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New York’s top banking regulator Benjamin Lawsky, who used his leverage to stiffen penalties against some of the world’s largest financial institutions, will probably step down next year to take a job in the private sector, Bloomberg reported today. Lawsky was appointed by Gov. Andrew Cuomo to head the newly formed Department of Financial Services in 2011, with a mandate to regulate state-licensed banks and insurance companies. He became widely known the following year for threatening to revoke Standard Chartered PLC’s license to operate in New York after growing frustrated with the slow pace of settlement talks over sanctions violations. It isn’t yet clear who Cuomo will name to fill the position after Lawsky resigns. Cuomo combined New York’s bank regulatory department and its insurance division to create DFS in the aftermath of the financial crisis, forming a new state regulator that could monitor hybrid products marketed by all kinds of financial institutions.

The world’s largest banks will have to hold 16 to 20 percent of their risk-weighted assets in equity and cancelable debt to shield taxpayers from big bills for bailing out failed banks during a crisis, The Wall Street Journal reported today. The plan, drawn up by the Basel-based Financial Stability Board, would force the biggest lenders to maintain a sizable capital cushion so that they could be wound down without causing global financial panic. Regulators see this rule as a way to put an end to the so-called “too-big-to-fail” problem — a crucial step in preventing bailouts for large lenders and shielding taxpayers from having to foot the bill for failing banks. The agreement is “a watershed in ending ‘too-big-to-fail’ for banks,” said Mark Carney, the governor of the Bank of England and chairman of the FSB. The FSB is a group of regulators that includes representatives from the world’s largest economies in Europe, Asia, and North and South America.

Bank regulators continue to sound the alarm about a type of debt that has become a hot product on Wall Street in recent years, The New York Times Dealbook reported on Friday. As part of an annual review of bank lending, three federal agencies sharply criticized a type of loan that Wall Street firms have been making to companies with low credit ratings. The firms sell most of these so-called leveraged loans on to investors, like hedge funds, pensions and mutual funds, which are on the hunt for higher-yielding investments. Although the banks do not hold on to most of the leveraged loans, regulators have been expressing their concerns about this lending splurge, saying that it could come back to hurt the banks and the wider financial system. Seeing a decline in the quality of leveraged loans, the regulators issued in March 2013 special guidance to the banks that aimed to press them to stop making loans that lacked important legal protections or left the borrowing companies overly indebted. On Friday, the regulators indicated that the banks have yet to fulfill the 2013 guidance.

The bankruptcy trustee of failed IndyMac Inc. has agreed to settle a fight over tax refunds with the Federal Deposit Insurance Corp. ending five years of litigation, the Wall Street Journal reported today. The former parent of IndyMac Bank gets to collect about $58.6 million in state and federal tax refunds, while the FDIC gets to stand in line with the rest of the parent company’s unsecured creditors and collect its share, according to papers filed on Wednesday with the U.S. Bankruptcy Court in Los Angeles. Set for court review Dec. 3, the pact is designed to speed a payday for investors that took a hit when the California mortgage lender shut its doors in 2008 after worried depositors withdrew their funds. While it doesn’t settle all of the disputes between IndyMac’s parent and the federal agency, the settlement does wrap up the most significant points of contention, such as the FDIC’s insistence it is owed $5 billion on a top-priority basis. In cases around the country, the FDIC has been fighting bank holding companies over who gets to collect tax refunds tied to the losses rung up when the housing market collapsed in 2007.

Timothy J. Mayopoulos, the chief executive of Fannie Mae, yesterday provided some crucial details on what the government’s program to expand the availability of mortgages with low down payments would look like, the New York Times reported today. Mayopoulos said that he expected Fannie’s low-down-payment mortgages to cost the borrower less than similar loans available under certain other government programs. But he also said that Fannie’s loans would require private mortgage insurance on top of the down payment, a stipulation that might, in theory, limit the size of the program. Even as the government is moving ahead with the changes, some housing analysts are expressing concerns, contending that the program could lead to higher defaults. Fannie Mae and Freddie Mac, another large government-backed entity that guarantees mortgages, are regulated by the Federal Housing Finance Agency. Under its director, Melvin L. Watt, the agency has recently taken steps that aim to ease the flow of housing credit. Since the financial crisis of 2008, some 80 percent of mortgages have had some form of taxpayer guarantee.

A Texas man was arrested yesterday and charged with running a bitcoin Ponzi scheme that in its height accounted for about 7 percent of the virtual currency in public circulation, the Manhattan U.S. Attorney said, according to a Wall Street Journal report today. Trendon Shavers, under the alias pirateat40, raised more than 760,000 bitcoins in investments through his firm, Bitcoin Savings and Trust, from at least Sept. 2011 to Sept. 2012, according to court documents. The investments were valued at more than $4.5 million based on the price of a bitcoin during the scheme. Shavers has been charged with one count of securities fraud, carrying a maximum sentence of 20 years in prison and a fine of up to $5 million, and wire fraud, carrying a maximum penalty of 20 years in prison and a fine of up to $250,000. In September, Shavers was fined more than $40 million and ordered to pay a civil penalty of $150,000 in relation to a U.S. Securities and Exchange Commission civil suit. Shavers sold bitcoin-related securities from his home in McKinney, Tex., promising investors up to 7 percent in weekly interest. In the end, at least 48 of about 100 investors lost all or part of their investment, according to the U.S. Attorney’s office.

