Leverage, Bond Exemption, Irish Thunderbolt: Compliance
The Basel Committee on Banking Supervision this week proposed revamping standards for the leverage ratio to ensure that the rule would be applied consistently worldwide. Unlike European lenders such as Deutsche Bank, U.S. banks are able to reduce their total assets by excluding the value of some derivatives.
Deutsche Bank’s assets were 36 times the value of its equity at the end of March under the International Financial Reporting Standards, which apply to European banks, and 21 times under a method similar to the Generally Accepted Accounting Principles followed by U.S. banks, company filings show.
Under the Basel plan, banks would have to hold Tier 1 capital equivalent to 3 percent of their assets. While the leverage ratio won’t be binding until 2018, lenders would be obliged to start publishing how well they measure up to it by the start of 2015, according to the committee.
U.K., U.S. and Swiss regulators are increasingly looking at leverage, in addition to measures based on risk weightings assigned to different assets, to gauge banks’ financial strength.
Danish FSA Calls for Covered Bond Exemption in Basel Regulations
The Danish FSA called for an exemption for covered bonds in the Basel Committee’s proposed regulations on large exposures.
The regulator said in statement dated June 28 that the proposal might harm the functioning of the Danish covered bond market and “possibly covered bond markets in Europe.”
The FSA said new capital directives that will enter into force Jan. 1 will allow member states to exempt covered bonds from limits to large exposures.
The regulator said the capital directive exemption is justified by countries’ “very detailed regulation” of covered bond markets, and the market’s “very low default record.”
The Basel large exposure rules should include exemption, the FSA said.
China’s Securities Regulator Says Market Operations Stabilized
China’s financial-market operations have regained stability, with the impact of “sudden and temporary factors” fading, the China Securities Regulatory Commission said.
The nation’s economy is stable, with economic growth still in a reasonable range, the CSRC said in a statement posted on its website about a press briefing June 27, after a record cash squeeze hit the world’s second-largest economy.
Central bank Governor Zhou Xiaochuan June 27 sought to soothe concerns that the credit crunch will harm economic expansion, saying the nation will continue to implement a prudent monetary policy. Financial markets were rattled after the country’s overnight repurchase rate leaped to 12.85 percent on June 20, the most in Bloomberg-compiled data going back to 2003. It was at 5.05 percent as of June 28, more than double the average of 2.32 percent in the past five years.
The CSRC also said it will take action against property developers that hoard land, engage in speculation and drive up housing prices by suspending their listing, refinancing and asset restructuring plans.
The People’s Bank of China, in a statement on June 25, called on the nation’s big banks to further their roles as market stabilizers. The central bank said it would take steps to safeguard stability in money markets, and that tight liquidity was set to ease.
Basel Consults on Derivatives-Related Capital Rules
The Basel Committee on Banking Supervision said it’s seeking views on draft rules for how banks should measure the risk of losses on derivatives trades, and consequently how much capital should be placed behind the transactions.
The group is inviting comments until Sept. 27 on the proposals, which include capital rules to cover the risk that a clearinghouse might fail.
Angola Delays Secondary Bond Market Start to First Quarter 2014
Archer Mangueira, the chairman of the country’s Capital Markets Commission, said in an interview June 28 at the London Stock Exchange that the start time is estimated, subject to development of infrastructure and training employees.
The publicly traded market for the Angolan notes had been planned to start by the end of September, Mangueira said last month. The market, which will use electronic trading, will add to Treasury bills already bought and sold among financial institutions and help develop a so-called yield curve, he said at the time.
Angola, which is seeking to boost foreign investment after a 27-year civil war that ended in 2002, forecasts economic growth of 7.1 percent this year from 7.4 percent in 2012.
Corzine Defense to Misuse of Customer Cash Is Off Point for CFTC
Jon Corzine, former chief executive of bankrupt futures brokerage MF Global Holdings Ltd., has said he never ordered any misuse of customer funds to help his firm stay afloat as it dealt with margin calls on bad bets.
For the Commodity Futures Trading Commission, which said June 27 that Corzine “bears responsibility for MF Global’s unlawful acts,” that defense is irrelevant.
The CFTC sued Corzine June 27 for failing to oversee the company properly while it spiraled toward failure in 2011 as $1.6 billion in customer funds went missing. The CFTC alleged he did nothing about inadequate controls over misuse of customer funds, that he was aware of the firm’s extreme shortage of cash and that he didn’t ask any questions about where the money was coming from to make transfers he ordered.
The CFTC also sued former Assistant Treasurer Edith O’Brien and reached a settlement with the company’s brokerage unit, MF Global Inc., which agreed to pay about $1 billion in restitution to clients and a $100 million penalty. The settlement is subject to court approval.
Gary DeWaal, who served as general counsel for Newedge Group SA, one of the largest futures brokerages, for 17 years before starting his own consulting firm, said, “There was a gas smell at MF Global, and no one checked the stove.”
In effect, the CFTC claims in its complaint that the one who truly knew what the gas smell was about was Edith O’Brien, MF Global’s former assistant treasurer. Her job was to move client assets between the firm’s accounts as needed.
Unlike O’Brien, who Corzine ordered to move funds to cover an overdraft to JPMorgan Chase & Co. (JPM), Corzine didn’t invoke his Fifth Amendment right to remain silent.
Corzine testified to Congress under subpoena and under oath that he asked for overdrafts with JPMorgan to be corrected, and that he never gave any instruction to misuse customer funds. He also said he didn’t believe anything he said could reasonably have been interpreted as an instruction to misuse customer funds.
The agency doesn’t claim O’Brien told Corzine directly that she used customer money for the brokerage’s business needs, a violation of the Commodity Exchange Act. Instead, it repeatedly says Corzine never asked any questions about how she was doing what he ordered her to do.
“This is an unprecedented lawsuit based on meritless allegations that Mr. Corzine failed to supervise an experienced back-office professional who was located in a different city and who did not report to Mr. Corzine or even to anyone who reported to Mr. Corzine,” his lawyer, Andrew Levander, said in a statement, referring to O’Brien, who was based in Chicago. “No evidence has been found that contradicts Mr. Corzine’s sworn testimony before Congress.”
Evan T. Barr, a lawyer for O’Brien, wasn’t available for comment.
Corzine bears responsibility for MF Global’s unlawful acts, the CFTC said June 27 in its complaint.
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Ireland’s Kenny Says Anglo Irish Bank Tapes Are ‘Thunderbolt’
Recordings of 2008 conversations between senior officials at the now defunct Anglo Irish Bank Corp. came as a “thunderbolt” when they were published by the Irish Independent newspaper, Prime Minister Enda Kenny said June 28.
The tapes reveal the “contempt and arrogance and insolence of senior personnel” at the bank, Kenny said in Brussels. The tapes have “damaged our reputation,” Kenny said, though everyone understands that “this was a time in the past.”
Kenny told lawmakers June 25 in Dublin that the government will hold a parliamentary inquiry into wider banking crisis, as the leaked tapes dominated the Irish media earlier last week. happen we’re going to hit a wall in the next week.’’
In all, the bank cost the state about 30 billion euros to save, and is in the process of being liquidated after the state took it over in 2009.
Hollande Says Banking Union Will Be Ready in Mid-2014
French President Francois Hollande spoke at a news conference in Brussels about banking supervision, euro area debt and unemployment.
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EU’s Van Rompuy Sees ‘Steady’ Progress on Banking Union
European Union President Herman Van Rompuy, European Commission President Jose Barroso and Irish Prime Minister Enda Kenny speak at a news conference in Brussels on the outcomes from a leaders’ summit.
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