"Quarrel not at all. No man resolved to make the most of himself can spare time for personal contention." – Abraham Lincoln
These days we are looking ahead to the fiscal cliff that we may run into at the end of the year with trillion-dollar cuts in federal spending and concurrent increases in taxes. This is all part of a deal that was struck earlier between the White House and Congress, and it was intended to force compromises. Senior leaders on Capitol Hill are now hinting at possible compromises, and we urge them not to be distracted by personal contention. The Republic depends upon them.
Agencies Approve Bank Capital Standards; Governor Duke Addresses Community Bank Issue
The Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) joined the Federal Reserve Board (FRB) this week in implementing Basel III, the international agreement to raise capital standards for banks, by issuing proposed rules to implement the capital standards. The FRB issued proposed rules last week. All agencies are seeking public comment on the proposals by Sept. 7 and expect to issue a final rule by Jan. 1, 2013.
Basel III is intended to enhance financial stability in the U.S. and to make the global financial system more resilient by raising capital requirements for banks. Certain aspects of the rules single out the nation’s largest banks, but all institutions are expected to comply with the core standards.
By several media accounts, industry observers expected broader exemptions from the requirements of Basel III. But after learning the standards would apply to all banks, including community banks, many were surprised. The American Banker described industry reaction as "shocked," the Wall Street Journal said it was an "unwelcome surprise," and Forbes magazine contends that "in the current environment where smaller institutions are disadvantaged in the capital markets, this new burden may be too much to handle."
Federal Reserve Governor Elizabeth A. Duke said in a statement last week that based on recent experience from the financial crisis, the level and quality of a bank's capital, whether big or small, was a "primary factor in its ability to withstand adverse conditions and continue lending to households and businesses." She went on to state that stronger capital standards will not only "add resilience to individual institutions, but all banks, including community banks, also benefit from the strengthening of the entire financial system."
Governor Sarah Bloom Raskin, while acknowledging the value of risk based capital rules, emphasized the importance of risk management and supervision because "risk can develop and lurk in spaces that no one outside the bank, or sometimes even inside the bank, sees or can expect."
The proposals are published as three separate NPRs and are available here.
Basel Committee Reports ‘Significant’ Progress, Challenges in Implementing Standards
As part of its review process to ensure the globally agreed-upon Basel standards are fully implemented by its 27 member countries, the Basel Committee on Banking Supervision (Committee) published Monday its latest interim report highlighting preliminary findings in implementing the standards.
"To date, significant progress has been made, but there are a number of countries that have missed the globally-agreed implementation dates for Basel II and 2.5, and where their ability to meet the Basel III implementation deadline of Jan. 1, 2013 could prove a significant challenge," said Stefan Ingves, Chairman of the Committee and Governor of the Sveriges Riksbank.
Three-quarters of member countries have fully implemented Basel II, and 20 countries have fully implemented Basel 2.5, but a "significant minority" are either still in the process of implementation or have not started the process for implementation, the report stated. The U.S., Russia, Turkey, Indonesia and Argentina are behind in implementing both Basel II and 2.5, which were due to be adopted by the end of 2006 and 2011, respectively.
In reviewing the implementation of Basel III, the Committee looks at three primary factors: timeliness of adoption, regulatory consistency, and consistency regarding risk-weighted assets. When it comes to timeliness of adoption, the report states that only India, Japan and Saudi Arabia have published final regulations necessary for implementing Basel III, but seven countries, which have yet to issue draft regulations, including the U.S., remain optimistic about meeting the January 2013 implementation date. The Committee is concerned, however, about several other countries that may not meet the deadline due to "significant" challenges.
In terms of regulatory consistency, assessments are currently under way for the U.S., the European Union, and Japan. Preliminary findings show that there are inconsistencies among the three countries and there is a possibility that national implementation will be weaker than the globally-agreed standards in some key areas.
"The Basel Committee firmly believes that full, timely and consistent implementation of Basel III among its members is essential for restoring confidence in the regulatory framework for banks and to help ensure a safe and stable global banking system," the report stated.
The Committee will issue an updated progress report in November 2012. The full Committee report is available here.
JPMorgan CEO Testifies; Says Big, Small Banks Have Role in Society
JPMorgan Chase CEO Jamie Dimon testified Wednesday during a Senate Banking Committee hearing regarding the company’s recently reported trading loss. During the hearing he took the opportunity to apologize for the bank’s multi-billion dollar loss and stressed the important role that banks of all sizes play in society.
Responding to questions from Tennessee Senator Bob Corker (R) on what value big banks have to society, Dimon said the economic eco-system is "hugely complex" and that there is a place for large and small banks. Dimon said institutions like JPMorgan serve some of the largest multi-national companies in the world and could raise money for Fortune 100 companies in one to two days if the bank needed to do so. He said JPMorgan is also the "largest banker to banks" as it extends approximately $23 billion in credit to smaller institutions.
"There is a great role for community banks," Dimon said. "We can’t do all of the things that community banks can do in their community, so I look at it you need all these things."
