Wall Street critic to head U.S. financial reform

[Horn]

Representative Barney Frank, a fierce critic of Wall Street and close ally of the Obama administration, will head a House-Senate committee to hammer out a final bill on financial regulation reform.

As chief author of the U.S. House of Representatives’ legislation, Mr. Frank can be expected to press for a tough crackdown on bank oversight, although the House bill is in some ways less hard-hitting than one approved by the Senate.

Under the Senate bill approved just last week, for instance, banks would have to spin off their swap-trading desks into affiliates, which is not in the House bill.

Banking interests are digging in for a last attempt to water down reforms and carve out loopholes for themselves. The end-product promises to be the biggest overhaul of financial regulation since the 1930s.

Joining Mr. Frank on the panel will be Senator Christopher Dodd, author of the Senate bill. Riding a wave of voter antipathy toward Wall Street bailouts and big bonuses for bankers, Mr. Dodd pushed his version of reform through the fractious Senate by a 59-39 vote.

Both Mr. Frank and Mr. Dodd are Democrats committed to reform following the 2007-2009 financial crisis that slammed economies worldwide, unleashing a powerful political backlash against Wall Street and a global wave of reform initiatives.

Their conference committee must merge the House and Senate measures into a single bill, pass it through both chambers and send it to President Barack Obama, who is expected to sign it promptly into law. That could happen by July 4, analysts said.

The final shape of the legislation will also depend on the other members of the panel.

Congressional aides said Democratic Senator Blanche Lincoln will be on the committee. She authored the provision, opposed by big banks, on spinning off swap-trading desks.

LINCOLN PROVISION NOT IN HOUSE BILL

The Lincoln provision is not in the House bill. Nor is a plan for setting up a new government panel to choose credit rating agencies to assess certain new debt instruments. Nor does the House bill contain the ‘Volcker rule’ curbing risky bank trading, although it does have a related provision.

Ms. Lincoln, chairman of the Senate Agriculture Committee, faces a difficult primary election run-off on June 8 in Arkansas, her home state. The conference committee probably will not get down to work until after that date.

House Speaker Nancy Pelosi has the responsibility for naming the members of the panel from the House. She may wait until the second week in June to do that, aides said.

Mr. Frank has said the conference may take about a month. Mr. Frank chairs the House Financial Services Committee; Mr. Dodd, the Senate Banking Committee.

Senators Richard Shelby and Saxby Chambliss will be on the panel, Senate aides said. Both voted against the Senate bill. They are the senior Republicans on the banking and agriculture committees, respectively.


http://www.theglobeandmail.com/report-on-business/wall-street-critic-to-head-us-financial-reform/article1579371/

[Horn]

How Wall Street Gamed Derivatives Reform

New legislation likely won't have a major effect on banks that own stakes in trading and clearing firms


Forcing derivatives trading out of Wall Street's dark corners is one of the most contentious issues in the financial regulatory revamp debate. No mystery here: The five biggest U.S. dealers—JPMorgan Chase (JPM), Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC), and Citigroup (C)—generated an estimated $28 billion in revenue last year trading derivatives, according to Federal Reserve reports and people familiar with banks' financials.

Yet a sweeping overhaul, now in a House-Senate conference committee, likely won't have the transformative impact on the derivatives market some hope. (Derivatives are instruments that let companies hedge interest-rate risks or changes in commodity prices; they are also used for speculation.) Wall Street firms have known for more than a year that change is coming and have moved to protect their market role. Both the House and Senate bills mandate that most contracts in the unregulated $615 trillion over-the-counter derivatives market be traded on an exchange, or "swap execution facility," a creation of Congress so far only partially defined in the legislation. The measures also require third-party clearinghouses to process trades, guaranteeing the contracts.

For regulators and companies, this would be a big improvement. Banks now conduct most trades over the phone, keeping bid and ask prices private and spreads, the main driver of profits, high. Until the credit markets crashed, regulators had little idea how much derivatives-related debt banks were taking on or how interconnected they were.

Big bank derivatives dealers hope to keep a tight grip on the $25 trillion credit-default swaps market by sending a large volume of that business to ICE Trust, a U.S. clearinghouse owned by Atlanta's Intercontinental Exchange (ICE). ICE Trust has processed more than $5 trillion in credit-swap transactions since March 2009, while its sister operation in London, ICE Clear Europe, has done close to $3 trillion. And as of April, ICE Trust is sharing 50% of its profits with the Big Five and other large banks—ensuring continued order flow.

The profit-share agreement gives the banks an incentive to send all their trading to ICE Trust, says Mark Williams, who teaches finance at Boston University. In contrast, Chicago's CME Group (CME), the world's largest futures exchange, and LCH.Clearnet, Europe's largest clearinghouse, have taken only a fraction of the business. "Regulators need to monitor the relationship between these profit-sharing partners and Intercontinental," Williams says. "There's a potential conflict of interest." ICE Trust has an independent board of directors and advisory committee, counters spokeswoman Kelly Loeffler. Regulators in the U.S. and Europe have reviewed Intercontinental's governance and oversee its operations, she adds.

