Tag Archives: TBTF

Republican Policy Proposals: Wall Street Regulation Plan Released By Texas Rep Would Change How Washington Works

On a  side note: Volcker rule never went into effect yet due to the bank lobbyists pushing Congress to stall at rule to take into effect.

Hoping to find a way to show American voters the Republican Party doesn’t just represent stalled legislation and gridlock, members of the GOP in Washington have recently rolling out extensive policy proposals to reform the way taxes and — most recently — banks on Wall Street are handled.

Republican Rep. Jeb Hensarling of Texas, the chairman of the House Financial Services Committee, plans on unveiling a series of reforms to the country’s financial regulatory palate in the coming week, including what would effectively be a gutting of the Dodd-Frank Wall Street reform measure instituted in the wake of the 2008 financial crisis. Hensarling doesn’t want to change all of the bill — which has been cheered by members on the opposite side of the aisle, including Hillary Clinton — just “89.7 percent,” he says .

Among the reforms House Republicans like Hensarling are pushing are reduced independence for the Consumer Finance Protection Bureau (funding would come from Congress rather than directly from the Federal Reserve) and taking away the bureau’s ability to prohibit arbitration clauses in financial contracts. Hensarling would also like parts of the Fed — particularly the area that regulates financial institutions — to be under congressional budgetary oversight, the Economist reported.

Hensarling would like to repeal the so-called Volcker rule that bars banks and investment firms from trading on their own account. He would also like to replace government regulations on traders with hefty capital requirements (say, 10 percent of funding coming from equity from the firms themselves). Big banks would no longer be able to be bailed out by the government under his plans, either.

Read on.

Hillary Clinton, Elizabeth Warren both blast Republican Dodd-Frank repeal plan

Wet kiss for Wall Street.. lol! Go Elizabeth!

Warren: Republican plan is a “wet kiss for Wall Street”

Considering how many times House Financial Services Committee Chairman Rep. Jeb Hensarling, R-TX, blamed “the Left” for the consequences of the Dodd-Frank Wall Street Reform and Consumer Protection Act during his speech announcing aRepublican-crafted plan to repeal Dodd-Frank, it was highly likely that those on “the Left” would be quick to condemn Hensarling’s plan.

And two of the top names in the Democratic party didn’t disappoint, with a top advisor to Hillary Clinton’s campaign saying Tuesday that Hensarling’s plan is “ill-conceived” and Sen. Elizabeth Warren, D-MA, saying in a Senate hearing that Hensarling’s plan is a “wet kiss for Wall Street.”

Read on.

 

Rules for ‘too big to fail’ insurance firms coming soon: Fed official

The Federal Reserve will soon take up rules for insurance companies deemed “too big to fail” intended to head off risks to U.S. financial stability, Fed Governor Daniel Tarullo said on Friday.

It will also in coming weeks propose requirements on how much capital that firms across the industry should hold, he said in a speech to the National Association of Insurance Commissioners.

The industry has waited for more than five years to see the proposals, which are tied to the Dodd-Frank Wall Street reform law passed in 2010 after the financial crisis.

Under the law, federal regulators can determine that non-bank companies such as American International Group Inc (>> American International Group Inc) could put the entire financial system in danger if they fail, and require they take certain measures to stave off threats.

Read on.

Forbes: Five Biggest U.S. Banks Control Nearly Half Industry’s $15 Trillion In Assets

This is an article in 2014.

DEC 3, 2014 @ 10:37 AM

Bank concentration

Forbes:

The wreckage of the financial crisis led to pages upon pages of financial reform aimed at ending the era of Too Big To Fail, but six years after the banking system blew up the five biggest firms control 44% of the $15.3 trillion in assets held by U.S. banks according to data compiled by SNL Financial. Those banks — JPMorgan Chase JPM -0.63%, Bank of America BAC -1.56%, Wells Fargo WFC -0.85%,Citigroup C -0.96% and US Bancorp USB -1.02% — collectively held $6.8 trillion in assets as of Sept. 30.

JPMorgan holds just over $2 trillion in assets, or 13.1% of the industry’s total, followed by BofA at $1.5 trillion (9.9%), Wells Fargo just under $1.5 trillion (9.7%) and Citi at $1.4 trillion (9%), before a substantial dropoff to US Bank at $387 billion (2.5%).

