Fed offers too little, too late on too big to fail 26 Mar 2014 The watchdog’s researchers reckon big banks benefit from a cheaper cost of funds than smaller rivals thanks to an implicit government backstop. That’s often true, especially during crises. But the Fed ignores more recent data. The behemoths’ advantage is actually shrinking.
U.S. financial reform is still on to-do list 25 Mar 2014 The Dodd-Frank law brought broad new rules for Wall Street. Lawmakers are now focused on mortgage finance. That’s a valid priority, but if it weren’t for Washington’s logjam they could tackle far more, including money markets, mechanisms for bank failure and virtual currencies.
Activists crash dealmaker party 25 Mar 2014 Shareholder lawsuits, cross-border mergers and defender-in-chief Marty Lipton will play supporting roles at the annual New Orleans M&A confab. Aggressive investors shaking dozy boards are the headliners. Their increasing presence at the gathering reinforces a growing power.
Gold benchmarks are next in need of reform 25 Mar 2014 UK and German authorities are probing daily gold “fixings.” They are yet to turn up evidence of market manipulation, and no bank traders have been suspended. But benchmark-setting for the precious metal is archaic, laborious and methodologically unsound. An overhaul is overdue.
Preferred shares may further muddy China’s market 24 Mar 2014 Letting companies issue securities that have features of both stocks and bonds sounds like healthy diversification. But it doesn’t address China’s fundamental problem with pricing risk. The danger is that investors see debt, while issuers see equity, when the reality is neither.
Banks’ answer to AIG question a qualified success 21 Mar 2014 How much big U.S. lenders would lose if their largest counterparty fails is now part of the Fed’s stress tests. Bear Stearns, Lehman and AIG all showed the importance of knowing this. But the usefulness is limited unless there’s also a broader picture of systemic frailties.
Company religion case may shake shareholder faith 20 Mar 2014 U.S. boards have a legal duty to put business interests first. Yet a Supreme Court challenge to Obamacare mandates could give biblical doctrine priority. A decision will turn on corporate religious rights, but laws designed to protect investors could suffer collateral damage.
Compromise leaves banking union flawed not floored 20 Mar 2014 Euro zone governments and the European Parliament have struck a deal on the way to resolve failing banks. The decision-making process in case of crisis, and the firepower of the resolution fund, remain sub-optimal. But the positives of clinching a deal outweigh the negatives.
China’s bureaucrats flex muscles at Tencent 14 Mar 2014 The central bank has unexpectedly halted a mobile payment system used by the tech giant, knocking its shares 4 pct. Tencent’s soaring market value suggests investors have been more focused on growth potential than regulatory risks. The episode is a much needed wake-up call.
Another well-meaning plan that lifts banker pay 13 Mar 2014 The Bank of England wants to claw back bank bonuses up to six years after they are paid. Its scheme is radical, well-intentioned and legally enforceable. The danger is that banks will feel the need to sweeten UK pay packages in response – almost certainly by lifting salaries.
Scandal will reshape FX trading dynamics 11 Mar 2014 Probes into possible currency market manipulation will speed up industry change. The shift to electronic trading will be accelerated, squeezing banks’ trading profits. And with traders cagier about sharing juicy titbits on flows, exchange rates may start to move differently.
Time to tune up U.S. music licensing cartels 10 Mar 2014 Internet radio giant Pandora balks at royalties higher than terrestrial stations pay. But ASCAP says the firm plays songs more often, justifying bigger fees. The artist consortium has a point, but its tactics echo old monopoly conduct. The dated system needs a tech-savvy rewrite.
Hugo Dixon: EU’s half-baked bank union could work 10 Mar 2014 A banking union wasn’t strictly needed to solve the euro zone’s problems and what has been agreed isn’t even what the designers wanted. That said, with a few changes, it could be turned into something that is fit for purpose.
Credit Suisse boss gets easy ride in Senate 27 Feb 2014 Brady Dougan was only lightly chastised about his firm helping Americans dodge taxes. Senator Carl Levin was at least as angry with Swiss and U.S. authorities. And investors don’t expect much more pain. To execs at Goldman and elsewhere, it must have looked like a cakewalk.
Sturdier Fed only so effective as meltdown averter 25 Feb 2014 The central bank’s 2008 records reveal a board honestly debating the worsening crisis, but ultimately acting too late. The Fed now has more powers, like stress-testing banks. These should give more insight earlier on. They will only go so far to overcome doubt and indecision.
Bank bonus flexibility is a myth – cap or no cap 17 Feb 2014 Bankers have savaged the forthcoming EU cap on bonuses for reducing wiggle room on pay. But even if bosses did want to cut payouts in bad years, a big chunk of variable remuneration is now deferred. That means bonuses are already more fixed than it might appear.
Securitisation muzzling does more harm than good 17 Feb 2014 Over-egging the practice of repackaging loans as bonds helped cause the 2008 crisis. Yet supervisors keen to avoid a repeat are loading investors in asset-backed debt with excessive capital charges. Smart firms may find workarounds, but the reforms hamper a key source of credit.
U.S. swaps watchdog can afford to take a breather 13 Feb 2014 The CFTC is delaying cross-border derivatives rules, a relief for the industry. But other rulemaking deadlines loom. With 90 pct of interest-rate swaps now centrally cleared, regulators have made great strides. They should finish the job, but allowing some leeway now makes sense.
Watchdog’s nip won’t fix flawed investor justice 12 Feb 2014 A U.S. regulator’s plan to stop Wall Street veterans from hearing customer-broker disputes may limit bias. But a truly fair process would allow investors to go to court as well as industry-run arbitration. Congress gave regulators power to offer that choice. If only they’d use it.
Yellen picks and chooses from Fed’s dual mandate 11 Feb 2014 In her first congressional appearance as chairman, she sounded keen to see inflation rise toward her predecessor’s 2 pct target. But as well as full employment, the U.S. central bank is supposed to seek “stable” prices. Yellen’s interpretation highlights a big Fed vulnerability.