A New Head in the Fed: The new president of the Dallas Federal Reserve is something of a mystery man. Robert Steven Kaplan's background as a former Goldman Sachs executive and management professor at Harvard Business School is well known; what's less clear are his views on monetary policy. This enigma is exciting a lot of interest among observers, since Kaplan will be highly influential as a member of the Fed's policy-setting committee when his turn to serve on it rolls around in 2017, as the Washington Post notes. Kaplan's appointment has drawn criticism from some community activists, who tell the New York Times that the Fed's opaque selection process has led to "one Wall Street insider replacing another," with former Dallas Fed chief Richard Fisher heading to Barclays. The Wall Street Journal observes that Kaplan shares his Goldman Sachs pedigree with a number of central bankers including New York Fed chief William Dudley and recently appointed Philadelphia Fed president Patrick Harker. The Financial Times plays it straight.
Citi Settles: Citigroup has reached a $180 million settlement with the Securities and Exchange Commission over allegations that the bank misrepresented the risks associated with two hedge funds to investors. The highly leveraged hedge funds tanked at the height of the financial crisis, "saddling investors with billions of dollars in losses," according to the Times. "The SEC added that even as the funds were collapsing, Citigroup accepted nearly $110 million in additional investments," the Journal reports.
Wall Street Journal
Chief financial officers are getting larger raises than their bosses these days, according to new data from S&P Capital IQ. CFOs at large companies received a median pay increase of 13.9% in 2014, compared to a median increase of 6.9% for CEOs. The study also found that while CEOs' share of cash-based income grew significantly last year, CFOs still receive largely equity-based income packages. An executive compensation consultant tells the paper that the discrepancy may be attributed to low turnover among CFOs and a higher proportion of internal promotions.
Big banks are attempting to work around higher capital requirements with so-called "capital-relief trades." In a capital-relief trade, banks use credit derivatives or securitizations to sell a portion of their risk-weighted assets to investors while keeping the assets on their balance sheets, according to the paper. This move isn't a popular one among regulators: the Treasury Department's Office of Financial Research warns that the trades could wind up "obscuring" banks' actual capital levels and pose additional "financial stability concerns." The financial stability concerns lie in the idea that banks are passing risk onto hedge funds and other less regulated parts of the financial system.
Former Federal Reserve chairman Alan Greenspan wants U.S. regulators to instate higher capital requirements and shelve Dodd-Frank. He says historical evidence suggests that regulators could gradually raise mandatory capital levels to 20% or 30% of assets without putting a damper on bank earnings or lending. Thicker capital cushions would allow regulators to back off close supervision of banks' lending and securitization activities, "since any losses would be absorbed by shareholders, not taxpayers," he claims. As you might expect, readers are slugging it out over "Greeny's" recommendations in the comments.
Banks may soon face a flood of civil claims over the forex rate-rigging scandal, the paper reports. That's because precedent has now been set by last week's $2 billion settlement between banks including Bank of America, JPMorgan Chase and Citigroup and thousands of investors who lost money as a result of currency manipulation. Banks are expected to face a particularly high number of class-action lawsuits in London, since the city has a larger forex market.
Speaking of the forex scandal, four ex-Citigroup traders allegedly involved in the conspiracy are protesting their dismissals in court.
Goldman Sachs should stop trying to use retail banking as a stable funding source and focus on wealth management, according to the paper's Lex team.
A New York State assemblyman is rolling out a "shame campaign" targeted at banks that have delayed the foreclosure process for vacant homes. Critics argue that stalled foreclosures drag down property values in nearby homes and leave taxpayers to fund the maintenance of abandoned properties.