By Denny Gulino
WASHINGTON (MNI) – The meeting Wednesday was unusual, a chance for
the top brass of the largest banks to vent to the Federal Reserve about
Dodd-Frank. What they got in return was … nothing, at least not yet.
As Lloyd Blankfein of Goldman Sachs, Jamie Dimon of JPMorgan Chase,
Brian Moynihan of Bank of America and their counterparts at State
Street, Morgan Stanley and US Bancorp were reminded, the Fed doesn’t
give any particular complaints special treatment. They all go into the
inbox for consideration, whether delivered in a limousine or with a
first-class stamp.
Fed Gov. Daniel Tarullo “reminded the Bank Representatives that (i)
their comments would be considered together with all other comments and
feedback received from other interested parties and (ii) neither
Governor Tarullo nor Federal Reserve staff would, during the meeting,
respond or reply to views expressed,” a brief statement issued afterward
said.
The CEOs were granted the one-sided audience after their industry
organizations served the Fed with a list of their grievances, all rules
authorized by the Dodd-Frank Act. The rules are not yet in effect and
even after they are made final, the banks have two years to adjust.
The meeting marked the launch of what promises to be an aggressive
and coordinated push-back by bankers who say the proposed rules will
damage their industry. The American Bankers Association, the Financial
Services Roundtable, SIFMA and several other industry groups have united
in the push to overturn the proposed rules or at least modify what are
considered their worst elements.
At the top of their list is the 10% limit the banking regulators
propose on what any one of the six largest banks can have in credit
exposure to any other bank. From the regulators’ perspective, the 10%
single counter-party exposure limit makes it less likely any one bank’s
problems could again jeopardize the entire financial system. The banks,
however, see it severely cutting into their revenues earned from
derivatives trading.
The banks also hate the way Dodd-Frank would diminish the
importance of credit ratings firms and, the banks say, overstate credit
risk “for certain assets.”
Not far behind on the hate list is Dodd-Frank’s section 619,
otherwise known as the Volcker Rule, which has already prompted a
realignment in the industry of proprietary trading operations and which
the banks say “would constrain market-making activity and the liquidity
of trading markets,” in the words of the Fed statement.
The banks and their industry associations are also enlisting the
help of foreign governments in pressing complaints about the categories
of preferred instruments U.S. regulators would impose.
There are more things on the list, including “skin in the game”
requirements — risk retention — covered in Dodd-Frank’s section 941.
Tarullo’s speech to the Council on Foreign Relations in New York
before his meeting with the bankers made it clear he feels the industry
heat and fears for the future of banking reform.
“For some time,” he continued, “my concern has been that the
momentum generated during the crisis will wane or be redirected to other
issues before reforms have been completed.” This, he said, “remains a
very real concern.”
Tarullo and the Fed are only one of the targets of the banks and
various industry groups, and in his speech he included some supportive
comments for SEC Chairman Mary Schapiro who regularly gets blasted by
the money market fund industry for her proposals to cut them even less
slack.
While many Dodd-Frank regulations being cranked out by the
regulatory agencies can take months or years to develop, Tarullo said
the money market fund area needs action sooner and he likes Schapiro’s
approach.
The vulnerabilities of money market funds, which include “the lack
of loss absorption capacity” and the way institutional investors “run
together, make a clear case that (SEC) Chairman Schapiro is right to
call for additional measures,” Tarullo said.
Commodity Futures Trading Commission Chairman Gary Gensler
meanwhile was fighting his own agency’s battles in Chicago Wednesday as
a speaker before one of the industry groups most intent on killing one
of the CFTC’s rules.
Gensler told ISDA’s annual meeting that the group’s court challenge
of position limits is being fought vigorously by his agency lawyers,
something the swaps and derivatives dealers knew too well already.
“I know that ISDA is one of the financial associations challenging
this rule in court,” he said. “And you know the CFTC is vigorously
defending this rule because it’s the law and because it promotes market
integrity.”
“Internationally, the G-20 leaders endorsed an IOSCO report last
November noting that market regulators should use position management
regimes, including position limits, to prevent market abuses,” he added.
“The European Commission has proposed such a position management regime
to the European Parliament.”
As financial services firms unite under the banner of international
industry groups, mobilize lobbyists, pressure politicians and widen
their complaints, the Fed, the SEC and the FDIC will be looking for more
support from their counterpart agencies in other countries, as has the
CFTC.
As Gensler said, “The CFTC has had a long history of working with
international regulators to coordinate oversight of entities dually
registered here and abroad.” So far, he said, “We have entered into
numerous memoranda of understanding on both information sharing and
supervisory issues with our international counterparts.”
** MNI Washington Bureau: 202-371-2121 **
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