SNL’s analysis, which considered only commercial banks, notes the drastic increase in banking industry concentration over the past few decades. In 1990, the five biggest U.S. banks held less than 10% of industry assets, but that figure has steadily marched higher ever since, pausing only for the year from 1999 to 2000. Today, Wells Fargo, the third biggest bank, controls basically the same percentage of assets the entire top five did in 1990.

That increased concentration is largely thanks to banking industry consolidation that accelerated in the 1990s then hit overdrive after Sandy Weill’s controversial deal to create the modern Citigroup prompted the repeal of Glass-Steagall, the legislation that forced a separation of church and state between commercial and investment banks.

On a side note: According to the OECD, general government gross debt (federal, state, and local) in the United States in the third quarter of 2012 was$16.3 trillion, 108% of GDP. We are at $16.3 trillion in debt while the 5 big banks combined assets could wipe out most or all of the government gross debt. Real sad and yet too dangerous that Congress and government have given so much financial power to the 5 big banks…

Sanders
“Today, you have six financial institutions, the largest six, that have assets that are the equivalent of 60 percent of the GDP of the United States of America.”

Bernie Sanders on Tuesday, October 4th, 2011 in an interview with MSNBC

True

Source: Politifact

 

Is Bernie Sanders Right About The Big Banks?

Summary

The liberal Democratic presidential candidate has advocated breaking up the big banks.

He correctly points out that three of the four biggest U.S. banks entering the 2008 financial crisis are bigger today.

Capitalism’s creative destructive process would have cleansed the banking system, accomplishing Bernie’s goal.

“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.” – Jesse Livermore

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria – Sir John Templeton

Life and investing are long ballgames. – Julian Robertson

Introduction

While driving in my home state of Indiana, I heard a radio advertisement by Bernie Sander’s presidential campaign that caught my attention. To paraphrase the personally approved campaign message by Bernie, he describes how three of the four largest U.S. banks that emerged from the 2008 financial crisis have gotten bigger, hinting that the “Too Big To Fail” problem that plagued the banks back then, is an even bigger problem today.

As an ardent believer in capitalism and as someone who has benefited more than many thought possible and been punished worse than many thought possible by decisions in the financial markets, I strangely find myself in agreement with Mr. Sanders.

With that premise, I wanted to take a look at the state of the largest banks today compared to their standing in 2008 and 2007.

Thesis

The largest U.S. banks are indeed larger today and pose a greater risk to the financial system.

The Biggest Banks In 2007

The following is a list of the world’s biggest banks by assets in 2007. The table is from an October 1, 2007, article by author Dan Keeler, published in the Global Finance magazine.

Europe dominated the world’s largest banks by assets in 2007, with Barclays (NYSE:BCS), UBS (NYSE:UBS), BNP Paribas (OTCQX:BNPQY) (OTCQX:BNPQF), and Credit Agricole (OTCPK:CRARY), (OTCPK:CRARF), taking the top four spots, followed by the first U.S. bank in 2007, Citigroup (NYSE:C), at number five. For comparison and reference, Barclays had approximately $2 trillion in assets and Citigroup had $1.9 trillion.

Read on.

Obama Says ‘The Big Short’ Was Wrong: Wall Street Has Changed

Yeah, right, Obama. And no bank execs gone to jail thanks to Eric Holder’s DOJ.

Reflecting on his economic legacy, President Barack Obama disputes the conclusion in “The Big Short” movie that nothing changed on Wall Street after the 2008 economic meltdown, and maintains that his policies have helped stabilize the financial sector.

In a wide-ranging interview with the New York Times published on Thursday, Obama bemoaned his fractious relationship with Wall Street, said finance is absorbing more science and engineering talent than it should, and speculated he might have gone into business if not politics. But he has little patience for criticism from business leaders.

“One of the constants that I’ve had to deal with over the last few years is folks on Wall Street complaining, even as the stock market went from in the 6,000s to 16,000 or 17,000,” he said, referring to the rise in the Dow Jones Industrial Average during his administration. “They’d be constantly complaining about our economic policies. That’s not rooted in anything they’re experiencing; it has to do with ideology and their aggravations about higher taxes.”

In the Dodd-Frank legislation to overhaul the financial system, Obama sees a major shift in how Wall Street is regulated. He takes issue with Hollywood’s version, reflected in the 2015 film “The Big Short,” which suggested that little has changed on Wall Street. The movie was based on the 2010 best-seller of the same name by Michael Lewis.

