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TLAC, Part II: Not quite two weeks after the Federal Reserve Board released its contentious total loss absorbing capacity (TLAC) proposal, the Financial Stability Board updated its own plan to force "systemically important" banks to issue more debt in order to prevent future global financial crises.

The FSB's version calls for these banks to build by 2019 a cushion of at least 16% of their risk-weighted assets in equity and debt, similar to what the Fed proposed, the Wall Street Journal reports. The FSB's TLAC standard would increase to 18% of risky assets by 2022, meaning that banks would have to raise an estimated $1.19 trillion in loss-absorbing securities.

By 2022, these banks will also be required to hold at least 6.75% of their total assets as capital. Overall, the rules will affect 30 banks, including J.P. Morgan Chase & Co. and HSBC Holdings. As the Financial Times notes, however, it's banks in emerging markets that will be most adversely affected. While these banks escaped TLAC rules in the past, this time they too must fall in line, albeit with a more relaxed deadline.

Bonus Pay Bust: A survey from consulting firm Johnson Associates finds that the financial industry en masse will experience a dip in paychecks for the first time in four years. One of the biggest factors driving the downturn in end-of-year bonuses for those in the financial industry is the chaos seen in global markets, according to the Wall Street Journal. The shakiness seen across markets has hampered the returns for money managers and put a damper on initial public offerings, for instance.

A big factor for bankers though is the continued impact of new financial regulations, the New York Times writes. As banks are forced to become more risk-averse, the cost of doing business has gone up, which reflects poorly on the likes of fixed-income traders. Consequently, these folks are likely to see their fifth consecutive drop in bonuses.

Wall Street Journal

Banks are struggling to sell takeover loans as investors become wary of risky debt. Among the banks facing these troubles are Bank of America, Morgan Stanley and Credit Suisse, who used the loans to purchase various firms such as Apollo Global Management. But while investors' taste for these riskier debts has diminished, the banks face the burden of regulations that call for them to minimize such holdings by years' end under capital changes. As a result, many banks have begun selling the loans at a steep discount.

Foreign banks have developed quite the appetite for U.S. deposits, the paper reports. Overseas banks such as Mitsubishi UFJ Financial Group and BNP Paribas are now outbidding American banks for large corporate deposits, offering to pay two or three times as much in some cases. The new demand stems from the need for new sources of American funding as the market for short-term debt diminishes due to regulations.

Are investors getting carried away when it comes to the Fed's anticipated rate increase? The paper says yes. Following the October jobs report release, bank stock moved higher on the sentiment that the data would support a rate hike. But the paper argues that the rate increase isn't likely to cause an overnight improvement for banks' results – if anything, it would just curb the compression in net interest margin. For banks to truly see the tides change, the Fed would need to make repeated rate increases every or every other meeting, which is unlikely.

Financial Times:

Another European bank is slashing jobs – and this time it's Italy's largest, UniCredit. The bank will likely cut around 12,000 jobs and sell assets including its Austrian retail operations. The move is a preemptive one aimed at staving off a capital increase that ultimately just would cause them to lose jobs anyway. The job cuts will come not just from the bank's Italian and Austrian operations, but also its offices in Germany. The changes should be announced with the company's third quarter results on Wednesday, according to the paper's sources.

Think your job is hard? Then, chances are you haven't met Anthimos Thomopoulos, chief executive of Piraeus Bank. Thomopoulos' company, one of the largest banks in Greece, has borne much of the brunt of the financial troubles that have plagued the European country in the wake of its debt crisis. He continues to face pressure from regulators – by the end of the year, Piraeus must raise around $5.26 billion to close a capital shortfall discovered by the European Central Bank. That amount is 14 times the company's market value. The paper details these and other challenges that Thomopoulos has encountered as he aims to save his bank from the brink.

New York Times

When you've raked in more than $808 million in settlements, what do you do with all the money? That's the question that Manhattan district attorney Cyrus Vance Jr. has faced with his windfall from settlements with HSBC, Standard Chartered and BNP Paribas over violations to U.S. sanctions. His answer: setting up grants for public and private criminal justice programs across the country. One grant goes toward helping agencies to tackle the mountain of untested rape kits in police storage, the paper reports. Another aims to improve educational opportunities for prosecutors.


CNBC: In a commentary piece for the news outlet, Aaron Klein of the Bipartisan Policy Center says the biggest issue the Fed should take up is not a potential rate hike, but marijuana. As more states begin to legalize pot, banks are finding themselves on unfamiliar terrain as they seek to serve cannabis customers. Klein believes that clearer advice from the central bank would help to settle the many questions on both the part of the marijuana industry and banks, and make doing business much easier for all involved.

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