on the expectation that a falling yen would support exporters. The yield on 10-year Treasury notes jumped by 7 basis points to 1.9%.

World markets' quick reactions does not indicate that the Fed is on the verge of changing policy or ending QE3.

The Fed said in December that it expects to keep interest rates low until unemployment falls below 6.5%, as long as inflation is expected to stay below 2.5%. It said it would continue QE3 until there was a "substantial improvement" in the labor market without defining what a "substantial improvement" would look like. The Fed's forecast indicates that unemployment will remain between 7.4% and 7.7% at the end of 2013, suggesting that might be enough to bring QE3 to a halt, reports the FT. New York Times, Financial Times, Bloomberg

Swap Delay: In yet another Dodd-Frank deadline deferred (as of Jan. 2, 60% of the act's 237 rule-making deadlines had been missed), commercial banks may get as much as two extra years to comply with the requirements that they wall off some derivatives trades from units backed by federal deposit insurance, the Office of the Comptroller of the Currency said in a notice released Thursday.

Under the derivatives provisions of the Dodd-Frank act, depository institutions cannot use the federal assistance they receive — such as federal deposit insurance or access to the discount window — to support certain swaps activities. The new rules will in effect force some banks to stop swaps operations or divest from the business.

The OCC, as well as the Federal Reserve Board and the Federal Deposit Insurance Corp., had previously set an effective date of July 16 for the swaps rule. But Dodd-Frank allows a bank's primary regulator to set a longer transition period, and it now appears that the deadline may be moved back to July 2015, Bloomberg reports.

The so-called push-out provision of Dodd-Frank requires that equity, some commodity and non-cleared credit derivatives be "pushed out" to separate affiliates without federal assistance.

Before that can happen, the Commodity Futures Trading Commission and other regulators need to complete swap rules to allow "federal depository institutions to make well-informed determinations concerning business restructurings that may be necessary," the OCC said in its notice.

The U.S. House Financial Services Committee last February approved legislation that would remove part of the push-out rule and let banks keep commodity and equity derivatives in federally insured units. Regulators, including Federal Reserve Chairman Ben Bernanke, had opposed the provision when it was included in Dodd-Frank, saying it would drive derivatives to less-regulated entities, according to Bloomberg.

The delay will no doubt be received warmly by Wall Street's biggest banks. JPMorgan (JPM) had 99% of its $72 trillion in notional swaps trades in its commercial bank in the third quarter of 2012, according to Bloomberg, citing the OCC's quarterly derivatives report. Bank of America (BAC) reportedly had 68% of its $64 trillion in its commercial bank.

Less happy are observers who regard it as critical to separate derivatives businesses from federal insurance to avert the need for taxpayers to bail out Wall Street yet again during the next crisis.

"The procrastination of both regulators and the banks on this portion of Dodd-Frank has been pretty amazing," Marcus Stanley, policy director for Americans for Financial Reform, a coalition including the AFL-CIO labor federation, told Bloomberg. "The swaps-pushout provision is a really important part and something that absolutely should be a central part of the regulatory framework." Bloomberg, American Banker

Wall Street Journal

If misery really does love company, beleaguered Swiss banking giant UBS will gain a modicum of satisfaction from the woes that have befallen its native nation's oldest bank.

Wegelin & Co., founded in 1741, pleaded guilty to criminal conspiracy in the U.S. on Thursday, admitting that for years it helped wealthy Americans dodge tens of millions of dollars in taxes by hiding their income in secret accounts.

Wegelin is the latest Swiss bank to reach a deal with U.S. prosecutors as they crack down on rich Americans who did dubious tax planning with the help of secret foreign accounts and accommodating offshore bankers. Three Wegelin bankers also were charged criminally in the U.S. last year.

Otto Bruderer, Wegelin's managing partner, entered a guilty plea on the bank's behalf at a hearing in Manhattan federal court on Thursday and said the bank, between 2002 and 2010, knew U.S. taxpayers maintained secret accounts at Wegelin in order to evade U.S. taxes.

Notably, the private bank, which plans to close its doors once the matter is wrapped up, is also the first to plead guilty to a criminal charge in the U.S. government's probe.

The U.S. claimed in court documents that Wegelin "deliberately set out" to capture illegal banking business lost by UBS and another, unnamed Swiss bank after the U.S. began investigating their operations in 2008 and in 2009. UBS and the other bank have since stopped servicing undeclared Swiss accounts, according to prosecutors.

UBS entered a deferred prosecution agreement in 2009 in which it avoided criminal charges by admitting it had conspired to defraud the U.S. government out of billions of dollars in taxes. As part of that agreement, UBS turned over the names of more than 4,000 U.S. account holders and paid a $780 million fine.

Perhaps consumers actually will warm to checking account fees — if they're given a sense of control, that is. The industry will not soon forget Bank of America's embarrassing failure to force-feed its customers checking fees not long ago.

Now comes word that Frost Bank, a San Antonio-based unit of Cullen/Frost Bankers Inc. (CFR) and Union Bank out of San Francisco are introducing kinder, gentler a la carte checking fees.

One Frost customer was profiled happily paying $5 a month for basic checking that includes online and phone banking, account-balance email alerts and overdraft protection. For an extra $2, Frost will throw in bells and whistles like mobile bill-payment.

"It's a better PR situation," Alex Matjanec, a co-founder of, tells the Journal. "Banks aren't forcing people to pay these fees; consumers are 'opting in.'"

Elsewhere ...

Bloomberg: Chalk up a big win for the mortgage industrial complex and an equally large loss to Uncle Sam's coffers. That's the gist of a report indicating that, as legislators rushed to avert a fiscal crisis in the past week, they left in place mortgage tax breaks that will cost the U.S. government $600 billion over the next five years.

"This is a meaningful win for the housing lobby generally and more specifically the mortgage insurance industry," said Isaac Boltansky, an analyst for Compass Point Research & Trading LLC, which came up with the estimated the value of the programs.

Among the specific breaks left unscathed by the government's admittedly dull tax-break scythe: A 2007 credit for homeowners whose debt is forgiven by lenders, an exemption for profits on home sales and the much-loved mortgage-interest deduction.

Homeowners will save about $100 billion this year from the mortgage interest deduction alone, according to Compass Point.

The Atlantic: It's been one step forward and two steps back over the past four years in protecting the world from its banks. That's the conclusion of a long look at reform efforts by The Atlantic.

"For the past four years, the nation's political leaders and bankers have made enormous — in some cases unprecedented — efforts to save the financial industry, clean up the banks, and reform regulation in order to restore trust and confidence in the American financial system," write Frank Partnoy and Jesse Eisinger. "This hasn't worked. Banks today are bigger and more opaque than ever, and they continue to behave in many of the same ways they did before the crash."

Exhibit One in the essay: JPMorgan Chase and the way in which "a little-known corner of the bank called the Chief Investment Office" left Jamie Dimon, supposedly the savviest CEO on Wall Street, gagging on his tempest in a teapot.

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