Farm credit banks won exemptions from almost the entire Dodd-Frank financial law, including the new consumer protection agency and the regulatory council overseeing systemic risk. Now the banks are seeking a carve-out for their $47 billion swaps business.
The Dodd-Frank law seeks to increase transparency and reduce risk in the $583 trillion swaps market by having most swaps guaranteed by central clearinghouses and moved onto trading platforms. Largely unregulated over the last three decades, swaps helped fuel the 2008 credit crisis.
CoBank ACB of Greenwood Village, Colorado, St. Paul, Minnesota-based AgriBank FCB and the three other lenders in the U.S. farm credit system might be required under the law to move their swaps to clearinghouses and set aside hundreds of millions of dollars in margin.
The banks, which failed last year to persuade congressional lawmakers to leave them out of the new regulations, have turned to lobbying the U.S. Commodity Futures Trading Commission for the exemption. The five farm banks are part of the Farm Credit System, a U.S. government-sponsored enterprise created in 1916 to support lending to farmers, ranchers and their cooperatives. These days the banks issue debt to finance loans to a network of farm credit associations or directly to rural water, agricultural or power cooperatives. The system is regulated in Washington by the federal Farm Credit Administration, which will retain most of its oversight power under Dodd-Frank.
The five banks had a combined notional derivatives balance of $46.9 billion as of Sept. 30, according to the banks’ quarterly reports. They say their swaps aren’t like Wall Street’s and that they should be regulated as derivatives “end users,” a group Dodd-Frank exempts from most of the clearing and trading requirements.
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AT&T, Verizon Face Lost Sales in FCC Bill Shock Rule
Mobile telephone companies led by AT&T Inc. and Verizon Wireless are seeking to block U.S. regulators who want the carriers to alert subscribers in danger of incurring extra charges.
A change to mandatory automatic notices could cost carriers “hundreds of millions of dollars” in compliance costs, CTIA- the Wireless Association, said in a Jan. 10 filing with the Federal Communications Commission, which proposed the requirement in October.
The four major U.S. wireless carriers -- leader Verizon Wireless, second-largest AT&T, Sprint Nextel Corp., and Deutsche Telekom AG’s T-Mobile USA -- collect as much as $10 billion yearly in extra charges paid by customers who go over monthly plan limits, or buy plans with more minutes than they need, according to a 2009 study in the Harvard Journal of Law & Technology and data compiled by Bloomberg.
As many as 30 million consumers have experienced sudden, unexpected increases in their bills after unknowingly exceeding monthly plan limits for voice, data, or messages, the FCC said in its rulemaking notice. The U.S. Government Accountability Office, Congress’s investigative arm, in 2009 estimated that 34 percent of wireless phone users received unexpected charges on their bills, the FCC said.
Wireless companies disagree with the FCC’s assessment of the extent of the problem. The wireless industry resolved 97.4 percent of all complaints in 2009, CTIA said in its comments. Subscribers can easily check usage, and Sprint, T-Mobile and U.S. Cellular offer alerts or cut off service when limits are reached, the trade group said.
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FDIC Board to Weigh Dodd-Frank Pay, Resolution Authority Rules
The Federal Deposit Insurance Corp.’s board will meet Jan. 18 to consider rules under the Dodd-Frank Act governing executive compensation and orderly liquidation of failed systemically important companies, the agency said in a statement today.
The Dodd-Frank legislation requires federal regulators to propose joint rulemaking to prohibit any pay structure that “encourages inappropriate risks.” The FDIC, Federal Reserve, Securities and Exchange Commission and four other agencies are required to complete the rules by April.
U.S. officials are discussing requiring banks to use deferred compensation for a portion of executive pay as a way to curb excessive risk-taking, a person with knowledge of the planning said last month. The pay restrictions may be proportional to the size of the firms, said the person, who declined to be identified because the talks are private and specific proposals hadn’t been agreed upon.
