Bloomberg News

ECB Basel ‘Voice,’ Credit Bureaus, Swaps, ESMA: Compliance

February 21, 2012

(Updates with ESMA technical rules and Australian banks in Compliance Policy and Olympus and German President-Bafin review in Compliance Action.)

Feb. 17 (Bloomberg) -- The European Central Bank said its voice should be heard when regulators impose liquidity rules on lenders to prevent the measures from having any “potential adverse effects” on its monetary policy.

The central bank made the statement in a report on its website. Potential adverse effects of liquidity regulation on monetary policy implementation may include a reduction in the average credit quality of banks borrowing from the ECB, it said in the report.

The liquidity measures were agreed on by the Basel Committee on Banking Supervision. The EU is working on draft legislation to transform the Basel accord into law across the region, including the 17 nations that use the euro currency controlled by the Frankfurt-based ECB.

One of the rules, known as a liquidity coverage ratio, or LCR, would require lenders to hold a sufficient stock of easily sellable assets to survive a 30-day credit squeeze. The other, a so-called net stable funding ratio, or NSFR, would force banks to finance part of their long-term lending from sources that are unlikely to dry up in a crisis.

The ECB said it should be consulted on which assets banks can count toward meeting the LCR, as well as on details of the NSFR, according to the report dated Jan. 25. It declined to comment yesterday on the document’s content.

For more, click here.

Compliance Policy

Consumer Bureau to Supervise Debt Collectors, Credit Bureaus

The Consumer Financial Protection Bureau proposed a regulation that would let it examine the books of debt collectors and consumer reporting businesses as part of its program to supervise non-bank financial companies.

The regulation, which must be completed by July 21, would bring credit bureaus such as Experian Plc, Equifax Inc. and TransUnion Corp. under federal supervision for the first time. The proposal would cover, also for the first time at the federal level, debt collectors such as Asset Acceptance Capital Corp., Portfolio Recovery Associates Inc. and Encore Capital Group Inc.

Supervision, the process of examining records and collecting data from companies, can lead to enforcement action if regulators find violations of the law. In the case of these companies, the consumer bureau could find breaches of the Fair Debt Collection Practices Act or the Fair Credit Reporting Act.

Under the proposal, debt collectors with more than $10 million in annual receipts from collection activities will face supervision by the consumer bureau. According to the agency, this threshold would cover about 175 debt-collection companies - - 4 percent of all such companies -- that together account for 63 percent of the industry’s annual revenue.

Consumer reporting companies with more than $7 million in annual revenues would be supervised, according to the proposal. That would cover about 30 companies that together account for about 94 percent of the industry’s annual revenues.

The bureau requested public comment on the proposal for 60 days after publication in the Federal Register.

For more, click here.

EU Lawmakers Seek Annual Levy on Banks to Protect Depositors

Banks should be forced to pay into government funds that would be tapped to reimburse depositors at failed lenders, under plans approved in a vote by European Union lawmakers yesterday.

The measures are part of a draft law that the EU intends will bolster protection of savers and prevent bank runs.

The draft law would shield a depositor from losses on savings of as much as 100,000 euros ($130,000) and set, from 2017, a reimbursement deadline of one week.

Governments should manage bank-funded reserves equivalent to 1.5 percent of protected deposits, according to proposals approved by the European Parliament, voting in Strasbourg. Banks judged by regulators to be most at risk of failure would be forced to pay higher annual contributions into the funds than other lenders.

Yesterday’s vote will be parliament’s negotiating position on the draft law, which must be agreed on with national governments before it can enter into force.

U.S. House Panel Approves Measure Limiting Swaps ‘Push-Out’

The U.S. House Financial Services Committee approved legislation that would let banks keep commodity and equity derivatives in federally insured units by removing part of the Dodd-Frank Act’s so-called push-out rule.

The bipartisan measure, approved yesterday by voice vote, calls for altering the 2010 law’s requirement that banks with access to deposit insurance and the Federal Reserve’s discount window move some derivatives trades to separate affiliates.

