Receiving Wide Coverage ...
Welcome to FOMC Week: The Federal Open Market Committee meets Tuesday and Wednesday, and the Fourth Estate's Fed watchers filed several previews for Monday's papers. While there's no expectation that Janet Yellen's Fed will raise interest rates right away, especially not before the central bank's tapering of asset purchases is complete, there is increased speculation about when the first rate increase will come. That's in large part because the U.S. labor market is showing signs of improvement. But lower-than-expected economic growth is cutting in the opposite direction.
Signs of Movement in BNP Standoff: The French government, which has been working for months to convince U.S. counterparts to lessen the severity of the eventual penalties against BNP Paribas, says that it's made progress, according to the Journal. Meanwhile, the paper's editorial page, usually no fan of the Obama administration, makes a bit of exception in this case, arguing that BNP Paribas should pay a heavy price for allegedly violating U.S. sanctions against Iran and Sudan. "Few details are available on the entities that sought BNP's help to illegally transact in U.S. currency, but it's safe to assume they aren't the Girl Scouts," the editorial states.
Citi-DOJ Settlement Talks Hit a Wall: Settlement talks between Citigroup and the Justice Department have stalled over the size of the fine the bank should pay to resolve claims over bubble-era mortgage-backed securities. DOJ floated a $10 billion opening bid. But that number looks quite high when compared to the $13 billion agreed to by JPMorgan Chase, which was a much bigger issuer of mortgage-backed securities than Citi was. Financial Times, New York Times
Unemployed and in Debt: The Times and the Journal highlight two different proposals for how to tackle the rising indebtedness of down-on-their-luck college graduates. A University of Michigan economics professor argues in the Times that President Obama's recently expanded "Pay as You Earn" student loan initiative can be made more effective. Under the current rules, borrowers apply to get their payments reduced to 10% of what they earned the previous year. But the program's design overlooks the fact that young adults' income is highly variable. An affordable payment one year might be unaffordable the following year. The op-ed's author writes that loan payments should instead be calculated by the borrower's employer, similar to the way that Social Security contributions work. Meanwhile, a Vanderbilt finance professor touts a somewhat similar idea: income-share agreements, under which students would agree to pay perhaps 5% or 10% of their salaries to a financing source for a fixed number of years. Unlike with student loans, "If you don't earn any money, you don't pay any money," the Journal notes. But the proposal would require changes in the law to work in the United States, and it faces opposition from critics who portray it as "indentured servitude."
Canada's New Banking Watchdog: Canada has a new top banking regulator. Jeremy Rudin, a senior official in the country's Finance Department, is credited with playing a key role in Canada's response to the global financial crisis. He'll surely be keeping an eye on Canada's booming housing prices, which are now the highest in the world, at least by one measure.
Wall Street Journal
Wells Fargo stands on the verge of another big milestone: most valuable U.S. bank of all time. After the stock market closed Friday, the San Francisco bank was valued at $272.36 billion, which is about $10 billion short of the record set by Citigroup in 2001. The Journal draws the following lesson from Wells' hot streak: "It is better to be a large Main Street bank than a big Wall Street firm."
There's a simple solution to the problems associated with high frequency trading, a former hedge fund manager writes in an op-ed.
The European Union is striking back at the Obama administration over its refusal to include financial services regulation in a proposed trans-Atlantic trade deal, the FT reports. The EU plans to refuse to negotiate on "anything related to financial services companies" until the U.S. agrees to include financial regulation in the deal. The Obama administration argues that including financial regulation in the trade talks could undermine post-2008 reforms in the U.S.
"The cost of insuring against global bank defaults has plunged to its lowest level since the financial crisis," the paper reports. Credit goes to higher bank capital levels, economic improvements and investor confidence born from new regulations.
Financial Stability Board Chairman Mark Carney summarizes the international regulatory group's agenda for reform of the shadow banking sector.
New York Times
The Grey Lady has the scoop on the latest banking crackdown by the New York State Attorney General's Office. Empire State authorities will announce Monday that Capital One Financial has agreed to change the way it uses the ChexSystems database, a tool commonly used by banks to evaluate prospective depositors. The issue here is whether consumers should be turned down only if they end up in the database because of fraud, or if less serious transgressions, such as repeated overdrafts of another bank account, should also trigger a denial. Bank of America, JPMorgan Chase and three other unnamed banks have received letters as part of the AG's investigation, the paper reports.
Should banks be rejoicing over the recent appeals court ruling that allowed a settlement between Citigroup and the Securities and Exchange Commission to move forward? Columnist James B. Stewart says no. Stewart argues the ruling puts too much power in the SEC's hands, while turning judges into rubber stamps. "We also have to be concerned that regulators and prosecutors might be coercive, shaking down the banks and chasing headlines and then moving on," Erik Gerding, a University of Colorado associate law professor is quoted saying.
More on the recent lawsuit brought against Fannie Mae and Freddie Mac by Massachusetts Attorney General Martha Coakley. In an op-ed, a Vermont Law School professor urges Fannie, Freddie and the Federal Housing Finance Agency to reconsider the policy that sparked the lawsuit. But a commenter perhaps an eagled-eyed reader of American Banker, which recently detailed ties between Coakley and a Bay State non-profit organization that stands to benefit from the suit offers a harsh dissent.
Columnist Gretchen Morgenson puzzles over a "mystifying disconnect" with respect to pension funds and the big ratings firms "On one hand, pension funds or state officials are telling the courts that Moody's and S.&P. were negligent and their ratings marred by flawed methods and conflicts of interest," she writes. "On the other hand, when the professionals who manage state funds buy bonds or mortgage securities, their investment policies require them to rely on the assessments of you guessed it the very same ratings agencies."
How much money is stashed in tax havens around the globe? A whopping $7.6 trillion, or 8% of the world's personal financial wealth, according to a French economist.