The FDIC, at next week’s meeting, also will consider a final rule on a proposal to aid the agency in winding down systemically risky financial firms.
German Bank Levy Draft ‘Makes No Sense,’ Lobbying Group Says
Changes to Germany’s planned levy on banks may partially eliminate a cap on the amount the lenders must pay, hurting their ability to boost capital levels, the Association of German Banks said.
Germany passed a law in November that includes a levy on lenders to raise as much as 70 billion euros ($91 billion) for future bailouts as the country seeks to reduce the risk of taxpayers bearing the cost of financial crises. Under the bill, banks will calculate fees payable into the new fund according to their assets and risks.
The draft, a copy of which was obtained by Bloomberg News, caps the maximum levy payment at 15 percent of annual profit. If a bank’s required payment for the year, based on its assets and risks, exceeds that threshold, the lender may be required to set aside the difference and pay it retroactively.
Michael Kemmer, general manager of the lobbying group that represents more than 220 banks in Germany, said the draft ordinance “makes no sense” because the planned 15 percent of annual profit threshold “has been virtually undercut.” He made remarks in an e-mailed statement yesterday.
Leaders of the Group of 20 nations in November endorsed rules, known as Basel III, which will more than triple the highest-quality capital that banks must hold.
Portugal Aid, Buybacks, Debt Rules Weighed in EU Plan
European governments are considering aid for Portugal, debt buybacks, lower interest rates on rescue loans and guarantees against excessive debt as part of a package to quell the financial crisis, according to four people with direct knowledge of the talks.
The plan, which may include a loan to Portugal of about 60 billion euros ($78 billion) and purchases of outstanding Greek debt, would mark an attempt to contain a crisis that has frustrated unprecedented efforts by policy makers to calm markets and raised questions about the health of the 17-nation euro economy.
Euro-area finance ministers will discuss elements of the package next week, though the debate is so sensitive in Germany that decisions may wait until a scheduled summit of political leaders on Feb. 4, said the people, who declined to be named because the deliberations are private.
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Iceland Default Swaps Show Investors Debt Safe, Sigfusson Says
Iceland’s economic rehabilitation and credit default swaps back at pre-crisis levels are proof the island’s debt is a safe investment as it prepares to tap capital markets, Finance Minister Steingrimur J. Sigfusson said.
The Atlantic island, which turned to the International Monetary Fund in 2008 after its financial system collapsed, has enjoyed CDS rates lower than Spain since November and below Portugal’s since August. Iceland wants to “normalize” relations with investors and default swap rates at April 2008 levels -- half a year before the island’s banks failed -- show this is now happening, Sigfusson said Jan. 11 in a Bloomberg Television interview yesterday.
Iceland’s efforts to patch up relations with foreign investors took a step forward last month when it resolved a two- year depositor claims dispute with the U.K. and Netherlands.
Capital controls in place since the end of 2008 won’t prevent a bond sale in foreign currencies, the bank said.
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PCAOB Coordinating Some Audit Inquiries With SEC, CNBC Says
The Public Company Accounting Oversight Board is coordinating investigations with the U.S. Securities and Exchange Commission of some U.S. audit firms, CNBC reported.
The PCAOB said it is continuing to investigate audits of “issuers either located in China or that have operations in China,” CNBC reported.
EBA Announces New Round of Stress Tests for First Half 2011
European Union banking regulators said they will conduct a new round of stress tests on lenders in the first half of 2011.
The “methodology and approach taken will build on that used in the 2010 stress test,” the European Banking Authority said on its website today. The regulator said it will separately examine “liquidity funding risks across the EU banking sector” during the first quarter of this year. China Green Agriculture Responds to Informal Inquiry by SEC
China Green Agriculture Inc. voluntarily provided a “comprehensive report on selected issues” to U.S. regulators in response to an informal inquiry, the company said.
The company’s outside legal counsel provided the materials to the Securities and Exchange Commission, China Green Agriculture said yesterday in a statement, which didn’t specify the nature of the inquiry.
