May 13, 2013
Money Funds, Grocer Blowback, SEC-Fed Turf: Compliance
By Carla Main
U.S. securities regulators have narrowed the target of new rules for money-market funds, according to a person familiar with the matter, limiting changes to a smaller set of funds than many executives anticipated. The Securities and Exchange Commission proposal would impose a floating-share value only on funds that buy corporate debt and cater to institutional clients, said the person, who asked not to be identified because the plan isn’t public. Money-market mutual funds are at the heart of a Washington debate over how to address risks that fueled the 2008 financial crisis, when the $62. 5 billion Reserve Primary Fund collapsed. A proposal limiting rule changes to so-called prime institutional funds would be a victory for companies, including Vanguard Group Inc. and Charles Schwab Corp. , that called for exempting funds that invest only in government securities and those that serve only retail investors. Money funds are allowed to keep a stable value of $1 a share and are used as cash-equivalent accounts by individuals, institutional investors and corporations. Adopting a floating net-asset value is intended to make investors less sensitive to variations in the share price, thus limiting redemptions during times of stress. Institutional prime funds account for 35 percent of money- fund assets, which amount to $2. 58 trillion, according to the Washington-based Investment Company Institute, a trade group for the mutual-fund industry. For more, click here.
Grocer Blowback Delays Obama’s Restaurant Calorie Display Rules The lobbyist for grocers including Kroger Co. and Safeway Inc. is calling on President Barack Obama to curtail a U.S. health law provision that mandates the companies display the calorie content of all their foods. The Food Marketing Institute, an Arlington, Virginia-based trade group, said Obama should step in before the Food and Drug Administration puts the new rules into effect, intervening as he has with other provisions of the Affordable Care Act that carry unintended consequences. The proposed rule is unpopular among some restaurant chains such as Domino’s Pizza Inc. that complain about the cost of new signage and grocers that say the diversity of their products creates a logistical nightmare. The industries have backed legislation that would limit the rules to only provide the data online in some cases, and apply the labeling only to stores with more than half their revenue from food prepared on site. While FDA commissioner Margaret Hamburg told lawmakers in April she sought to issue a final rule this year, the agency has since declined to give a potential schedule. Michael Taylor, the FDA’s deputy commissioner for foods, said that’s because they’re still wrestling with the potential fallout. “Implementation raises complex issues that FDA is working to address in a practical way that achieves the congressional objective of providing information consumers can use to choose healthy diets,” Taylor said in an e-mail response to questions. The Obama administration is opting to delay some aspects of the 2010 health-care law. It temporarily backed away from restrictions on coverage for executives and a promise to offer small businesses greater choices of health plans. Movie theaters and bowling alleys have lobbied for an exemption and the White House budget office, in a report last year, called menu labeling among the most burdensome paperwork requirements in the health law. For more, click here.
Putting the Fed Back in its Box is Goal of SEC Member Gallagher Securities and Exchange Commission member Daniel Gallagher, said the Federal Reserve is pushing even deeper onto his agency’s turf than Congress intended when it rewrote the rules of financial regulation three years ago. Gallagher, a Republican, is fanning a conflict rooted in the 2010 Dodd-Frank law, under which the SEC lost some power to the central bank. He has publicly criticized the Fed for expanding its role in the so-called Volcker rule banning proprietary trading and oversight of money-market funds. “Some of this is very in-your-face,” Gallagher said of the Fed’s actions in an interview. “The bank regulators seem to be driving policy, and that has got to change. “While saying he respects the Fed’s work, Gallagher said its main regulatory mission ensuring the safety of banks and deposits requires a heavy-handed approach that won’t work for capital markets where investors accept they might lose money. The regulators, he said, should stick to what each knows best. Speaking at the U.S. Chamber of Commerce in January, Gallagher, 40, lamented that the SEC plays “second fiddle “on the Volcker rule. In a February speech in Washington, he warned that Dodd-Frank, which he mostly opposed, limits “the commission’s ability to apply its expertise and judgment. “Gallagher’s campaign comes after the SEC has been lambasted by lawmakers and consumer groups for its failure to properly police Wall Street before the 2008 credit crisis. Gallagher’s view is embraced by some Republican lawmakers and free-market analysts who argue the Fed’s push extends an implied government protection to more areas of the financial system, setting up the possibility of more bailouts. A bipartisan group of 15 ex-SEC officials also stood up for their former agency, writing a Feb. 20 letter to oversight council members urging them to let the SEC set money-fund policy. For more, click here.
Wheatley Seeks Dual-Track Libor as Gensler Says Replace Rate Martin Wheatley, the head of the U.K. markets regulator, said the London interbank offered rate should be transitioned to a transaction-based benchmark using a dual-track system. The tarnished benchmark, based on a daily survey of panel banks, should run in parallel with a transaction-based rate until a full overhaul of the system can be enacted, Wheatley, chief executive officer of the Financial Conduct Authority, told the Financial Times. FCA spokesman Chris Hamilton confirmed Wheatley’s comments. Wheatley’s proposals contrast with Gary Gensler, the chairman of the U.S. Commodity Futures Trading Commission, who said in a speech in London last month that interest-rate benchmarks such as Libor and Euribor are “unsustainable in the long run “and need to be replaced with rates that are based on real data. He has said the market should dictate how much Libor is used in the future. Global regulators are working on alternatives to Libor after U.S. and U.K. officials uncovered attempts by banks to manipulate Libor.
