Since Barack Obama took office, $38 billion in new major regulations have been introduced, imposing an unprecedented burden on businesses, according to last month’s report by the Heritage Foundation.
An overly regulated environment is creating uncertainty — and uncertainty is perhaps the greatest obstacle for investing and hiring. The administration hastily introduced the 2,300 page Dodd Frank Wall Street Reform and Consumer Protection Act in the depths of the recession without fully understanding and studying the potential consequences of such unprecedented legislation.
To put the Dodd Frank bill in perspective, it is ten times the length of the Sarbanes-Oxley Act (66 pages) and the Gramm-Leach-Bliley Act (145 pages) combined. While a moderate level of regulation is necessary in large and vital sectors of the economy such as finance, housing, and healthcare, regulation is not the solution to the current economic problems that face the United States.
The administration must stop demonizing banks — as if they are not vital to the growth of credit and new business formation — and consider a moratorium on new regulations, an idea made popular by Presidential candidate Texas Governor Rick Perry.
Frank Keating in the Wall St Journal said “imagine a manufacturing company that deployed more than half of its work force as Occupational Health and Safety Administration (OSHA) compliance officers. Such a company would be unable to grow, let alone contribute to broader economic growth.
Yet banks across the country are feeling a similar pull on resources as the Dodd-Frank Act is implemented. Already federal regulators have issued 4,870 Federal Register pages of proposed or final rules affecting banks. Many more are still to come—for a grand total of more than 240 rules. And that’s on top of about 50 new or expanded regulations unrelated to Dodd-Frank that banks have had to absorb over the past two years.
Managing this mountainous regulatory burden is a significant challenge for a bank of any size. but for the median-sized bank—with 37 employees—it’s overwhelming. The cost of regulatory compliance as a share of operating expenses is two and a half times greater for small banks than for large banks.”
Mr Keating is not alone, Jamie Dimon has argued along the same line, “We’ve been through two stress tests, one at the Treasury, one at the Fed. I believe most of the banks passed the recent ones with flying colors,” Jamie Dimon, JP Morgan Chase & Co.’s chief executive officer, told Fed Chairman Ben S. Bernanke June 7. “Now we’re told there are going to be even higher capital requirements,” and “we know there are 300 rules coming. Has anyone bothered to study the cumulative effect of all these things?”
One month later, Dimon’s boldness has proven to be less an emblem of power than a cry of frustration. Global banking supervisors are poised to impose higher capital requirements that Wall Street complains will crimp profits, hamstring its fight against foreign rivals and damage the U.S. economy. And Dimon, 55, who kept JPMorgan largely clear of the subprime mortgage fiasco and helped stabilize the financial system in 2008 by acquiring Bear Stearns Cos. and Washington Mutual Inc., will face the same new strictures as the industry’s rogues.
Another indication of the changing regulatory environment took place almost a month earlier and an ocean away. During a May 17 confirmation hearing on his appointment to a new British financial watchdog, Donald Kohn, a former Fed vice chairman, told British lawmakers he had abandoned his belief that bankers’ self-interest would keep markets safe.
“I placed too much confidence in the ability of the private market participants to police themselves,” he testified.
Today Financial Services Companies are under attack on Wall St
Banks
The Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, is expected to file suit against Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among other banks, the Times reported, citing three unidentified individuals briefed on the matter.
The suits stem from subpoenas the finance agency issued to banks last year. They could be filed as early as Friday, the Times said, but if not filed Friday it said the suits would come on Tuesday.
The government will argue the banks, which pooled the mortgages and sold them as securities to investors, failed to perform due diligence required under securities law and missed evidence that borrowers’ incomes were falsified or inflated, the Times reported.
Fannie Mae and Freddie Mac lost more than $30 billion, due partly to their purchases of mortgage-backed securities, when the housing bubble burst in late 2008. Those losses were covered mostly with taxpayers’ money.
The agency filed suit against UBS in July, seeking to recover at least $900 million for taxpayers, and the individuals told the Times the new suits would be similar in scope.
A spokesman for the Federal Housing Finance Agency was not immediately available for comment.
Brokerage Firms
U.S. securities regulators have taken the unprecedented step of asking high-frequency trading firms to hand over the details of their trading strategies, and in some cases, their secret computer codes.
The requests for proprietary code and algorithm parameters by the Financial Industry Regulatory Authority (FINRA), a Wall Street brokerage regulator, are part of investigations into suspicious market activity, said Tom Gira, executive vice president of FINRA’s market regulation unit.
“It’s not a fishing expedition or educational exercise. It’s because there’s something that’s troubling us in the marketplace,” he said in an interview.
The Securities and Exchange Commission, meanwhile, has also begun making requests for proprietary algorithmic trading data as part of its authority to examine financial firms for compliance with U.S. regulations, according to agency officials and outside lawyers.
Shayne Heffernan
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.
Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services. www.livetradingnews.com