Obama on Sanders

“There is no doubt that the financial system is substantially more stable,” Obama said, adding, “It is true that we have not dismantled the financial system, and in that sense, Bernie Sanders’s critique is correct.”

Obama’s statement put further distance between himself and the Vermont senator whose bid to succeed him in the Oval Office has attracted large rallies and featured repeated calls to break up America’s biggest banks. Obama said such a drastic change in the financial system could have unintended consequences.

“One of the things that I’ve consistently tried to remind myself during the course of my presidency is that the economy is not an abstraction,” Obama said. “It’s not something that you can just redesign and break up and put back together again without consequences.”

Read on.

Citigroup shareholders endorse exec pay; nix breakup study

Business as usual for the banksters…

Citigroup Inc shareholders on Tuesday approved of the company’s compensation of executives and also sided with directors in rejecting a call for a special study of breaking up the big bank.

In the so-called “say-on-pay” referendum, 63.6 percent of votes were cast to approve 2015 compensation awards, according to a preliminary count announced by the company at its annual general meeting in Miami.

Proxy advisory firms Institutional Shareholder Services Inc and Glass, Lewis & Co had recommended investors vote against approving last year’s payouts to executives.

The firms had said it was wrong for CEO Mike Corbat to have received a 27 percent increase in annual compensation, which boosted his total for 2015 to $16.5 million, even though the bank’s shareholder returns have lagged competitors.

Read on.

Three Reasons Why “Too-Big-to-Fail” Banks Need to Be Broken Up

Truthout:

There are three big reasons that indicate that breaking down some of the largest banks would be a step in the right direction.

Too Big, Too Risky

In 1999, President Bill Clinton passed the Gramm-Leach-Bliley Act, which allowed the integration of basic banking activities with investment banking. At that time, the Glass-Steagall Act (established in 1933 in response to the Great Depression) had already been repealed as a result of lobbying efforts by some of the biggest banks. These lobbying efforts had significantly increased from the 1970s, and the bill to repeal the Glass-Steagall Act was passed in the 1980s.

On March 27, 2008, in his speech at the Cooper Union, then-presidential candidate Barack Obama said, “A regulatory structure set up for banks in the 1930s needed to change. But by the time the Glass-Steagall Act was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework…. Unfortunately, instead of establishing a 21st-century regulatory framework, we simply dismantled the old one, thereby encouraging a winner-take-all, anything-goes environment that helped foster devastating dislocations in our economy.”

Critics of the Glass-Steagall Act were of the opinion that the act could not have prevented the financial collapse in 2008, since the “real” offenders of the financial crisis were not the banks, but non-banks like Bear Stearns and Lehman Brothers, which had “bank-like” qualities. Supporters of the Glass-Steagall Act say that if the act had stayed in its place, banks wouldn’t be permitted to indulge in speculative trading in the shadow of traditional banks and such loans would not have been made.

Prof. Robert Reich, who was US secretary of labor under President Clinton, has argued that the non-banks received funding from big banks through such means as mortgages and letters of credit. Reich maintained that if the Glass-Steagall Act had been in effect, then the big banks could not have given funding to non-banks. He further adds that it might have prevented the crash. The quick rise of shadow banks (firms with bank-like activities) gave way to risky activities and could have been regulated only if the Glass-Steagall Act were not repealed.

Too Big, Too Powerful

Lobbyists legally tend to influence a decision-making body for their own special interests through campaign finance. Some of the biggest banks have been associated with large political donations and campaign donations. A study, titled “A Fistful of Dollars: Lobbying and the Financial Crisis,” published in 2011 by the National Bureau of Economic Research, reports that “the political influence of the financial industry played a role in the accumulation of risks, and hence, contributed to the financial crisis.” An example cited by the report shows that Citigroup had spent $3 million on lobbying against the Predatory Lending Consumer Protection Act of 2001 that never became a law. Citigroup received $45 billion worth of bailout funds.

Huge lobbying efforts come easily to big banks due to a large capital base, which can potentially influence the process of the financial regulatory system. The implications of lobbying efforts on financial regulation can be huge, and lobbying has influenced laws like the Glass-Steagall Act and slowed the process of the Dodd-Frank Wall Street Reform and Consumer Protection Act. An apt example of huge lobbying efforts was the repeal of Glass-Steagall that was backed by a $300 million lobbying effort. After the 2008 crisis, strong lobbying efforts were made to slow down the passage of the Dodd-Frank bill. The Nation reported that more than $1 billion was spent on lobbying against the Dodd-Frank bill.

