India Investing, Airline Delays, IMF Report: Compliance

Indian Prime Minister Manmohan Singh’s cabinet unveiled a second wave of policy changes intended to bolster a slumping economy as he seeks to restore faith in his leadership and establish a platform for his party less than two years before the next general election.

In a move that signaled the Congress party-led government’s intent to push ahead with the biggest opening of the economy to global investors since 2004, ministers approved proposals allowing overseas companies to hold as much as 49 percent in insurance firms, and for the first time permit foreign investment in pension funds. The bills will need the consent of lawmakers in parliament.

Aviva Plc, Allianz SE and ING Groep NV are among global insurers that will be able to further invest in their Indian ventures if lawmakers approve the proposals when Parliament resumes next month. The votes may provide the first test of Singh’s ability to drum up the support among regional powerbrokers that his minority administration will need to pass legislation.

Rejecting a parliamentary panel, which in December said a further increase may not be in the interest of the country’s insurance industry, the government will present a bill to Parliament proposing to lift the cap on foreign investment in insurance to 49 percent from 26 percent currently. A separate bill will allow overseas investment in pension funds.

Last month, Singh’s cabinet allowed overseas retailers such as Wal-Mart Stores Inc. and Carrefour SA to own as much as 51 percent in supermarket ventures. The government also said foreign airlines can own as much as 49 percent in local carriers, and permitted overseas investment of as much as 49 percent in power exchanges.

The second round of big-ticket policy changes announced Oct. 3 may be harder to enforce because unlike foreign investment in retail and aviation, which are enacted by a cabinet decision, opening insurance and pensions requires parliamentary approval.

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Compliance Policy

Japan Urges Bank Lobby to Review Tibor Amid U.K. Rate Reform

Ikko Nakatsuka, Japan’s new financial services minister, urged the country’s bank lobby to determine whether its process for setting the benchmark yen lending rate should be revamped.

The Japanese Bankers Association should identify what improvements, if any, need to be made to guidelines for submissions used to set the Tokyo Interbank Offered Rate, Nakatsuka told a group of reporters in Tokyo today.

Comments from the minister come as the U.K. looks to reform governance and management related to setting the London Interbank Offered Rate following a Libor manipulation scandal there.

Yasuhiro Sato, who heads the lobby group, said July 19 his association completed a monthlong review of member banks to ensure they follow its guidelines. No issues related to its framework for setting Tibor were found, he said.

In Japan, reference banks are responsible for submitting interbank offered rates to the association, which compiles them and sets the benchmark, according to the group’s website.

MasterCard Urges EU for ‘Different Approach’ on Card Fees

MasterCard Inc. said artificial reduction of cross-border interchange fees for credit-card payments may increase consumer costs and reduce benefits of retailers. The global payment solutions company cited regulatory action in Spain, Australia and the U.S. in support of its statement.

The European Commission said Oct. 3 it will draft new rules on interchange fees charged on credit-card transactions between different EU countries.

IMF Says Bank Stress Tests Need Better Focus on Risk Channels

The International Monetary Fund said countries need to improve stress tests on banks and other major financial institutions to identify risk channels and consider low-probability events that could have dire consequences.

There have been “major improvements” in the ways supervisors assess whether banks can withstand shocks, yet changes put in place during the past few years don’t go far enough to protect the financial system, the IMF said in an Aug. 22 report that was made public yesterday.

The IMF praised methods developed by the Dutch central bank and the Hong Kong Monetary Authority to tackle solvency and liquidity risks. It also praised the Federal Reserve’s U.S. stress testing in 2009 for “restoring confidence” and making it easier for investors to evaluate financial firms.

By contrast, European Union stress tests in 2011 failed to reassure investors or identify imminent risks, the IMF said.

Compliance Action

RBS Said to Suspend Trader as Rate-Rigging Spreads Beyond Libor

Royal Bank of Scotland Group Plc suspended a trader for trying to rig the Singapore dollar swap offer rate, indicating employees may have sought to manipulate more than just Libor, two people briefed on the matter said.

Senior trader Chong Wen Kuang was put on leave earlier this year for trying to rig the interest rate to benefit his trading position, said the people who asked not to be identified because the bank is probing his actions. He is the first RBS employee to be suspended or fired for attempting to rig a benchmark other than the London interbank offered rate, one of the people said.