Dimon went on to say that there are some positives to size, such as diversification. "Diversification was a source of strength for JPMorgan during the crisis," Dimon said. The negatives to size, according to Dimon, include "greed, arrogance, hubris, and lack of attention to detail."
Despite his company’s trading loss, Dimon said he believes the financial system is safer today than it was in 2007. However, he said his biggest disappointment was that lawmakers from both sides of the aisle never sat down with businesses to have a "real detailed conversation about went wrong and what actually needs to be fixed."
The full hearing video is available at here.
Spain to Receive $125 Billion from EU Finance Ministers to Recapitalize Banks
Eurozone finance ministers agreed last week to loan the Spanish government up to $125 billion to recapitalize its financial institutions. The approval came after Spain’s economy minister issued a request for European financing for its banking sector Saturday.
Final terms of the bailout have not been decided, but the European Commission released a statement asserting that the bailout will be conditioned on an overhaul of Spain’s banking sector. The Commission noted that while Spain has already implemented significant austerity measures to strengthen the capital base of its banks, Spain is expected to continue these measures and will be closely monitored.
Spain is the fourth country to need financial assistance since the eurozone sovereign debt crisis began more than two years ago. Greece, Ireland, and Portugal also sought financial assistance.
U.S. Treasury Secretary Tim Geithner released a statement following news of Spain’s request for assistance welcoming Spain’s "action to recapitalize its banking system and the commitment by its European partners to provide support."
Christine Lagarde, Managing Director of the International Monetary Fund (IMF), also released a statement supporting the Eurogroup's decision. "I strongly welcome the statement by the Eurogroup, which complements the measures taken by the Spanish authorities in recent weeks to strengthen the banking system," Lagarde said in the statement.
The Euogroup statement on Spain is available at here.
Around the States
ID: The Idaho Department of Finance co-sponsored a free Senior Scam Jam conference in Post Falls June 14. The Scam Jam was hosted by the Post Falls Senior Center and kicked-off with a morning keynote address by Post Falls Mayor Ken Larkin. The conference also included a presentation by U.S. Securities and Exchange Commission attorney David Berman, who provided information for safe investing and tips to avoid investment scams. The luncheon keynote speaker was Department of Finance Bureau Chief Marilyn Chastain. Read more.
Around the Agencies
SEC: The Securities and Exchange Commission (SEC) issued a policy statement describing the order in which it expects new rules regulating the derivatives market would take effect. The statement covers final rules to be adopted by the SEC under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The SEC is requesting public comment on its plan to phase in final rules regulating security-based swaps and security-based swap market participants. The policy statement does not estimate when the rules would be put in place, but describes the sequence in which they would take effect. The phased-in approach is intended to avoid the disruption that could occur if all the new rules took effect simultaneously. To date, the Commission has proposed nearly all the rules required under the Act and already has begun to adopt those rules. "The policy statement seeks to provide a ‘roadmap’ to market participants and the public on how we expect to implement the various regulatory requirements for this market," said Chairman Mary L. Schapiro. "We look forward to public comment on our anticipated sequencing as we continue to adopt and implement the rules under the law." Read more.
Fannie Mae: Fannie Mae’s May 2012 National Housing Survey found gradual positive trends in consumer attitudes observed since early fall 2011 appear to be reaching a plateau. Recent consumer attitudinal trends reflect overall macroeconomic indicators, which point to a continued lull in the pace of employment and income growth, Fannie Mae reported. "Our May consumer data show that Americans are taking a ‘wait and see’ approach about buying or selling a home," said Doug Duncan, Vice President and Chief Economist of Fannie Mae. "This is not surprising given their assessment that their income during the past twelve months and their personal financial expectation for the next twelve have leveled off. These data are in line with what we are seeing on the macroeconomic front, as upside and downside risks and activities are moderating one another. Current jobs data are reminiscent of the spring slowdown that continued into the summer months during the last two years. If this pattern continues, we do not expect to see any significant upturn in consumer sentiment during the summer and a meaningful housing recovery likely will be delayed once again." Read more.
June 18: The House Financial Services Committee will hold a meeting on examining bank supervision and risk management in light of the JPMorgan trading loss. The meeting will be held at the Rayburn House Office Building at 9:30 a.m. Read more.
June 18-19: Source Media will host the 3rd Annual Buying & Selling Distressed Mortgage Portfolios Forum at the Crowne Plaza Times Square in New York, NY. The forum is an opportunity to network with bank/mortgage lenders considering distressed asset sales and the investor/buyer considering distressed asset purchases. Read more.
June 21: The House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit will hold a hearing titled "Safe and Fair Supervision of Money Services Businesses" at the Rayburn House Office Building at 9:30 a.m. Read more.
"We're very pleased that these programs have helped so many people, but, at the same time, we're alarmed at the breadth of the problem. The fact that there are so many people out there that need help keeping up with their mortgage payments means we still have a lot of work ahead of us."
– Howard F. Pitkin, Connecticut Department of Banking Commissioner, speaking about a mortgage-assistance event for Connecticut homeowners on July 10.
Catherine Woody, Editor
Rockhelle Johnson, Writer
Edward Smith, Contributing Editor