%1

Standard & Poor’s chances of settling the government’s lawsuit over mortgage-bond ratings for less than $1 billion may have slipped away after Bank of America Corp.’s Countrywide unit was socked with a $1.3 billion fine, Bloomberg News reported today. The Countrywide ruling was the first to lay out what penalties financial institutions could face under a 1989 bank-fraud law the Obama administration is using against alleged culprits of the subprime mortgage crisis. The U.S. sued S&P and Countrywide under the Financial Institutions Reform, Recovery and Enforcement Act, a law passed by Congress in the wake of the savings and loan crisis of the 1980s. The administration, which seeks as much as $5 billion from S&P, is using the law to punish alleged misconduct in the creation and sale of residential mortgage-backed securities blamed for the financial crisis two decades later.

Derivatives regulators told the U.S. Justice Department they’ve found evidence of criminal behavior following an investigation into banks’ alleged manipulation of ISDAfix, a benchmark used to set rates for trillions of dollars of financial products, Bloomberg News reported yesterday. The U.S. Commodity Futures Trading Commission, which first sent subpoenas to the world’s largest banks in November 2012 to determine whether ISDAfix was rigged, has flagged its findings to prosecutors, according to a person familiar with the matter. The CFTC’s enforcement powers are confined to bringing civil, not criminal, cases. It isn’t clear who the CFTC suspects broke the law. Benchmarks like ISDAfix, which is used to track prices on interest-rate swaps, serve as the foundation of global finance, helping pension funds determine their future obligations and lenders decide how much to charge borrowers. Regulators around the world are probing allegations that measures used to set prices in gold, oil, interest rates and currencies were rigged by banks and brokers wanting to pad their profits while cheating their clients and other investors.

First BanCorp Puerto Rico wants a quick win in a fight with Lehman Brothers Inc., arguing that its $63.5 million claim relating to an old swap agreement should be paid in full as a "customer" claim against the Lehman brokerage, the Wall Street Journal reported today. Lawyers for First BanCorp in a Friday court filing pressed their case that because Lehman's brokerage maintained a "securities account" for First BanCorp, the swap agreement technically makes the bank a Lehman customer. "FirstBank entrusted its securities to LBI for safekeeping in its role as securities intermediary, and LBI treated FirstBank as the owner of those securities at all times," lawyers for FirstBancorp said in their filing. James W. Giddens, the trustee unwinding Lehman's brokerage, is also asking for a quick ruling in his favor over the claim or asking for it to be expunged completely. Giddens said in court filings last month that if First BanCorp has a claim in the case at all, it isn't with the brokerage unit but rather with a Lehman derivatives unit, Lehman Brothers Specialty Finance.

The Senate Banking Committee will hold a hearing today at 10 a.m. ET titled “Wall Street Reform: Assessing and Enhancing the Financial Regulatory System.” To review the witness list, prepared testimony and obtain a link to watch a live webcast of the hearing, please click here: http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hear…

The Securities and Exchange Commission is preparing new rules to boost oversight of mutual funds, hedge funds and other firms as part of an effort to gain insight into whether the $50 trillion asset-management industry poses risks to the financial system, the Wall Street Journal reported today. The SEC is in the early stages of developing requirements, including that asset managers such as Fidelity Investments and BlackRock Inc. give regulators more data about their mutual-fund portfolio holdings and conduct stress tests on their funds to determine how they would weather economic shocks such as a sudden change in interest rates. The SEC staff is developing the rules with the five-member commission but has yet to complete a formal proposal. Any rule would have to be proposed by the SEC and voted on a second time before being completed, a process that could take months or years.

