The European Banking Authority updated its bank stress tests to take more account of potential losses caused by banks’ holdings of sovereign debt from crisis- hit European Union countries including Greece.
Additional guidance was sent to banks reflecting the “worsening of the sovereign situation,” according to EBA Spokeswoman Franca Rosa Congiu. It was also required because of “inconsistencies” in data so far submitted by lenders and because some of it was deemed by the EBA to be “too optimistic,” Congiu said.
Under this year’s EU stress tests, 91 banks will be expected to maintain a Core Tier 1 capital ratio of at least 5 percent. That capital measure is stricter than last year’s assessment, which had a pass rate of 6 percent Tier 1 capital, a measure of financial strength that encompasses a broader range of securities. Last year’s tests were criticized for not testing how banks would fare against a sovereign default -- a factor that hasn’t been changed in this year’s exams.
The EBA “is closely monitoring the situation and the difficult financing circumstances in Greece,” it said in an e-mailed statement yesterday. “The stress test results will allow an assessment of potential systemic impacts stemming from the current market conditions on sovereign risk and banks’ cost of funding.”
The extra guidance was sent “at the beginning of June” and covers how to measure potential losses on government bonds held in their trading books, Congiu said in an interview.
Survey Shows Banks Eased Underwriting for Some Loan Products
U.S. banks are showing some signs of easing underwriting standards, especially in commercial products, after three years of broad tightening, the Office of the Comptroller of the Currency said in a report.
Improving credit market liquidity and efforts to increase market share led lenders to relax standards for certain products last year amid recovery from the worst financial crisis since the Great Depression, according to the OCC’s annual survey of Credit Underwriting Practices released yesterday.
The OCC survey is a compilation of examiner observations and assessments. This year’s report covers 54 of the largest national banks for the 12-month period ending Feb. 28.
Congress Revamp of Rules May Add Complexity, Obama’s Aide Says
Six senators are proposing legislation to change how federal rules are crafted, responding to complaints from business executives that regulations impede growth. Republican lawmakers said regulation by the Obama administration is weakening the U.S. job market.
Congress is considering legislation, introduced by Senator Susan Collins, a Maine Republican, that would require agencies to analyze costs and benefits of regulations, including the impact on job creation, energy and consumer prices. Most agencies aren’t required to analyze indirect costs and benefits.
Collins’s bill also would prohibit agencies from issuing “guidance documents” that would have the same effect as a imposing a rule.
Senator Olympia Snowe, also a Maine Republican, proposed a bill to create panels at nine agencies that issue rules that have an economic impact on small businesses, and permit court review of proposed rules earlier in the drafting process. The Obama administration is concerned that Congress’s effort to revamp regulations may only make government rules more complex, said Cass Sunstein, the White House official in charge of regulatory actions.
Sunstein, who said “we have the tools we need,” made the remarks yesterday at a hearing of the Senate Homeland Security and Government Affairs Committee. He raised concerns that some regulatory reform proposals could have “unintended consequences,” creating complexity in the regulatory system and blocking adoption of rules.
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CFPB Seeks Comment on Supervision of Large Consumer Firms
The U.S. Consumer Financial Protection Bureau is seeking comment on how it should supervise non-bank firms such as large debt collectors, credit reporting bureaus and prepaid card companies as part of new regulations required under the Dodd-Frank Act.
The bureau, which is scheduled to formally begin work next month, is considering supervision of larger participants in six consumer credit markets that may lead to on-site examinations and registration requirements, according to the request for comment. Dodd-Frank, the financial regulatory overhaul enacted last year, requires the agency to propose regulations by July 21, 2012, on whether firms meet the definition.
Criteria for the designation could include the annual number of transactions in a market, asset size or outstanding loan balances, the bureau said. The public may comment on the rule for 45 days once it has been published in the Federal Register.
Elizabeth Warren, special adviser to the secretary of the Treasury who was selected by President Barack Obama to form the CFPB, spoke in a teleconference about the prospect of the bureau supervising non-bank institutions.
