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Basel Committee moves closer to harmonizing contingent capital rules; will make investors pay for any bailout.
In a bank bailout investors should be the first source of funding, not taxpayers. That’s the conclusion of the Basel Committee, as it recently issued a consultative document on the rules regarding contingent capital. The main thrust is that contingent capital rules will now focus the costs on bondholders.
August 26, 2010 -
Long-anticipated international tax changes pass in US, and there’s more to come.
With his signing yesterday of HR 1586 (ushering in Medicare aid and stimulus spending to states and school districts), President Obama enacted a series of foreign tax credit and other international tax rule changes that had been seeking a legislative home for several months. The changes, consistent with those discussed before (see prior story), include:
August 11, 2010 -
By Joseph Neu
With Dodd-Frank now law, treasurers will continue to “help” regulators with rulemaking.
With Dodd-Frank now the law of the land, the real fun begins as treasurers watch what the regulators do, and perhaps try to coax them into not making any adverse decisions.
Here’s what treasurers should know.
August 04, 2010 -
What’s on the International Treasurer radar screen this week?
This week’s editorial meeting brought forth a number of key issues starting with a discussion going on amongst members of the Global Cash and Banking Group (GCBG) concerning intercompany lending rates.
July 08, 2010 -
Last minute Dodd-Frank politicking indicates uncertainty with derivatives exemptions.
News this week of last minute political maneuvering to stop the Dodd-Frank (FinReg) bill is creating renewed concerns for corporate hedgers on their OTC derivatives exemption. With the July 4 signing target not being met, corporate hedgers should anticipate more of the same as . . .
July 02, 2010 -
The rating agencies are faced with another existential crisis for their business models. On the one hand, financial reform legislation might turn them into public utilities. And on the other, the Securities and Exchange Commission, if its Well’s Notice to Moody’s is to be taken seriously, is opening the latest legal challenge to strip their ratings of their First Amendment shield, thereby opening them to lawsuits that could quickly render them insolvent.
May 18, 2010 -
Secured lenders get the shaft from derivatives in bankruptcy. So why are banks backing a corporate exemption?
Banks are tacit supporters of the corporate exemption from the OTC
derivatives clearing and exchange trading requirements currently being
mulled in the Senate. This is a bit odd, since banks are also usually
secured lenders, and they get the shaft in bankruptcy if a company has
a lot of outstanding, collateralized, derivatives. This leads one to
conclude that the potential losses on their loans must pale in
comparison to the lucre they reap from their much bigger derivatives
businesses.
May 07, 2010 -
The financial regulation bill doesn’t require it, but the Goldman mess could prompt changes.
Debate over the financial reform legislation got under way in the Senate yesterday afternoon. But one change that had been mulled in preliminary discussions doesn’t look like it will be part of the final law: a measure to require investment banks to act as fiduciaries when selling securities to clients, rather than just meeting the standard of appropriateness. The 11-hour grilling of Goldman Sachs executives on Tuesday over their Abacus deal revived talk of such an amendment. Should Treasury support it?
April 30, 2010 -
The measure has a narrow exemption for corporates but would force banks to spin off swap businesses.
Senator Blanche Lincoln’s OTC derivatives regulation bill was approved by the Agriculture Committee she chairs today. The bill has the most restrictive provisions of any measure currently before lawmakers, although it does contain an exemption from trading and clearing requirements for corporate hedgers. While Republican members of the committee sought to water it down in the run-up to the vote, most of their amendments were rejected and the bill passed committee 13-8, with only one Republican voting for it.
April 21, 2010 -
Goldman accused of misleading investors about sub-prime mortgage products.
Further to Goldman’s client focus issues (see story here), the bank ironically is now charged with allowing a hedge fund client (Paulson & Co.) to influence the selection of mortgage assets pooled in a sub-prime CDO without disclosing this to investors; and all the while marketing it (indeed claiming the selection was by an independent third party) nor revealing that the hedge fund was subsequently shorting the CDO. These sorts of “incidents” are behind proposed rules to change ABS issuance and sales requirements and see that they are enforced (see SEC item, plus the final report issued by IOSCO). This move will give added urgency to them. Plus, Goldman will really need to ramp up its greed is good PR now.
