Category Archives: Big Banks

Tamping Down on Housing Investor Loans in Australia

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The Australian Reserve Bank governor has confirmed that a housing investor surge is his “one area of concern” and lending limits are “worth a try”.   Mr Stevens reiterated that the focus of the bank’s concerns is a surge in property investors, especially in Australia’s two largest cities.  “There is one area that I think is of concern right now, and that is that investor finance is growing at double-digit rates,” he observed.

“It’s nearly half the flow of new approvals, a lot of this is interest only lending in an environment of rising house prices, especially in Sydney and Melbourne.”

Mr Stevens reluctantly talked about so-called macroprudential policies that would place some extra restrictions on bank lending after being quizzed on the subject during the panel discussion.

In the bank’s latest half-yearly Financial Stability Review released yesterday, the RBA had revealed that it was in discussions with the banking regulator about imposing some such restrictions specifically on housing investment loans.  Mr Stevens said such rules would not be a panacea to cure all ills, but he did not back away from the prospect of temporary, investor-targeted lending rules to curb finance growth in that sector.  “I think it’s perfectly sound and sensible to ask ourselves whether there are tools that might at least lean on that a bit,” he said.  “I see not much downside in doing so – the worst that could happen is it doesn’t have that big an effect, but if it had some and that helped us to square in some small way all the conflicting things that we have going on that is worth a try.”

The main topic of the governor’s talk was the current inquiry into Australia’s financial system.  The Financial System Inquiry, commissioned by the Federal Government and chaired by former Commonwealth Bank chief David Murray, is due to complete its final report in November.  Mr Stevens told the forum that regulation of risk is one of four areas he hopes the review will address.  He says risk taking can be good, provided it is the right kind.  “A feature of the world economy is there’s a lot of financial risk taking and not all that much real economy risk taking: the entrepreneurs with a project, an idea, a market, a product, a new worker,” he lamented.  “That type of risk taking, which is the one we really want, there’s less of that than we would like.”

Risk Taking in Australia

Karen Peetz, A Powerful American Banker

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Karen Peetz has tough advice for bankers struggling to adapt to the harsher regulatory environment.  “People really need to get it through their thick heads that it is here to stay. You have to adjust your operating model and get on with it, versus fighting, fighting, fighting.”

That’s vintage Peetz, who has honed the art of managing-and leading- through times of change.  After the 2008 financial crisis, she played a key role in helping the government execute its Troubled Asset Relief Program. Then she guided her alma mater, Pennsylvania State University, through a devastating period, taking over as chairman of the board of trustees during the Jerry Sandusky sex abuse scandal. And now Peetz is helping reform the controversial tri-party repo market.

Peetz was promoted to president of BNY Mellon, overseeing global client management and regional management for Europe, the Middle East and Africa, Asia and Latin America. She also has responsibility for human resources and BNY Mellon’s treasury services business, two areas in which she has particular expertise, having been personally involved in both over the course of her career.

Peetz, who has been in banking for three decades and at BNY Mellon for the past 15 years, was the company’s first female vice chairman and has sat on its executive committee since July 2007.

Peetz, who led BNY Mellon’s financial markets and treasury services group before her promotion in January, says big problems require new thinking and a good-sized serving of humble pie.

“It really took our industry a long time to realize that the game had changed,” Peetz says. “We need humility as leaders, because we haven’t done everything right. Many of our actions precipitated the financial crisis, collectively, and we have to take responsibility.”

“Culture is at the core of the industry’s future,” Peetz says. “When I think of how I was trained … that’s what we do: risk management. But we, as an industry, got away from training people properly as they come in the door. If you don’t build that culture of risk, this is the kind of thing that happens.”

To that end, BNY Mellon is creating a virtual university with six separate areas of learning, from sales and client service to risk and compliance to professional development. Peetz says the idea for the university-dubbed BKU, the firm’s ticker symbol-came from Chairman and CEO Gerald Hassell, who asked her to spearhead it.

Karen Peetz

SEC Fines Barclays for Failing to Set Up Compliance Policies

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The SEC has been busy keeping banking in line.  Investment advisers are required to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Investment Advisers Act and its rules. An SEC examination and subsequent investigation found that Barclays failed to enhance its compliance infrastructure to integrate and support the acquisition and rapid growth of the advisory business from Lehman. The deficiencies in its compliance systems contributed to other securities law violations by Barclays.

To settle the SEC’s case, Barclays agreed to pay a $15 million penalty and to undertake remedial measures, including engaging an independent compliance consultant to conduct an internal review. Said Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit:

When a firm acquires an advisory business, it must devote the attention and resources necessary to build a robust compliance system. Barclays failed to establish this critical compliance foundation when it acquired Lehman’s advisory business, and as a result subjected its clients to a host of improper practices and inadequate disclosures.

