Capital Rules, Bank Leverage Ratio, Mexico TV: Compliance

U.S. regulators moved forward on implementing global bank capital rules, releasing the language for measures proposed in past years, even as the international body overseeing the framework makes adjustments.

The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency yesterday published a revised version of rules that were decided in 2009, dictating for instance how much capital banks should hold to back products such as mortgage-linked securities. The regulators also proposed another set of rules that will translate for U.S. lenders a more fundamental overhaul of the capital regime drawn up by the Basel Committee on Banking Supervision in 2010.

Each Basel committee nation must write rules that comport with the decisions of the 27-member body, and the 2009 revisions were supposed to be implemented last year. The U.S., whose regulators were delayed because they had to reconcile the Basel regime with the 2010 Dodd-Frank regulatory overhaul, has been criticized by the European Union for falling behind.

The so-called market-risk rules, which will be finalized when all the regulators’ boards approve them, cover capital charges for assets on bank trading books. The market-risk rules would take effect Jan. 1.

Dodd-Frank’s credit-ratings ban slowed the process in the U.S. as regulators devised an alternative. The U.S. rules replace ratings of sovereign bonds with classifications of country risk devised by the Organisation for Economic Co-operation and Development.

The interagency proposal to implement Basel’s 2010 decisions stuck mostly to the original international framework while leaving out some elements. The new regime more than doubles minimum capital requirements, tightens the definition of capital and improves risk measurements for loans.

Separately, the Federal Reserve Board of Governors met yesterday on proposals for strengthening bank capital standards, including international rules known as Basel III.

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Compliance Policy

Mexico Regulator Approves Outline for Possible TV Auction

Mexico’s Federal Telecommunications Commission approved an outline for the possible auction of airwaves for two digital broadcast television channels covering 153 cities. The agency will publish the outline in the federal gazette and will work with Mexico’s antitrust agency to develop auction rules, it said yesterday in an e-mail.

The commission also approved a framework agreement, developed with phone carriers, to govern how competitors connect their networks to each other, the agency said.

Banks Face Quarterly Leverage Ratio Reporting Rules, EBA Says

European banks may have to report their debt-to-equity ratio to regulators every quarter from next year, the European Banking Authority said on its website yesterday.

The EBA, set up in 2011 to harmonize banking rules across Europe, is seeking banks’ views on measures for reporting leverage and liquidity as part of the bloc’s implementation of global capital rules known as Basel III. The consultation process will run until Aug. 27, with final standards to be decided on before the end of the year.

European lenders may face monthly liquidity reporting rules as part of the regulatory overhaul, the EBA said in a separate report.

Bernanke Says Fed Could Use Discount Window in Liquidity Crunch

Federal Reserve Chairman Ben S. Bernanke said the central bank would use the discount window or its emergency lending powers to expand liquidity if dollar funding is needed in a potential European financial crisis.

The Fed would “use our authority through the discount window or through our 13.3 authority to lend to financial institutions against collateral to make sure that lack of liquidity was not a reason that they would collapse or at least stop lending,” Bernanke said, citing a section of the Federal Reserve Act permitting emergency credit.

He said that would be “the main tool” the Fed would “have in reserve” and will use “if financial conditions called for it.”

Barrick Gold Units Fail to File Australia Final Statements

Eight Western Australian public companies have informed the Perth Magistrates Court that they will plead guilty to a total of 14 charges for failing to comply with obligations to lodge reports with the Australian Securities & Investments Commission or ASIC.

The companies are all subsidiaries of Barrick Gold Corp. of Canada, the world’s largest gold producer, the regulatory agency said in a statement. The maximum penalty for each offence relating to failing to lodge financial reports is A$13,750 ($13,537) ASIC said in the statement.

The matter has been adjourned to the Perth Magistrates Court for sentencing on Aug. 10 and is being prosecuted by Commonwealth Director of Public Prosecutions, according to the statement.

Nomura Apologizes for Involvement in Insider Trading Cases

Nomura Holdings Inc. apologized for its employees’ role in leaking information that was used for insider trading, confirming for the first time their involvement in three cases being examined by regulators.

“Nomura expresses its regret concerning the findings that non-public information was received from Nomura employees in such cases,” Japan’s largest brokerage said in a statement today. Regulators earlier today recommended fining First New York Securities LLC for trading shares in 2010 based on information that originated from Tokyo-based Nomura in one case.

