Capital Boost, Bernanke Testimony, Libor Hand-Off: Compliance

Capital standards at the biggest U.S. lenders would rise to 5 percent of assets for parent companies and 6 percent for their banking units under a plan proposed yesterday by federal regulators.

The Office of the Comptroller of the Currency proposed a leverage ratio that’s 2 percentage points more than the 3 percent international minimum for holding companies, the agency said in a statement. Capital at U.S.-backed deposit and lending units must be twice the global standard at 6 percent, according to the OCC.

Separately, the five-member Federal Deposit Insurance Corporation board voted 4-1 yesterday for the 3 percent leverage ratio mandated by the international Basel III accord, and unanimously proposed to boost that minimum at eight of the biggest U.S. lenders to 5 percent of assets for parent companies and 6 percent for their banking units.

The U.S. plan goes beyond rules approved in 2010 by the 27-nation Basel Committee on Banking Supervision to prevent a repeat of the 2008 crisis that almost destroyed the financial system. The changes would make lenders fund more assets with capital that can absorb losses instead of with borrowed money. Bankers say this could force asset sales and pinch profit.

The changes would affect the eight U.S. institutions already tagged as globally important, according to the Federal Reserve. The Financial Stability Board, a group of international central bankers that coordinates financial rules, identified them as JPMorgan Chase & Co., Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS), Bank of America Corp., Morgan Stanley (MS), State Street Corp. (STT) and Bank of New York Mellon Corp.

Based on the largest banks’ September data, the holding companies fell short of the new leverage requirement, according to FDIC staff. The insured lending units would need $89 billion more in capital.

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Compliance Policy

U.S. Derivatives Regulator Weighs Delay in Cross-Border Rule

The U.S. Commodity Futures Trading Commission is considering a six-month phase-in period to implement new rules for overseas swaps trades, according to two people with knowledge of the deliberations.

Regulators face a Friday deadline to resolve a deadlock over how far to expand the regulator’s oversight over trades conducted outside the U.S. by banks including JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc.

CFTC members remain at odds over the regulator’s overseas reach, according to the people, who spoke on condition of anonymity because the deliberations are private. The agency has set a July 12 meeting to vote on the rules; a temporary exemptive order expires on that day.

The international reach of Dodd-Frank Act regulations has been one of the most controversial parts of the government’s effort to reduce risk and increase transparency in the $633 trillion swaps market. The CFTC’s proposed guidelines -- which could extend agency oversight to many trades conducted by overseas U.S. banks or subsidiaries -- have created a rift with foreign regulators, who say their rules are sufficient for regulating derivatives trades in their jurisdictions.

The CFTC’s proposed guidance was criticized by JPMorgan and other U.S. banks for threatening to put them at a competitive disadvantage when they trade overseas.

Swaps trading has been a major source of revenue for large U.S. banks, and some have conducted roughly half of such trades overseas, often through branches or subsidiaries.

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Compliance Action

NYSE Euronext to Take Over Administration of Libor From BBA

Britain will hand over administration of the London interbank offered rate to the operator of the New York Stock Exchange as regulators try to revive confidence in the scandal-hit benchmark.

NYSE Euronext (NYX) will replace the British Bankers’ Association as Libor’s administrator in early 2014, the London-based lobby group that started the benchmark more than two decades ago said in a statement yesterday. The U.K.’s Financial Conduct Authority began regulating Libor, the benchmark for more than $300 trillion of securities, in April as part of the overhaul.

The New York-based purchaser already operates Liffe, Europe’s second-largest derivatives exchange, which offers derivatives based on Libor. A government review recommended last year that the BBA should be stripped of responsibility for Libor after regulators found banks had tried to manipulate it to profit from bets on derivatives.

The U.K. government formally started the search for a replacement body to set Libor in February after the BBA formally voted to relinquish operation of the benchmark. A seven-member panel recommended the new administrator.

The rate is at present calculated by a poll carried out daily by Thomson Reuters Corp. for the BBA that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The results, after the application of certain rules, are published for individual currencies before noon in London.