RBS, Britain’s biggest government-owned bank, is one of at least a dozen firms being investigated over allegations they colluded to influence interest rates so they could profit from derivatives bets. RBS started its own probe into allegations of rate-rigging in the middle of 2010, according to one of the people. The Edinburgh-based lender fired four traders last year for rigging the yen and Swiss franc Libors, and suspended a further two, who have since been reinstated, the person said.

The Monetary Authority of Singapore, the country’s central bank, said in July it will examine how banks are setting “key market interest rate benchmarks” amid similar reviews by regulators in Europe and the U.S.

An e-mail sent to Chong’s RBS account was returned with a delivery-failure message. Calls to his office were answered by colleagues who declined to be identified and said he was away from the office. A receptionist at RBS in Singapore said there was no record for Chong in the bank’s global directory. He is still listed as a key person at RBS for Singapore government securities, according to the MAS’s directory.

Michael Strachan, a spokesman for RBS, declined to comment on Chong and referred to a previously released statement.

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FSB Said to Weigh Shorter List of Too-Big-to-Fail Banks

Global regulators may trim their list of 29 too-big-to-fail banks earmarked for capital surcharges, according to two people familiar with the talks.

The Financial Stability Board is scheduled to agree on an update of the list at a meeting next week in Tokyo, according to the people, who asked not to be identified because the talks aren’t public. The list may be revised because the potential failure of some of the lenders is no longer deemed to pose a threat to the world economy and because others have restructured, the people said.

The FSB last year published a list of 29 so-called globally systemic banks that should have to hold more capital than required by other international agreements. Citigroup Inc., JPMorgan Chase & Co., BNP Paribas SA, Royal Bank of Scotland Group Plc, and HSBC Holdings Plc were provisionally earmarked to face the top level of surcharges, set at 2.5 percent of risk-weighted assets.

One of the banks that is almost certain to drop off the updated list is Dexia SA, the Franco-Belgian lender that is being broken up after losing access to unsecured funding, said Karel Lannoo, chief executive officer of the Centre for European Policy Studies in Brussels.

The Basel Committee on Banking Supervision prepared a draft update of the list at a meeting last month in Istanbul, according to the people. Its proposals will now be weighed by the FSB at its Tokyo meeting, which takes place on Oct. 10 and Oct. 11.

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Hypo Tirol Capital Injection Wins Approval From EU Regulator

Hypo Tirol Bank AG won European Union approval for a capital injection of 220 million euros ($284.6 million), the European Commission said in an e-mailed statement yesterday.

Support to the lender doesn’t breach EU rules governing state subsidies, the regulator said.

Spain Says EU Needs Clear Carbon Rules, Examines Backloading

The European Union’s draft plan to curb a glut of carbon permits may endanger the predictability of the bloc’s trading rules and Spain hasn’t decided whether to back the proposal, Environment Minister Federico Ramos de Armas said.

The European Commission, the 27-nation bloc’s regulatory arm, proposed in July a plan to curtail an excess of permits in the world’s biggest carbon market to help prices recover from a record low. The strategy, which consists of a draft change to the EU emissions trading law and a separate measure to delay sales of some allowances as of 2013, known as backloading, needs qualified-majority backing from member states to be implemented.

At stake is the cost of pollution for European companies that have enjoyed record-low prices for the permits they are forced to buy in the EU carbon market to offset their emissions. The economic crisis has hurt industrial output, boosting the surplus of credits.

The EU hasn’t yet proposed a specific number of permits to be postponed and plans to do so after finishing work on an impact assessment, which will be ready “in the coming weeks,” Jos Delbeke, director general for climate action at the commission, said on Sept. 26.

To enter into force, the backloading measure would need 255 out of 345 votes in the EU’s weighted ballot system that favors larger member states. A blocking minority requires 91 votes. Spain has 27 votes.


N.Y. Mortgage Probe Said to Get Extension to Sue 12 Firms

New York Attorney General Eric Schneiderman is looking into the mortgage securities practices of at least a dozen financial institutions that have agreed to suspend a deadline for him to bring fraud claims, according to a person familiar with the matter.

Schneiderman, who sued JPMorgan Chase & Co. this week for defrauding mortgage bond investors, has so-called tolling agreements with 12 institutions that preserve claims that could expire during a state investigation, according to the person, who declined to be named because the matter isn’t public.

