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January 15, 2014

Financial Reform Newsletter – January 15, 2014

Financial Reform Newsletter
January 15, 2014
Like Al Capone setting the police budget for Chicago in the 1920s, Wall Street, its lobbyists and allies in Congress have again underfunded the Wall Street cops in budget deal. Late Monday night, the House approved a $1.1 trillion federal budget for 2014. Wall Street, its lobbyists and allies in Congress once again refused to fully fund the CFTC and the SEC, the agencies charged with protecting Main Street and preventing another financial crisis. The budget bill protects Wall Street profits, bonuses and reckless trading, ensuring the Wall Street crime spree continues with limited regulatory interference. To protect Main Street from Wall Street, Congress must support full funding for the financial regulators to get the cops back on the beat. Time to handcuff Wall Street execs rather than handcuffing the regulators.
International regulators again weaken financial regulations, proving once more that the U.S. should not outsource the protection of U.S. taxpayers and the U.S. financial system by waiting for foreign regulators, who have repeatedly failed to protect their own taxpayers and financial system. International regulators at the Basel Committee on Banking Supervision recently caved in to intense lobbying by the financial industry and watered down a proposed rule that would have made the global megabanks safer. The change makes it easier for banks to game the system by loading up on debt and risky assets, leaving them at grave risk in another financial panic, which means that taxpayers may have to bail them out again. That is exactly what happened during the 2008 financial crisis. A stricter U.S. proposal issued in July was delayed by U.S. regulators, who wanted to wait to see what international regulators in Basel might do. Well, now they know that it was not worth the wait, as has been proven repeatedly in the past. The FDIC and Federal Reserve must not follow international regulators in a race to the global bottomAs Treasury Secretary Lew has said repeatedly, the U.S. must lead a race to the top, enact strong regulations that protect the U.S. and reject attempts to lower U.S. standards just because international regulators do.
For the “that didn’t take long category”: the financial industry is already trying to weaken the just passed Volcker Rule. Less than a dozen community banks are at risk from what are called TruPS securities, which they aren’t allowed to own under the Volcker Rule banning banks from buying, trading or holding high risk, usually complex bets for themselves (as opposed to doing what they are supposed to do: service customers’ needs). Unsurprisingly, Wall Street and its allies immediately began a drumbeat against the Volcker Rule and the regulators, overstating and misrepresenting the scope and implications of this issue. As is too often the case, many in the media uncritically just repeated whatever claims the industry and its allies in Congress and elsewhere said. However, the regulators ignored the demands which were really seeking a big, broad loophole and issued a targeted change to the Volcker Rule which addressed the very small TruPSs issue. By issuing this narrow fix for the few community banks affected, it appears that regulators are serious about maintaining a strong Volcker Rule without opening loopholes that will make it easy for big banks to evade it. Just as we watch Wall Street for inappropriate risky behavior that threatens taxpayers and Main Street, Better Markets will continue to watch the regulators and politicians to make sure that they don’t cave in to Wall Street pressure and do the wrong thing.
Only the Federal Reserve Board can’t figure out that taxpayer backed too-big-to-fail banks have no business owning, storing, transporting and trading physical commodities like oil, gas, electricity, aluminum and wheat. As detailed in several incriminating stories in recent months, Wall Street has been manipulating the price of silver, gold and aluminum, among other commodities, for some time. Just one example was JP Morgan Chase paying a fine of $410 million for manipulating the electricity markets in California and the Midwest (and where a senior officer was accused of giving “false and misleading testimony” under oath). Yet, the Federal Reserve still isn’t sure if the taxpayer backed big banks should own, store, transport and trade physical commodities. You would think they could see how grossly inappropriate it is for taxpayers to back such commercial activities that have nothing to do with the businesses the banks are supposed to be in and provide no benefit to anyone other than executives who get bigger bonuses. Thankfully, Senator Sherrod Brown has been investigating this issue and will again bring these matters under scrutiny in a Senate Banking Subcommittee hearing today. Unfortunately, the Fed issued a request for comments on potential remedies yesterday, which appears to be little more than a delaying tactic. While we are all for more information, the Fed has known about this issue for years, has studied it carefully and has all the information it needs to act. The issue is whether it is going to do the right thing and act now to protect taxpayers or Wall Street bonuses – it really is that simple.
Some other things that might interest you: 
The Regulatory Cost of Being JP Morgan: Financial Times 1/10/2014
Federal Reserve Said to Probe Banks Over Forex Fixing: Bloomberg by Keri Geiger and Caroline Salas Gage 1/13/2014
Time Is Nigh to Rethink the Role of Benchmarks: Financial Times by Rosa M. Abrantes-Mertz 1/10/2014


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