Banco Popular de Puerto Rico

Receiving Wide Coverage ...Regulatory Reform Redux: The New Yorker’s financial columnist, James Surowiecki, frames the Libor-rigging scandal as a textbook example of the financial industry’s inability to regulate itself. Reputation risk has proven an insufficient incentive for bankers to behave, he writes; an “intrusive and overbearing” approach is “exactly what the financial industry needs.” But Reuters’ blogger Felix Salmon finds Surowiecki’s new-sheriff-in-town prescriptions (jail time for fraudsters and preventive measures inspired by urban policing strategies) a bit naïve. Noting that prosecutors and regulators face “serious institutional and legal constraints” that prevent them from being as tough as Surowiecki and others would like them to be, Salmon seconds John Kay’s call for a deeper restructuring of the financial industry itself. (That’s John Kay the economist, by the way, not the singer from Steppenwolf.) In the Journal, columnist Francesco Guerrera says the armies of on-site examiners stationed at banks “are fast becoming an anachronism that should be ended or at least sharply downsized.” Instead, more regulatory resources should be allocated to data-driven, industrywide supervisory methods, Guerrera writes, citing the “success” of the recent stress tests. “Successful” how, though? “No amount of stress testing would have caught the mortgage lending practices that caused the meltdown,” says a Journal reader in the comment thread. “Regulatory agencies continue to expand their stress-testing rigor, at enormous cost to the banking system — but a stress-testing exercise provides little or no insight into how the bank is actually conducting its business.” (Warning: you have to wade through a lot of predictable knee-jerk reactions from people who apparently didn’t read past the headline — e.g. “of course, let's turn all the banks loose to do whatever they want. We don't have enough banking scandals” — to get to that more nuanced criticism of Guerrera’s thesis.) Similarly, Tony Hughes of Moody’s Analytics, writing on American Banker’s BankThink blog, doubts that the stress tests, as currently designed, would have flagged the dangers of WaMu’s mortgage binging in time to prevent its failure. Hughes recommends that the stress-test exercise be reconfigured to reflect, among other things, the reality that no bank is an island — “collective actions by many banks can dramatically increase the odds of failure of any individual bank,” and “not only does the economy affect the banking sector; the reverse is also true.” The Journal also reports today that Fed Governor Sarah Bloom Raskin wants a tougher version of the Volcker rule with narrower exemptions than the draft interagency proposal issued last year. Finally, don’t judge a magazine by its cover. The latest issue of The Freeman bears the headline “CASINO BANKING,” with an illustration of a Las Vegas-style neon sign that says “Welcome to Fabulous Wall Street.” Is this an Occupy pamphlet? The New York Times Sunday business section, perhaps? Not quite. The article, which focuses on JPMorgan’s multibillion-dollar trading loss is by Gerald P. O'Driscoll, Jr., a senior fellow at the libertarian Cato Institute, and the magazine is published by the Foundation for Economic Education, which has been flying the don’t-tread-on-me flag longer than Cato. What gives? Shouldn’t these be the last people to care about a private company’s stumbles? “Some commentators have argued that politicians and the public have no business in Morgan’s losses,” O’Driscoll writes. In this view, “only Morgan’s stockholders, who saw its share price drop over 9 percent in one day, and senior management and traders who lost their jobs should have an interest. But in fact losses incurred at major financial institutions are the business of taxpayers because government policy has made them their business.” To O’Driscoll, big banks are the result of government intervention, not of its absence. “If ordinary market forces were at work, these institutions would shrink to manageable sizes and levels of complexity. Ordinary market forces are not at work, however. Public policy rewards size (and the complexity that accompanies it).”

Breaking News This Morning ...Sandy Weill Calls for Return of Glass-Steagall: No, you are not dreaming, and this is not a parody from The Onion. This is real. In a CNBC interview this morning, the architect of Citigroup says, “What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.” Now he tells us.

Receiving Wide Coverage ...Weill's Bombshell: "I am suggesting that [large, diversified financial companies] be broken up so that the taxpayer will never be at risk, the depositors won't be at risk." That is what Sandy Weill, the man who assembled the quintessential Frankenbank, said on CNBC Wednesday morning, causing finance and media professionals around the world to gasp, spit out their coffee, and/or utter things like "whoa" or "holy mackerel" or other, unprintable expressions. And yes, Weill really did follow up with the classic craven passive-verb construction "Mistakes were made." It's tempting to dwell on the many inevitable snarky reactions ("Well done Sandy — 'C' trades at 10 cents on your 1998 merger dollar," PIMCO's Bill Gross tweeted). But let's stick to the important matter: What's the likely fallout from the consummate empire-builder's coming-to-Glass-Steagall moment? According to the Journal's "Heard on the Street" column, it's unlikely to spark legislative changes anytime soon, but it could well embolden shareholders of the megabanks — who've suffered as the equity market has discounted the stocks relative to smaller institutions — to press for change. Wall Street Journal, Financial Times, New York Times, Marketplace, FT Alphaville, Dealbreaker, Naked Capitalism

Receiving Wide Coverage ...Barclays' Baggage: Things just aren't getting better this month for Libor-gate poster child Barclays, which this morning reported a 76% year-over-year drop in profit for the first six months of 2012 and revealed that nope, it's not leaving the harsh spotlight at the center of the bank-scandal stage anytime soon.