According to the SEC’s order instituting a settled administrative proceeding, Barclays failed to adopt and implement written policies and procedures and maintain certain required books and records to prevent the other violations. For instance, Barclays executed more than 1,500 principal transactions with its advisory client accounts without making the required written disclosures or obtaining client consent. Barclays also earned revenues and charged commissions and fees that were inconsistent with its disclosures for 2,785 advisory client accounts. Barclays also violated custody provisions of the Advisers Act, and underreported its assets under management by $754 million when it amended its Form ADV on March 31, 2011. The violations resulted in overcharges and client losses of approximately $472,000 and additional revenue to Barclays of more than $3.1 million. Barclays has since reimbursed or credited its affected clients approximately $3.8 million including interest.

The SEC’s order finds that Barclays violated Sections 204(a), 206(2), 206(3), 206(4), and 207 of the Investment Advisers Act of 1940 and Advisers Act Rules 204-2, 206(4)-2 and 206(4)-7. In addition to the $15 million penalty, Barclays agreed to retain an independent compliance consultant to internally address the violations. Without admitting or denying the findings, Barclays agreed to be censured and must cease and desist from committing or causing any further such violations.

Barclay's Fined

SEC Fines Wells Fargo

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First ever fine for a broker-dealer failing to protect a customer’s material nonpublic information.

According to the SEC’s order instituting a settled administrative proceeding, Wells Fargo highlighted in internal documents the risk of its personnel misusing confidential information obtained from retail customers and clients. The risk manifested itself when a Wells Fargo broker learned confidentially from his customer that Burger King was being acquired by a New York-based private equity firm. The broker then traded on that nonpublic information ahead of the public announcement. The SEC charged the broker with insider trading and obtained an asset freeze to prevent him from transferring illicit profits outside the U.S.

The SEC’s order finds that multiple groups responsible for compliance or supervision within Wells Fargo received indications that the broker was misusing customer information. However, these groups lacked coordination or any assigned responsibilities, and they ultimately failed to act on these indications. Federal law requires broker-dealers and investment advisers to establish, maintain, and enforce policies and procedures to prevent such misuse of material nonpublic information. Said Andrew J. Ceresney, Director of the SEC’s Enforcement Division:

When investors entrust private information to their stockbrokers or investment advisers, they have the right to expect that it will not be exploited. In this case – our first against a broker-dealer for failing to protect the nonpublic information conveyed by its customers – Wells Fargo failed to implement procedures to prevent misuse of such information.

The SEC’s order also finds that when SEC investigators sought all documents related to the firm’s compliance reviews of the broker’s trading, Wells Fargo’s document production omitted documents related to the broker’s trading in Burger King stock. Six months after SEC investigators initially requested documents, Wells Fargo produced the Burger King-related review without any explanation as to why it was not produced in the first place. Furthermore, Wells Fargo failed to provide an accurate record of the review because one of the documents had been altered to include additional language before it was produced to the SEC. Said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit:

Wells Fargo unreasonably delayed producing documents to the SEC’s staff and altered a previously requested compliance document after the SEC charged a former Wells Fargo employee with insider trading. The firm’s actions improperly delayed our investigation, and the production of an altered document interfered with our search for the truth.

The SEC’s order finds that Wells Fargo violated Section 15(g) of the Securities Exchange Act of 1934 and Section 204A of the Investment Advisers Act of 1940, which require broker-dealers and investments advisers to establish, maintain, and enforce policies and procedures reasonably designed to prevent the misuse of material nonpublic information. Wells Fargo Advisors also violated Sections 17(a) and 17(b) of the Exchange Act and Rule 17a-4(j) as well as Section 204(a) of the Advisers Act, which require broker-dealers and investment advisers to promptly produce accurate books and records to the SEC. Wells Fargo admitted the findings and acknowledged its violation of the federal securities laws. In addition to the $5 million penalty, the firm agreed to retain an independent consultant to review its policies and procedures. The SEC’s order censures Wells Fargo and requires the firm to cease and desist from committing or causing these violations.

Wells Fargo Fined

Chicago Fed Measures the Great Recession

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Fiscal policy describes how the expenditure and revenue decisions of local, state, or federal governments influence economic growth. In this article, we create a comprehensive measure of fiscal policy called fiscal impetus, which estimates the combined effect of purchases, taxes, and transfers across all levels of government on growth. Our goal is to use this measure of fiscal impetus to examine how fiscal policy has behaved during business cycles in the past, how it responded to the most recent recession, and how it is likely to evolve over the next several years. Our analysis reveals that policy was more expansionary than average during the 2007 recession and has been significantly more contractionary than average during the recovery. By the end of 2012, fiscal impetus was below its historical business cycle average and it is forecast to remain depressed well into the future.   ChicagoFed on the Great Recession

Federal Reserve of New York Builds a DSCG Model for Policy Analysis and Forecasting

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In recent years, there has been a significant evolution in the formulation and communication of monetary policy at a number of central banks around the world. Many of these banks now present their economic outlook and policy strategies to the public in a more formal way, a process accompanied by the introduction of modern analytical tools and advanced econometric methods in forecasting and policy simulations. Official publications by central banks that formally adopt a monetary policy strategy of inflation targeting—such as the Inflation Report issued by the Bank of England and the monetary policy reports issued by the Riksbank and Norges Bank—have progressively introduced into the policy process the language and methodologies developed in the modern dynamic macroeconomic literature.
The development of medium-scale DSGE (dynamic stochastic general equilibrium) models has played a key role in this process.2 These models are built on microeconomic foundations and emphasize agents’ intertemporal choice.    New York Federal Reserve DSCG Model

Intertemporal Choice

Beth Mooney, the Most Powerful Woman in Banking

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The American Banker named Beth Mooney the most powerful woman in banking for the second year in a row.