Dodd-Frank requires that equity, some commodity and non- cleared credit derivatives be pushed out into affiliates. The revision would allow non-structured finance swap activities and structured finance trades tied to assets with high credit quality to remain in bank divisions with insured deposits. Structured swaps tied to asset-backed securities composed of subprime mortgages would still be pushed out, said Representative Jim Himes, a Connecticut Democrat who was a sponsor of the bill.

The legislation would need approval by the full House and Senate before heading to President Barack Obama for signature.

ESMA Seeks Views on Technical Rules for OTC Derivatives in EU

The European Securities and Markets Authority published a discussion paper on draft technical standards for clearing houses, trade repositories and trading in over-the-counter derivatives.

The agency is seeking views on the standards until March 19, Paris-based ESMA said in an e-mailed statement. It will organize a public hearing on March 6. The measures would add detail to draft legislation to regulate OTC derivatives that was approved this month by EU officials and lawmakers, ESMA said.

ESMA this week also said it is seeking opinions until March 9 on draft rules for short selling and trading in credit-default swaps. It will hold a hearing on the measures on Feb. 29.

Australian Banks Must Resist Urge to Boost Risk, Regulator Says

Australia’s banks, confronting the weakest demand for home loans since 1977, must resist the urge to drive up earnings by increasing risk or by “aggressive cost cutting,” the banking regulator said.

The challenge for banks is “coming to terms with ‘life in the slow lane,’” John Laker, chairman of the Australian Prudential Regulation Authority, told lawmakers in Canberra today, according to a copy of his remarks on APRA’s website.

Australia & New Zealand Banking Group Ltd. Chief Executive Officer Mike Smith said today that credit growth is unlikely to return to pre-crisis levels in the “foreseeable future.”

ANZ Bank said this week it will fire about 1,000 people by Sept. 30 and Westpac Banking Corp. announced this month it may eliminate as many as 400 people from its payroll.

Australia’s four-pillar banks, so named for a law that prevents them from buying each other, are managing slower demand for mortgages, which account for about 60 percent of lending in the nation.

For more, click here.

Compliance Action

Japan Bank Lobby May Act After Tibor-Fixing Probe, Nagayasu Says

The Japanese Bankers Association may take measures to improve the way it compiles the nation’s key interbank lending rate, Chairman Katsunori Nagayasu said.

Nagayasu said yesterday at a press briefing in Tokyo that “necessary measures” will be taken based on guidance from investigators.

Authorities in Asia, Europe and the U.S. are conducting widening inquiries into whether employees at some of the world’s biggest banks sought to manipulate the London, Tokyo and euro interbank offered rates, known as Libor, Tibor and Euribor, respectively.

Citigroup Inc. and UBS AG were ordered by Japan’s Financial Services Agency in December to suspend some derivative transactions after the regulator found that staff at the firms attempted to influence interbank lending rates. Citigroup, Royal Bank of Scotland Group Plc and JPMorgan Chase & Co. are among 17 reference banks that submit Euro-yen Tokyo interbank offered rates to the association, which compiles and sets the benchmark lending rate, according to the lobby’s website.

Olympus Former Chairman and Six Others Arrested Over Fraud

Three former executives at Olympus Corp., including ex- chairman Tsuyoshi Kikukawa, and four others were arrested for suspected violation of Japan’s Financial Instruments and Exchange Act.

The camera maker is facing shareholder lawsuits and may be subject to further criminal investigation after admitting to a 13-year cover-up. The company restated past securities reports and took a $1.3 billion reduction in net assets in December.

Olympus’s Tokyo headquarters and its affiliated offices were raided in December by prosecutors after the company said Kikukawa and two others colluded to hide investment losses from the 1990s. The stock has plunged 49 percent since the Oct. 14 dismissal of its first non-Japanese president, Michael Woodford, who later publicly questioned inflated takeover costs.

“We take the situation seriously,” Yoshiaki Yamada, a spokesman for Olympus, said by phone today. “We will cooperate fully with investigators.”

The company plans to hold an emergency shareholder meeting on April 20 at which investors will vote on new management.

