Is the financial crisis officially over?; Watson to the rescue

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It’s over: The Trump administration’s financial deregulation plan released Monday “is raising industry expectations that a post-crisis era of heightened regulation is over,” the Wall Street Journal reports. “The report shows a desire by officials to take a lighter touch after years of new restrictions adopted in response to the 2008 financial crisis and the severe recession that followed.”

Part of the plan “would answer banks’ biggest complaints in the post-financial crisis era — that excessive capital requirements are holding them, as well as lending, back,” the paper said. “If the Treasury’s changes were adopted, they could allow banks to return more capital to shareholders, which in turn would boost returns on equity and possibly further bolster stock-market valuations.” Wall Street Journal here and here, Financial Times, American Banker here and here

The proposal also supports banks that want to ease a new accounting rule that would force them to recognize losses on bad loans more quickly. “The move essentially sides with criticism from some banks that the new loan-loss approach would be costly and burdensome for them, could deter them from making new loans, and would cut into their profits and capital levels,” the Journal said.

Sen. Elizabeth Warren said Senate Democrats are willing to look into relaxing some regulations that affect community banks and credit unions, but draw the line when it comes to rolling back consumer protection or helping big banks. “There are places where we should do targeted changes in laws and regulations to make sure community banks don’t have to endure regulations … for problems like disrupting the entire U.S. economy when they really don’t pose that kind of threat,” the Massachusetts Democrat said.

In an op-ed piece in the Financial Times, Morgan Stanley chairman and CEO James Gorman says the bank stress-test process “is more cumbersome for the banks and the regulators than it need be. The content of the test should also be updated.”

Regarding bank regulation in general, radical change is not the answer,” he writes. “Instead, there is an opportunity for some common sense, targeted changes that can preserve the strength of the banking system while enabling the sector to better support the saving, investing and lending that promote economic growth and job creation.”

Wall Street Journal
Regulation assistance: IBM has formally launched tools for financial regulation using its Watson artificial-intelligence technology. One service analyzes regulatory language and helps companies assess whether their compliance programs comply with the rules. Another helps banks detect suspicious customers or transactions, while a third helps companies make “big data” more usable for developing business strategies.

The future of fintech: “Why are banks still so bad at technological innovation?” Jonathan Larsen, chief innovation officer at Ping An Insurance, discusses that and the challenges facing fintech. Larsen runs the Chinese insurance giant’s $1 billion Hong Kong investment fund, which is seeking deals in financial technology.

Financial Times
Pre-encryption: BlackBerry, the former mobile phone maker that now focuses on security and productivity tools for smartphones, is teaming up with London start-up VoxSmart to help banks monitor traders who use WhatsApp and other encrypted messaging tools. Since messages are encrypted when sent, banks have no record of what its employees said. “VoxSmart’s technology solves the problem because it sits on the phone and takes a record of the contents of the message before it is encrypted and sent,” the paper said.

New York Times
Facing the music: Three former British traders have agreed to waive extradition and face U.S. criminal charges that they conspired to rig foreign currency markets. The three traders — one each from Barclays, Citigroup and JPMorgan Chase — are scheduled to appear next month in federal district court in Manhattan.

While some of the world’s biggest banks, including the three just mentioned, have paid billions in civil penalties in both the U.S. and U.K. related to similar charges, only American authorities have brought criminal charges against individuals, the paper notes.

“We have had seven years of rulemaking since Dodd-Frank was enacted, and yet there are still new rules in the works. We should hold off further rulemaking, digest what is in place and focus on what is needed for economic growth.” — Morgan Stanley CEO James Gorman.

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Law and regulation Technology Artificial intelligence James Gorman Morgan Stanley IBM