China Green Agriculture’s shares plunged more than 10 percent Jan. 5 after J Capital Research published a report alleging the company had “significantly” overstated its revenue and earnings and its clients held short positions and would profit if the stock falls.
China Green denied the statements made in the J Capital report, saying in a statement, “The reports containing these allegations are largely inaccurate.”
China Green Agriculture will continue to cooperate with the SEC in the matter, the company said.
SEC spokesman John Nester declined to comment.
NIC, Executives Pay $2.8 Million to Settle SEC Claims Over Perks
NIC Inc., the Olathe, Kansas-based manager of government websites, and four current or former executives will pay $2.8 million to settle U.S. claims that they failed to disclose perks for a former chief executive officer.
Jeffery Fraser, who stepped down as CEO in 2008, got more than $1.18 million in undisclosed benefits, including thousands of dollars per month for a Wyoming ski lodge while he commuted to work by private aircraft, the Securities and Exchange Commission said yesterday. Fraser, 51, who agreed to be barred permanently from serving as an officer or director of a public company, will pay about $2 million.
NIC, Fraser, current CEO Harry Herington and former chief financial officer Eric Bur settled the SEC’s claims without admitting or denying the allegations. Herington agreed to pay $200,000 and Bur will pay $75,000, the SEC said in a statement The SEC’s case against current CFO Stephen Kovzan continues.
“I intend to defend myself vigorously against the charges,” Kovzan said in a statement.
Eugene Goldman, an attorney for Bur at McDermott Will & Emery in Washington, declined to comment. Phone calls to Andrew Levander, Fraser’s lawyer at Dechert LLP in New York, and Ralph Ferrara, Herington’s attorney at Dewey & LeBoeuf in Washington, weren’t immediately returned.
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Cameron Says Banks to Pay 11% More in Taxes This Year
Prime Minister David Cameron spoke in the House of Commons about bankers’ pay, bonuses, taxation and bank lending.
Banks will pay about 20 billion pounds ($31 billion) in tax in the fiscal year through March, compared with 18 billion pounds a year earlier, Cameron told lawmakers in Parliament in London yesterday.
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BBA Backs Diamond of Barclays, Says U.K. Banks Are ‘Frustrated’
U.K. banks are feeling “real frustration,” the British Bankers’ Association said, a day after Barclays Plc Chief Executive Officer Robert Diamond told Parliament it was time to stop apologizing for the credit crisis.
Diamond, 59, told parliamentarians that the “period of remorse and apology” needs to end so that banks can rebuild confidence. Taxpayers provided about 1 trillion pounds ($1.56 trillion) to assist banks during the financial crisis, during which 300,000 government employees’ jobs were cut.
Pledging “restraint” on bonuses, Diamond declined to say whether he would personally forgo a bonus. Chancellor of the Exchequer George Osborne later told the House of Commons that Barclays should cut Diamond’s 2010 bonus and that all bonuses should be lower than a year earlier.
The CEO’s comments caused the Independent newspaper to headline its main story “No Apologies, No Restraint, No Shame,” while the Daily Mail’s main editorial said it showed that “in the battle between banks and government over bonuses, greed has triumphed.”
Diamond’s words marked a change of approach from comments made by Barclays leaders in October, who spoke of regret for the role of banks in the economic crisis.
Comings and Goings
EBA Names Andrea Enria as Chairman, Huertas as Vice Chairman
Andrea Enria was selected to serve as chairman of the European Banking Authority.
Thomas Huertas of the U.K. Financial Services Authority will serve as vice chairman, the EBA said in a statement.
Maijoor of Netherlands Named Head of EU Securities Regulator
Steven Maijoor, a Dutch financial regulator, was named first chairman of the European Securities and Markets Authority, ESMA said in an e-mailed statement today.
Carlos Tavares of Portugal was named vice-chair of the new regulator. The appointments need to be formally approved by the European Parliament.
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