One of Congress's goals with derivatives legislation is to increase competition and lower the cost of hedging. ICE Trust, however, requires members to have a minimum net worth of $5 billion, a pricey admission ticket for smaller brokers.

The biggest players in the $349 trillion interest-rate swaps business, the largest OTC derivatives market, have also moved to protect how they buy and sell swaps with customers. One example: Goldman and nine other dealers own stakes in Tradeweb, a trading system majority-owned by Thomson Reuters (TRI). Tradeweb lets asset managers swap interest rates with dealers over an electronic system, or by phone. Earlier this month, Tradeweb said it would apply to become a swap execution facility. Created in 2005, Tradeweb has helped conduct more than 55,000 rate swaps, with more than $5 trillion in notional value. Inter-dealer brokers, firms that arrange trades between banks, could also enter the picture as swap facilities, says Christopher Giancarlo, chairman of the Wholesale Markets Brokers' Association Americas. Bloomberg, the parent company of Bloomberg Businessweek, which already has an interest-rate swap platform, also plans to register as a swap facility, says Ben MacDonald, Bloomberg's global head of fixed-income products.

The bottom line: The regulatory rewrite may dent the profits of Wall Street firms even as their stakes in trading and clearing companies benefit.

http://www.businessweek.com/magazine/content/10_23/b4181028620601.htm

[mamboni]

Bawney Fwank, the Banking Qween?

[Horn]

Awkward! Will The Dems Scrap Tough Derivatives Reform With The Cameras Rolling?


As the House and Senate begin the task of ironing out differences between their financial reform bills, Democrats are faced with a problem. Can they scale back a tough provision of their own -- a measure in the Senate bill to force financial companies to break off their derivative swaps desks into separate entities -- while the cameras are rolling?

Theoretically, there's enough support among Democrats -- including Sens. Chris Dodd (D-CT) and Mark Warner (D-VA), who's expected to be named to the panel -- and Republicans to remove or replace tough derivatives reform. The question is whether they have the courage to do so in front of television cameras.

Democrats are putting themselves and Republicans in front of TV cameras as they iron out the differences between House and Senate legislation. But by making the deliberations public--a move that's at least in part designed to put Republicans in the uncomfortable position of siding with big banks--Dems may risk exposing their own unwillingness to truly bring the hammer down on Wall Street.

Formal conference committees are notoriously contentious affairs, and for that reason, most of the deal making that goes on between parties and chambers of Congress occurs in private. In fact, it's become more common in recent years for the majority party to eschew a formal process altogether. This time around, though, Democrats, led by House Financial Services Chairman Barney Frank, are pledging to put the whole thing on C-SPAN. Or at least they're toying with the idea. That way, any deal reached behind closed doors would have to be sanctified with a vote, creating a permanent, public record of who sided with whom on all aspects of reform.

But therein lies a problem for Democrats.

All efforts to scuttle the derivatives provision have thus far failed, largely because the politics haven't allowed legislators to side so obviously with Wall Street. And there's no doubt that Wall Street wants it axed: lobbyists and other industry reps aren't shy about attacking the spin-off provision, and have begun threatening, anonymously, to make Democrats feel fundraising pain if they let it survive.

But for Democrats, it goes beyond banks.

Not only would Democrats (and Republicans) have to vote with Wall Street to kill spin-off. They'd also be doing electoral harm to Sen. Blanche Lincoln (D-AR)--the author of the provision, who will square off with Arkansas Lieutenant Governor (and fellow Democrat) Bill Halter in a run-off election on June 8. Lincoln has been selling herself to voters on the strength of her Wall Street reform proposal. And that, to a great extent, has tied her colleagues' hands--it's hard to run on a platform of reining in Wall Street, when your own party nixes your proposal. Presumably any decisions regarding derivatives would be delayed until after her primary is over. But even then, if Lincoln survives, she'll still be saddled with a narrative that she only got tough on big banks when her political career was in jeopardy...then quickly reverted to doing their bidding.

Of course, both the House and Senate bills are long and far-reaching, and the conferees will have to take up a whole host of other issues. It's likely, too, that the final package the President signs will be far stronger than most veteran Congress watchers ever expected. But many critics (particularly on the left) hold that, though the new rules will do some good, they lack the sort of fundamental reforms--typified by the spin-off provision--that are required to eliminate the threat Wall Street poses to the economy. In that way, the fate of the spin-off provision will tell us whether Democrats are truly as fearless of Wall Street as their harsh rhetoric implies.

http://tpmdc.talkingpointsmemo.com/2010/05/awkward-democrats-put-themselves-on-the-spot-in-wall-street-reform-fight.php?ref=mp

Yes, The Media is all over this story, the amount of air time it get's is absurd... :sarc:

[Hellsbane]

Sorry, but i find this story oddly ammusing. This is like watching a train wreck in the making. Its horrific in its potential for destruction but you just can't turn away.