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Sunday, April 10, 2016 12:17:54 AM
U.S. banks moved billions of dollars in trades beyond Washington’s reach
Is Gary Gensler one of those you suggest didn't do all he could do? .. as quickly or as well as was possible?
By Charles Levinson
Filed Aug. 21, 2015, 2 p.m. GMT .. bits ..
The trades hadn’t really disappeared. Instead, the major banks had tweaked a few key words in swaps contracts and shifted some other trades to affiliates in London, where regulations are far more lenient. Those affiliates remain largely outside the jurisdiction of U.S. regulators, thanks to a loophole in swaps rules that banks successfully won from the Commodity Futures Trading Commission in 2013.
[...]
...he had an insider’s knowledge. At Goldman, he had seen how U.S. banks took advantage of differences in regulations in different countries. London, for example, increased its appeal as a global finance hub, in part, by touting its “light touch” regulation to woo banks.
That practice – known as regulatory arbitrage – had a history of landing the economy in trouble. AIG, a Connecticut-based insurance giant, buckled in 2008 under trades made by its office in London. U.S. taxpayers footed the bill with a $182 billion bailout. Gensler often told people how, at the Treasury, he was stuck with the task of briefing then-Treasury Secretary Robert Rubin about Long-Term Capital Management in 1998. The Connecticut hedge fund collapsed under $1.2 trillion in swaps booked to a post office box in the Cayman Islands.
In 2009, soon after Gensler took the job, Congress was hashing out the Dodd-Frank bill. A powerful Republican congressman, Rep. Spencer Bachus of Alabama, put forth an amendment that would keep banks’ overseas operations outside the new rules. Alarmed, the Democratic co-sponsor of the bill, Rep. Barney Frank, asked Gensler to craft a counter-proposal.
Gensler and his staff tucked a 17-word insert into a 228-page amendment to the Dodd-Frank bill. The addition seemed to assure banks that the new derivatives rules wouldn’t apply to their overseas trading operations. Bachus backed off. But the insert was craftily worded to leave wiggle room. If those activities “have a direct and significant connection with activities in, or effect on, commerce of the United States,” then the rules would apply, Gensler’s addition read.
One year later, at a late 2010 meeting of the CFTC’s board, one of Gensler’s legal aides declared that the passage in fact gave the regulator worldwide reach over U.S. banks’ trading operations.
A coalition of 13 global banks banded together to fight the clause.
http://www.reuters.com/investigates/special-report/usa-swaps/
.. or move the regulation on as fast as you hoped it could be? .. it's a rocky road .. ok, now one to your mention of the Volker Rule.
The Volcker Rule takes effect today after years of delays
by Daniel Roberts
July 22, 2015, 8:22 AM EDT
The Volcker Rule restricts banks from making risky bets with their own money.
A rule that was supposed to be implemented back in 2010 becomes a reality Wednesday five years after its inception.
The so-called Volcker Rule, which is Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is meant to restrict big U.S. banks from making risky speculative bets with funds from their own accounts through proprietary trading. The intent was to keep banks from the kind of hedging that puts customers in danger, helping to prevent another crisis like the one that brought the American economy to its knees in 2008.
The rule was initially scheduled for implementation in July 2010, but was repeatedly delayed. It is colloquially named for the economist who came up with it: former Federal Reserve Chair Paul Volcker, who led the economic recovery advisory board President Barack Obama assembled in 2009.
There have been successful lawsuits seeking to change the initial proposal over the past few years — as well as the requisite slew of media reports about bankers anxiously anticipating the rule’s implementation. But now, as the New York Times reports, the rule “was greeted with a shrug.” Many of the banks to be governed under the rule, including Bank of America, Citigroup, and Goldman Sachs, have killed off a number of practices that may fall under its restrictions, including their proprietary trading (“prop desk,” in Wall Street speak) operations. Goldman’s prop desk went to the P.E. firm KKR in 2010.
The Financial Times reported this week that the rule’s arrival has led many banks to quickly sell off certain securities, such as CLOs (Collateralized Loan Obligations), which cull together high-risk corporate loans and would constitute a violation of the rule if they were obtained after January 2014.
As the Times points out, there is still widespread uncertainty about exactly how the Volcker Rule will be enforced. Banks may sound blasé and unconcerned for the moment, but come later this summer, regulators will begin the first audits for compliance.
http://fortune.com/2015/07/22/volcker-rule/
Are you suggesting a president Bernie Sanders administration would have done a better job on all this?
