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Tag >> banking reform
Aug 18
2010

Why regulators shouldn't listen to economists

Posted by Ron F in RiskRegulationNew York Fedfinancial crisisFederal ReserveFedcomplianceBanksbanking reformBankingbank failures

Ron F

This brouhaha over the Boston Fed's rationalization for missing the housing bubble reminds me of a conversation I overheard a few weeks ago between a former Federal Reserve bank supervisor and his counterpart at the New York Fed.

I can't give you their names since they were conversing privately a few feet away from me before the start of a conference on financial regulation (nor can I give you the name of the confab since that would give their identities away), and I just managed to overhear the exchange.

Aug 05
2010

Why Tim Geithner should ignore the banks

Posted by Ron F in Timothy GeithnerGoldman Sachsfinancial reformfinancial crisisDodd-Frank billcomplianceBanksbanking reformbanking industryBanking

Ron F

Banks' arguments against stricter capital reserve requirements seem to be getting a hearing from regulators such as Tim Geithner and the Basel Committee, but a recent paper suggests they should not.

This was alluded to in a blog today by Simon Johnson over at the Baseline Scenario, but the relevant passages are worth reading.

Aug 04
2010

When confidence is merely a con

Posted by Ron F in Timothy GeithnerRegulationObama Administrationfinancial crisisEUcomplianceBanksbanking reformbanking industryBankingbailouts

Ron F

A column published on Tuesday by Project Syndicate sums up the world's flailing (if not downright cynical) response to the financial crisis in particularly apt terms, I'd say.

The governments' efforts to restore confidence in the banking sector without really addressing the causes of its loss of confidence is akin to trying to tickle oneself, observed Paul Seabright of the University of Toulouse in the piece, entitled "Financial History's False Lessons."

Jul 29
2010

The battle to reform banks is far from over

Posted by Ron F in RiskRegulationObama AdministrationFederal ReservecomplianceBanksbanking reformBanking

Ron F

Anyone who thinks the financial reform bill is all that was necessary to finish fixing the banking system needs to read a couple of pieces published in recent days.

As Simon Johnson points out over at Baseline Scenario, a new paper by several respected academics shows that the stiffer capital requirements that the Obama administration is focused are not only easily gamed, but can have major unintended consequences, and these can amount a repeat of the systemic crisis we saw two years ago.

Jul 15
2010

Banks' anti-fair value somersault falls flat

Posted by Going Concern in GAAPFASBfair valuecomplianceBanksbanking reformbanking industryAccounting

Going Concern

 Submitted by Caleb Newquist, republished from Going Concern, Accounting News for Accountants and CFOs.

 Just last week we mentioned the American Bankers Association and its efforts to undermine the FASB's latest fair value proposal that, in the ABA's mind, could bring down civilization as we know it.

Jul 09
2010

Banks not united against financial reform

Posted by Karen1 in wall streetICBAfinancial reform billfinancial reformBanksbanking reform

Karen1

During 2009 and the first quarter of 2010, 850 businesses and organizations spent $1.3 billion to lobby elected officials on Capitol Hill. While the disclosure forms don't show the exact amount allocated just to financial system reform, it's likely that the subject accounted for several hundred million dollars of the total, according to the Center for Public Integrity.

So it may come as a surprise to find that not all businesses are dead-set against all proposed reforms. Case in point: while the Independent Community Bankers of America has not taken a public stance on a specific bill, information on its website and comments from IBCA leaders indicate that it's in favor of reforming the system, and that some of the rhetoric surrounding the issue has obscured the probable potential impact on community banks. "The community banks had huge differences from the Wall Street crowd," says Steve Verdier, ICBA's executive vice president and director of Congressional affairs. "We viewed ourselves just like any small business that had suffered from the excesses of Wall Street."

