FHFA's Lockhart to step down

Federal Housing Finance Agency Director James Lockhart, who oversaw last year’s federal takeover of mortgage-finance giants Fannie Mae and Freddie Mac, said he plans to leave the agency later this month.

“The timing is appropriate,” Lockhart said. Freddie Mac hired a new chief executive last month and the housing market is starting to show some signs of recovery, the regulator said in an interview today.

Fed to launch new bank exam teams

The Federal Reserve plans to intensify its scrutiny of bank lending and financial health with teams made up of experts in a variety of new areas. Fed Governor Daniel Tarullo outlined the plan during a Senate Banking Committee hearing in Washington today. The overhaul, which would make reviews more uniform across the banking system, builds on the stress tests the central bank completed on the biggest 19 banks in May, he said. “We are prioritizing and expanding” the examination process to “assess key operations, risks and risk management activities of large institutions,” Tarullo said in his testimony today. “This program will be distinct from the activities of on-site examination teams so as to provide an independent supervisory perspective. This work will be performed by a multidisciplinary group composed of our economic and market researchers, supervisors, market operations specialists and accounting and legal experts,” Tarullo said.

A regulatory tussle has been unfolding since the Obama administration proposed strengthening the Fed's regulatory profile. The major regulators have each opposed some aspect of the plan in hopes of maintaining their own powers as the winds of change blow in.

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.