Receiving Wide Coverage ...
Translating Tarullo: The Federal Reserve plans to step up year-round oversight of big banks to ensure they are able to pass stress tests, Fed Governor Daniel Tarullo said in a Wednesday speech. The thrust of Tarullo's remarks suggest a push "to centralize the oversight of Wall Street in Washington," according to the Wall Street Journal. The paper focuses on how the stress-test failures of both Zions Bancorp and Citigroup may have been impacted by "conflicting or insufficient information from their regional supervisors and Washington." The Financial Times is more interested in the idea that future stress tests could include tougher requirements. Tarullo suggested the Fed may someday "test whether weaker institutions vulnerable to a financial shock would be forced into fire sales in a crisis, and damage other companies as a result."
GDP Drop, Diagnosed: Gross domestic product fell sharply in the first quarter of the year because of a bitter winter that hurt business activity as well as declines in exports and health care spending, according to a revised estimate from the Commerce Department. Most analysts are attributing the 2.9% drop in GDP to one-off factors, but pundits' takeaways differ nonetheless. The Journal's main news story plays it pretty straight, but its op-ed section includes an editorial that blames the drop in health care spending on the rollout of the Affordable Care Act and a commentary from pair of economists that attribute part of the productivity slowdown to fewer start-ups. The Times' Neil Irwin points out that "the fact that the economy as a whole could show such a sharply negative result thanks to a few combined idiosyncratic factors is also a reflection of an underlying weakness." Over at the Washington Post, Matt O'Brien has a more cautiously optimistic take. For one thing, he argues that the decline in health care spending is actually good news in the long term: "health-care prices and utilization haven't increased much despite the increase in health-care customers," he writes.
Dark News for Barclays: New York Attorney General Eric Schneiderman has filed a civil lawsuit against Barclays, charging the British lender has misled investors about how its dark pool trading venue favors high-speed traders. The FT's Lex team argues that with a name like dark pools, "the investors who swam in these waters ought to have known what they were diving into." But Lex also has limited sympathy for Barclays, arguing that if the allegations against the bank are true, it appears to be "a case of big lies for small rewards." Wall Street Journal, Financial Times
SEC Checks Overseas Swaps by U.S. Banks: The Securities and Exchange Commission has finalized a measure that seeks to curb derivatives trading by foreign branches of U.S. banks, but some commissioners including Democrats Kara Stein and Luis Aguilar say the rule doesn't go far enough. Financial Times, New York Times, Wall Street Journal
Wall Street Journal
Not long ago, banks' chief risk officers probably felt a certain camaraderie with Rodney Dangerfield and his "I don't get no respect" rallying cry. Now they'll have to find a different catchphrase: in the aftermath of the financial crisis, risk management teams are winning power. The Journal points to Wells Fargo CRO Michael Loughlin as a prime example of how much sway professional worrywarts now hold over banks. "Five years ago, if the risk group recommended against a strategy or product, it might just be one part of a debate," Loughlin told the paper. Now, "when we say no, it's usually no."
The Office of the Comptroller of the Currency warned in a report Wednesday that banks are taking on more credit risk in a quest for higher yields. The OCC points to indirect auto loans and leveraged loans as areas of particular concern.
Financial Times
Researchers have rooted out a potential security issue with PayPal's two-step authentication process. PayPal said it has temporarily suspended two-step authentication "until an identified fix can be implemented in the next few weeks."
New York Times
Manipulation of market rates can have a big impact on banks "because they use the rates in calculating how well capitalized they are and how well they can withstand major market upheaval," writes BankThink contributor Mayra Rodríguez Valladares. "The question for regulators and investors, then, is whether the manipulated rates created a mirage of well-capitalized financial institutions."
Lorin L. Reisner, who previously served as the SEC's deputy director for enforcement and now heads the U.S. attorney's office criminal division, is leaving the public sector for a job at a private law firm.