Is Gary Gensler one of those you suggest didn't do all he could do? .. as quickly or as well as was possible?
By Charles Levinson
Filed Aug. 21, 2015, 2 p.m. GMT .. bits ..
The trades hadn’t really disappeared. Instead, the major banks had tweaked a few key words in swaps contracts and shifted some other trades to affiliates in London, where regulations are far more lenient. Those affiliates remain largely outside the jurisdiction of U.S. regulators, thanks to a loophole in swaps rules that banks successfully won from the Commodity Futures Trading Commission in 2013.
[...]
...he had an insider’s knowledge. At Goldman, he had seen how U.S. banks took advantage of differences in regulations in different countries. London, for example, increased its appeal as a global finance hub, in part, by touting its “light touch” regulation to woo banks.
That practice – known as regulatory arbitrage – had a history of landing the economy in trouble. AIG, a Connecticut-based insurance giant, buckled in 2008 under trades made by its office in London. U.S. taxpayers footed the bill with a $182 billion bailout. Gensler often told people how, at the Treasury, he was stuck with the task of briefing then-Treasury Secretary Robert Rubin about Long-Term Capital Management in 1998. The Connecticut hedge fund collapsed under $1.2 trillion in swaps booked to a post office box in the Cayman Islands.
In 2009, soon after Gensler took the job, Congress was hashing out the Dodd-Frank bill. A powerful Republican congressman, Rep. Spencer Bachus of Alabama, put forth an amendment that would keep banks’ overseas operations outside the new rules. Alarmed, the Democratic co-sponsor of the bill, Rep. Barney Frank, asked Gensler to craft a counter-proposal.
Gensler and his staff tucked a 17-word insert into a 228-page amendment to the Dodd-Frank bill. The addition seemed to assure banks that the new derivatives rules wouldn’t apply to their overseas trading operations. Bachus backed off. But the insert was craftily worded to leave wiggle room. If those activities “have a direct and significant connection with activities in, or effect on, commerce of the United States,” then the rules would apply, Gensler’s addition read.
One year later, at a late 2010 meeting of the CFTC’s board, one of Gensler’s legal aides declared that the passage in fact gave the regulator worldwide reach over U.S. banks’ trading operations.
A coalition of 13 global banks banded together to fight the clause.
http://www.reuters.com/investigates/special-report/usa-swaps/
.. or move the regulation on as fast as you hoped it could be? .. it's a rocky road .. ok, now one to your mention of the Volker Rule.
The Volcker Rule takes effect today after years of delays
by Daniel Roberts
July 22, 2015, 8:22 AM EDT
The Volcker Rule restricts banks from making risky bets with their own money.
A rule that was supposed to be implemented back in 2010 becomes a reality Wednesday five years after its inception.
The so-called Volcker Rule, which is Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is meant to restrict big U.S. banks from making risky speculative bets with funds from their own accounts through proprietary trading. The intent was to keep banks from the kind of hedging that puts customers in danger, helping to prevent another crisis like the one that brought the American economy to its knees in 2008.
The rule was initially scheduled for implementation in July 2010, but was repeatedly delayed. It is colloquially named for the economist who came up with it: former Federal Reserve Chair Paul Volcker, who led the economic recovery advisory board President Barack Obama assembled in 2009.
There have been successful lawsuits seeking to change the initial proposal over the past few years — as well as the requisite slew of media reports about bankers anxiously anticipating the rule’s implementation. But now, as the New York Times reports, the rule “was greeted with a shrug.” Many of the banks to be governed under the rule, including Bank of America, Citigroup, and Goldman Sachs, have killed off a number of practices that may fall under its restrictions, including their proprietary trading (“prop desk,” in Wall Street speak) operations. Goldman’s prop desk went to the P.E. firm KKR in 2010.
The Financial Times reported this week that the rule’s arrival has led many banks to quickly sell off certain securities, such as CLOs (Collateralized Loan Obligations), which cull together high-risk corporate loans and would constitute a violation of the rule if they were obtained after January 2014.
As the Times points out, there is still widespread uncertainty about exactly how the Volcker Rule will be enforced. Banks may sound blasé and unconcerned for the moment, but come later this summer, regulators will begin the first audits for compliance.
http://fortune.com/2015/07/22/volcker-rule/
Are you suggesting a president Bernie Sanders administration would have done a better job on all this?
It was Plato who said, “He, O men, is the wisest, who like Socrates, knows that his wisdom is in truth worth nothing”
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