Receiving Wide Coverage ...Happy Birthday, Dear SOX: Remember that big financial law that came between the Gramm-Leach-Bliley Act and the Dodd-Frank Act? Policymakers and pundits have spent so much time lately debating whether to roll back those two laws that we (I'll omit the auditing department from this blanket reference) have forgotten the Sarbanes-Oxley Act that was supposed to clean up auditing conflicts, public disclosures and do other things to renew our faith in public companies' financial reports. Yeah, right. Well, today is the 10th birthday of the law spurred by the Enron and WorldCom crises and named after the chairman of the Senate Banking and House Financial Services committees of the time, and the recollections are harsh.

Receiving Wide Coverage ...Eye on Central Banks: The European Central Bank and the Federal Reserve are set to meet this week in an effort to bolster the flagging global economy. According to the Journal, Fed Chairman Ben Bernanke will focus on how to spur enough economic growth in the U.S. to drive down unemployment, while ECB head Mario Draghi needs to address growing concerns that countries will abandon the euro. The Journal says there's a chance the Fed could unveil a new program for buying mortgage or government securities to bring down long-term interest rates, but it also may simply wait until economic forecasts are updated in September to take significant action. Reuters similarly suggests the eurozone debt crisis won't see palpable changes until key policymakers return in September from their summer holidays.

Receiving Wide Coverage ...It's the Principle of the Matter: The Federal Housing Finance Agency caused a stir when it went against the Treasury Department's wishes and ruled principal reductions would not be awarded to struggling borrowers whose loans are owned by Fannie Mae or Freddie Mac. FHFA acting director Edward DeMarco ultimately cited moral hazard, maintaining a small number of strategic defaults on mortgages would wind up hurting taxpayers. In a written rebuttal, U.S. Treasury secretary Timothy Geithner — who the Journal notes was against principal reductions in 2009 — asked the FHFA to reconsider and said he was "concerned" over the regulator's "continued opposition" to the purported aid. The Treasury Department also sent out a tweet shortly after the decision was announced, asserting "FHFA's own analysis shows principal reduction at Fannie & Freddie could help up to half a million homeowners and save GSEs $3.6 billion."

Receiving Wide Coverage ...Making Dollars on Data: As financial institutions turn to technology for revenue, efforts have been made to capitalize on personal data. American Express's Serve, for example, banks on the idea merchants will pay for spending habit data captured by the digital platform. But, as this article from CNNMoney illustrates, there are other, possibly better ways to capitalize on the data craze. According to the article, several start-ups are developing "data lockers," a cloud-based method of essentially protecting a person's data from everyone they don't want to see it. While the article itself doesn't suggest banks compete with the emerging start-ups, it's hard not to see the opportunity here. A big bulk of the data a consumer is going to want to shield from third-party is information financial institutions already have: credit card numbers, checking account information, personal data related to loan applications, etc. Offering to shield this data may be one service for which customers are willing to pay. As one commenter noted, "If the assumption is that customers have a choice, I can imagine many people preferring to have control over their personal data."

Receiving Wide Coverage ...The Computer Is Killing Brokerage Firms: Trading firm Knight Capital suffered $440 million in losses after its new software system went crazy and swamped the stock market with errant trades. The Times reports Knight bumped up against a deadline and used the software, designed to take advantage of a new Wall Street trading venue, before it had to time to work out the glitches. Fortunately, the market handled the malfunction; it was down less than 1% on Wednesday and Thursday. But the error has called attention to how (even more) perilous the stock market has become as a result of technological advancements and has some regulators clamoring for more controls to be instituted. The Securities and Exchange Commission and the Financial Industry Regulatory Authority are investigating the matter. According to the Times, some SEC officials are pushing for measures that would force firms to fully test coding changes before software is put to public use.

Receiving Wide Coverage ...Every Banker for Himself: Sources tell the Times the London Interbank Offered Rate scandal is leading banks to turn on one another. Government and bank officials close to the Libor investigations say implicated banks are using Barclays' $450 million settlement as a "guidepost" in their discussions with authorities. The go-to line seems to be that one's bank wasn't as bad as its counterparts and, therefore, should not be so severely penalized.