Volcker Viewpoints; Madoff, Five Years On

Receiving Wide Coverage ...

Wow, what a morning. Scan is still trying to decide whether today's confluence of events out of Washington and Wall Street is poetically just, ironic or just plain spooky. A flood of headlines centered on finalization of the Volcker Rule, a congressional budget deal and the fifth anniversary of Bernard Madoff's arrest. That's a big agenda, but, for brave readers and those who had to get their kids to school early, let's have at the most important matters:

We've Only Just Begun: The contents of the Volcker Rule were the worst-kept secret in Washington, so the voluminous coverage today sought to put it into historical context and tee up the challenges ahead in ensuring banks engage in trades that are safe and in their customers' interests.

The Financial Times' main story called it the beginning of "a new world order" for banks, and Heard on the Street in the Wall Street Journal called it "a milestone along the path toward ending the threat of too-big-to-fail banks" and "getting banks back to being banks."

However, several of the papers noted that some critics thought that the rule was not as tough as it could have been, while others say it's misguided and overly complicated. Some trade groups hinted at legal action, the papers said, though Scan kinda figures regulators saw that coming in writing an 800-plus-page preamble that lacked only the title "Dear, Judge ..."

Several of the papers focused on behind-the-scenes intrigues. Commodity Futures Trading Commission Chairman Gary Gensler perturbed fellow regulators by pushing for changes late in the process though he was "absent for much of the rule's development," the Journal reported. "Still, Mr. Gensler can proclaim victory in his push to tighten several provisions," including one that was meant to prevent overseas banks with U.S. operations from skirting the rule.

An FT story said Treasury Secretary Jack Lew gets major credit for the provision that requires CEOs in writing to attest that their companies are in compliance (it worked so nice in Sarbanes-Oxley after all, right?), and for forcing the heads of the five regulatory agencies to play nice with each other. Lew held several of what former Senate Banking Committee Chairman Phil Gramm back in the day would have called "come-to-Jesus" meetings among regulators, starting shortly after he took office in February, the story said.

At a late summer meeting at the White House, when the rulemaking efforts had bogged down, President Obama told regulators it was "really important to make the [yearend] deadline" set by Lew, according to a New York Times story that gives a lengthy account of the back and forth among government officials.

Ultimately, though, a lot of the stories turned to the fact that a lot pressure will rest on regulators going forward.

The rule is "likely to promote financial stability if well-administered," but since banks "presumably abandoned the most clearly impermissible activities first, regulators could well be left to face the murkiest gray areas," a Washington Post opinion piece noted.

The regulation's "relentless specification of rules and exceptions obscures a hard fact: that the role of regulatory judgment cannot be eliminated," an FT opinion item said.

Dennis Kelleher, chief executive of Better Markets, which advocates for financial overhauls, summed it up for the Post: "Make no mistake about it: Regulators now own the Volcker Rule. They have to aggressively enforce it, ensure it is complied with or answer for any future blowups."

Unhappy Anniversary: Bernard Madoff was arrested five years ago today and is now in jail, yet legal proceedings against some of his associates are still in high gear and details of his infamous Ponzi scheme are just beginning to be understood.

Frank DiPascali, the former right-hand man of Bernard Madoff, testified Tuesday about the day his boss called him into his office and, weeping, said: 'I'm at the end of my rope. I have no money,'" according to a wire piece in the Post.

Reforms since the Madoff scandal and financial crisis have led to a wave of new types of investment funds and more detailed disclosures, but plenty or risks remain, according to one Journal story.

Another Journal story detailed how only now are Madoff's assertions proving false that he acted alone, and that he had legitimate market-making operations separate from illicit schemes.

Don't Forget Us: The Consumer Financial Protection Bureau reminded financial firms about where else they have to mind their p's and q's, extracting a $38 million settlement from GE Capital related to the marketing of medical credit cards that may have led patients to unwittingly pile up large debt. More than a million patients may be eligible for reimbursement, the Times story said.

Many thought they were signing up for an interest-free loan, the Post story said.

The move comes as the CFPB "is stepping up scrutiny of deferred interest financing plans," the Journal story noted.

Wall Street Journal

Make sure not to lose in the Volcker Rule shuffle the fact that the Federal Deposit Insurance Corp. on Tuesday issued a draft paper about how it would unwind a troubled financial giants without using taxpayer funds. (Bonus: American Banker coverage of the likely battle ahead.)

Scan knows that accounting is a dark art always worthy of attention. Read this story that a Securities and Exchange Commission accounting-fraud task force is investigating companies' (doesn't say in which industry) creative use of non-GAAP metrics.

Three Swiss banks have agreed to participate in a program established by authorities in the U.S. and Switzerland intended to crack down on U.S. tax dodgers.

Financial Times

So, how many bitcoins does it take to fill a Whale? We may find out. JPMorgan Chase updated an old patent application for a "virtual cash" system that bears a resemblance to the alternative currency bitcoin that is capturing imaginations (and a lot of ink in Scan) lately.

Finance ministers from EU countries adopted a draft plan for a centralized system to deal with bank resolutions that, to Scan, sounds like something between the Financial Stability Oversight Council and the Deposit Insurance Fund. However, they punted on fundamental issues like how to share bank-failure costs. Good luck with that.

Santander bought a stake in the Bank of Shanghai from HSBC for $646 million.

New York Times

Gee, this would have been big news on any other day: the Senate confirmed Mel Watt as head of the Federal Housing Finance Agency, by a vote of 57 to 41, but only after some painful procedures tied to broader partisan clashes.