A Senate panel on Friday is scheduled to hold a hearing examining whether regulators are beholden to the big banks that they oversee, the New York Times reported today. The Senate Banking Committee's Financial Institutions and Consumer Protection Subcommittee decided to hold the hearing after news media reports suggested that the Federal Reserve Bank of New York had been deferential toward Goldman Sachs. For more information on tomorrow’s hearing, please click here: http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hear…
Federal Reserve Governor Daniel Tarullo says that new liquidity rules will give regulators just a little time — time they didn’t have during the 2008 meltdown — to assess the financial health of a firm, the Wall Street Journal reported today. Tarullo said that the new rules are necessary because the buffer they provide gives regulators “at least a bit of time” to judge the underlying health of the firm. In a crisis, it can be hard to tell if a firm is insolvent — and needs to be placed in bankruptcy or taken through new government-led resolution proceedings — or if it deserves emergency loans through the Fed’s discount window, he said. Tarullo said that banks holding more liquidity also reduces the need for the Fed and other central banks to give firms emergency loans. Big banks’ use of the Fed’s emergency discount window during the 2008 crisis sparked considerable controversy, and Congress placed new restrictions on its use in the 2010 Dodd-Frank law.
The U.S. Court of Appeals for the D.C. Circuit spent several hours yesterday weighing whether corporations and state attorneys general had legal standing to challenge the existence of the federal Consumer Financial Protection Board, the merits of their challenges notwithstanding, the Legal Times reported today. Assuming the court found the challengers did have standing and the cases moved forward — and eventually came back before the D.C. Circuit — Judge Brett Kavanaugh was interested in their argument that having an agency headed by one person was a problem. Randall Miller of Venable, lead attorney for one of the challengers, sprang into action, speaking rapidly as the final seconds of his argument time ticked down. Unlike regulatory agencies where multiple people were appointed to make important decisions, such as the Federal Trade Commission or the Securities and Exchange Commission, he said, the consumer protection board concentrated power in the hands of just one person. History supported multimember decision-making for a regulatory agency as big and as powerful as the board, Miller said. He argued that such a setup acted as a restraint on an agency’s ability to bring enforcement actions. It isn’t clear if the D.C. Circuit will ultimately dig into the single- versus multiple-member issue or the many other constitutional challenges that Miller and the other challengers raised. The judges first have to decide whether federal district judges were wrong to dismiss two cases challenging the agency’s existence before reaching the merits.
A U.S. Senate report on commodity-market activities at big Wall Street banks accuses the firms of being so powerful they were able to influence prices, gain trading advantages and put the broader financial system at risk by entering volatile businesses such as uranium trading and coal production, the Wall Street Journal reported today. The two-year, bipartisan probe by the U.S. Senate Permanent Subcommittee on Investigations is the most extensive look at how banks like Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley built up voluminous inventories of aluminum, copper and other commodities. The report said that the banks often exceeded regulatory limits on the size of commodity holdings. The findings are likely to put additional pressure on the Federal Reserve as it considers whether to restrict or reduce Wall Street banks’ role in physical commodity markets. A two-day hearing on the report begins today, with Fed Gov. Daniel Tarullo expected to testify on Friday.
Lawyers for the U.S. and Wells Fargo & Co. told a judge they doubt they can reach a settlement in a government lawsuit accusing the bank of home-mortgage fraud, Bloomberg News reported today. The U.S. sued San Francisco-based Wells Fargo in 2012, claiming that it made reckless mortgage loans that defaulted and cost a federal insurance program hundreds of millions of dollars. The government said that the bank’s misconduct spanned more than a decade while it participated in the Federal Housing Administration’s program. The suit by Manhattan U.S. Attorney Preet Bharara is part of a larger effort to recoup losses from defaulted mortgages insured by the FHA. At a hearing yesterday, attorneys for both sides told U.S. District Judge Jesse Furman that they no longer thought a settlement was within reach. Both sides had halted the pre-trial exchange of evidence for four months to engage in settlement talks, according to a court filing.
