Two sides to the Fed-as-Regulator debate

Lee C. Bollinger, president of Columbia University in New York, says the U.S. needs a "First Amendment for the economy" after a failure of regulation that could be fixed by giving the Fed more responsibility. Bollinger called the economic crisis a “huge failure of public regulation”, and proposed an independent regulator based upon the judicial system which could issue written rulings and change precedents. Bollinger said the Fed had the capacity to stand outside the system as an independent regulator to monitor risk.

On the flip side, Harvard professor and author Amar Bhide says in a WSJ opinion piece that the Fed has done such a terrible job at financial regulation it would be unthinkable to give it more power, and goes so far as to say we should be talking about dismantling the Fed, not increasing its power. Bhide goes on to write that Fed's regulatory mission has become so big as to be unmanageable and proposes a minimum of splitting the monetary policy and regulatory functions of the Fed as was done with the Maastricht Treaty that established the European Central Bank.

Also in the news...

CFTC Chairman Gary Gensler said he believes the agency must seriously consider setting stricter limits on traders who place bets on energy contracts. His remarks are the just the latest example of a shift in tone for the commodities regulator vis a vis trading curbs and other regulatory measures. Gensler went on to say that "every option must be on the table to curb "excessive speculation", which the WSJ called out as politically expedient remarks in its editorial on "The Politics of Speculation". In addition, Goldman Sachs talked its own book by saying attempts to curb speculation may prove "disruptive" to markets.

House bill proposes ban on naked CDS

House Financial Services Committee Chairman Barney Frank said "naked" credit default swaps may be banned in the overhaul of derivatives industry oversight. House Agriculture Committee Chairman Collin Peterson (D-MN) said he is helping draft the legislation which would ban credit-default swaps where the investor doesn't own the underlying debt. Under the current proposal, market makers would be exempt from the ban. As much as 80% of the $26T CDS market is traded by investors who don't own the underlying debt.

Regulators sit in judgment of CIT

While bond investors seem to have come through with a $3B private bailout for CIT Group, it appears regulators will have the final say on the troubled lender. CIT needs an exemption from the Federal Reserve and approval from the Federal Deposit Insurance Corp. to transfer assets from a holding company to its bank in Utah. It can then raise customer deposits to fund those assets. Earlier this year the regulators allowed a transfer of $5.7 billion in student loans by CIT, but more recently they have seemed reluctant to grant additional transfers. Bondholders hope, however, that with a private-sector deal in hand, the regulators will take a second look and allow more transfers. Even though CIT's long-term plans center around the regulatory waiver, no imminent action is expected on that front, a person familiar with the matter said. For more details on the CIT situation, check out this story from the WSJ.

FSA under fire from UK conservatives

The UK's conservative party appears to be flexing its muscles with a proposal to scrap the regulatory body created by Prime Minister Gordon Brown in 1997. The conservatives are pushing to hand bank supervision over to the Bank of England, while creating a separate consumer finance protection agency, which is similar to the changes that the Obama Administration has proposed in the US.

For full story go to Forbes.com.

UK's Darling pushes "global rulebook" for banks

U.K. Chancellor of the Exchequer Alistair Darling, following a meeting with U.S. Treasury Secretary Timothy Geithner, said the world needs a global rulebook for banks to prevent future crises. ‘‘There is recognition that because banking is global it needs to be dealt with in the global arena. There is also recognition that many issues need international cooperation.’’

Darling said he expects ‘‘in September that progress will be made’’ when leaders of the Group of 20 nations meet in Pittsburg. He said finance ministers of the G-20 will meet in London on Sept. 4 and Sept. 5.

RTA 5th Annual Professional Compensation Survey Released

Bonuses declined by 20% and total compensation decreased by 12% in 2008 for risk professionals in capital markets.

New York / June 8, 2009 - Risk professionals in the capital markets saw their average bonus decrease by 20%, and average total compensation decrease by 12% in 2008 over 2007, reflecting the impact of the credit crisis, and early parts of the recession and financial crisis. These figures were reported in the fifth annual Professional Compensation Survey by Risk Talent Associates, a leading risk management executive search firm. Last year’s survey demonstrated a healthy 8% compound annual growth rate between 2003 and 2007. This year’s data depresses that number to a 1% CAGR between 2003 and 2008, essentially reducing gains in total compensation back to 2003-2004 levels.

