Banking regulations

Article Index

New Basel Banking Regulations Mean Every Bank is its Own Cop

By , Managing Editor, Money Morning -

The Basel Committee on Banking Supervision, a global group made up of central banks, just came out with its new bank capital standards, the Third Basel Accord (Basel III), to address some of the problems and weaknesses in global financial regulation.

These problems were seen to have been a partial cause of the global financial crisis.

When banking systems adopt the regulations, which are completely voluntary, it's seen as a step towards greater transparency, a more robust system. It's seen as regulators finally getting tough. This is all part of the mad, frantic scramble for... credibility among regulators.

Sounds Good In Theory

The latest round of Basel III regulations, which were approved and adopted by the Fed just last week, call for banks to begin strengthening and improving the quality of their capital reserves. Quantity and quality of capital are absolutely vital to a healthy banking system.

It was the paradigm of the "honest-to-god, AAA mortgage-backed security," with all of its rubbish quality, willfully overstated and overestimated by U.S. ratings agencies, which helped lead us down the path to collapse just five years ago.

So why not have the banks shore up their defenses, take on more capital of good quality?

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Too Big To Jail: It's a Dark Day For the Rule of Law

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

The opening line of a December 11, 2012 New York Times editorial on federal and state authorities choosing not to indict HSBC for money laundering reads: "It is a dark day for the rule of law."

It may be a dark day for the rule of law, but it's business as usual for the banks.

America's heralded and frighteningly powerful Department of Justice, along with all of the not so heralded or frightening banking regulators, simply refused to prosecute Britain's biggest bank out of fear of "collateral consequences."

In other words, they're "too big to prosecute."

That's what Andrew Bailey, the chief executive-designate of the Prudential Regulation Authority, said about the usual deferred prosecution agreement that accompanied HSBC's $1.9 billion fine. The Prudential Regulation Authority is set to replace the U.K.'s Financial Services Authority - the country's current toothless watch dog,

It's just another example of too big to fail and too big to jail.

Deferred prosecution agreements and hefty fines levied against the world's TBTF banks have become commonplace. Still, there are relatively few criminal charges, just wrist-slapping, don't-do-it-again fines and public spankings.

It is a dark day for the rule of law because the money cloak has effectively been cast over all things having to do with justice.

Let's call it what it is: buying immunity.



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Fed Lets Banks Off the Hook... Again

By , Associate Editor, Money Morning • @DavidGZeiler -

We've told you before that the U.S. Federal Reserve puts Wall Street's interest above that of the American public. And yesterday (Wednesday) the central bank proved it... again.

Confronted with the opportunity to enact meaningful change to the regulatory system, the Fed punted on its responsibility to protect the public from the very banks that brought down the global economy.

This once again proves that the Fed, far from being a guardian of public welfare, is actually on the side of big banks.

"The Fed is an agent of the banks and, as such, it continues to come up with new ways for them to make money, risk free," said Money MorningCapital Waves Strategist Shah Gilani.

This time, instead of proposing strong guidelines that would actually do something to avoid another crisis caused by too-big-to-fail banks, the Fed put forth a plan that lacks key details and leaves important decisions in the hands of international regulators in Basil, Switzerland.

Specifically, the Fed proposal is hazy on capital requirements and minimum liquidity levels, which are crucial to ensuring a bank survives a financial emergency.

Delay has been a common theme for agencies charged with creating the regulations set out in Dodd-Frank. As of the beginning of December - 18 months after Dodd-Frank was signed into law - fewer than 25% of its hundreds of new rules have been finalized.

On Tuesday, it was the Commodity Futures Trading Commission (CFTC)voting to delay until July of next year regulations governing derivatives - the financial instruments that were at the very heart of the 2008 financial crisis.

And by forfeiting its chance to effect change, the Fed left the United States even more vulnerable to another financial crisis.

Now, not only have these vital regulations been delayed, but the process gives well-connected Wall Street bankers three months to "comment" - read "influence" - on the proposals.

Following the Fed's announcement, the banking industry didn't seem particularly worried that the finished regulations, when they do arrive, will cause them much of a headache.

"While these rules will require considerable review and comment from the industry, we are pleased to see the Fed is taking a phased-in approach to a number of these measures," Ken Bentsen, an executive vice president the Securities Industry and Financial Markets Association trade group, told Bloomberg.

A headline on CNBC summed it up nicely: "Banks Breathe Sigh of Relief Over New Fed Rules."

Indeed, Wall Street isn't concerned because at the end of the day, it knows the Fed is its ally.

"The average American has no idea how protected the big banks in this country really are," said Money Morning's Gilani. "Maybe that's because the biggest bank in the world is the U.S. Federal Reserve. And it happens to be a creation of - and 100% beholden to - the banks that it is a master shill for. It also lies to us and covers up Wall Street's misdeeds."



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