The tolling agreements, reached this year, stop the clock on the six-year statute of limitations and ensure Schneiderman can bring civil fraud claims against banks for conduct going as far back as 2006, said the person. The agreements don’t necessarily mean that suits will be filed, the person said.

JPMorgan, based in New York, is one of the 12 financial institutions that have tolling agreements. The names of the others couldn’t be learned.

In the lawsuit against JPMorgan, Schneiderman said Bear Stearns, which JPMorgan took over in 2008, deceived investors about defective loans backing mortgage bonds, resulting in “monumental losses.”

The attorney general said, after the JPMorgan lawsuit was filed, that other cases would be filed over mortgage securities.

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Airlines in EU Must Pay Clients Thwarted by Strikes, Delays

Airlines must compensate passengers who were prevented from boarding their flights as a result of a strike or a delayed earlier flight, the European Union’s highest court said.

An “extraordinary” event, such as a strike, that prompts an airline to reschedule subsequent flights “does not give grounds for denying boarding or for exempting that carrier from its obligation to compensate passengers,” the EU Court of Justice in Luxembourg ruled yesterday. In a separate case, it ruled that compensation is also due when boarding on a connecting flight is denied after a delayed first flight.

Under EU law, airlines are obliged to compensate passengers who are denied boarding. Rulings by the EU court in recent years have clarified that carriers must compensate passengers on flights that are delayed by more than three hours or canceled because of mechanical problems.

Under EU law, reasons of health, safety, security or inadequate travel documents can justify a passenger being denied boarding. In yesterday’s cases, the court said, the reasons for the denied boarding weren’t attributable to the passengers.

“It is good that there now is a clear ruling for these kind of situations, so that airlines can better plan their operations in a similar situation,” Paivyt Tallqvist, a spokesman for Finnair, a party to one of the cases, said by e-mail.

The cases are: C-22/11, Finnair Oyj v. Timy Lassooy; C-321/11, German Rodriguez Cachafeiro and Maria Reyes Martinez-Reboredo Varela-Villamayor v. Iberia Lineas Aereas de Espana SA.


JPMorgan Shouldn’t Cut Dimon’s Pay, Harrison Says

William Harrison, former chief executive officer at JPMorgan Chase & Co., talked about bank regulatory issues and JPMorgan CEO Jamie Dimon’s compensation.

Harrison, who spoke with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “Market Makers,” also commented on risk management, the separation of chairman and CEO roles, and JPMorgan’s trading loss at its chief investment office.

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U.K. Banking System Gradually Strengthening, FSA’s Bailey Says

Lenders are becoming stronger following calls from the U.K. financial watchdog to raise capital, said Andrew Bailey, head of banking supervision at the Financial Services Authority.

Regulators “can see a picture of gradually improving resilience in the banking system,” Bailey said in prepared remarks for a speech in Scotland yesterday. Lending growth has remained slow, Bailey said, despite the FSA relaxing guidance on how banks calculate liquidity buffers in June.

“It is too soon to assess the impact of all these changes on the resilience of the financial system and on credit creation,” Bailey said. “We will monitor the results of these actions very carefully, and we will be prepared to amend our judgments in the light of experience.”

The FSA has said it would include Bank of England liquidity measures in calculations of banks’ liquid asset buffers giving lenders more room to dip to into reserves.

Comings and Goings

Hannam Said to Focus on Afghan Gold Mine After Leaving JPMorgan

Ian Hannam, one of JPMorgan Chase & Co.’s top advisers on the proposed transaction between Xstrata Plc and Glencore International Plc, formally left the firm last week to focus on his mining interests, three people with knowledge of the matter said.

Hannam, 56, who was JPMorgan’s chairman of equity capital markets, stepped down in April from his day-to-day role at the bank to appeal a decision to fine him by the U.K. Financial Services Authority. The FSA had fined him 450,000 pounds ($721,000) for market abuse. Hannam said in a statement then he would appeal and planned to continue his financial career after the dispute is over.

He is now focused on projects including his investment in Kabul-based Afghan Gold & Minerals Co., the people said, asking not to be identified because his plans are private.

Hannam and an official at JPMorgan in London declined to comment.

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