Patrick Parkinson, the Federal Reserve’s chief bank regulator, said about 30 percent of U.S. banks have “less than satisfactory” supervisory ratings.
Parkinson, director of the central bank’s division of banking supervision and regulation, told a gathering of bankers yesterday that while asset quality is “stabilizing,” the “conditions in real estate markets are still very difficult” and the banking system is “still in the repair and recovery stage.”
The central bank is implementing a regulatory overhaul that creates a process for unwinding large financial institutions, restricts banks’ trading for their own accounts and requires tougher oversight of firms deemed essential to financial stability. The new rules are part of the Dodd-Frank Act, signed into law by President Barack Obama in July.
Bank regulators use a system known as Camels, an acronym for capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk. Firms are rated in each category, with 1 the best and 5 the worst. Banks with ratings of 3, 4, or 5 are considered “less than satisfactory.”
Parkinson’s 30 percent figure includes commercial banks and excludes thrifts and savings banks, Barbara Hagenbaugh, a Fed spokeswoman, said in an e-mail.
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Facebook, Google Must Obey EU Data-Protection Law, Reding Says
U.S.-based Internet companies such as Facebook Inc. and Google would have to comply with stricter data-protection rules being planned for the European Union, Viviane Reding, the region’s justice commissioner said in a speech in Brussels.
Google, based in Mountain View, California, and Palo Alto, California-based Facebook are among several Internet companies under scrutiny in the EU for possible privacy-rule breaches over their use of personal data. Data protection officials from 30 European countries have pushed Google, Microsoft Corp. (MSFT) and Yahoo! Inc. to limit the amount of time they store search records. The same group has criticized Facebook for policy changes that could have harmed users’ privacy rights.
In November, Reding proposed an overhaul of the EU’s nearly 16-year-old data-protection policies to address online advertising and social-networking sites. The law, which the regulator will formally offer up later this year, may include stricter sanctions, such as criminal penalties, and the option for consumer groups to file lawsuits.
Google spokesman Al Verney declined to comment about the statements made yesterday by Reding. Search engine operator Yahoo! Inc. said in an e-mailed statement it’s “deeply committed to privacy.” Facebook representatives didn’t immediately respond to an e-mail seeking comment.
“We always welcome the opportunity to sit down with EU stakeholders, regulators, advocates, NGOs and industry to encourage a modern approach to privacy that prevents bad actors, is adaptable to new innovations in online services and protects users,” Yahoo said.
Republicans Propose Replacing Consumer Head With Commission
House Republicans criticized the Consumer Financial Protection Bureau as too powerful and unaccountable and proposed replacing its director with a five-member bipartisan commission.
U.S. Representative Spencer Bachus, the Alabama Republican who is chairman of the Financial Services Committee, and other Republicans yesterday sparred with Elizabeth Warren, the Treasury and White House adviser charged with setting up the bureau, and Democrats at a subcommittee hearing.
Bachus, who introduced the bill to establish a commission to run the bureau instead of a presidentially appointed director, told Warren that Republican concerns about the new agency and its funding have been borne out by its initial activities.
Warren defended the agency’s accountability, pointing out that that a committee of banking regulators can overrule the bureau’s rulemakings.
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EU Parliament Backs Report to Toughen Credit Rating Rules
A European Parliament committee recommended tougher rules for credit ratings companies and the creation of a European Union credit ratings foundation.
“Through a series of measures, the resolution advocates for reducing the dependence that currently exists on a very few sources for credit ratings,” the Economic and Monetary Affairs committee said in a statement.
Earlier, European Union officials criticized credit-rating companies following downgrades of Spain and Greece, saying the moves were premature and ignored commitments by rich members to help poorer ones.
EU Pushes Common Corporate Tax Base, Challenging Ireland
European Union regulators revived a push to create a common base for calculating the taxable profits of companies, recommending a system that would be optional for businesses in a bid to win over opponents including Ireland.
The European Commission proposed a single method for calculating income to save companies the cost of complying with different rules in each EU country where they file a return. Tax rates would remain in national hands under the draft law on a common consolidated corporate tax base, or CCCTB, which the commission says would save companies 700 million euros ($977 million) a year in compliance costs.