While Wall Street banks also profess to favor reform, their rhetoric hardly matches reality in so far as they've worked to gut or at least soften the legislation's toughest provisions, breathlessly and repeatedly warning about their potential to harm the economy. Now consider the section of the ICBA site entitled, "Myths and Facts about the Senate Financial Reform Bill." The ICBA notes that concerns about potentially burdensome regulation that may result from The Restoring American Financial Stability Act of 2010 (S. 3217)  "can be exaggerated to the point that the benefits of the bill are overlooked." The site also points out the bill would not allow for endless bailouts of large financial firms, but would instead extend authority to the FDIC to administer a fund to wind down or sell off operations of failed financial firms.

Elsewhere on the site, the ICBA says that it wants to preserve the Federal Reserve's authority over its state member banks. Without this, "The Fed would become the central bank of Wall Street, not the United States." Similarly, the group advocates ending the commercial ownership of banks by firms such as General Motors or Wal-Mart. As others, including members of the Fed's Board of Governors, have noted, these industrial loan companies (ILCs) have many of the privileges of banks, such as access to the Fed's discount window and payment system, but don't have to follow the same rules that other banks do.

To be sure, some state community banking associations have indicated their opposition to regulatory reform. The Montana Bankers Association issued a release in May that said of the Senate reform bill, "It's a tragedy that this 1,500-plus page bill now moves forward."

Camden Fine, ICBA's president and CEO appears to see things differently. Consider his blog post of June 23:
 
Ever wonder about the millions, nay hundreds of millions, in Wall Street and megabank dollars spent on countless legions of lobbyists? For Wall Street and the megabanks, lobbying the financial reform bill is all about protecting billions of dollars in profits. It is about keeping their too-big-to-fail status and the market advantages and perks such status gives them. It is about preserving the privileged place in the financial services sector they have gained through legislation and regulations over the past 30 years.

Jul 07
2010

The financial crisis is only "on pause"

Posted by Ron F in Volcker RuleRiskRegulationObama Administrationfinancial market reformfinancial crisisCongresscomplianceBanksbanking reformBankingbailouts

Ron F

There's some additional recent work out there that's worth citing in connection with Karen's post on Tuesday.

In particular, I would point readers to the piece posted Monday on voxeu.org by Enrico Perotti, a finance professor at the Amsterdam Business School. Essentially, Perotti's piece explains why Kotlikoff's prescription is necessary. As it did the US Congress, the banking industry has fought off international attempts to get the so-called Basel Committee to force the industry to de-leverage its business model. And Kotlikoff's idea does exactly that, simply because mutual funds are financed entirely by equity.

Jul 01
2010

AIG vs. Goldman reveals the flaw in financial reform

Posted by Ron F in RiskRegulationGoldman SachsGAAPfinancial reform billfinancial market reformfinancial crisisFASBderivativescredit default swapsCongresscomplianceBanksbanking reformBankingbank failuresbailoutAIGAccounting

Ron F

The latest revelations  concerning the dispute between AIG and Goldman over collateral show how weak the new financial reform package really is.

After all, Goldman's demands for collateral from AIG as it was failing ended up costing taxpayers billions of dollars. Yet according to the testimony today during the crisis panel's latest hearings, the whole question hinged on what constituted fair value.

Jun 28
2010

Financial reform bill far from toothless

Posted by Ron F in Volcker RuleRiskPaul Volckerfinancial crisisderivativescredit default swapsCongresscomplianceCDSBanksbanking reformBankingbank failures

Ron F

While many critics claim the financial regulation bill that emerged from Congressional negotiations on Friday will do next to nothing to reduce the chances of another banking crisis, there are some limits on risk taking that could do just that.

The one that strikes me as the toughest and most critical is the so-called Lincoln amendment, which would require banks to separately capitalize their trading in credit default swaps, which were central to the recent crisis.

Jun 23
2010

Letting Geithner off easy on the TARP

Posted by Ron F in Timothy GeithnerTARPObama Administrationfinancial market reformfinancial crisisCongressoinal Oversight PanelcomplianceBanksbanking reformBankingbailouts

Ron F

Tim Geithner once again says taxpayers are getting a good return on the funds they provided banks through the Troubled Asset Relief Program.

And his line about 75 percent of the money being repaid may be true enough. It may even reflect this uncomfortable fact.

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