Fed’s Loans, EU Bank Penalties, Finra Fines, Austria Raids: Compliance
Credit Suisse Group AG (CSGN), Goldman Sachs Group Inc. (GS) and Royal Bank of Scotland Group Plc (RBS) each borrowed at least $30 billion in 2008 from a Federal Reserve emergency lending program whose details weren’t revealed to shareholders, members of Congress or the public.
The $80 billion initiative, called single-tranche open- market operations, or ST OMO, made 28-day loans from March through December 2008, a period in which confidence in global credit markets collapsed after the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc.
Units of 20 banks were required to bid at auctions for the cash. They paid interest rates as low as 0.01 percent that December, when the Fed’s main lending facility charged 0.5 percent.
Robert A. Eisenbeis, former head of research at the Federal Reserve Bank of Atlanta and now chief monetary economist at Sarasota, Florida-based Cumberland Advisors Inc., described the loans as “a pure subsidy.”
The Federal Reserve Bank of New York, which oversaw ST OMO, posted aggregate data about the program on its website after each auction, said Jeffrey V. Smith, a New York Fed spokesman. By increasing the availability of short-term financing when private lenders were under pressure, “this program helped alleviate strains in financial markets and support the flow of credit to U.S. households and businesses,” he said.
Records of the 2008 lending, released in March under court orders, show how the central bank adapted an existing tool for adjusting the U.S. money supply into an emergency source of cash.
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Compliance Policy
Banks That Mislead Watchdogs in EU May Be Fined 10% of Sales
The European Union may give national regulators the power to impose tougher penalties for banks that fail to disclose dangers to their survival, according to proposals designed to safeguard the region’s financial markets.
Banks may be fined at least 10 percent of their annual sales for the worst cases of misleading regulators about levels of capital reserves, liquidity, indebtedness and risk taking, under the draft EU proposals obtained by Bloomberg News. Bankers may also be fined at least 10 percent of their yearly pay or 5 million euros ($7.1 million) for the most serious breaches.
“Effective, proportionate and dissuasive sanctioning regimes are key” to ensuring “compliance with EU banking rules, protect users of banking services and ensure safety, stability and integrity of banking markets,” said the draft legislation prepared by the European Commission.
The Group of 20 countries is seeking to toughen financial rules to curb excessive risk-taking and prevent a repeat of the crisis triggered by the collapse of Lehman Brothers Holdings Inc. (LEHMQ) in 2008. Regulators in the Basel Committee on Banking Supervision agreed last year to more than double the high quality capital that lenders must hold to cushion against possible losses, as well as to enforce rules on bank liquidity and indebtedness.
The EU overhaul would be used to police lenders’ reporting on whether they comply with the new Basel standards.
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Swiss Bank Earnings May Be Squeezed by Rule Changes, IMF Says
Swiss banks, including UBS AG and Credit Suisse Group AG (CS), may see earnings come under pressure from stricter capital rules and changes to banking secrecy, the International Monetary Fund said.
“Profitability is likely to be muted going forward,” the Washington-based fund said in a report yesterday. “A possible fall in tax sensitive wealth management flows over the medium term would also weigh on profits.”
The strength of the Swiss franc and regulatory uncertainty about banking secrecy and tax environments may result in consolidation among private banks, the IMF said. Some observers estimate the amount of undeclared money in Switzerland at between 300 billion francs ($347 billion) and 1 trillion francs, the Fund said.
Switzerland agreed in March 2009 to comply with Organization for Economic Cooperation and Development standards to avoid being blacklisted as a tax haven.
Compliance Action
Finra Fines Credit Suisse, Bank of America Over RMBS Errors
Credit Suisse Group Inc. will pay $4.5 million and Bank of America Corp. (BAC)’s Merrill Lynch unit will pay $3 million to resolve Financial Industry Regulatory Authority claims that they misrepresented delinquency data in issuing residential subprime mortgage securitizations.
Credit Suisse Securities failed to inform clients of misrepresentations on 21 subprime RMBS it underwrote and sold in 2006, Washington-based Finra said in a statement yesterday. In a separate case, Merrill Lynch negligently misrepresented delinquency rates for 61 subprime RMBS, though it corrected the errors on its website in June 2007, Finra said.
