%1

Federal regulators have reached a tentative agreement to complete a rule aimed at Wall Street risk-taking, federal officials said yesterday, overcoming internal squabbling and an onslaught of Wall Street lobbying that stymied them for years, the New York Times reported today. Five federal agencies plan to approve a tougher-than-expected version of the Volcker Rule next week, eking out passage before the year is up and providing Wall Street with some much-sought clarity. While the vote for the complex rule will come more than a year after a Congressional deadline passed, it still will meet the recommendation of Treasury Secretary Jacob J. Lew, who urged the federal agencies to finish writing the rule in 2013. The Commodity Futures Trading Commission, one of the five agencies, announced on Tuesday that it would vote on Dec. 10. Three other agencies — the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency — also announced plans to approve the rule on Dec. 10. The final agency involved in the rule, the Securities and Exchange Commission, has said it will vote on or about that date.

Bankrupt mortgage lender Residential Capital LLC has struck a deal with a class of bondholders to resolve the group's objection to its plan to exit bankruptcy, Reuters reported yesterday. In court papers filed yesterday, ResCap outlined a new exit plan which includes a $125 million payment to the bondholder group to settle its demands for millions of dollars in interest payments. Implementation of the plan would allow ResCap to begin paying back creditors who include owners of residential mortgage-backed securities that collapsed in the 2008 mortgage crisis. It would also allow former parent Ally Financial, which is now part-owned by U.S. taxpayers, to focus on repaying the federal government for a $17 billion bailout during the crisis. Ally had contributed $2.1 billion to fund recoveries for ResCap creditors, a cornerstone of the plan.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. won approval from the Federal Reserve for capital plans they were required to resubmit after the regulator found "weaknesses' in the procedures they used during this year's so-called stress tests, Dow Jones Daily Bankruptcy Review reported today. While the Fed accepted the Goldman and J.P. Morgan capital plans in March, it required both firms to resubmit them to address certain weaknesses. At the time, a senior Fed official said there were concerns about the banks' ability to estimate their losses during periods of stress.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said that the Bankruptcy Code should be changed to accommodate the failure of a large financial firm, which he said was preferable to the federal government rescue of a cratering bank, the Wall Street Journal reported today. Lacker, in testimony at a House Judiciary Committee hearing yesterday, said that improving the Code would strengthen the financial system by reducing the chance of a government rescue and, in turn, imposing more discipline on financial firms and their creditors. Ensuring large financial firms have a credible bankruptcy path, and minimizing the chance of government support, could also help reduce reliance on potentially volatile short-term funding since creditors and firms would be less willing to take such risk, Lacker said. (Subscription required.)
http://online.wsj.com/news/articles/SB100014240527023043551045792360501…

To read the prepared hearing testimony, please click here.

The number of banking institutions in the U.S. has dwindled to its lowest level since at least the Great Depression, as a sluggish economy, low interest rates and heightened regulation take their toll on the sector, the Wall Street Journal reported today. The number of federally insured institutions nationwide shrank to 6,891 in the third quarter after this summer falling below 7,000 for the first time since federal regulators began keeping track in 1934, according to the Federal Deposit Insurance Corp. The decline in bank numbers, from a peak of more than 18,000, has come almost entirely in the form of exits by banks with less than $100 million in assets, with the bulk occurring between 1984 and 2011. More than 10,000 banks left the industry during that period as a result of mergers, consolidations or failures, FDIC data show.

A group of Australian towns, charities and churches that purchased risky U.S. mortgage-backed securities sold by Lehman Brothers Holdings Inc.'s Australian unit settled its class-action lawsuit against the failed investment bank, paving the way for the creditors to recover $300 million Australian dollars (U.S. $273 million) in the coming year, Dow Jones Newswires reported yesterday. PBB Advisory, the liquidators of Lehman Brothers Australia Ltd., said yesterday that creditors of dozens of Australian councils, churches and charities that invested in collateralized-debt obligations with Lehman Brothers Australia could expect to begin receiving checks early next year. The proposed A$300 million distribution would come on top of an earlier A$250 million paid out directly to Australian councils and charities from their Lehman-originated investments.

Bank of America Corp. said that it reached a settlement with Freddie Mac to resolve claims stemming from residential mortgage loans the bank sold to Freddie, the Wall Street Journal reported today. The bank plans to pay Freddie Mac about $404 million to resolve all outstanding and potential mortgage repurchase and other claims related to loans sold to Freddie from 2000 to 2009, and to compensate Freddie for some past losses and potential future losses. The payments are fully covered by existing reserves, the bank said. Freddie had $1.4 billion in Bank of America repurchase demands as of Sept. 30, according to federal filings, the largest for any bank. That represented around 42 percent of all of Freddie's outstanding repurchase demands.

The European Union's markets watchdog has warned that it may take "enforcement action" against the big three credit ratings firms after it found "deficiencies" in the way that they rank sovereign bonds, the Wall Street Journal reported today. The three U.S.-based rating firms have faced an onslaught of criticism and new regulation in Europe in recent years after lawmakers criticized the timing of their decisions to downgrade European sovereigns for aggravating the region's financial crisis. In a report published on today, the Paris-based European Securities and Markets Authority, or ESMA, warned of a series of "actual failings or potential risks" that might compromise the independence and accuracy of the agencies — Fitch Ratings, Moody's Investors Service and Standard & Poor's. It also pointed to failings in the way the agencies handled confidential information, including disclosure of upcoming rating actions to third parties, and highlighted "significant and frequent delays" in the publication of ratings.

Investment funds aimed at individual investors are barreling into collateralized loan obligations (CLOs), a complex and volatile type of security that was shaken by the financial crisis, the Wall Street Journal reported today. Lured by annual returns of as high as 20 percent, some mutual-fund managers are buying CLOs through investment funds that purchase stakes in loans to companies with low credit ratings. Another type of loan investment fund, business-development companies, also have begun buying CLOs, according to securities filings. The biggest buyers of these securities usually are hedge funds, insurers and banks. But mutual funds and business-development companies, which pitch themselves to individual, or retail, investors, have collected more than $60 billion in money from clients this year, according to Keefe, Bruyette & Woods, Inc. and fund-data provider Lipper.

Court filings show that FX Concepts, once the largest currency hedge fund in the world, has less than $2 million in assets now and $79 million in liabilities, Reuters reported yesterday. The fund filed for bankruptcy protection more than a month ago as its assets dwindled due to market losses and redemptions from major clients. At its peak in 2007, the $14 billion that FX Concepts had in assets under management made it the largest currency hedge fund in the world.