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Chanos, Hedge-Fund Lobby Say SEC to ‘Suppress’ Short Sellers
Jim Chanos, the hedge-fund manager known for predicting Enron Corp.’s collapse, said the U.S. Securities and Exchange Commission’s plan to require real-time reporting of bearish stock bets is “designed to suppress short sellers.”
The agency’s proposals impose regulatory burdens on short sellers and threaten “loss of their intellectual property,” Chanos, president of New York-based Kynikos Associates LP and chairman of the Coalition of Private Investment Companies, a Washington-based hedge-fund trade group, said in a letter yesterday to SEC Chairman Mary Schapiro.
In a short sale, investors sell borrowed stock in the hope of repurchasing it later at a lower price and pocketing the difference. Last year’s Dodd-Frank Act required the SEC to issue about 20 studies to Congress, including one exploring the costs and benefits of disclosing such sales.
Among the proposals the SEC is considering is a voluntary pilot program in which each short-sale trade would be immediately reported on the so-called consolidated tape where all equity transactions are recorded. Another idea involves mandatory real-time reporting of investors’ short positions. Dodd-Frank put a July 21 deadline on the report to Congress.
Chanos called on the agency to take a “deliberate approach” in considering additional regulations.
John Nester, a spokesman for the SEC, declined to comment.
House Committee Approves Budget Cuts to IRS, Consumer Bureau
The U.S. House Appropriations Committee approved a spending bill that would reduce funding for the Internal Revenue Service, limit the budget of the Consumer Financial Protection Bureau and deny a spending increase sought by the U.S. Securities and Exchange Commission.
The $19.9 billion bill was approved yesterday and sent to the House floor by the Republican-led panel in a 27-21 party-line vote in Washington. The measure also includes funding for the Treasury Department, the White House, the District of Columbia, the federal courts, the Consumer Product Safety Commission and the General Services Administration.
U.S. Regulators Extend Comment Period on Swap Margin Proposal
U.S. banking regulators have extended the comment period for a proposed Dodd-Frank Act rule that would impose new capital and margin requirements in the $601 trillion global swaps market.
The rule, aimed at reducing risk by setting capital and margin standards for swap dealers and major swap participants, will be open for public comment until July 11, regulators including the Federal Reserve and Federal Deposit Insurance Corp. said yesterday in a statement.
JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc. executed 96 percent of the $321 trillion of over-the-counter derivatives trades by the top 25 U.S. bank-holding companies as of March 31, according to a June 17 report from the Office of the Comptroller of the Currency.
Basel Rules Force Nykredit to Seek China, Mideast Investors
Europe’s biggest issuer of covered bonds backed by mortgages said it will double the international holders of its securities as a result of global liquidity rules forcing local banks to sell the debt.
Nykredit A/S will approach investors in China, the Middle East, Europe and the U.S. to bring foreign ownership of its mortgage-backed bonds to as much as 25 percent, Chief Executive Officer Peter Engberg Jensen said.
Engberg Jensen, 58, said in an interview in Copenhagen June 22 that international investors now account for about 12 percent of holders. A “big effort” is needed in a few years, Jensen said.
Denmark is leading efforts to persuade the European Union to ease liquidity rules set by the Basel Committee on Banking Supervision that the Nordic country says penalize the world’s third-largest mortgage-bond market. While the EU has signaled it may accommodate some of the demands, standards scheduled to take effect by 2015 are still likely to treat covered bonds as less liquid assets than government debt, Engberg Jensen said. This indicates the need for a “broader investor base,” he said.
Nykredit will rely on international investors to step in as Moody’s Investors Service warns Denmark’s mortgage-bond market may be exposed to refinancing risks on securities carrying adjustable rates.
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South Korean Brokerage CEOs Indicted, Economic Daily Says
South Korean prosecutors indicted the chief executive officers at 12 brokerage companies including Samsung Securities Co. and Woori Investment & Securities Co. for providing unfair benefits for a limited number of clients in equity-linked warrants trading, the Korea Economic Daily said.