The two companies agreed to resolve the claims without admitting or denying wrongdoing.
Issuers of subprime RMBS are required to disclose historical performance information for past securitizations that contain mortgage loans similar to those being offered to investors, Finra said. Because there are different standards for calculating delinquencies, issuers are required to disclose the specific method they used, the brokerage regulator said.
“We are pleased to resolve this matter, which pre-dated Bank of America’s acquisition of Merrill Lynch,” said Bill Halldin, a spokesman for the Charlotte, North Carolina-based lender, which bought the brokerage in 2009. “Merrill Lynch identified this problem and corrected it by September 2007.”
Steven Vames, a spokesman for Credit Suisse, declined to comment on the fine.
OSHA, EPA, Other Agencies Plan Changes to Regulations
The White House announced yesterday that 30 U.S. agencies are seeking to repeal or modify regulations in an effort to reduce reporting requirements and save businesses and individuals billions of dollars in compliance costs.
Among the revisions the Obama administration is proposing is elimination of a requirement in some states for vapor recovery systems at gas stations and changes in labeling mandates for hazardous materials, according to a fact sheet prepared by the White House. Other proposals to come out of the review include changes to railroad safety rules and an easing of paperwork requirements in the Endangered Species Act that would “streamline” approval of conservation agreements.
The Occupational Safety and Health Administration plans to cut more than 1.9 million hours of annual reporting requirement for business, a step the U.S. Chamber of Commerce said would have little effect on companies.
The OSHA rule would save more than $40 million a year, Cass Sunstein, director of the White House Office of Information and Regulatory Affairs, said yesterday in outlining an overhaul of rules. The agency also plans to make hazard labels on some products match the labels adopted in other nations, an effort that would save more than $585 million a year.
Marc Freedman, executive director of labor law policy at the Chamber, the nation’s largest business lobbying group, said yesterday in an interview that the overhaul will “generate negligible changes at best.”
Cass Sunstein, director of the White House’s Office of
Separately, the U.S. Environmental Protection Agency plans 31 regulatory reviews, including how to improve estimates of industry costs, after scrapping a definition of milk as oil that forced farmers to meet petroleum-spill rules.
The EPA is under fire from businesses and lawmakers who say jobs are being threatened by overly strict measures, including greenhouse-gas limits. The agency said yesterday that its regulatory review will include re-examining the cost estimates of five rules; the agency didn’t identify which five rules would be studied. A goal of the project is to determine whether any “systematic biases” exist in EPA cost projections developed before a regulation is issued, the agency said.
The revisions result from the review of “outdated regulations” President Barack Obama ordered on Jan. 18 for the purpose of making the economy more competitive.
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Austria Raids Homes, Offices in Probe of Ex-Finance Minister
Austria yesterday raided 10 homes and offices connected to an investigation into possible tax evasion by the country’s former Finance Minister Karl-Heinz Grasser.
The raids took place in Vienna and in the provinces of Carinthia and Tyrol, the Austrian state prosecutor said in an e- mailed statement.
Grasser has denied any wrongdoing.
Senate’s Grassley Says SAC Met With Investigation Staff
Senator Charles Grassley of Iowa, the top Republican on the Judiciary Committee, talked about his examination of the U.S. Securities and Exchange Commission’s oversight of hedge-fund firm SAC Capital Advisors LP’s trading practices.
In a letter this week, Grassley asked SEC Chairman Mary Schapiro to explain how the regulator has handled allegations of suspicious trading at SAC Capital, referring to about 20 examples he received from the Financial Industry Regulatory Authority of possible insider trading involving the firm founded by billionaire Steven A. Cohen. Grassley spoke with Betty Liu and Peter Cook on Bloomberg Television’s “In the Loop.”
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Slovenian Banks to Pass European Stress Test, Kranjec Says
Slovenian lenders Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d. are likely to pass the European stress test after recent capital increases, central bank Governor Marko Kranjec told reporters today.
