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Jun 14

How bad a hit to GDP from financial reform?

Posted by Ron F in SifmaRiskRegulationrecoveryrecessionMorgan Stanleyloans, J.P. Morgan Chase, financial reformfinancial crisisFederal ReserveFedeconomyCongresscomplianceBanksbanking reformBankingbank lendingbank failures

Ron F

A panel sponsored by the Securities Industry and Financial Markets Association on Monday on what banks can expect from financial reform warned that higher capital reserves and other limits Congress imposes on their profitability would hurt the economy as they curbed their ability to lend.

Several panelists, including Adam Gilbert, head of regulatory policy in the corporate risk management group of JP Morgan Chase, and Gary Mandelblatt, chief risk officer of Nomura, warned repeatedly of such "unintended consequences" from financial reform.

Jun 14

Fed official favors limits on banks' size

Posted by Ron F in SifmaRiskRegulationfinancial crisisFederal ReservecomplianceBanksbanking reformBankingbank failures

Ron F

The challenges of managing systemic risk became starkly apparent during a panel discussion held this morning by the Securities Industry and Financial Markets Association.

In fact, the panelists agreed that the challenges are so immense that it's difficult to see how financial reform can succeed without limits on the size as well as the interconnectedness of financial firms, though some were more reluctant to impose such limits than others.

Jun 11

Crunch time for financial reform

Posted by Ron F in Volcker RuleRegulationPaul Volckerfinancial reformfinancial crisisderivativescredit-default swapcomplianceBernankeBanksBankingbailouts

Ron F

I'm as a big a fan of Paul Volcker as the next guy but am struggling to understand why he objects to the so-called Lincoln amendment. All it would do at the end of the day is force banks to separately capitalize their derivatives operations, as Simon Johnson explains today.

I can understand why the bank lobby is against the idea. More capital would make their operations less profitable. But that's also the only way to make them less risky as well.

Jun 10

Bankers and investors diverge over Greece

Posted by Ron F in RiskGreeceglobal economyGermanyfinancial crisiseurozoneeuropeEU, ECB, defaultsbailouts

Ron F

Corporate banking professionals are less pessimistic about Greece's financial condition than investors are, according to surveys by Bloomberg and by our editorial partner, the Benche, a website sponsored by the Swedish bank, SEB.

According to the Benche, half of its registered members, who work primarily in corporate banking, say Greece will fail to make timely payments of interest and principal on its debt.

Jun 09

An economy on life support

Posted by Ron F in unemployment, stimulusRiskrecoveryrecessionmoral hazardmonetary policyglobal economyfinancial crisisCareers/ManagementBernanke

Ron F

It's really hard to see the glass half full on the economy with news like this.

A 35 percent decline in mortgage applications during the past month hardly suggests that the consumer is back. In fact, whatever strength home sales have shown of late has stemmed from the first-time buyers' tax credit. The downturn in applications coincides with the credit's expiration, showing that the economy remains on life support.

Jun 09

The Fed once again proves to be a regulatory pushover

Posted by Ron F in Timothy GeithnerRegulationObama Administrationfinancial market reformfinancial crisisFederal ReserveFederal Deposit Insurance Corp.FedEnroncomplianceBanksbanking reformbanking industryBanking

Ron F

Anyone who thinks the Federal Reserve ought to oversee systemic risk ought to take a close look at this article.

By now, of course, it's no surprise that banks used yet another financing gimmick to make their capital look stronger than it really was. This one, involving Trust Preferred Securities known as TruPS, is doubly gimmicky, in so far as it involves both hybrid securities (i.e., a have your cake and eat it combination of debt and equity) and off-balance-sheet treatment. In terms of magnitude and significance, this stuff makes Andy Fastow look like a piker. Then again, Enron violated the letter as well as the spirit of the accounting rules. The banks were smarter than Fastow in that respect, or at least their lawyers and lobbyists were.

Jun 08

Strikes in China could mean lower US profits

Posted by Ron F in workersoutsourcingoffshoreMalaysiaemerging marketseconomy, earnings, demandcostscost reductioncost cuttingconsumer spendingChinaCareers/Management

Ron F

Rising labor strife in China has potentially significant implications for US companies and financial markets. The irony is that what companies want isn't necessarily the same thing that markets do.

Yves Smith over at Naked Capitalism does a good job of explaining why.

Jun 07

BP shows the limits of legal liability limits

Posted by Ron F in SustainabilityRiskRegulationlitigationcompliance

Ron F

The longer the Gulf oil spill goes on, the bigger the fallout for BP and the rest of the oil industry.

That fact may be obvious by now, but early reports stressed that the company's legal liability was limited under federal law to $75 million.

Jun 04

The case for more and greener stimulus

Posted by Ron F in wind energy, unemployment, stimulusrecoveryrecessionjoblessnessinvestmentsCareers/Management

Ron F

Steve Taub and I were just remarking on how often we see wind farms these days while driving in the countryside, especially in the more remote areas of states such as New York, Minnesota, Texas and Wisconsin.

That discussion followed my mention of data I came across yesterday that shows how little we and the rest of the world are investing in alternative energy and other so-called "green" initiatives, as measured in terms of GDP.

Jun 02

Why deeper financial reform remains necessary

Posted by Ron F in Volcker Rule, unemployment, Timothy GeithnerRiskrecoveryrecessionPaul VolckerObama AdministrationGeithnerfinancial crisisCongresscompliancebubblesBanksBanking

Ron F

Despite the prospective "success" of financial reform legislation, my sense is that very little will change on Wall Street as the bills passed by the House and Senate are likely to emerge from conference committee. And that will prevent any economic recovery that isn't just another asset bubble in disguise.

The fundamental problem, or at least one such obstacle, as I see it, is that reform as currently likely will do little or nothing to restructure the banking industry, instead leaving it to regulators to impose new rules with which to limit risk.

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