For more, click here.

German President Probed by Bafin Over Porsche, VW, Spiegel Says

German financial regulator Bafin is reviewing whether Christian Wulff, the country’s former president, violated capital market rules in the wake of Porsche SE’s failed bid to take over Volkswagen AG, Der Spiegel said.

Wulff may have learned in February 2008 that Porsche was planning the bid and Bafin is reviewing whether he may have had to disclose that fact to the markets, the magazine reported, without saying where it got the information.

Wulff was prime minister of Lower Saxony and a member of Volkswagen’s supervisory board at the time of the Porsche bid.

Bafin’s press office didn’t immediately return a call seeking comment. Gernot Lehr, Wulff’s attorney, didn’t immediately reply to an e-mail requesting comment.

Wulff resigned today amid the threat of the legal probe into corruption allegations, delivering a blow to Chancellor Angela Merkel that risks distracting her from the euro-region debt crisis.

Wulff is the second German president to quit in less than two years, forcing Merkel to find a fresh candidate with cross- party support for the largely ceremonial post.

For more, click here.

Interviews/Speeches

Bernanke Says Bank Supervisors Need Balance on Lending

Federal Reserve Chairman Ben S. Bernanke spoke about the role of community banks and the need for bank supervision to strike a ‘delicate balance’ between encouraging lending and maintaining high standards for lending, risk management and governance.

Bernanke spoke at an event sponsored by the Federal Deposit Insurance Corp. in Arlington, Virginia.

For more, click here.

Bogle Says Tax Break for Private-Equity Firms ‘Ridiculous’

John Bogle, the Vanguard Group Inc. founder who popularized index investing, said lower tax rates for certain types of gains earned by private-equity firms are “ridiculous.”

“I’m arguing for the capital gains rate taxable as ordinary income,” Bogle said yesterday during a portfolio managers conference in New York organized by Bloomberg Link.

Private-equity managers typically earn a percentage of their profits from investments as compensation, which is known as carried interest. It is taxed at a lower rate --15 percent-- than the top rate of 35 percent that can be applied to regular income.

Bogle, 82, who described himself as a lifelong Republican, said carried interest “is a bit of a technical fraud.”

President Barack Obama’s fiscal 2013 budget proposal, released this week, reiterated his plan to tax carried interest earned by hedge-fund managers and private-equity partners at ordinary income rates.

Levitt Says SEC Money-Market Rules Are Right

Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, said the money-market mutual fund industry “is crazed” about SEC proposals that would force money funds to abandon their traditional $1 share price, adopting a so- called floating net-asset value.

Levitt talked with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.” They were joined in the conversation by Bloomberg economist Joe Brusuelas.

For the audio, click here.

Comings and Goings

Summers, Clinton Said to Be Lead Contenders for World Bank

U.S. Secretary of State Hillary Clinton and former White House economic adviser Lawrence Summers are two leading candidates to succeed World Bank President Robert Zoellick when he leaves in June, said two people familiar with Obama administration discussions.

The U.S. promised a candidate “in the coming weeks” for the post that has always been held by one of its citizens, while officials from Brazil and Mexico vowed to make the selection process open to emerging markets.

While Summers has expressed interest in the position and has supporters inside the administration, the position would be Clinton’s if she sought it, according to the people, who spoke on condition of anonymity about the private conversations.

Clinton, who said previously she doesn’t plan to remain in her post if President Barack Obama wins a second term, repeatedly has denied having an interest in the World Bank job. State Department spokesman Victoria Nuland repeated those denials Feb. 15.

For more, click here.

--With assistance from Hans Nichols, Sandrine Rastello, Carter Dougherty, Silla Brush and Phil Mattingly in Washington; Shigeru Sato and Shingo Kawamoto in Tokyo; Sree Vidya Bhaktavatsalam in Boston; Jim Brunsden in Brussels; Esteban Duarte and Lindsay Fortado in London; Karin Matussek and Patrick Donahue in Berlin; Mariko Yasu in Tokyo and Jacob Greber in Sydney. Editor: Stephen Farr

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.


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