Courts
Swiss Resident to Pay $1.4 Million to Settle SEC Insider Case
Giuseppe Tullio Abatemarco, an insurance salesman living in Switzerland, will pay $1.4 million to resolve U.S. regulatory claims that he used nonpublic information to bet on Royal DSM NV’s 2010 acquisition of Martek Biosciences Corp. (MATK)
Abatemarco, 40, bought 2,616 call options on Martek stock from Dec. 10 to Dec. 15, then sold them on Dec. 21, the day the deal was announced, the Securities and Exchange Commission said in a complaint filed in April. He agreed to surrender $1.2 million in proceeds that were frozen by a U.S. federal court on Dec. 22 and pay a $200,000 penalty, the SEC said in a statement released yesterday citing the May 24 settlement.
Abatemarco agreed to settle the SEC’s claims without admitting or denying wrongdoing. Douglas Tween, his attorney at Baker & McKenzie LLP in New York, declined to comment.
Royal DSM completed the acquisition of Columbia, Maryland- based Martek on Feb. 28.
U.S. High Court Upholds Arizona Illegal-Hiring Sanctions
The U.S. Supreme Court, rejecting business arguments, upheld an Arizona law that threatens companies with the revocation of their corporate charters if they hire illegal immigrants.
In a 5-3 ruling, the justices said a federal law governing immigrant hiring leaves room for states to impose their own penalties for non-compliance. Bloomberg’s Greg Stohr talked about the ruling with Mark Crumpton on Bloomberg Television’s “Bottom Line.”
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Interviews/Speeches/Testimony
Bair Is Concerned About Lack of FDIC Board Nominations
Federal Deposit Insurance Corp. Chairman Sheila Bair discussed her concerns about what she called a lack of urgency in filling jobs for regulators who would sit on the agency’s five-member board of directors.
Bair, who testified about financial regulation before a House Financial Services subcommittee, is planning to step down as FDIC chairman in July after her five-year term expires. The Obama administration has yet to nominate her successor or a director for the new Consumer Financial Protection Bureau, which would hold a seat on the FDIC board.
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Donovan Prefers an Economist, Not a Lawyer to Run IMF
Paul Donovan, deputy head of global economics at UBS AG (UBSN), discussed the outlook for the Group of Eight leaders’ two-day summit and the prospects of French Finance Minister Christine Lagarde’s selection as the next chief of the International Monetary Fund.
Donovan, who spoke with Tom Keene on Bloomberg Television’s “Surveillance Midday,” also talked about the global economy and inflation.
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Tucker Says BOE Needs to Coordinate New Bank-Regulation Powers
Bank of England Deputy Governor Paul Tucker said the central bank must coordinate its powers over banking supervision and address concerns about accountability.
“The new architecture that is being brought in is the world of separate boxes -- monetary policy, bank supervision, securities regulation, debt management,” Tucker said in a speech in London yesterday. “Unless we connect up the different bits of what we do, we will let everyone down.”
Britain’s government is planning the biggest shakeup of regulation since 1997, scrapping the current banking regulator and handing the powers to a new authority within the Bank of England. The plan will also create a Financial Policy Committee chaired by Governor Mervyn King.
Former U.K. policy makers Willem Buiter and Kate Barker criticized the overhaul this week, telling a U.K. parliament hearing that ownership of financial stability should be with the U.K. Treasury rather than the central bank.
The proposed new system was “disastrously misconceived” and leaves the central bank “overburdened and too powerful,” Buiter told lawmakers on May 23.
Comings and Goings
Wellink Calls Hoogduin Good Candidate for ECB Executive Board
European Central Bank Governing Council member Nout Wellink said Lex Hoogduin, who leaves the Dutch central bank in July, would be a “good candidate” for the ECB’s executive board.
Wellink, who also heads the Dutch central bank, made the remarks in an interview in Amsterdam today.
“It depends on what will happen with the post of Bini Smaghi, who will fill that, and that depends on what happens next year with the Spaniard in the ECB’s executive board,” Wellink said, referring to Jose Manuel Gonzalez-Paramo, whose term ends in May 2012.
Hoogduin, who was seen as a possible successor to Wellink, last week announced his resignation after Finance Minister Jan Kees de Jager picked top civil servant Klaas Knot to lead the bank in July. Hoogduin, 54, a former adviser to late ECB President Wim Duisenberg, joined the Dutch central bank’s governing board in 2009.
To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.
To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.
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