The 2009 survey reports that average salaries decreased by only 1%, in stark contrast to deeper reductions in cash and non-cash bonuses as firms operating in the capital markets could not pay their employees bonuses typical of the industry historically. For 2008, 21% of respondents reported not receiving any bonus, compared to only 7% in 2007. Michael Woodrow, President of Risk Talent Associates, notes, “the fact that salaries did not get hit as hard signals that companies place an ongoing value on top-quality risk management. The declines in bonuses reflect the broader trend of pay overhaul in the U.S. banking system.”

Risk professionals hardest hit by compensation reductions are those with the most years of experience and senior titles. Bonuses dropped by 21% and 19% respectively for the most senior professionals- those with over 16 years of experience, and those with 7-15 years of experience. Bonus decline for those with 6 or less years of experience was only 7%. Total compensation for Chief Risk Officers, which has routinely topped $1 million in previous surveys fell to $764,000. Michael Woodrow adds, “for Chief Risk Officers and senior risk people with executive status, compensation is more directly related to firm performance. These individuals shared in the company losses incurred through the financial crisis.”

Over 300 risk professionals representing the capital markets participated in this year’s Risk Talent Associates salary survey, including participants from commercial banks (42%), investment banks (36%), foreign-owned banks (8%), government sponsored entities (6%), credit card (3%), mortgage brokers and lenders (3%) and foreign exchange (2%). Risk Talent Associates, an executive search firm focused on risk management, will publish additional survey updates in 2009 including asset management, compliance and other risk fields (software, consulting, energy and corporate). All surveys analyze compensation trends by years of experience and title, industry segment, risk focus, and geography.

About Risk Talent Associates
Risk Talent Associates (www.risktalent.com) is the leading international executive search firm focused exclusively on positions in the fields of market, credit and operational risk, as well as financial compliance and risk technology. Risk Talent's expertise, industry knowledge, proprietary network and dedicated focus shorten the recruiting process to deliver senior and mid-level risk managers in the capital markets, asset management, energy, consulting and software industries. Risk Talent has offices in New York, Chicago, London, and Hong Kong.

Contact:
Jennifer Bonadio
Risk Talent Associates
410-926-9989
jbonadio@risktalent.com

RBS CRO Resigns

Royal Bank of Scotland’s chief risk officer, Peter Nathaniel, has announced that he’ll be stepping down—just days after the $37.4 billion bank hired Nathan Bostock as head of restructuring and risk.

For the time being, Bostock will be in charge of all risk reporting until the company finds a replacement for Nathaniel, including taking over as chair of the group risk board and all other relevant risk committees.

Nathaniel joined Royal Bank of Scotland in 2007. Prior to that, he was managing director and head of global risk oversight for Citigroup.

Battle joined on consumer financial protection agency

The Obama regulatory plan has now been percolating through the financial world for two weeks, and the reaction has been mixed. Predictably, banks and mortgage lenders are placing top priority on killing the proposal to create the so-called Financial Products Safety Commission. The banks and their lobbyists are bracing for a big fight, unhappy with the extension of powers being discussed for the new regulator. The proposal delivered to Congress calls for stripping away all the consumer responsibilities that are currently assigned to existing regulators like the Fed, FDIC and OCC. Among the powers being discussed, the new agency could set standards for traditional mortgages and could restrict or prohibit certain types of mortgages.

Links:

• The collateral damage from lawmakers releasing confidential Federal Reserve emails could be a less open regulatory process as banks and regulators may share less information with eachother.
• The Supreme Court decided with New York 5-4 in Cuomo v. Clearing House Association. The decision affirms that New York's AG could demand mortgage data from federally chartered banks to seek evidence of discrimination under the state's fair lending laws.
• Morgan Stanley pulled in its risk-taking in 2009, and it's now seeing the downside of that strategy.
• There is some grumbling about the selection process for the job of Head of the NY Fed.
• The FDIC is seeking limits on the ability of private equity firms to buy up failed banks.
• Sometimes it's better to be lucky than it is to be good....