Beth Mooney has made history as the first female CEO of a top 20 U.S. banking company, but when her career is over she most wants to be remembered as a banker who made a difference.

She’s proud that KeyCorp’s profits and share price have risen steadily since she took the helm in 2011, and equally proud that it is the only large bank in the country to have earned an “outstanding” rating from regulators on its community reinvestment activities for eight consecutive years — dating to when she ran Key’s community bank.

She’s proud, too, that the company’s charitable arm gave away $18 million last year and that its small-dollar loan product has been praised by banking regulators and consumer advocates for meeting a need without trapping consumers in a cycle of debt.

“All of these things are proof points… that we are a company committed to doing things the right way,” says Mooney.

Though Key has long had a reputation as a good corporate citizen, it has redoubled its efforts under Mooney. One of her first acts as CEO was creating an office of corporate responsibility to oversee a wide range of functions — from community development lending to diversity in the workplace — and to help guide Key’s mission of always doing right by customers and communities.

Mooney believes that most banks are acting more responsibly these days and says that the banking industry has made huge strides in regaining the trust it lost during the financial crisis. Still, she wants Key to be recognized as a leader in corporate responsibility and points to its small-dollar loan product, the KeyBasic Credit Line, as an example of how it is differentiating itself from competitors. Unlike deposit advance products, which can be similar to payday loans, Key’s revolving line of credit gives borrowers up to 60 months to repay at interest rates ranging from roughly 17% to 22%, depending on the size of the loan. While regulators have been sharply critical of the fees and terms for deposit advances and have forced many banks to stop offering them, they have hailed KeyBasic, launched in 2011, as a viable and responsible alternative to payday loans. Key has collaborated with the Center for Financial Services Innovation on a white paper about small-dollar lending and was recently asked by the Pew Charitable Trusts to help it come up with guidelines on responsible payments that it could recommend to the Consumer Financial Protection Bureau.

Another priority for Mooney is workplace diversity. DiversityInc magazine has named Key as a top 50 company to work for in each of the last two years in part because women and minorities comprise roughly 36% of the leadership team. Its board of directors is diverse as well, with five women, including Mooney, and two minority males among its 13 members. Earlier this year the advocacy group WomenCorporateDirectors presented Mooney with its annual “Visionary Award” in recognition of the fact that Key has a higher percentage of females on its board than any other large banking company in the country. But what motivates Mooney above all is “helping clients and communities thrive.” Her ideal is for people to think of Key as a company that improves their lives, through its products and services, its workplace culture and its community contributions. “I take my legacy very seriously,” Mooney says.

Beth Mooney

Europe: Structural Reforms in Exchange for Short-Term Fiscal Constraints

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Michael Spence writes:  In a post-crisis environment of aggressive and unconventional monetary policy in other advanced countries, the ECB’s less aggressive policies (owing to its more restrictive mandate) have resulted in an exchange rate that has damaged competitiveness and the growth potential of many eurozone economies’ tradable sectors. European Tradae-Off- Structural Reforms for Short Term Loosening of Fiscal Constraints

EU

Fed in US to End Taper, Maybe.

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The Federal Open Market Committee (FOMC) – the board of directors of the Federal Reserve decided to continue to “taper” – reduce their rate of monthly purchasing under their quantitative easing policy. The taper in the 18 December 2013 meeting was $10 billion, the 29 January 2014 meeting added $10 of taper, the 19 March meeting tapered $10 million. the 30 April meeting tapered $10 million, the 18 June meeting tapered $10 million, the 30 July meeting tapered $10 million, and this 17 September meeting another $10 million. The most notable words are in this statement:  If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will end its current program of asset purchases at its next meeting.

Has Yellen come to realiza that the intractable unemployment problems in the US are nothing the Fed can help?

Yellen Tapers

New Chair of CFTC Talks About Uncleared Swaps

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Chairman Timothy G. Massad said:  As we take up any rule required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, we must never forget why the Act was passed and the motivations behind Title VII. The Dodd-Frank Act was a comprehensive response to the worst financial crisis since the Great Depression. While there were many causes of that crisis, one was excessive risk from the over the counter swaps market, a large, global industry essentially unregulated by any jurisdiction at that time. It was six years ago—September 16, 2008—when our government was required to step in and prevent the failure of AIG, which was on the brink of collapse because of excessive swap risk, a collapse that could have thrown our nation into another Great Depression.  Opening Statement of Chairman Timothy G Massad

Money and Washington