Fed’s Kashkari Unveils His Plan to End Too-Big-to-Fail Banks

Federal Reserve Bank of Minneapolis President Neel Kashkari proposed a series of new rules for banks and non-bank lenders that he said would eliminate the threat posed by financial institutions whose failure could wreak havoc in the global markets.

The plan centers on significantly increasing the capital cushion banks must hold to protect against losses in a crisis. It also calls on the U.S. Treasury to determine which banks are “too big to fail” and face higher capital requirements. Finally, the plan would impose a tax on debt for large non-bank lenders and reduce the regulatory burden on community banks.

Read on.

Maxine Waters: I’m going to move forward to break up Wells Fargo

Throughout Wells Fargo CEO John Stumpf’s rough day in front of the House Financial Services Committee, multiple representatives called for the bank to be broken up, suggesting that the megabank is simply too big to manage effectively.

But as the five-hour hearing neared its conclusion, the ranking member of the committee, Rep. Maxine Waters, D-Calif., went beyond her fellow representatives’ calls to break up Wells Fargo, stating that she is going to actually move to break up the bank.

“I’ve come to the conclusion that Wells Fargo should be broken up,” Waters said. “It’s too big to manage and I’m moving forward to break up the bank.”

According to a represenative from Waters’ office, Waters told reporters after the hearing that she plans to pursue legislation to break up the bank.

Read on.

Why the Government is Getting Fed Up with Wall Street All Over Again

The next president could face another financial crisis unless the big banks get their act together. So far, they haven’t.

Democrats and Republicans agreed on almost nothing at their conventions except this: Both party platforms signaled support for resurrecting a version of the Depression-era Glass-Steagall law, a move designed to show they are willing to break up the big banks. In fact, such a law is unlikely to be enacted by either a President Hillary Clinton or a President Donald Trump. But major Wall Street firms still have reason to be concerned that the feds are getting fed up with them. And in the end the banks could get broken up anyway, even if the next president does nothing about it and there is no new Glass-Steagall act.

The new mistrust of the Street by regulators in Washington comes down to one main issue: The Federal Reserve and Federal Deposit Insurance Corp. are growing impatient with the banks’ failure to explain why they should remain so big. Eight long years after the financial collapse that almost took down the global economy, JPMorgan Chase, Bank of America, Wells Fargo, Bank of New York Mellon and State Street have failed to provide satisfactory “living wills,” or credible plans for how they would keep serving clients and markets if they ever needed to be reorganized in bankruptcy. Regulators handed down failing grades to the banks in April.

 

That’s the second time in two years that major banks have fallen short of regulators’ expectations in one of these tests. The banks must decide how much they are willing to sacrifice by an Oct. 1 deadline, when FDIC Chairman Martin Gruenberg says he wants to see “concrete changes.”

If they fail again, the government would have the authority to ratchet up regulation of the firms—which could make investors impatient, forcing the banks to divest more assets and make themselves smaller. And if that doesn’t work, the banks could simply be broken up. Regulators, in other words, don’t necessarily need another Glass-Steagall; they have the authority to do it now.

The bottom line is that regulators are not optimistic about how the U.S. economy would fare, even now, if one of these giant firms went through bankruptcy. And that is an option that the government and the banks will be expected to entertain under laws enacted after the unpopular 2008 bailouts. To satisfy the government, the banks must simplify their still mind-bogglingly complex businesses and do a better job of showing that they can tap liquid assets that can be turned into cash during a crisis.

“It requires the will to do so,” the FDIC’s Gruenberg told Politico. “These are not necessarily easy things to do. They require hard decisions by the firms.”

Read more: http://www.politico.com/magazine/story/2016/08/2016-elections-dnc-rnc-glass-steagall-wall-street-214131#ixzz4GIhZmCnj

No, a New Glass-Steagall Is Not Good News For Citigroup, JPMorgan, Bank of America

For a while now KBW’s Frederick Cannon and Allyson Boyd have been urging big banks likeCitigroup (C), Bank of America (BAC) and JPMorgan Chase (JPM) to break up. A new Glass-Steagall, something backed by both Democrats and Republicans, would not be the ideal way to accomplish that, however. They explain why:

We along with others in the marketplace have shown that there is potential shareholder value creation from the breakup of some of the largest financial institutions, including Citigroup. Investors should not view the reinstatement of Glass-Steagall as a potential way to unleash value in large banks, however. A Congressional approach to breaking up the banks would not be based on economic value creation, but be based on the politics of applying penalties to the largest banks. Therefore it is difficult to develop a positive view on potential regulations for the shares of the largest banks, specifically JPMorgan Chase, Bank of America and Citigroup…

Read on.

The Elephant in the Room – Why no TBTF Prosecutions?

Now this is a topic of discussion for who ever becomes the next President…

The elephant in the room is still why there have been no criminal prosecutions of the banks, executives and Wall Street traders who were primarily responsible for the 2008 financial crisis. There has been no obvious answer, although our Department of Justice continues to dance around the question.

In his most recent article, my friend William D. Cohan, author of the newly released bookThe Price of Silence, and several  outstanding books on the financial crisis, gives us a clue and poses some thought provoking questions.  A former investigative reporter for the Raleigh Times, he worked on Wall Street for seventeen years as a senior mergers and acquisitions banker.

In this recent post, he states “One of the enduring mysteries of the 2008 financial crisis has been why the Justice Department made so few attempts to prosecute the individuals responsible for it, given the abundance of tangible evidence of wrongdoing by Wall Street bankers, traders and executives in the years leading up to the great unwinding.”

A mystery indeed.

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Regards,

Richard

Richard M. Bowen III
richard@richardmbowen.com
www.richardmbowen.com/
214- 604-5492

Glass-Steagall: Wall Street is not happy with Donald Trump

I bet they are pissed.. lol!

