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Bankruptcy Judge Martin Glenn approved Residential Capital's plan to end its 19-month bankruptcy and begin paying back creditors, putting the mortgage lender on a path to exit chapter 11 by year's end, Reuters reported yesterday. The reorganization plan is founded on a $2.1 billion settlement contribution from ResCap's former parent, Ally Financial. The approval comes about a week after the company struck a deal to resolve objections to the plan from a key group of bondholders. The confirmation of the plan also means Ally, now part-owned by U.S. taxpayers, can turn its attention to repaying the U.S. government for a $17 billion bailout during the crisis. ResCap had serviced more than $374 billion in U.S. residential mortgage loans before declaring bankruptcy in May 2012 to address soaring mortgage liabilities. Glenn, who also presided over the bankruptcy of MF Global, called ResCap the "most complex" case he has overseen in seven years on the bench.

The Federal Deposit Insurance Corp. released its strategy for dismantling big failing financial institutions even as board members said the plan continues to face major obstacles, Bloomberg News reported yesterday. The FDIC’s guidance, opened for a 60-day public comment period yesterday, illuminates a key power bestowed on the agency by the 2010 Dodd-Frank Act: the authority to seize and restructure a large, failing financial company. The FDIC will seize a U.S. firm at the parent-company level, impose losses on shareholders and give creditors equity in a new holding company, according to the strategy.

To read the FDIC's proposed strategy, please click here: http://www.fdic.gov/news/board/2013/2013-12-10_notice_dis-b_fr.pdf

A broad new government rule to limit risk-taking by Wall Street will force banks to rethink virtually every aspect of their trading activities, setting the stage for more tumult at the largest U.S. financial institutions, the Wall Street Journal reported today. The Volcker rule, approved by five financial regulatory agencies yesterday, could lop as much as $10 billion total in yearly pretax profit from the eight largest U.S. banks through lower revenue and higher compliance costs, according to estimates from Standard & Poor's. The 953-page edict, part of the 2010 Dodd-Frank financial overhaul, codifies and restricts the way banks trade securities. It curbs banks' ability to bet with their own capital and forces them to draw bright lines separating trades for clients from trades to limit their risks and so-called proprietary bets. Few bankers spoke openly about the rule, which goes into effect on April 1, or its possible impact.

Wall Street’s biggest banks will face curbs on some trading and chief executive officers won’t be personally responsible for ensuring compliance in the final version of the Volcker rule, U.S. regulators’ landmark attempt to rein in the financial industry, Bloomberg News reported today. The Federal Reserve, the Federal Deposit Insurance Corp. and three other agencies are set to sign off on the proprietary trading ban, which has been contested by New York-based banks JPMorgan Chase & Co., Goldman Sachs Group Inc. and their industry allies for more than three years. Wall Street’s lobbying paid off in part. Regulators granted a broader exemption from the ban for banks’ market-making desks, on the condition that traders aren’t paid in a way that rewards proprietary trading, according to a draft of the final rule. The final version also exempts securities tied to foreign sovereign debt from the ban. At the same time, regulators gave banks less leeway for bets considered hedges for other risks.

Five U.S. agencies will finish the Volcker rule tomorrow after more than three years of Wall Street resistance to its limits on trading and investing, Bloomberg News reported today. Lawmakers and their allies who want to rein in big banks are ready to pounce if it isn’t strict enough, Bloomberg News reported today. Politicians and advocates — some Democrats, some Republicans — who blame the 2008 financial crisis on deregulation express concern that the Volcker rule won’t adequately block banks from making risky bets with their own money. If they deem the rule too weak, they say it will add fuel to a push to reinstate a Depression-era law known as Glass-Steagall that until 1999 split banks and securities firms. Such vows suggest that U.S. lenders planning to challenge the ban in court risk a political backlash. A 2011 draft of the rule, required by the Dodd-Frank Act at the urging of former Federal Reserve chairman Paul Volcker, disappointed some politicians and organizations who wanted a stronger ban.

