Wednesday, September 21

Receiving Wide Coverage ...

The Capital One Hearings: The Fed held the first in a series of public hearings on Capital One's application to buy ING Direct. The Journal leads with the fact that along with the usual CRA activist types, community bankers (represented by the ICBA) voiced loud objections. Not only to this deal, but to any that would result in an institution with $100 billion or more in assets. "It is unlikely regulators will embrace the moratorium idea outright," the paper says, "but the criticism highlights the divide between big and small banks over the appropriate response to the 2008 financial crisis. Community banks, which fought to differentiate themselves from unpopular Wall Street banks in the crisis' aftermath, continue to wield clout on Capitol Hill and could increase pressure on regulators to slow big bank mergers." Capital One, meanwhile, rebutted the claim that by creating the fifth-largest bank the deal would result in another too-big-to-fail entity. The lender's general counsel, John G. Finneran, Jr., asserted that if anything, the combination would have the opposite effect. Unfortunately the press stories we see merely report that assertion without explaining the argument behind it; for that, we had to go to Finneran's testimony. His main points are that both Capital One and ING Direct do traditional banking (CDs, but no CDOs or CDS); neither dominates its markets or provides a service critical for the financial system to function (your frequent flier card doesn't count); and placing a foreign-owned entity under domestic ownership means less interconnectedness. Now you can judge for yourself. Wall Street Journal, New York Times

One for You, Two for Me: The SEC's former general counsel, David Becker, helped decide how to compensate victims of the Madoff fraud while he had a personal stake in the matter, the regulator's inspector general revealed. The agency's watchdog referred its findings to the Department of Justice to consider prosecution. Becker was an heir to a $2 million account with Madoff, a fact that was known to SEC chairwoman Mary Schapiro and some staffers but not the other four members of the commission, the inspector general said; other employees were barred from working on Madoff-related matters, but not Becker. Schapiro agreed with a decision to keep him from testifying before Congress, which would have compelled him to disclose his financial interest. Wall Street Journal, Washington Post

How Do We Move Forward?: The board of UBS will begin a three-day meeting today and will consider downsizing and other changes, which the recent rogue trading scandal could hasten. The meeting is being held in Singapore, which seems fitting to us since that's where Nick Leeson made his unauthorized trades that eventually brought down Barings in the 1990s. Wall Street Journal, New York Times

Fed Watch: The Fed's two-day policy meeting wraps up today. The Journal's "Ahead of the Tape" challenges the rationale behind Operation Twist, a strategy that the Fed may decide to pursue. The gist of the twist (sorry, we couldn't resi... I mean, help ourselves) is that by buying up longer-term Treasuries (with money raised from selling its shorter-term holdings), the Fed can push down long-term yields and, by extension, mortgage rates. "The trouble is, the relationship between Treasury yields and mortgage rates isn't perfect," the column says, and the spread between mortgages and Treasuries has widened lately. To wit: if X+Y=Z, shrinking X can reduce Z only so much when you have no control over Y. Meanwhile, Republicans are urging the Fed to attempt no further stimulus. Wall Street Journal, New York Times

Wall Street Journal

The housing market dragged the broader economy down, and now the economy is returning the favor. Home prices are expected to drop 2.5% this year and rise just 1.1% annually through 2015, according to a recent survey of more than 100 economists by MacroMarkets, the firm founded by Robert Shiller, an economist who saw all this coming years ago.

Some banks are shying away from committing to finance certain leveraged buyouts, fearful that they'll end up holding the bag if credit markets weaken and it becomes hard to distribute bonds or syndicate loans to investors.

A top official at the European Central Bank tells the Journal that in spite of everything, he expects the Euro zone to avoid a double-dip recession.

New York Times

An article looks at the use of the Dodd-Frank Act as a favorite punching bag for Republican presidential hopefuls. Supporters of the law say these candidates are ignoring a trade-off: fewer jobs in normal times, perhaps, but lower risk of a crisis that would really devastate the economy.

Spain is examining a Swiss banking account held by Emilio Botin, the head of local banking giant Santander (which is the majority owner of Sovereign Bank in Massachusetts). Last year Botin and family members paid a 200 million euro fine to avoid tax evasion charges, but a national court is investigating whether that was enough.