CNBC:

After the surprise announcement, which came on the first day of the Republican National Convention, Wall Street sources sounded off on the idea that a Republican would reverse course on policies nearly 20 years old and now taken for granted by big banks.

One lawyer, who works with financial institutions on behalf of a white-shoe firm in New York, called the idea “scary.” Even Wilbur Ross, one of the Trump campaign’s biggest supporters from the finance industry, called it “surprising.” Others on Wall Street who spoke to CNBC used stronger language that can’t be printed.

The Republican Platform’s Surprise Revival of Glass-Steagall Legislation

David Dayen

THE LAST-MINUTE DECISION to include in the Republican platform a call to restore the firewall between commercial and investment banking comes as a surprise, because Donald Trump himself has never publicly addressed or endorsed such a reform in his year-long presidential run.

Trump did once say at a debate in New Hampshire, “nobody knows banking better than I do,” but a review of the transcripts of all 12 Republican debates shows that he never endorsed restoring Glass-Steagall, legislation first passed in 1933. Websites devoted to detailing Trump’s positions find no record of him having any opinion on the Depression-era law. The issues pages of Trump’s presidential website steer clear of anything related to banks or finance.

In fact, Trump campaign manager Paul Manafort, who first leaked word that the platform would endorse the reintroduction of Glass-Steagall, ran a campaign consulting firm in the 1980s that helped elect to Congress Phil Gramm, co-author of Glass-Steagall’s repeal. (Gramm supported Ted Cruz in the GOP primaries.)

The measure is haphazardly attached to the end of a paragraph decrying regulatory overreach by the Environmental Protection Agency, National Labor Relations Board, Federal Communications Commission, and more. Tacking on a call to restore a law that prevents private corporations from particular lines of business suggests that there wasn’t much thought put into it before Monday.

To the extent that Trump has expressed anything about financial reform, it’s been a desire to roll it back. He told The Hill last October that the Dodd-Frank law is “terrible” and “the regulators are running the banks.” Dodd-Frank’s repeal is also in the Republican platform.

Read on.

GOP platform pushes for big-bank breakup, return of Glass-Steagall

lol! I wonder what Sen. Warren and Sen. Sanders have to say on this since GOP Congress and Senators have been trying many times to dismantle the Dodd-Frank bill and the bank lobbyists have been lobbying against the Glass-Steagall. And now their platform pushed to break up the banks??? Don’t buy the beans, folks! The GOP party are going after votes, not the banks!

The Republican Party is going after the big banks.

As the GOP convention gets under way in Cleveland, a top adviser to presumptive nominee Donald Trump said the party wants to revive the Glass-Steagall Act, Depression-era legislation that helped prevent big bank “supermarkets” but which was repealed in 1999.

Critics of the banking industry believe the repeal created too-big-to-fail institutions that required a massive government bailout when the financial crisis exploded in 2008. The repeal often is cited as a cause of the crisis, even though two of the investment banks at the core of the crisis, Lehman Brothers and Bear Stearns, were unaffected by the act’s prohibition of combining investment and commercial banks.

“We believe the Obama-Clinton years have passed legislation that has been favorable to the big banks, which is why you see all the Wall Street money going to her,” Trump campaign manger Paul Manafort told reporters, according to an account in The Hill. “We are supporting the small banks and Main Street.”

Read on.

Fed’s Focus on “Too-Big-to-Fail” Won’t Save Taxpayers From the Next Bank Bailout

By Oz Shy, The Conversation | Op-Ed

Last month, the Federal Reserve announced that 31 out of 33 U.S. banks had passed its latest “stress test,” designed to ensure that the largest financial institutions have enough capital to withstand a severe economic shock.

Passing the test amounts to being given a clean bill of health by the Fed. So are taxpayers — who were on the hook for the initial US$700 billion TARP bill to bail out the banks in 2008 — now safe?

Yes, but only until the next crisis.

Skeptics of these tests (myself included) argue that passing them will not prevent any bank (large or small) from failing, in part because they’re not stressful enough and the proposed capital requirements are not high enough.

But beyond this, the stress tests highlight a significant shortcoming in how regulators hope to prevent the next wave of bank failures: They’re focusing way too much on size, particularly with the designation of so-called systemically important, “too-big-to-fail” banks.

U.S. lawmakers in search of a solution are currently working on legislation that would make it easier for too-big-to-fail banks to actually fail through bankruptcy. While doing so would be a good thing, it still raises important questions.

Are policymakers right to focus on size in determining whether a bank poses a major risk to the financial system and taxpayers? Would splitting larger banks into smaller ones free taxpayers from the repeated burden of rescuing them during times of crisis? Does calling a bank “too big to fail” even mean anything?

To me, this focus on size and “too big to fail” seems misplaced. I’m among those who advocate replacing our current system with something known as “narrow banking,” which would totally separate deposits from riskier lending activities. This would have the best chance of protecting taxpayers from having to foot the bill for future bailouts, as I’ll explain below.

Read on.

 

GE Says Too-Big-to-Fail Exit Puts Stamp of Approval on Overhaul

• Lew: Finance unit made ‘fundamental strategic changes’
• Firm could seek acquisitions of up to $7 billion, analyst says

General Electric Co. isn’t too big to fail anymore. All it took was the most sweeping transformation in the company’s 124-year history.

The Financial Stability Oversight Council released GE from the designation as asystemically important institution, saying Wednesday that the industrial giant no longer poses a threat to U.S. financial stability. The decision came after the company agreed to sell almost $200 billion of lending assets since early last year.

“Getting de-designated in this time frame is a great milestone for us,” Keith Sherin, chief executive officer of GE Capital, said in a telephone interview. Regulators “recognized that we’ve transformed the company. It validates the change in strategy.”

Read on.