Financial Reform Newsletter
March 6, 2014
FDIC Vice Chairman Thomas M. Hoenig may be the most important person in financial reform you don’t know. Mr. Hoenig is a clear, informed and understandable voice for sensible financial reform that will decidedly protect Main Street from Wall Street’s excesses. If you care about these issues, you should get to know him and follow him closely. For example, he recently delivered a speech (correctly referred to as a “must-read” by one of the most knowledgeable and insightful financial markets observers) taking stock of the reforms being made in regulating the post-crisis financial industry and the significant issues still to be addressed. While Mr. Hoenig lauded the implementation of such regulatory reforms as the Volcker Rule and increased capital requirements for foreign banks, he made the case that much remains to be done to secure the financial system and protect the interests of the American people. In particular, Hoenig denounced the persistent status quo of the too-big-to-fail banks that make a mockery of fair play in capitalism and market economics and, if left unchecked, invite yet another financial crisis.
The Real Wolfs of Wall Street. The over-the-top movie The Wolf of Wall Street was shut out at the Oscars Sunday night. The speculation of why superstar Leo DiCaprio and Hollywood’s top director Martin Scorsese went home empty handed continues, but here’s the untold story about the real wolfs of Wall Street, which has nothing to do with the drug-crazed hood in the movie.
White House slashes CFTC budget request. President Obama’s budget requested just $280 million to fund the Commodity Futures Trading Commission for the entire 2015 fiscal year, which is more than 10% less than the $315 million requested for 2014. This just continues the chronic underfunding of the agency: “It’s like you’re taking half the cops off the [Wall Street beat], and [those remaining] don’t have guns, radios or bullets.” This is inexplicable, inexcusable and indefensible for an agency required by law to oversee, regulate and police the high risk and very dangerous $700 trillion derivatives markets, which caused the last financial crisis. Simply put, the CFTC is grossly underfunded and understaffed, as Acting Chairman Mark Wetjen just detailed in testimony before a House committee. This makes it impossible for the CFTC to enforce the financial reform law, lower risk, require transparency and protect the American people from another devastating crash. Such insufficient funding is just setting the agency up for failure and blame by Wall Street and its allies, particularly in the House. As CFTC Commissioner Bart Chilton detailed in a blistering statement, “our staff is on its knees, some reaching for the exit doors and others already having bailed.” The American people need a fully-funded CFTC to police Wall Street and prevent another financial crash and “the President must fight for that.”
The public knows almost nothing about the White House’s nominees for the CFTC and the Senate must require them to answer the key questions. Will they work for Main Street or Wall Street? The President has nominated three Commissioners to the CFTC, including a new Chairman, but we still know little, if anything, about their derivatives experience, skills, qualifications or views. There must be full, detailed public disclosure of their positions on key financial reform and derivatives issues so that the American people can judge if they are going to protect Main Street or Wall Street. The confirmation hearing by the Senate Agriculture Committee today will be the only opportunity to learn more about these nominees. Better Markets has detailed the key questions for the CFTC nominees here.
The Federal Reserve should make banking enforcement a much bigger priority. Chair Janet Yellen indicated last week that the Federal Reserve Board will begin voting on significant banking enforcement actions, a shift which will elevate oversight of financial institutions by the central bank. This endorsement came at the urging of Senator Elizabeth Warren (D-Mass.), a long-time advocate for financial reform, who reintroduced the issue at the Senate Banking Committee hearing. Yellen also agreed “in principle” that there should be greater transparency over such major settlements, as called for in Senator Warren’s Truth in Settlements Act.
Better Markets shines a light on the derivatives market. Last Friday, Better Markets submitted a comment letter to the Financial Stability Board addressing its Feasibility Study on Aggregate OTC Derivatives Data. Such derivatives (which the CFTC is supposed to regulate and police, a challenge with grossly inadequate funding, as referred to above) were the most notorious culprits during the 2008 financial crisis which cost the taxpayers a staggering $12.8 trillion. As a result, Better Markets advocates for a comprehensive, thoughtful and robust system to aggregate and distribute derivatives data. To prevent another global financial crisis, a new reporting framework is needed that allows a clear view of the global derivatives market. Only then can regulators ensure market transparency and global financial stability, as made clear in the comment letter.
Some recent Better Markets media coverage:
Don’t Expect to See Obama’s Gigantic Wish List Become Law: National Journal
The Real ‘Wolfs of Wall Street’ Are Still Roaming Free: Huffington Post by Dennis M. Kelleher 5/3/2014
Obama Trims CFTC Budget Request: POLITICO by MJ Lee and Zachary Warmbrodt 3/3/2014
How Dodd-Frank might kill the CLO market: American Banker by Victoria Finkle 2/24/2104
Obama pick is key in $700T derivatives market: USA Today by Katheleen Day 3/5/2014
Some other things that might interest you:
Financial Regulator Calls Obama Budget “Woefully Insufficient”: The New York Times by Rachel Abrams 3/4/2014
Bernanke Harbors Regret on Main Street’s View of Bailout: Bloomberg by Joshua Zumbrun and Alaa Shahine 3/4/2014
Wall Street threatens GOP on bank tax: POLITICO by Lauren French, Anna Palmer, and Jake Sherman 2/27/2014
Fed Board Should Vote on Bank Enforcement Actions: Yellen: American Banker by Donna Borak 2/27/2014
Credit Suisse CEO Joins Wall Street Clueless Club: Bloomberg by Jonathan Well 2/27/2014
Regulators should say who calls the shots: Financial Times by Gillian Tett 2/27/2014
Regulators Are Probing How Goldman, Citi and Others Divvied Up Bonds: The Wall Street Journal by Justin Baer and Katy Burne 2/28/2014
March 6, 2014
Financial Reform Newsletter- March 6, 2014