Geithner Running Point on Reform

Although healthcare reform seemed to be pushing ahead of financial reform in the political dialogue race, President Obama's Lehman Anniversary speech on Wall Street last week seems to have re-energized the movement somewhat. While GlobalRiskJobs and Risk Talent Associates are definitely seeing an increase in activity on the financial risk and compliance front, we definitely expected more to see more robust signs of recovery on the hiring front at this point in the year. One of the preconditions to a wholesale shift has always been a more intense regulatory/reporting environment, which we still believe will come, but things have been slow to develop largely because of the traffic jam in Washington. So, with Geithner's focus now moving from crisis manager to running the point on financial reform, we will see where it takes us. Geithner seems to have simplified the message, focusing on three key points that legislators should consider when enacting financial reform: 1) offer “substantial” new protections to consumers and investors, 2) make the financial system less vulnerable to crisis, and 3) protect taxpayers from having to bail out future crises.

Are some of the regulators past the point of fixing? Bloomberg commentator Susan Antilla wonders as much about the SEC in a recent piece. She looks at Judge Rakoff's beat-down of the SEC-Bank of America settlement as just the latest example of a regulator that needs an overhaul. Meanwhile, the SEC is seeking more power to oversee derivatives markets.

GlobalRiskBlog favorite Andy Kessler weighs in on bank pay controls in today's Wall Street Journal. Kessler argues that it was excessive leverage, rather than excessive risk that drove the financial system to the brink of disaster.

As the G-20 convenes in Pittsburgh, U.S. and European leaders remain divided on how much capital the world's largest financial institutions should keep on hand to meet unexpected losses. Most agree that a major lesson of the Crisis is that higher capital requirements are essential, and G-20 leaders hope to have an agreement on new standards by the end of 2010, with implementation by the end of 2012.

Congress has turned its attention to the Rating Agencies. New allegations by a recently departed Moody's analyst named Eric Kolchinsky have added fuel to the debate over the role and influence of credit ratings and whether recent reforms are sufficient to prevent a repeat of past missteps.

The FDIC is being criticized for its handling of many of the recent bank failures. A recent report about the failure of Colorado-based New Frontier Bank criticizes the agency and other regulators for not being aggressive enough in handling the brewing financial crisis.

And finally, the controversial filmmaker Michael Moore is back in the headlines with "Capitalism: A Love Story", a scathing look at the financial system through the lens of the Crisis.

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....
  

Is Warren's Financial Product Safety Commission on Tap?

The Washington Post reports that the Obama Administration is actively discussing the creation of a regulatory commission that would have broad authority to protect consumers who use financial products as varied as mortgages, credit cards and mutual funds. The move would require legislation, and would centralize regulatory authority that is currently spread among a group of federal agencies. The proposal is sure to be opposed by financial services industry groups who will continue to argue that such regulation will crimp access to such financial products. Additionally, such a move could intensify political wrangling among existing regulators like the OCC, Fed and SEC as they battle to hold onto legacy powers.

The idea is believed to have sprung from a plan proposed by Harvard Law professor Elizabeth Warren, who now chairs the Congressional Oversight Panel for the US Government's financial rescue initiative. Warren wrote in a 2007 article in the journal Democracy called "Unsafe at Any Rate" that the government had failed to protect American consumers in their relationships with financial companies and that it was now time for a Financial Product Safety Commission.
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The Links:

• WSJ's Gordon Crovitz says that Geithner's focus on disclosure over regulation when it comes to derivatives constitutes smart reform.
• The FT says that the derivatives industry is girding for battle.
• Gillian Tett, author of "Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan was Corrupted by Wall Street Greed and Unleashed a Catastrophe" is out promoting her book. She thinks she has a sense of what Main Street thinks of Wall Street.
• Jamie Dimon speaks out about rules preventing US banks from hiring foreigners.