Liechtenstein Open to Tax Data Talks With EU, Handelsblatt Says Liechtenstein will open tax data talks with the European Union, Handelsblatt reported. The country is ready to join an automatic exchange of tax data with the EU under certain conditions, the newspaper reported, citing an interview with Liechtenstein’s head of government Adrian Hasler. Hasler wants an option for bank clients to settle their tax issues at home, according to Handelsblatt.
Denver Pays Wall Street $216 Million as Swaps Fail in Muni Bet Wall Street banks collected $215. 6 million that Denver’s public schools paid to unwind swaps and sell bonds since the district began borrowing to cut pension costs in 2008. That sum is about two-thirds of annual teaching expenses. The district paid $146. 6 million last month to banks, including RBC Capital Markets LLC, Wells Fargo Securities LLC and Bank of America Corp. , to end interest-rate swaps as part of a second attempt to restructure a 2008 borrowing, bond documents show. The April 17 deal sold as the district’s property-tax rate has risen 26 percent in two years to fund education. Municipal borrowers from Detroit’s utilities to Harvard University in Cambridge, Massachusetts, have paid billions of dollars to banks to end privately negotiated interest-rate bets sold as hedges. The Federal Reserve’s policy of holding its benchmark borrowing rate near zero since 2008 has turned many of the swaps into wrong-way bets. Denver’s schools might have avoided borrowing if elected officials had adequately funded pensions, according to a draft study for Princeton University’s Woodrow Wilson School of Public and International Affairs by Joseph Fichera, chief executive officer of Saber Partners LLC in New York. To fill the gap, officials chose complex financings sold by Wall Street instead of raising taxes or renegotiating benefits, he said. The pension plan was underfunded by $397. 8 million when the district started borrowing in 2008, according to annual financial filings. The borrowing that year closed the gap, which wound up re-emerging and growing to $638 million in 2011. Superintendent Tom Boasberg said in an interview that the transactions have accomplished the goal of moving retiree money to a state-run plan and lowering costs relative to what benefits would have cost without the deals. Even with payments to banks for transaction costs, the deals saved about $78 million, he said. For more, click here.
China’s Banks Say They’re Complying With N. Korea Sanctions China’s two biggest banks said they’re complying with efforts to isolate North Korean financial institutions that support the country’s ballistic missile and nuclear weapons programs. North Korea’s Foreign Trade Bank doesn’t have an account with Industrial & Commercial Bank of China Ltd. , a press officer for China’s largest lender by assets said May 10, asking not to be identified due to company policy. China Construction Bank Corp. , the second-largest, doesn’t have business relations with any North Korean banks, said a press officer, who asked not to be identified because of company rules. ICBC and CCB are majority-owned by the Chinese government. China is under pressure from the U.S. to show it’s implementing United Nations sanctions from March that targeted transactions linked to the North’s nuclear and missile programs. China Construction Bank strictly follows Chinese regulations and UN Security Council resolutions, the Beijing- based lender’s press officer said. The bank does not remit funds to North Korean banks, the press officer said.
Derivatives Bill Would Weaken Dodd-Frank, Greenberger Says Michael Greenberger, a professor at the University of Maryland School of Law, told Bloomberg Law’s Lee Pacchia that a new set of legislation making its way through the House of Representatives could “substantially and seriously weaken Dodd- Frank “if passed into law, thereby putting U.S. taxpayers in danger having to bail out another financial institution. While the Senate may ultimately block the measures, Greenberger said he believes more needs to be done to convince the American people that Dodd-Frank derivatives reform is necessary. For the video, click here.
Bernanke Warns of Risks in Wholesale Funding Markets Federal Reserve Chairman Ben S. Bernanke spoke about the risks in wholesale funding markets and the central bank’s financial stability monitoring program. He spoke at the 49th Annual Conference on Bank Structure and Competition sponsored by the Federal Reserve Bank of Chicago. For the video, click here.
Rosner, Mayo Weigh In On JPMorgan Chairman-CEO Split Joshua Rosner, an analyst at Graham Fisher & Co. , talked about corporate governance at JPMorgan Chase & Co. and a shareholder proposal to separate the chairman and chief executive officer roles, both currently held by Jamie Dimon. “They are two discrete worlds,” Rosner said, referring to the board of directors and the executive suite. Rosner, who spoke with Tom Keene and Sara Eisen on Bloomberg Television’s “Surveillance,” also discussed former Senator Judd Gregg’s possible candidacy to run the Securities Industry and Financial Markets Association. For the Rosner video, click here. Separately, Mike Mayo, an analyst at CLSA Ltd., talked about the JPMorgan shareholder proposal to separate the roles of chairman and chief executive officer. He spoke with Scarlet Fu and Tom Keene on Bloomberg Television’s “Surveillance. “For the Mayo video, click here.
John Castle Says Basel III Is “Constraining Growth’ John Castle, chairman and chief executive officer of Castle Harlan Inc. , discussed banking regulations hurting small business loans. Castle talked with Bloomberg’s Pimm Fox and Carol Massar on Bloomberg Radio’s “Taking Stock. “For the audio, click here.
–With assistance from Darrell Preston in Dallas, Robert Schmidt, Stephanie Armour and Dave Michaels in Washington, Henry Sanderson in Beijing, Lindsay Fortado in London, Jun Luo in Shanghai and Karin Matussek in Berlin. Editor: Glenn Holdcraft.
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