The European Union’s top banking regulator will reveal data on the sovereign debt and types of capital held by the bloc’s biggest lenders as it forgoes a stress test for a second year.
The European Banking Authority, set up in 2011 to harmonize banking rules, may publish the data as early as October and include additional information on banks’ cross-border investments across the EU. The agency has previously revealed lenders’ holdings of European sovereign debt as part of annual stress tests.
The EBA scrapped the 2013 exam in favor of a review of lenders’ asset quality led by the European Central Bank, which will become the euro area’s chief banking supervisor. European leaders last year decided that the central bank should become a regulator in a bid to ease the currency bloc’s fiscal crisis by breaking the link between bank solvency and national public finances.
Eight banks failed the 2011 exams, which were criticized for failing to catch problems at other lenders, with a combined shortfall of 2.5 billion euros ($3.3 billion).
Investors expected as many as 15 banks to fail and raise 29 billion euros after assessments, according to a survey by Goldman Sachs Group Inc. (GS)
The EBA yesterday told banks to hold on to the capital raised through the past year, because it “is essential for maintaining the flow of lending to the real economy,” Andrea Enria, chairman of the EBA, said in an e-mailed statement.
Regulators have sought to increase transparency in banking. Lenders face requirements to publish information about their buffers of liquid assets to be drawn on in a crisis, under rules proposed by the Basel Committee on Banking Standards last week.
One-Third of Banks Will Use Low-Quality Collateral If It’s Cheap
One in three financial institutions would accept “low-quality, complex and opaque” collateral to back trades provided that it’s “cheap,” according to a survey from the operator of Switzerland’s exchange and clearinghouse.
More than half -- 57 percent -- of the 60 industry participants surveyed on behalf of SIX Group said that the cost of collateral was more important than its quality. About 48 percent of the respondents answered that securitizing and repackaging existing securities to create pools of collateral would increase risk, possibly leading to another financial crisis. Some 43 percent said they wanted “simple, high quality, liquid and easy to value” collateral, the survey found.
Institutions may need as much as $6.7 trillion in additional collateral to satisfy new bank capital rules and swaps-clearing mandates, securities-industry consultancy Finadium LLC said in December. The lack of cost-effective assets to back swaps trades has prompted some market users to exchange lower-rated securities for cash or highly rated securities, the Concord, Massachusetts-based firm specializing in securities lending and collateral management said. It described the practice as collateral transformation.
Panther, Coscia Fined Over High-Frequency Trading Algorithms
Panther Energy Trading LLC and sole owner Michael Coscia will pay $4.5 million to U.S. and U.K. regulators to resolve allegations that they used high-frequency trading algorithms that manipulated commodities markets.
Panther, based in Red Bank, New Jersey, and Coscia used a computer algorithm that placed and quickly canceled bids and offers in futures contracts for commodities including oil, metals, interest rates and foreign currencies, the U.S. Commodity Futures Trading Commission said in a statement yesterday. The enforcement action was the CFTC’s first under Dodd-Frank Act authority to target disruptive trading practices.
“By placing the large buy orders, Coscia and Panther sought to give the market the impression that there was significant buying interest, which suggested that prices would soon rise, raising the likelihood that other market participants would buy from the small order Coscia and Panther were then offering to sell,” the agency said its statement.
Panther and Coscia must pay $2.8 million in fines and disgorgement of profits to the CFTC, $903,000 to the U.K. Financial Conduct Authority and $800,000 in fines to CME Group Inc., owner of the world’s largest derivatives market. The CFTC also banned Panther and Coscia from trading for a year.
Richard Reibman, who represents Panther and Coscia as a Chicago-based partner at Thompson Coburn LLP law firm, declined to comment on the facts of the case. “I would say from an industry perspective that prop trading firms are adapting to the fact that the Dodd-Frank Act reaches beyond swaps regulation,” he said in a telephone interview yesterday.
Morgan Drexen Says U.S. Consumer Agency Is Unconstitutional
Morgan Drexen Inc., a provider of legal support services to lawyers, sued to block a probe by the U.S. Consumer Financial Protection Bureau, arguing the agency established by the Dodd-Frank Act of 2010 is unconstitutional.