A bankruptcy judge said that he would allow Jon S. Corzine and other former MF Global Holdings Ltd. executives and employees to tap the rest of their insurance money to pay for defense costs, but he is "concerned" with how quickly the money is being spent — though it isn't within his power to stop it, the Wall Street Journal reported on Saturday. In a ruling filed on Thursday, Bankruptcy Judge Martin Glenn lifted bankruptcy law's automatic stay to allow more than a dozen defendants to tap most of the $200 million remaining on the failed commodities brokerage's so-called "directors and officers" insurance policies. Those defendants include onetime Chief Executive Corzine, former operating chief Bradley Abelow and other executives and higher level employees. The former company officials are defending themselves against a number of civil actions and regulatory proceedings related to the bankruptcy of the broker-dealer in the fall of 2011. The judge said that $13.1 million of the money will be reserved for a potential claim MF Global could make against the policies, but the rest would be available for the defense costs. Apart from that, though, he said that because MF Global entities don't have claims that could be covered by the insurance money, he can't stop the former employees from accessing the money.

A top Senate Democrat’s proposal to limit future deductions for companies that moved tax addresses out of the U.S. as many as 20 years ago would penalize dozens of so-called inversion deals, Bloomberg News reported yesterday. The proposal by Charles Schumer of New York, the No. 3 leader in the Senate’s Democratic majority, would reduce the amount of deductible interest for inverted companies to 25 percent of U.S. taxable income from 50 percent, according to a draft obtained by Bloomberg News. President Barack Obama has included a similar provision in his annual budgets, and this is the first time the language made it into a legislative proposal, Robert Willens, a New York-based independent consultant on corporate taxes, said yesterday. The proposal isn’t final and is subject to change, said a Schumer aide who asked not to be named while discussing pending legislation. Schumer hasn’t decided when he will introduce it, the aide said.

The credit card industry is accelerating efforts to keep sensitive customer information out of the hands of merchants, as a rash of data breaches at major U.S. retailers erodes confidence in electronic payment systems, the Wall Street Journal reported today. Visa Inc. and MasterCard Inc. are rolling out technology that replaces cardholder information such as account numbers and expiration dates with a unique series of numbers that validates the customer's identity. The new technology is expected to get a big boost next week because it will be part of Apple Inc. 's latest iPhone, which for the first time will let customers make payments with the device in brick-and-mortar stores. The move is part of a broader push by card-issuing banks and merchants to improve security for electronic payments. The vulnerability of merchant systems was highlighted again this week when Home Depot Inc. said that it might have been the victim of a data breach. (Subscription required.)
http://online.wsj.com/articles/credit-card-industry-ramps-up-security-e…

Financial cyber-security will be addressed at ABI's Winter Leadership Conference as Theresa Payton, President and CEO of Fortalice LLC, presents her keynote, "Privacy in the Age of Big Data." Payton is the former White House CIO, Cybersecurity Authority, and an expert on identity theft. Click here for more information and to register: http://www.abiworld.org/WLC14/

U.S. banks would need $644 billion in collateral to offset risks in swaps traded among themselves, according to an analysis of rules re-proposed by regulators, Bloomberg News reported yesterday. The Office of the Comptroller of the Currency released an estimate yesterday laying out costs for companies including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. to support trades that won’t be guaranteed by clearinghouses. Under revised rules for non-cleared swaps issued by the OCC, Federal Reserve and Federal Deposit Insurance Corp., banks would have to finance collateral and hold it in custody accounts that may be less profitable than other uses. As a result, OCC economists estimate the requirement will cost the banking industry between $2.9 billion and $6.4 billion annually once the rules are fully in place in 2019.

U.S. banking regulators said that they couldn't formally exempt companies and other commercial "end users" from a rule requiring certain derivatives trades be backed by cash or other collateral, but agency officials said that they don't expect the requirement to change how banks currently treat those customers, the Wall Street Journal reported today. The Federal Reserve, Federal Deposit Insurance Corp. and other bank regulators yesterday unveiled a new version of a rule they first proposed in April 2011. The agencies are expected to vote to solicit an additional round of public comment on the rule before making it final. The rule, required by the 2010 Dodd-Frank law, requires swaps deals that aren't routed through central clearinghouses to be backed up with cash or other collateral. Large U.S. corporations including manufacturers and energy producers balked at the initial version for requiring swaps dealers to require margin from them in certain cases. End users said that the rule would unfairly drive up the cost of hedging against price swings in commodities they depend on and against other business risks.