Receiving Wide Coverage ...
DeMarco Blinks. No, He Doesn’t: Just reading some of the headlines about Ed DeMarco’s speech yesterday, you’d think the Federal Housing Finance Agency’s indefinitely acting director had flip-flopped and endorsed principal reductions by the GSEs. “Analysis: Write-Downs Would Benefit Fannie, Freddie.” “Housing regulator argues for debt forgiveness.” “New Stance on Forgiving Mortgages.” Well … not quite. The stories make clear that DeMarco remains unconvinced the benefits of having Fannie Mae and Freddie Mac reduce mortgage principal (e.g. the borrowers would be more likely to make payments) would outweigh the costs (e.g. other borrowers might be more likely to miss payments if they see they can get a break). His “new stance” seems to be “meh.” “This is not about some huge difference-making program that will rescue the housing market,” he said. “It is a debate about which tools, at the margin, better balance two goals: maximizing assistance to several hundred thousand homeowners while minimizing further cost to all other homeowners and taxpayers.” DeMarco, who’s been under pressure from the administration to allow the GSEs to write down mortgages, said he’ll make a final decision on the matter this month. Wall Street Journal, Financial Times, New York Times, Washington Post.
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Return of the Son of the Shadow Banker: Following yesterday’s bouillabaisse of stories in the FT about the shadow banking sector’s reemergence, the paper’s editorial writers weigh in on the subject. Though frightened by the systemic risks, they acknowledge that these un- or lightly-regulated financial providers create value, sometimes by supplying healthy competition for banks, sometimes by offering needed services that banks won’t. “With wise policy, the usefulness of shadow banking activities can be greater than the threats. Taming and harnessing non-bank finance rather than smothering it should be the goal of rulemakers.” Where do you draw that line, though? The editorial goes on: Nonbanks “must not be banks by another name, without the regulation. For example, there is a risk that consumers treat money-market funds like insured deposits. This identification must either be counteracted or the funds must face equivalent rules to deposit-taking banks.” (For another view, BankThink columnist Andrew Kahr has argued that by the same logic, there is a risk that bank customers treat uninsured deposits like insured ones, and that this identification must be either be counteracted or the banks must face equivalent rules to what the SEC wants to impose on money funds.) One FT reader responds to the editorial in the comment thread: “It seems to me that much of the problem with ‘shadow banking’ is the whiff of sulfur deriving from its name. If it were termed ‘lending without recourse to customer deposits’ perhaps it would seem less threatening.” Also, we somehow missed two shadow banking-related stories in the Journal yesterday — Francesco Guerrera’s column calling for regulators to shine “more light” on the sector, and a story about how companies in Europe are “swarming to the corporate-bond market for financing and vastly reducing their reliance on banks.” Sorry, but we didn’t see either article on any of the topic pages we routinely check for banking-related news on the Journal’s website. They were hidden in the shadows, so to speak.
We Can All Improve: Covering Fed governor Daniel Tarullo’s speech on the stress tests yesterday, the FT leads with his comment that there’s “room for improvement at virtually every firm” in the area of capital management. But as the Journal notes prominently, he also acknowledged the stress tests themselves could use some tweaking, “saying the central bank will consult with academics, analysts and banks to improve the process.”
Wall Street Journal
In an op-ed, Peter Wallison explains why he thinks the Volcker rule is “fatally flawed.”
Financial Times
The paper previews first-quarter earnings season, which kicks off Friday with JPMorgan’s report. Investment banks will probably show a rebound in revenues from fixed-income and other kinds of trading, the article says. But the recovery “threatens to be fleeting,” given long-term headwinds like “a lower revenue base, much tighter regulation and stubbornly high staff costs.”
New York Times
Subprime lending is coming back, at least in the credit card and auto sectors. Not in mortgages, though. Also returning are the old questions about whether lenders are preying on vulnerable and unsophisticated borrowers, and how the heck do you define “subprime” anyway. “The definition of subprime borrowers varies, but is generally considered those with credit scores of 660 and below,” the Times says. We remember back in 2005 an executive at a major credit card issuer told us her company’s minimum credit score was 620, and then asked that we not write anything so specific and “just say ‘prime.’” See the problem?