The CFPB lacks the accountability required for a government office by the Constitution and has the unlawful authority to take enforcement actions involving unfair, deceptive or abusive practices without properly defining the terms, according to the lawsuit.
Morgan Drexen said in the complaint, filed yesterday in federal court in Washington, that the CFPB has claimed attorneys working with the company are in violation of a telemarketing sales rule because of the way they’re paid in bankruptcy cases.
The CFPB doesn’t have jurisdiction “over the law practices of the attorneys supported by Morgan Drexen.” The company also disputed the agency’s characterization of how firm fees are collected, according to the complaint.
The case is Morgan Drexen v. Consumer Financial Protection Bureau, 13-cv-01112, U.S. District Court, District of Columbia (Washington).
Miami Denies SEC Lawsuit Claim of Fraud in Bond Offerings
The city of Miami denied claims in a lawsuit by the U.S. Securities and Exchange Commission that it engaged in securities fraud with municipal bond offerings by exaggerating the health of its general fund.
The disputed transactions, carried out during the 2007 and 2008 fiscal years, were disclosed fully, complied with accounting rules and were approved by outside auditors, Florida’s biggest city said yesterday in a statement. The transactions were made “to address budgetary shortfalls,” during the global financial crisis, according to the statement.
The SEC sued Miami and an ex-budget director July 19 as part of a three-year crackdown on state and local governments for not providing bond investors with accurate information about pension liabilities. Illinois and New Jersey settled with the agency after similar investigations.
The case is SEC v. City of Miami, 1:13-cv-22600, U.S. District Court, Southern District of Florida (Miami).
Burns, Kaufman Comment on SEC Pursuit of SAC’s Cohen
Douglas Burns, a former federal prosecutor, talked about the U.S. Securities and Exchange Commission’s administrative action against SAC Capital Advisors LP founder Steven Cohen.
Burns said the probe of Cohen is like a “poker game.”
He spoke with Deirdre Bolton, Sara Eisen and Sheelah Kolhatkar on Bloomberg Television’s “Market Makers.”
For the video, click here.
Separately, former U.S. Senator Ted Kaufman, a Delaware Democrat, also talked about the administrative action against Cohen, saying he applauded SEC Chairman Mary Jo White for her pursuit of Cohen and her role as an enforcer, while more needs to be done on the regulatory side.
In addition, Kaufman discussed the outlook for U.S. banking regulation. He spoke with Betty Liu on Bloomberg Television’s “In the Loop.”
For the video, click here.
Comings and Goings/Executive Pay
RBS Sued by Fired Emerging-Markets Rates Head Over Bonus
Royal Bank of Scotland Group Plc’s former head of emerging-market rates, Lee Tze Kiang, sued the lender claiming his bonus was wrongly forfeited when he went to work for a hedge fund firm after he was fired.
Lee, dismissed in June 2012 after an investigation into two traders he supervised, said in filings in Singapore’s High Court that he had alerted RBS to their irregular activities. He’s seeking at least S$3.2 million ($2.5 million).
RBS, which plans to claw back 302 million pounds ($463 million) from bankers to help pay U.S. fines over interest-rate rigging, said in its defense filed July 1 that its rules provide for deferred awards not to vest if the beneficiary engages in competitive activity. It denied Lee’s assertion in his May 28 lawsuit that the provision is unenforceable and void.
“Unfortunately, Singapore’s labor laws allow employers to terminate without justification relatively easily,” Lee said in a phone interview yesterday.
Patricia Choo, a Singapore-based spokeswoman for RBS, declined to comment on the case.
Lee said in his lawsuit that he alerted his superiors to the irregular activity, which started before he managed the two employees. He said in a July 15 filing that the U.S. fines against RBS are unrelated to any business unit or profit center he worked in at the bank and are “inconsistent” with his claim.
The case is Lee Tze Kiang v. The Royal Bank of Scotland Plc, S478/2013, Singapore High Court.
To contact the editor responsible for this report: Michael Hytha at email@example.com