The proposal by the commission, the EU’s regulatory arm, needs the support of all 27 national governments to become law.
Ireland and the U.K. have for years blocked discussion of standard EU-wide tax rates, saying the policy area is a national responsibility. The two countries have also opposed a common EU tax base, fearing it would open the door to harmonized rates.
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Swap Margin Change Will Add Costs, Executives Say at Conference
Swaps investors should be prepared to pay more for clearing services if they want their margin protected against being used to fund another investor’s default, industry executives said during a panel discussion in Florida.
The Commodity Futures Trading Commission has proposed divvying up margin payments of individual swaps users at clearinghouses rather than allowing accounts to be treated as one pool by banks representing multiple customers. Existing futures markets allow banks to pool all their customer accounts together when settling a day’s margins.
A shift to segregating cash on a customer-by-customer basis will either lead to higher margin payments or more money required by the clearinghouse in what’s known as the guarantee fund, said Kim Taylor, president of CME Group Inc. (CME)’s clearinghouse. Some swaps users such as BlackRock Inc., the world’s largest asset manager, favor the proposal because it would prevent one customer’s margin from being used to offset a deficit owed by another.
The CFTC is working on rules to implement the Dodd-Frank Act passed by Congress in July. The law mandates that most swaps be guaranteed by clearinghouses to lessen systemic risk.
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U.S. House Republicans Aim to Rescind Dodd-Frank Provisions
U.S. House Republicans proposed changes to several provisions of the Dodd-Frank regulatory overhaul, including a credit-rating rule that was blamed for freezing the asset-backed securities market last year.
Besides the credit-rating measure, the slate of proposed legislative changes deals with executive compensation, derivatives clearing rules and the registration of private equity fund advisers.
Representative Steve Stivers, a freshman Republican from Ohio, is sponsoring legislation to remove a provision in Dodd- Frank that subjects firms such as Moody’s Investors Service, Standard & Poor’s and Fitch Ratings to so-called expert liability, meaning they now face the same legal risks as accountants and other parties that participate in bond sales.
Credit-rating firms were targeted by lawmakers after they issued top rankings to mortgage-backed securities whose collapse helped spark the financial crisis.
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SEC Notifies Freddie Mac Ex-CEO Syron He May Face Civil Claims
Richard Syron, the former chairman and chief executive of Freddie Mac, has been notified by U.S. regulators that he may face civil claims for failing to fully disclose the company’s exposure to risky mortgages, according to two people who have been briefed on the matter.
Syron, who ran the government-sponsored mortgage finance firm from 2004 to 2008, was recently given what is known as a Wells notice informing him that the Securities and Exchange Commission was considering a suit, said the two people, who spoke on condition of anonymity because the action isn’t public.
The notice is one of at least three sent to a current or former Freddie Mac official. Daniel Mudd, the former head of Fannie Mae, Freddie Mac’s larger rival, received a Wells notice March 11.
Florence Harmon, an SEC spokeswoman, declined to comment. Syron didn’t immediately respond to a phone message left at his home. E-mail and phone messages to his lawyer, Mark Hopson, weren’t immediately returned.
Syron, 67, was told he may be sued for providing inadequate disclosure of the extent of Freddie Mac’s risk of losses from subprime mortgages, according to one of the people.
The notice to Syron was previously reported by the New York Times yesterday.
Payments Systems in Japan Functioning Satisfactorily, Praet Says
Peter Praet, who has been endorsed as a nominee for the Executive Board of the European Central Bank, said Japan’s payments and settlements systems are operating “satisfactorily” five days after the earthquake and tsunami.
“One of the things we did in the last days was make sure all infrastructures were functioning correctly in Japan,” Praet told the European Parliament’s Economic and Monetary Affairs Committee yesterday during a hearing on his nomination to the ECB board.
Military Sees Possible Problem From Falcone Phone Service
Philip Falcone’s planned LightSquared Inc. wireless- communications venture has “strong potential” to interfere with critical defense functions, the Pentagon’s No. 2 civilian said in a letter to U.S. regulators.
