Receiving Wide Coverage ...
Yellen in Home Stretch: The Senate Banking Committee voted to confirm Janet Yellen's nomination for Federal Reserve chairman, and a change in Senate filibuster rules virtually guarantees she'll be confirmed by the full chamber. That change in parliamentary procedure the "nuclear option" Majority Leader Harry Reid's been brandishing will prevent filibusters for most presidential nominees. As such, it "represents a substantial power shift in a chamber that for more than two centuries has prided itself on affording more rights to the minority party than any other legislative body in the world," the Post notes. We're going to resist the temptation to go off on a tangent here, since this is American Banker, where the phrase "checks and balances" means something different than in the field of Constitutional law. So back to Yellen: In a Journal op-ed, former Senator Phil Gramm and economist Thomas Saving argue that the next Fed chairman will need an exit strategy for quantitative easing. (An economist critical of easy-money policies named Thomas Saving what are the odds?) And in his Times column, economist Simon Johnson critiques Philadelphia Fed President Charles Plosser's recent proposal to place limits on the Federal Reserve, including its asset purchases and lender-of-last-resort activities. "Plosser is right to want to scale back the role of the Fed," Johnson writes. "Unfortunately, unless he also scales back the largest banks and the risks that they and other parts of the financial system can pose, his suggested solution would become a noncredible commitment," since the Fed would end up having to bail out behemoths again.
Mayday for Payday: New guidelines from the OCC and FDIC for payday loan-like "deposit advance" products "throw up roadblocks by requiring banks to verify a borrower's ability to repay the debt," the Journal notes. Banks regulated by the two agencies have warned they may have to drop or curtail their products as a result. However, two of the biggest players in deposit advances, Regions and Fifth Third, are regulated by the Fed and thus not subject to the new rules. American Banker goes into greater depth on the controversy over the new regulations here. Meanwhile, the Times reports the Military Lending Act, passed in 2006 to protect service members from abusive payday lending practices, has fallen short. The law, which capped interest on certain credit products pitched to military personnel at 36%, doesn't cover loans with longer repayment periods, for example, or those for more than $2,000.
Bitcoin: The Post's Timothy Lee reports on the digital currency industry's months-long charm offensive in Washington, which turned this week's Senate hearings into a "love fest" rather than the show trials they could have been. The FT considers Bitcoin's popularity in China, now home to the world's biggest exchange for trading bitcoins for fiat currencies. The paper's Alphaville blog has a guest post by the inimitable Dave Birch parsing recent reports of an online "assassination market" where you can supposedly hire contract killers for bitcoins. Like Birch, we wondered if it's really a "honey pot" set up by law enforcement, if not a scam or a hoax. But this is all sensational noise. If you're wondering why anyone in the banking or payments industry should care about this Bitcoin thing (shameless plug alert), the short version is in the Best in Banking issue of American Banker Magazine. Go to BankThink for the long version.
Wall Street Journal
"Under pressure from Washington to crack down on rogue stockbrokers, the Financial Industry Regulatory Authority is highlighting a fast-track program it began earlier this year to go after what it calls 'high-risk brokers.'"
FDIC chairman Martin Gruenberg gives a progress report on the global effort to build mechanisms to wind down large, systemically risky financial firms at risk of failing.
Citigroup and other global investment banks "have banned the use of most group chat rooms as global probes into alleged benchmark manipulations [i.e., Libor and foreign exchange] drive a radical reform of trading floors." An FT reader is skeptical, commenting, "Oh so they will be getting rid of Bloomberg? How do you expect them to share details of positions and orders then? Use Snapchat or whatsapp or something?"
New York Times
Columnist Floyd Norris looks askance at the outrage voiced by bankers (and sympathetic lawmakers) over a CFTC advisory subjecting swap traders in New York to U.S. regulations, even if on paper the traders work for foreign entities. "This may be one of many skirmishes over bank regulation in which banks will contend that forcing them to comply with stricter rules than foreign competitors will cost jobs and drive business overseas," Norris writes. "To them, finding ways to claim that people are where they aren't is simply a way to remain competitive."
"Another Banking Scandal" This editorial on the international forex manipulation probe says that beyond traders' shenanigans, "The real problem is that foreign exchange is one of the most opaque and least policed of all financial markets. There is no exchange where all currency trades and prices can be tracked; much of the trading is still done by phone." The Times' editorial writers chide the Obama administration for exempting forex derivatives from Dodd-Frank rules, and argue that compensation structures give traders "an incentive to collude and manipulate."
"Investor groups are scooping up shares of Fannie Mae and Freddie Mac and even offering to buy core pieces of their businesses, complicating legislative efforts to shut down the two mortgage giants." The main player here is Fairholme Capital Management, which wants to take over the GSEs' guarantee businesses and is fighting in court to stop Fannie and Freddie from paying out all their profits as dividends to Treasury. Bill Ackman's Pershing Square is also involved.