Some of the biggest U.S. lenders will pay more into a fund that protects customer accounts against bank failures under new rules approved by the Federal Deposit Insurance Corp., Bloomberg News reported today. The FDIC’s board voted unanimously yesterday to revise how banks calculate assessments for the Deposit Insurance Fund. The change eliminates a practice that allowed as many as six banks to claim a “significant reduction in assessments” starting in the second quarter of this year, according to the FDIC. Banks will have to use a standard approach to measure counterparty risk instead of internal models that led to skewed calculations, according to the FDIC. The change goes into effect on Jan. 1.
While the Securities and Exchange Commission delays, states are rushing to adopt their own crowdfunding rules, and it may just be the thing that rescues crowdfunding from a regulatory death grip, according to a commentary in yesterday’s New York Times DealBook blog. In 2012, President Obama signed the Jumpstart Our Business Start-ups Act (JOBS Act), which was purported to open up the capital markets and create jobs by loosening regulations on initial public offerings and allowing for crowdfunding. Yet there was little evidence to support that watering down of any of these regulations would create jobs. Crowdfunding was the most controversial part of the bill. The SEC, led by Mary Schapiro at the time, submitted a letter in opposition as it feared that crowdfunding would instead serve as an easy vehicle to defraud people. More important perhaps was the idea that these investments would create zombie companies — companies that weren’t frauds but that investors simply couldn’t get profit from. Congress gave the SEC a deadline of December 2012 to enact the new rules. But the SEC has flouted that deadline, according to the commentary, and has yet to give a green light to crowdfunding. Its only action thus far was to issue proposed rules about a year ago.
Federal prosecutors are wrestling with whether to file a civil fraud lawsuit against Angelo R. Mozilo, the former chief executive of Countrywide Financial, which was at the center of the subprime mortgage boom and bust, the New York Times reported today. This summer, the U.S. attorney’s office in Los Angeles was said to be close to filing a lawsuit against Mozilo over his role in Countrywide’s sale of millions of mortgages to home buyers with questionable credit histories. Prosecutors there were planning to move forward with a civil fraud lawsuit nearly three years after it had abandoned a criminal investigation of Countrywide and Mozilo, the firm’s co-founder. But Stephanie Yonekura, the acting U.S. attorney for the Central District of California, which includes Los Angeles, has had lingering questions about the litigation because of arguments raised by lawyers for Mozilo and other potential defendants. One such argument is that a civil fraud lawsuit would duplicate the efforts of the Securities and Exchange Commission, which sued Mozilo and two other former Countrywide executives in 2009. On the eve of the trial in 2010, Mozilo and the other defendants reached a settlement with the agency that required the mortgage financier to pay $67.5 million in fines and restitution. In settling that securities fraud and insider trading case, Mozilo and the two other former Countrywide officials, David Sambol and Eric Sieracki, neither admitted nor denied liability.
Bahrain’s Arcapita Bank BSC has raised $100 million from shareholders to fund a return to dealmaking a year after it emerged from bankruptcy, Bloomberg News reported today. The new equity will be used to fund Shariah-compliant private equity and real estate investments in Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Oman and Kuwait, the bank said today. Arcapita will also look at U.S., Asian and European investments at a later stage, it said. Arcapita emerged from bankruptcy in September 2013 after securing a $350 million loan from Goldman Sachs Group Inc. The bank filed for bankruptcy in March 2012 after negotiations with creditors over a $1.1 billion syndicated loan failed. Under the terms of its debt restructuring, a new company called RA Holding Corp. was created to manage Arcapita’s $3 billion of assets. Arcapita earned $10.1 million in the fiscal year ended June, mostly from fees for managing RA on behalf of creditors.
Two of Goldman Sachs’ executives, along with executives from JPMorgan Chase and Morgan Stanley, will appear at a hearing on Thursday that will examine the role that Wall Street banks play in the commodities markets, the New York Times DealBook blog reported today. The hearings are the culmination of a two-year investigation by the Senate’s Permanent Subcommittee on Investigations. The first of three panels at Thursday’s hearing will include the president and chief executive of Metro International Trade Services, Christopher Wibbelman, along with Jacques Gabillion, the head of Goldman’s global commodities principal investment group. Simon Greenshields, global co-head of commodities at Morgan Stanley, and John Anderson, co-head of global commodities at JPMorgan Chase, are also scheduled to appear at the hearing. On Friday, regulators responsible for overseeing the commodities markets will testify.