The heads of KTB Investment & Securities Co., E*Trade Securities Co., HMC Investment & Securities Co., Hyundai Securities Co., Daishin Securities Co., Daewoo Securities Co., Eugene Investment & Securities Co., LIG Investment & Securities Co., Shinhan Investment Corp. and Hanmag Securities Corp. were also charged, the daily said.
Woori spokesman Jeon Hyung Deok declined to comment on the report, as did Samsung spokesman Kim Jin Ho. Officials at the 10 other firms weren’t immediately reachable for comment, nor was a spokesman at the Seoul Central District Prosecutors’ Office.
Private Equity Firms May Be Covered by Bribery Law, SFO Says
Private equity firms in the U.K. could face prosecution or be held liable for bribes paid by officials at companies they own, the director of the Serious Fraud Office said.
SFO Director Richard Alderman told private equity clients of the law firm Debevoise & Plimpton LLP in London June 22 that the U.K. Bribery Act applies to them as well as large multi-national companies. Even if private equity firms aren’t aware of the bribes, they may be responsible for money laundering at a company they own, or liable for returning profits from the proceeds of a crime.
The Bribery Act, considered by some lawyers to be the strictest anti-corruption law in the world, will take effect July 1. Under the law, companies can be prosecuted for failing to prevent bribery by not having adequate controls in place, even if company officials didn’t know about the payment.
“It may even be” a condition of investment by fund managers that you invest only in companies that are FCPA- and Bribery Act-compliant, Alderman said.
Bill Waite, the chief executive officer of the Risk Advisory Group in London, said at a separate event that private equity firms are already scrutinizing corruption risks at the companies they invest in.
Basel Capital Rules Would Have Saved RBS, FSA’s Turner Says
Global plans to force the biggest banks to hold more capital may have saved Royal Bank of Scotland Group Plc from financial ruin, a top U.K banking regulator said.
RBS “would be in a completely different position” if the lender had been subject to proposed rules requiring banks to hold more high-quality capital before its near-collapse in 2008, Adair Turner, chairman of the U.K.’s Financial Services Authority, told reporters in London yesterday.
The Basel Committee on Banking Supervision met in the Swiss city yesterday to discuss how much extra capital the world’s largest and most systemically important banks will be forced to hold to avert another financial crisis. About 25 banks may have to hold more than the 7 percent core Tier 1 capital required by the Basel rules, according to Morgan Stanley analysts. RBS and HSBC Holdings Plc and Citigroup Inc. are among banks facing the highest levy of about 2.5 percent, Morgan Stanley said.
Turner said a report into the 45.5 billion-pound ($73 billion) bailout of RBS would show that the FSA had devoted “insufficient resources to large, systemically important banks.”
RBS posted the largest loss in U.K. corporate history in 2008 and required a bailout following its acquisition of ABN Amro Holding NV.
King Says Debt Crisis Is Biggest U.K. Stability Threat
Bank of England Governor Mervyn King talked about the threats to the stability of the U.K. financial system. He discussed the Financial Stability Report, published by the bank’s Financial Policy Committee.
The report’s six recommendations include a finding of “serious and immediate risk” in the sovereign debt crisis, King said at a news conference in London.
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Comings and Goings
World Bank Appoints Former Lehman Risk Officer as Treasurer
Madelyn Antoncic, formerly Lehman Brothers Holdings Inc.’s chief risk officer before its collapse, was hired by the World Bank as treasurer.
Antoncic, who started her career as an economist at the Federal Reserve Bank New York, worked at Goldman Sachs Group Inc. for 12 years and at Barclays Capital before joining Lehman. There, she was moved to a government relations job in September 2007, when she fought for hedges on some of Lehman’s investments. Lehman filed for bankruptcy a year later.
She will be “responsible for maintaining the World Bank’s high standing in financial markets and for managing an extensive client advisory, transaction, and asset management business,” the World Bank said.