Swipe-Fee Battle Moves to States as U.S. Banks Fight Surcharges

Banks and payment networks are pressing state lawmakers to bar retailers from charging customers more to pay with credit cards than with debit cards or cash.

The laws’ supporters say they are trying to protect consumers from unfair costs when they make purchases with credit cards.

The move for state laws is an extension of a decade-long fight between retailers and members of the payments industry, including JPMorgan Chase & Co., the biggest U.S. credit-card lender, and Visa Inc. (V) and Mastercard Inc. (MA), the largest networks, over “swipe” fees for debit and credit cards. Because retailers generally have to pay more to banks when their customers use credit cards than when they buy with debit cards, the banks are trying to prevent stores from steering buyers to debit transactions.

At stake is an estimated $40 billion that banks take in each year from credit-card swipe fees, according to Madeline Aufseeser, a senior analyst with Boston-based consultancy Aite Group LLC.

Banking groups say the push for state laws isn’t a coordinated campaign by the industry. Instead, Trish Wexler, a spokeswoman for the Electronic Payments Coalition, a trade group for card issuers and networks, describes it as an “organic” process of bills arising in states at the same time.

State lawmakers are responding to a class-action settlement that went into effect in January that gives retailers more flexibility to impose surcharges for using different types of cards, Wexler said in an interview before she left her position at the coalition on June 27.

Melissa Cassar, a spokeswoman for Visa, said the company has “no position to share” on the subject of surcharges. In Utah, the state bankers association, which includes JPMorgan, cited the class-action settlement in promoting the law.

Steve O’Halloran, a spokesman for JPMorgan, declined to comment, and a spokesman at Mastercard didn’t respond to requests for comment.

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Courts

Bernanke Needn’t Testify in AIG Bailout Suit, U.S. Says

U.S. Federal Reserve Chairman Ben Bernanke shouldn’t be compelled to testify in Maurice “Hank” Greenberg’s lawsuit over the government’s bailout of American International Group Inc. (AIG), the Justice Department said.

Starr International Co., Greenberg’s closely held investment firm and an AIG shareholder, hasn’t shown the “extraordinary circumstances” needed to warrant the testimony because information on Bernanke’s role in the 2008 bailout can be obtained from other sources, the U.S. argued in a filing in the U.S. Court of Federal Claims in Washington.

Starr sued the government for $25 billion in 2011. Greenberg called the assumption of 80 percent of the AIG’s stock by the Federal Reserve Bank of New York in September 2008 a taking of property in violation of shareholders’ constitutional rights.

The AIG board on Jan. 9 declined to join the suit. A trial has been set for Sept. 29, 2014.

David Boies, a lawyer for Starr at Boies, Schiller & Flexner LLP, said in an e-mail that Bernanke “has important testimony” to give in this case. He said Starr will respond in court to the U.S. filing within the next couple of weeks.

The case is Starr International Co. v. U.S., 1:11-cv-00779, U.S. Court of Federal Claims (Washington).

Ex-SAC Trader Martoma Seeks Dismissal of Charges Related to Elan

Former SAC Capital Advisors LP portfolio manager Mathew Martoma urged a federal judge to dismiss two insider trading charges tied to his firm’s sales of Dublin-based Elan (ELN) Corp.’s American depositary receipts.

Martoma, who’s charged with the biggest insider trading scheme in U.S. history, cited a U.S. Supreme Court ruling in 2010, called Morrison v. National Australia Bank, that said U.S. laws don’t protect foreign investors who buy stocks on overseas exchanges.

He was charged by the U.S. in November, accused of helping the hedge fund founded by Steven A. Cohen make $276 million using illegal tips about a drug to treat Alzheimer’s disease. The U.S. alleged that after getting a tip from a neurologist who was head of the safety monitoring committee for the drug trial, Martoma traded on Elan ADRs and shares of Wyeth LLC. Martoma has denied wrongdoing and is scheduled to go on trial in November.

Martoma’s lawyer said that while he isn’t seeking dismissal of a charge tied to trading in Wyeth LLC, a Delaware corporation based in Madison, New Jersey, he reserves the right to do so later.

The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).

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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