Tabb Group LLC estimates that dealer revenue from negotiating interest-rate swap transactions is poised to plunge about 45 percent as new rules boost trading costs, pressures that may prompt banks to participate less in the $633 trillion over-the-counter derivatives market, Bloomberg News reported today. Banks collect about $3.25 billion a year from trading rate swaps with their customers, Tabb said. That revenue will shrink to $1.8 billion in 2014 as most transactions shift to public markets, according to a research report meant for Tabb customers that Bloomberg News obtained. Dealers will also need to hold more capital to back trades, boosting expenses, said Will Rhode, who wrote the report.

The Volcker rule will require bank executives to guarantee their firms are in compliance with the regulation, the Wall Street Journal reported today. The inclusion of so-called CEO attestation is intended to help increase accountability at firms by ensuring that top executives know what types of trades are occurring at their firms. The Volcker rule, a provision of the 2010 Dodd-Frank financial law that seeks to curb risks at banks by limiting their trading, has taken nearly five years to evolve from an idea mooted by former Federal Reserve Chairman Paul Volcker. U.S. Treasury Secretary Jack Lew referenced the need for such accountability in a speech yesterday, saying that the Volcker rule "puts in place strong compliance requirements that require those in charge of financial institutions to make sure that the 'tone at the top' sends the right signal to the whole firm."

Citigroup Inc. and Wells Fargo & Co. were accused of discriminatory mortgage lending by the city of Los Angeles, which seeks damages for reduced property tax revenue and the costs of maintaining foreclosed properties, Bloomberg News reported today. The city filed complaints against both banks yesterday in federal court in Los Angeles. The city alleges that Citigroup and Wells Fargo have been engaged in discriminatory lending to minority borrowers since at least 2004, which placed the borrowers in loans they couldn’t afford and caused a high number of foreclosures in minority neighborhoods. The fact that the two banks’ foreclosures are so “disproportionately concentrated in minority neighborhoods is not the product of random events,” according to the complaints. Homeowners in the second-largest U.S. city lost about $78.8 billion in home values as the result of 200,000 foreclosures from in 2008 through 2012, the city said, citing a report by Alliance of Californians for Community Empowerment and the California Reinvestment Coalition. The lost property tax revenue to the city has been $481 million, according to the complaints.

In a defeat for Wall Street, the "Volcker rule" won't allow banks to enter trades designed to protect against losses held in a broad portfolio of assets, the Wall Street Journal reported today. The practice, known as portfolio hedging, has become a focal point of regulators drafting the rule, a controversial plank of the 2010 Dodd-Frank financial law that seeks to prevent banks from putting their own capital at risk in pursuit of trading profits. The rule, named after former Federal Reserve Chairman Paul Volcker, is expected to be approved next week, ending a three-year period of regulatory uncertainty for some of the securities industry's most-profitable businesses. But it won't contain language permitting portfolio hedging, which has been "expunged" from earlier drafts of the rule. Regulators decided to remove portfolio hedging from the rule after JPMorgan Chase & Co. disclosed billions of dollars in losses from its so-called London whale trades in 2012. The bank initially described the trades as a portfolio hedge. Now, it is likely other Wall Street firms also will end up paying for J.P. Morgan's slip-up. Regulators, in response to the J.P. Morgan disclosure, pushed to write a rule that would ensure banks couldn't engage in such trades.

Purchases of new U.S. homes rebounded in October from the lowest level in more than a year, signaling buyers are starting to take higher mortgage rates in stride, Bloomberg News reported yesterday. Sales jumped 25.4 percent to a 444,000 annualized pace, following a 354,000 rate in the prior month that was the weakest since April 2012, figures from the Commerce Department showed today in Washington. Home sales are regaining strength as gains in employment and stock prices help consumers adjust to this year’s increase in borrowing costs and property values, which have hurt affordability. Builders such Hovnanian Enterprises Inc. are optimistic about the outlook for the market, which will need to expand to meet the needs of a growing population.