Lenders’ Wish List, Capital Rules, Lacker: Compliance

A dozen lobbyists interviewed by Bloomberg News said it would be unrealistic to push for major changes like a repeal of the Dodd-Frank Act, even with a Republican-led Congress sympathetic to financial firms’ anti- regulation bent.

Instead, goals include ending the procession of hearings on breaking up banks, weighing in on the next attorney general and pushing members of Congress to put regulators under the microscope.

Legislatively, lenders have put together a wish list that features rolling back swaps rules and watering down restrictions on proprietary trading. It will be a tough fight as President Barack Obama will seek to protect his legacy of cracking down on banks and has veto power over any bills.

One provision that finance lobbyists say they have some chance of killing is a Dodd-Frank requirement that derivative trades be separated from banking units that benefit from federal backstops.

Last year, 70 House Democrats joined Republicans to pass legislation that would repeal the regulation known as the swaps push-out. The measure hasn’t gone anywhere in the Senate.

Another provision that banks have in their sights is the Volcker rule, said the lobbyists, some of whom asked not to be identified because they aren’t authorized to discuss their clients’ goals publicly. Named for former Fed chairman Paul Volcker, it bars lenders from using their own capital to bet on markets and restricts investments in hedge funds and private-equity firms.

Instead of trying to neuter the regulation, lobbyists have focused on watering it down.

While Obama’s health-care plan will face a fresh round of investigations and public hearings next year, the president’s veto power will keep it from being dismantled.

Senate committees with jurisdiction over health issues will ramp up oversight of the Affordable Care Act, said David Cleary, Republican staff director for the Health, Education, Labor and Pensions Committee.

Compliance Action

Schaeuble Says Luxembourg Has Work to Do to Meet Tax Standards

German Finance Minister Wolfgang Schaeuble said Luxembourg has “a lot to do” to meet global tax standards, as a report alleged that hundreds of companies use the duchy’s rules to minimize their tax burdens.

Addressing German lawmakers in Berlin, Schaeuble cited global efforts to combat tax avoidance by companies and an international accord on Oct. 29 for countries to automatically share income-tax data.

More than 340 companies have transferred profits to Luxembourg using complicated tax arrangements, according to leaked documents obtained by the International Consortium of Investigative Journalists. The report, based on a review of almost 28,000 documents, said companies such as PepsiCo Inc., Ikea Group and FedEx Corp. effectively lowered their tax bill to less than 1 percent of profit.

The ICIJ project was also reported by news organizations including the Guardian, Sueddeutsche Zeitung and Le Monde.

Luxembourg’s Finance Ministry said it would issue a statement on the matter.

Luxembourg, the Netherlands and Ireland are the targets of a probe by the European Commission into whether preferential tax deals for companies amount to illegal state aid under European Union rules.

Jean-Claude Juncker, the former Luxembourg prime minister who took over as European Commission president on Nov. 1, said he “will not stand in the way” of the investigation.

European Banks Drop Customers Amid Capital Rules, Report Shows

Europe’s largest fixed-income firms are dropping less profitable clients amid tougher capital rules, Greenwich Associates said in a report.

Banks “are putting in place strategies that direct new costly capital toward their best clients” to help bolster earnings, the U.S. research provider said yesterday in a report. With competition increasing for a “relatively small group of preferred customers,” smaller funds and institutions are “experiencing reductions in coverage intensity,” it said.

European banks are shrinking their fixed-income units as regulators pressure lenders to hold larger capital buffers to help shield the financial system from future crises. Barclays Plc and UBS AG are among the region’s firms reducing their capital-intensive trading activities while focusing on consumer banking and wealth management.

The shift has already caused “unprecedented” turnover in sales coverage with banks cutting headcount, while also hurting relationships between investors and their dealers, the research firm said. Clients that aren’t on the “preferred customer lists” may be pushed toward trading fixed income electronically, according to Greenwich Associates.

Greenwich Associates said it conducted 1,265 interviews from May to July with senior fixed-income investment professionals at banks, fund managers, insurers, central banks, hedge funds and other institutions throughout Europe.

Interviews/Commentary

Lacker Says Policy Makers Must End ‘Too Big to Fail’

Federal Reserve Bank of Richmond President Jeffrey Lacker spoke in Washington about financial stability, too-big-to-fail institutions and banks’ “living will” resolution plans required under the Dodd-Frank Act.

To listen, click here.

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