The employees’ role in the incidents, which came to light as Japanese regulators began penalizing the companies that profited from the leaked information in March, may undermine Nomura’s credibility with investors. The news may also weigh on a stock that fell to its lowest in at least 37 years in November as profit plunged.

Nomura said it will complete an internal investigation by a group of outside lawyers by the end of June. The firm will “implement improvement measures and disciplinary action” in accordance with the result of the review and the Securities and Exchange Surveillance Commission’s inspection, it said.

It chose Hideki Nakagome, a former High Court chief justice, to lead the internal probe.

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Ex-Hedge Fund Trader Sues Pamplona Capital on $3.1 Million Bonus

A former hedge-fund trader at Pamplona Capital Management LLP sued the London-based asset manager saying his 2 million-pound ($3.1 million) bonus wasn’t as much as he was promised.

Sheil Aggarwal, who worked at the Pamplona Credit Opportunities Fund run by Yves Leysen, said in a U.K. lawsuit that part of his 2009 bonus was deferred to limit taxes. After resigning from the firm in 2010, he wasn’t paid the deferred 1.3 million pounds, according to court papers filed in March and made public this week.

Pamplona’s lawyers said in their own court filing in May, also made public this week, that the deferred bonus was only intended for those who continued to work at the fund and was intended to retain and motivate Aggarwal.

Fiona Macdonald, a lawyer for Aggarwal, declined to comment in an e-mail. Calls and e-mails to Leysen and Kevin O’Flaherty, the firm’s chief financial officer, weren’t returned.

Egan-Jones Sues to Have SEC Allegations Tried in Federal Court

Egan-Jones Ratings Co. and its founder Sean Egan sued the U.S. Securities and Exchange Commission to force the agency to bring its allegations of misrepresentation against the firm before a federal judge.

Egan-Jones said in a complaint filed June 6 in federal court in Washington that it would be deprived of its rights, including that to a jury trial, if the SEC’s enforcement action was to proceed in an “administrative forum.”

The firm, which calls itself an alternative to the larger providers of credit ratings because it gets paid by subscribers rather than by issuers of debt, said in its complaint that the SEC conducted a biased investigation that resulted in the administrative proceeding in April.

The SEC filed an administrative proceeding against Egan and the firm over claims they misrepresented the firm’s experience rating asset-backed and government securities in a 2008 application to become an NRSRO. Egan-Jones falsely claimed in the application that it had about 150 outstanding ABS issuer ratings and 50 government ratings, the SEC said.

John Nester, an SEC spokesman, declined to comment.

Egan-Jones, based in Haverford, Pennsylvania, is one of about 10 firms registered with the SEC as a nationally recognized statistical ratings organization, meaning companies can use their credit ratings to meet regulatory requirements. The case is Egan-Jones v. SEC, 12-00920, U.S. District Court, District of Columbia.

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Friedlander, Mayhew, McLaughlin on Muni Market Rules

George Friedlander, managing director and senior municipal strategist at Citigroup Inc.; Brian Mayhew, chief financial officer at the Metropolitan Transportation Commission; and Ritta McLaughlin, senior director of market leadership at Municipal Securities Rulemaking Board, participated in a panel discussion about new municipal bond market regulations the Securities and Exchange Commission will begin enforcing in August. The rules will compel banks to warn state and local governments about the risks and conflicts of interest in bond deals they arrange.

Bloomberg’s Joe Mysak moderated the event at the Bloomberg Link State & Municipal Finance conference in Chicago.

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Gensler Says Exchanges to Provide Transparency in Swaps

Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, talked about the evolution of exchanges and their role in the swaps market.

Gensler spoke with Dominic Chu at the Sandler O’Neill Global Exchange and Brokerage Conference on Bloomberg Television’s “Money Moves.”

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El-Erian Says Global Financial Regulatory Efforts Slowing Growth

Global attempts to overhaul financial regulation are exacerbating a synchronized slowdown of the world economy, said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. in Newport Beach, California.

The “incomplete and often faltering regulatory effort” has heightened uncertainty in financial markets, constraining the flow of credit and inhibiting the growth of the global economy, he said in prepared remarks to a seminar in Washington. The economic impact of the “patchwork” of at times differing reforms worldwide “may well be consequential,” he said.

“At Pimco, our periodic assessment of the regulatory landscape now always includes recognition of how much is still in flux and, essentially, both unknowable and unquantifiable at this stage,” said El-Erian, whose company manages the world’s largest bond fund. “The result is yet another uncertainty and complexity risk premium” built into financial markets.