LightSquared, designed to serve 40 million mobile telephones on airwaves previously reserved primarily for satellites, may interfere with U.S. Defense Department navigation and communications, William Lynn, deputy defense secretary, said in a Jan. 12 letter Federal Communications Commission Chairman Julius Genachowski obtained by Bloomberg News. Final action should be deferred, the letter recommended.
The FCC on Jan. 26 said LightSquared may proceed with devices that rely on terrestrial towers rather than satellites, and at the same time said the company couldn’t offer commercial service until interference concerns are resolved. The agency ordered a technical analysis to be completed by June.
Jeff Carlisle, an executive vice president at LightSquared, said in an e-mail yesterday that the company is “working cooperatively” with the Department of Defense.’’
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House’s Issa Subpoenas Records on Former Chief SEC Lawyer
A congressional committee issued a subpoena to the bankruptcy trustee winding down Bernard Madoff’s assets requesting documents related to the imprisoned financier’s ties to the family of the former chief lawyer of a U.S. agency.
The subpoena from Representative Darrell Issa, chairman of the House Oversight and Government Reform Committee, calls for records related to former Securities and Exchange Commission general counsel David M. Becker’s family account with Madoff as well as his past communications with Irving Picard, the New York bankruptcy trustee, according to a statement yesterday from Issa.
Becker, who left the SEC on Feb. 25, was sued by Picard for more than $1.5 million in profits he and his brothers inherited after liquidating their parents’ holdings with Madoff when their mother died in 2004. Becker, who has said his departure was unrelated to the lawsuit, was cleared to work on Madoff-related matters by the SEC’s ethics counsel.
Picard has received the subpoena and is reviewing it, his office confirmed.
Six Companies Return $475 Million in TARP Funds, Treasury Says
Six U.S. financial institutions repurchased Troubled Asset Relief Program investments, returning $475 million to taxpayers, the U.S. Treasury Department said.
Taxpayers have recovered more than 99 percent of about $245 billion disbursed for TARP investments in financial firms, the Treasury said in a statement yesterday. The repurchases were part of the TARP Capital Purchase Program, the Treasury said.
The companies are Cincinnati-based Fifth Third Bancorp (FITB); Boyertown, Pennsylvania-based National Penn Bancshares Inc. (NPBC); Lakeland Bancorp, Inc., of Oak Ridge, New Jersey, Stockmens Financial Corp. of Rapid City, South Dakota, Bridge Capital Holdings (BBNK) of San Jose, California, and Norfolk, Virginia-based Heritage Bankshares Inc. (HBKS)
Singapore Exchange Sees Expansion of OTC Derivatives Clearing
Singapore Exchange Ltd. plans to become the “multiasset- class clearing hub” for over-the-counter derivatives in Asia, according to co-President Muthukrishnan Ramaswami.
The operator of the city’s securities market began clearing standardized interest rate swaps in Singapore dollars four months ago. It expects to add interest rate swaps in U.S. dollars, British pounds, euros and yen, Ramaswami said in a March 15 interview at a Futures Industry Association conference in Boca Raton, Florida.
Use of exchange-traded derivatives in Asia is growing. The markets traded 40 percent of global derivatives last year, outpacing North America, which accounted for 32 percent, for the first time, according to data compiled by the World Federation of Exchanges.
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Geithner Says Hard to Judge If Japan to Affect Recovery
Geithner, who testified before a House Financial Services subcommittee in Washington, also discussed the Treasury’s 2012 budget and the overhaul of U.S. financial regulation.
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Comings and Goings
Praet Backed by EU Parliament Committee as ECB Board Member
Belgium’s Peter Praet won the endorsement of the European Parliament’s Economic and Monetary Affairs Committee to join the Executive Board of the European Central Bank.
Praet, 62, a director at the National Bank of Belgium specializing in financial regulation, will succeed Gertrude Tumpel-Gugerell of Austria, the only woman on the ECB board, on June 1. The six-member board oversees the central bank’s day-to- day operations and forms the core of the 23-member interest- rate-setting Governing Council.
Praet, a former International Monetary Fund and investment- bank economist, said he was “not convinced” by plans to ban the use of credit derivatives for so-called naked short selling of government bonds. He also said he doesn’t support the introduction of a financial-transactions tax.
The full Parliament will vote on the nomination on March 24 before euro-area governments formally appoint him to take office on June 1.
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