A letter released in November 2015 by Sen. Elizabeth Warren (D-Massachusetts) and Rep. Elijah E. Cummings (D-Maryland) revealed that portions of the Dodd-Frank Wall Street Reform and Consumer Protection Act were repealed in 2014. This repeal allows FDIC-insured banks to hold $10 trillion in “risky swap trades.”

According to the Center for Responsive Politics, the securities and investment industry spent nearly $74 million on lobbying in the first three-quarters of 2014. In 2013, The Nation reported that as many as 3,000 lobbyists were sent in “hopes of killing off pieces of the proposed bill” (now known as the Dodd-Frank Act). In the 2013-14 election cycle, Wall Street banks and financial interests had reportedly spent more than $1.2 billion to influence decision-making in Washington, according toAmericans for Financial Reform.

Too Big to Jail

A report released by Elizabeth Warren in 2015 shows how “federal regulators regularly let big corporations and their highly paid executives off the hook when they break the law.” Some of the many banking scandals, including many G-SIBs (global systemically important banks) have dated back to the subprime mortgage crisis. According to Reuters, a state and a federal working group has reached settlements with four major financial institutions since 2012: JPMorgan Chase ($13 billion), Bank of America ($16.6 billion), Citibank ($7 billion) and Morgan Stanley ($3.2 billion). Because big banks have complicated banking structures and are interconnected with risky activities, their exposure to multibillion-dollar scandals is not a surprise. According to a report by Labaton Sucharow LLP, one-third of bank employees with less than 20 years in the industry are willing to engage in “insider trading to make $10 million, if there was no chance of being arrested.”

The sizes of some of the largest banks are so huge that they surpass the GDPs of certain countries, and convictions for such crimes are numbered. Since the banks are huge, it is difficult and complicated to retrace the origin of banking crimes. With billions being lost in scandals, the ones found guilty pay huge fines to settle the charges against them, with very few convicted. Typically, following such settlements, the bank executives at high positions step down. On April 11, 2016, the US Department of Justice, along with federal and state partners, announced a $5.06 billion settlement with Goldman Sachs related to its role in the “packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007.”

Banks are STILL too big to fail, says Fed official

Neel Kashkari still has not changed position about the Too Big To Fail Banks….I wonder what Kashkari feels about his former employer, Goldman Sachs, going into the retail banking.

“I continue to think that the largest banks in the country are too big to fail.”

That might sound like a Bernie Sanders sound bite, but it’s actually from a speech that the Federal Reserve Bank of Minneapolis president gave Monday.

Nearly eight years after the financial crisis shocked the global economy and caused a massive recession, the consensus view is that big Wall Street banks are a lot safer now.

But are they safe enough?

“I am skeptical that current efforts to fix that problem will ultimately work,” said Neel Kashkari, the head of the Minneapolis Fed.

It’s unusual to hear someone from within the Fed be so critical of Wall Street regulation, since the Fed is one of the main watchdogs over big banks. Earlier this month Fed chair Janet Yellen defended all the ways regulators like the Fed have made the system safer.

Read on.

FDIC, Fed Rulings Could See Five “Too-Big-to-Fail” Wall Street Firms Broken Up by 2018

Truthout:

Federal regulators announced Wednesday morning that Dodd-Frank-mandated resolution plans of five “too big to fail” banks were “not credible,” setting in motion a process that could see them broken up in thirty months.

The Federal Deposit Insurance Corporation (FDIC) and Federal Reserve on Wednesday announced that plans outlined by the quintet — Bank of America, JP Morgan Chase, Wells Fargo, New York Mellon, and State Street — were inadequate.

Because of the joint ruling, the firms are under pressure to revise their so-called “living wills.” The FDIC and Fed may subject the five banks to more strict regulations and reserve requirements on Oct. 1, if they fail to submit a satisfactory scheme by then. And if they haven’t submitted proper living wills by October 2018, the two agencies “may jointly require the firm to divest certain assets or operations to facilitate an orderly resolution of the firm in bankruptcy,” as the Fed noted onWednesday.