El-Erian said that he’s not calling on regulators to slacken their efforts to transform oversight of financial markets and institutions. Instead, he stressed that the “proper response is to proceed in a more coherent and coordinated fashion.”

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Clausen Says Bank Regulation Guidelines So Far Unclear

Christian Clausen, chief executive officer of Nordea Bank AB; Stefan Ingves, governor of Sweden’s Riksbank; Eugene Ludwig, chief executive officer of Promontory Financial Group; Frederic Oudea, chief executive officer of Societe Generale SA; and Magnus Uggla, head of Handelsbanken AB’s international operations, discussed European bank regulation, liabilities, liquidity requirements and Basel III implementation.

They spoke at the Institute of International Finance’s Spring Membership Meeting in Copenhagen. Jan Hommen, chief executive officer of ING Groep NV, moderated the session.

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Credit Index and Rate Swaps Will Be First Cleared, Gensler Says

Interest rate and credit index swaps will be the first derivatives to face clearing requirements this year under the Dodd-Frank Act, said U.S. Commodity Futures Trading Commission chairman Gary Gensler.

The agency’s staff is preparing recommendations to require clearing of fixed-to-floating interest rate swaps as well as indexes of North American investment grade and high-yield credit swaps, Gensler said in a speech prepared for the Sandler O’Neill Global Exchange and Brokerage Conference in New York.

Dodd-Frank, the 2010 financial-regulation overhaul, intends for most swaps to be guaranteed by clearinghouses that seek to reduce risk in trades by standing between buyers and sellers. Largely unregulated swaps helped fuel the 2008 credit crisis.

Regional Banks Are Seeking Acquisitions, Brown Says

Thomas Brown, chief executive officer at Second Curve Capital LLC and a Bloomberg contributing editor, talked about the outlook for financial industry mergers and acquisitions and banking regulation.

Brown spoke with Betty Liu on Bloomberg Television’s “In the Loop.”

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Google Probe to Be Resolved Before Long, Leibowitz Says

Jon Leibowitz, chairman of the U.S. Federal Trade Commission, talked about the agency’s antitrust investigation of Google Inc., online privacy protection and legislation, and Facebook Inc.’s consideration of a plan to allow use of the social network by children under age 13.

Leibowitz spoke with Peter Cook on Bloomberg Television’s “Money Moves.”

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Shadow-Bank Rules a Banking Union Cornerstone, Barnier Says

Proposals on shadow banking and the structure of lenders’ retail and investment arms are priorities this year as the European Union pushes toward a banking union, said Michel Barnier, the bloc’s financial services chief.

These measures, as well as the creation of European financial supervisors and rules to end government-backed bailouts of failing banks, are “fundamental cornerstones of a banking union,” Barnier said yesterday in a speech in Copenhagen.

European Union leaders, including European Central Bank President Mario Draghi and European Commission President Jose Barroso, have called for a banking union with more coordination of regulation, as lawmakers seek to bolster confidence damaged by debt turmoil. EU President Herman Van Rompuy plans to report on proposed “building blocks” for deeper integration in the 17-nation euro area to the next summit of EU leaders on June 28-29 in Brussels.

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BOE’s Haldane Sees Risk Regulators May Misjudge Capital Needs

Bank of England official Andrew Haldane said the tools regulators use to assess banks’ capital needs may contain flaws that cause them to underestimate the level of buffers required.

“Even post-crisis, too many of these models remain at risk of being misled by normality, fooled by randomness,” he said in a speech in Edinburgh today. “That was a key fault line during the crisis and, as recent experience attests, remains a key fault line today.”

Haldane, executive director for financial stability at the central bank, said the Value-at-Risk model developed by JPMorgan Chase & Co. in the 1990s is an example of an approach to assessing risk that managers want to keep using even as it “continues to surprise on the downside.” The Black-Sholes options-pricing formula can also, “if taken at face value, lead to a material mispricing of risk,” he said.

Commenting on JPMorgan’s announcement last month of a $2 billion loss on a portfolio of corporate credit exposures, Haldane said that while the firm has revised the VaR measure on that portfolio, that reassessment may not be adequate.

Financial regulators must avoid overly-specific regulations as “complex intervention rules may simply add to existing uncertainties in the system,” Haldane said. A systemic oversight agency may be needed, he said.

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