Sears Holdings Corp. said that it is considering forming a real-estate investment trust that would hold 200 to 300 of its stores, as the struggling retailer continues to pursue ways to shore up its balance sheet, the Wall Street Journal reported today. Through a sale-leaseback deal, the company would continue to operate in the store locations, but the real estate would be sold to a newly formed REIT and shareholders would be given rights to purchase shares or equity stakes. The retailer said it would book “substantial proceeds” from such a move. Sears has been hemorrhaging cash as it reported losses that have rattled its supplier base. The company has recently sought to raise cash as the holiday season approaches, including selling $625 million in debt to owners of the company’s stock and taking a $400 million short-term loan backed by 25 of the company’s properties.

American International Group Inc.’s bailout by the U.S. in 2008 was seen by the company’s board as its only rescue option at the time, former Chief Executive Officer Robert Willumstad testified, Bloomberg News reported today. The insurer’s board acted in “the best interest of all the stakeholders of AIG” when it approved an $85 billion loan requiring it to surrender 80 percent of AIG’s equity and pay a 14 percent interest rate, Willumstad said in the trial of Maurice “Hank” Greenberg’s lawsuit challenging the rescue. The board voted for the loan deal after exhausting private-sector lifeline possibilities that included discussions with Warren Buffett, Jay Fishman of Travelers Cos. and J.C. Flowers & Co., Willumstad told the court. A last-minute private bank bailout led by JPMorgan Chase & Co. and Goldman Sachs Group Inc. also didn’t pan out, he said. John Roberson, a Justice Department lawyer who called Willumstad to testify, asked him what AIG’s alternative was to accepting the government’s offer. “Bankruptcy,” he replied.

Republicans’ takeover of the U.S. Senate promises increased political turbulence for the Federal Reserve, which has already been under pressure from a GOP-controlled House, the Wall Street Journal reported today. Financial executives say that a GOP-led Senate would ratchet up congressional scrutiny of the central bank’s interest-rate policies, as well as its regulatory duties as overseer of the nation’s largest financial firms. Republicans haven’t controlled the Senate since before the 2008 financial crisis and recession, which put a spotlight on the Fed and its powers. Leading the GOP wish list in dealing with the Fed would be legislation to open the central bank to more scrutiny of its interest-rate decisions, using congressional audits of monetary-policy matters that Fed officials strongly oppose. Many Republican lawmakers also want to require the Fed to use a mathematical rule to guide interest-rate decisions or shift its focus more directly to inflation rather than inflation together with unemployment. All of that would come on top of heightened bipartisan scrutiny of the Fed’s regulatory moves. Many Republicans oppose the unconventional efforts the central bank has taken to bolster the U.S. economy over the past several years. The Fed last week announced the end of its long-running bond-buying stimulus program, known as quantitative easing. But that won’t quell GOP criticism, since many Republicans want Fed officials to move quickly now to raise interest rates from near zero and shrink the central bank’s balance sheet, which has climbed to near $4.5 trillion. Under the Republican-led Senate, Alabama Sen. Richard Shelby would likely become the next chairman of the Senate Banking Committee, which oversees the Fed. Shelby has been sharply critical of its regulatory performance in the run-up to the crisis. As the top Republican on the banking panel after the crisis, he supported stripping the central bank of its bank-supervision authority when Congress was writing the 2010 Dodd-Frank financial-regulatory overhaul law. He voted against Janet Yellen to be Fed chief, citing her support for the Fed’s bond-buying programs and his concerns that they could spark runaway inflation and other economic problems.

Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig said that global banks should set up shields for certain short-term funding deals as a step toward ensuring they can be dismantled in U.S. courts after a failure, Bloomberg News reported yesterday. Hoenig called on banks such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. to look at protecting funding such as repurchase agreements with a system similar to one announced last month that will delay termination of derivatives contracts during a U.S. financial-firm bankruptcy. Industry-driven stays “may be needed for those parts of the repo book that use long-term assets to secure short-term funding,” Hoenig said. “Volatile wholesale funding” at banks’ broker-dealer units is most vulnerable to runs across borders and firms, he said. Banks must prepare for the possibility that broker-dealers could enter bankruptcy and need sufficient financing as part of “living wills” required under the Dodd-Frank Act, Hoenig said. The FDIC and Federal Reserve, which can force business changes at banks that don’t come up with credible plans, found fault with submissions by 11 of the largest banks.