Receiving Wide Coverage ...

Volcker Day: Initial coverage of the public comments filed on the Volcker Rule proposal only scratched the surface of a rich debate. “Heard on the Street” in the Journal suggests that foreign governments objecting to the rule may have a point, since the ban on proprietary trading by banks would include most sovereign debt but would exempt U.S. Treasury bonds – a point that Paul Volcker didn’t quite address in his FT op-ed. The rule’s namesake scoffed at concerns that it would hurt liquidity for foreign government debt, but the carve-out for Treasurys is “an implicit acknowledgment that Washington believes this risk is real,” the Journal column says. A reader follows this train of thought into the realm of geopolitical intrigue, writing in the comment thread that the “unfair” treatment of foreign sovereign debt “could be correctly or incorrectly [interpreted] as hostile,” inviting a “retaliatory response, which will only make the markets less liquid and more expensive and uncertain.” Meanwhile, despite CFO David Viniar’s recent favorable remarks about the Volcker rule, Goldman Sachs wants some changes. A less obvious group of critics are the regional banks — PNC, U.S. Bancorp, Capital One, SunTrust, BB&T, Fifth Third, Regions and KeyCorp — that jointly filed a comment letter. Their main beef is that they’d have to very quickly put in place all sorts of compliance chazerai “simply to ‘prove a negative’ that we are not engaged in impermissible proprietary trading or funds activities.” (We found that one at Politico’s Morning Money, which is worth a look on those days when you have time after your requisite dose of Morning Scan). The FT reports that the big banks, including Bank of America, are lobbying for regulators to revise the Volcker Rule to explicitly allow market making in exchange-traded funds. Or rather, activities that the banks consider market making but don’t fit the proposal’s definition of it. Some market watchers have called the “opaque” ETFs a source of systemic risk, the article notes. Elsewhere, Times columnist Peter Eavis laments that the comment letters on the Volcker rule, both pro and con, are long on abstract arguments but short on hard numbers and real-world examples. And John S. Reed, perhaps seeking to atone for his role in creating FrankenCiti, is urging regulators to make the Volcker rule tougher. For example, a bank’s CEO and top trading, risk management and accounting executives should be required to sign a SarbOx-like statement each quarter “stating that, to the best of their individual knowledge, the operations of the trading unit were conducted within the letter and spirit of the Volcker Rule,” Reed writes. Traders should be paid “based on the results of their market making and hedging activities after those positions are fully unwound,” rather than collecting bonuses for short-term appreciation of assets held in inventory. And penalties for violating Volcker ought to be “severe,” Reed says. You can download a pdf of his letter here.

Occupy the Volcker Rule: One comment letter in particular has generated a lot of buzz in the media and blogosphere. It comes from Occupy the SEC, one of the “subgroups” of Occupy Wall Street. (If you’re rolling your eyes right now, don’t. Occupy is not all drum circles and “mic checks”; the movement’s SEC and alternative banking subgroups include current and former finance professionals with an intimate understanding of the industry.) The letter is more than 300 pages long and we’d be lying if we said we’ve read all or even most of it. But on the recommendation of Reuters blogger Felix Salmon, we read the introduction, and it is trenchant. Like Reed, the Occupiers call for bright-line definitions of what is permissible. In response to Fed Governor Daniel Tarullo’s explanation that instead of drawing such lines, regulators sought a “more nuanced framework,” the letter says, “we advise the Federal Reserve and the other agencies not to confuse mere complexity for nuance.” Occupy also lambastes the SEC’s Mary Schapiro for reassuring bankers her agency would not go after firms that inadvertently cross the line from market-making to prop trading: “Nowhere does the statute forgive ‘well-intentioned’ breaches of the law.” And they skewer the interagency proposal for requesting comments “on the potential impacts the proposed approach may have on banking entities and the businesses in which they engage” without mentioning depositors or taxpayers. Also like Reed, Occupy wants penalties to be spelled out in the rule. Who knew that OWS and John Reed would have so much in common? Coverage in Reuters, Slate, Buzzfeed, Time, The Nation, FireDogLake, Naked Capitalism, MathBabe.

Wall Street Journal

If you haven’t had enough of the debate over regulating money market funds, today’s Journal includes dueling letters to editor from the Investment Company Institute and two law professors.

New York Times

The Fed approved Capital One’s deal to buy ING Direct, following protests from community activists, but “ordered Capital One to revamp its internal controls, specifically around its lending and debt-collection practices.” Someone must have read that Journal story that ran during the holiday season about Capital One’s history of trying to collect debts previously discharged in bankruptcy.

Hedge fund manager John Paulson “spent the last quarter of the year shedding shares in banks and financial firms that had become something of an albatross for him.”

 

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