April 16, 2010 -
Ownership limits are controversial but may not be germane.
Senator Sherrod Brown wants the financial reform legislation currently
being debated to limit the size of stakes that derivatives trading
firms can hold in clearinghouses. The idea is that the entities trading
through these central counterparties shouldn’t make their rules, or
there is the possibility they will be too liberal and not reduce
systemic risk adequately. Is this something Treasury should weigh in on?
April 02, 2010 -
Instruments could aid loan market liquidity, provide high-quality investments.
New legislation to set legal guidelines for a US covered bond market could be a boon for treasurers. The instruments have a long history in Europe, but uncertainty over their legal status here has kept the market from developing. If it does, this could be helpful for corporates in two ways.
March 19, 2010 -
A roundup of issues International Treasurer is investigating.
The bill introduced by Senate Banking Committee Chairman Chris Dodd this week has a lot to recommend it. It puts the so-called Volcker Rule, a sort of Glass-Steagal for prop trading, into effect, forces too-big-to-fail banks to devise their own living wills and creates a consumer financial products watchdog, albeit within the Federal Reserve. But it doesn’t take the ball very far upfield when it comes to an issue of crucial importance to many treasurers: the corporate exemption from clearing for derivatives.
March 18, 2010 -
New bill still has no commercial exemption but is expected to be amended.
The financial reform bill introduced today by Senate Banking Committee Chairman Chris Dodd gives little ground to corporate hedgers. In fact, he acknowledges the derivatives section of the bill "largely reflects the November draft," which did not include an exemption to clearing requirements for commercial hedging activities using standardized derivatives. That appears to be a big problem for companies that believe the cost of margining will make hedging less economical, and the lack of customized solutions will make it harder to obtain hedge accounting.
March 15, 2010 -
Corporates support financial reform but remain concerned about the costs of centrally clearing over-the-counter derivatives. Eighty percent of the 330 investors and corporates surveyed by Greenwich Associates in mid-January cited counterparty risk mitigation as the primary benefit of centralized clearing. But corporates remain divided on how central clearing will affect hedging costs.
February 28, 2010 -
A roundup of issues International Treasurer is investigating.
Treasurers shouldn’t take today’s stock market rout as an instant verdict on the Securities and Exchange Commission’s new short-sales rules. True, the major indices were off more than 1.5 percent at mid-day. A looming downgrade for Greece ahead of its big bond sale, and disappointing US jobs and manufacturing data were the proximate causes for declines. But relief over the extent to which the old uptick rule has been watered down may have goaded some bears.
February 25, 2010 -
Fixing market consequences requires partial sacrifice of key reform aim.
The Obama administration’s plan to levy a 15 basis point tax on non-deposit, non-Tier 1 bank liabilities appears to be unraveling. The problem with the still-vague Financial Crisis Responsibility Fee, proposed in mid-January, is that bankers say it will gut the $3.8 trillion repo market. They argue that the 15bp fee, meant to raise $90 billion over 10 years, would wipe out the returns on these short-term liabilities, which account for a large percentage of financial sector liquidity. This could limit banks’ ability to fund assets—mortgages, corporate loans, even longer-term Treasury securities.
January 29, 2010 -
A roundup of topics International Treasurer is investigating.
The Securities and Exchange Commission made two decisions yesterday that could cause corporate treasury departments a fair bit of trouble.
January 28, 2010 -
The Senate Banking Committee chair was opponent of corporate hedging loophole.
Senate Banking Committee chair Christopher Dodd’s decision not to seek reelection this year is a good sign for corporate hedgers. Mr. Dodd has been an outspoken opponent of a corporate exemption from proposed requirements that over-the-counter derivatives be cleared via central counterparties and traded on exchanges. His version of the derivatives regulation bill, currently being debated in the Senate, has no such exemption.
January 06, 2010 -
The main provisions of the various regulatory and legislative initiatives on both sides of the Atlantic are summarized in the table below. Check back regularly for updates.
December 14, 2009