- Global custodian banks have adopted a defensive position as fund managers and large institutions shift into cash and ultra-safe assets, putting pressure on the banks’ ability to generate income.
- Low interest rates have put tremendous pressure on custodian banks that manage funds for large institutions and retail brokerages, with the Federal Reserve’s commitment to near-zero rates through 2013 make it difficult to invest customer funds in safe investments that generate return.
- The firms reported a doubling in waivers on fees charged on money-market funds that offer low returns but promise immediate liquidity, with some $90m in fees waived this year. Low rates have forced the banks to forgo fees that would push money-market funds into the negative.
- State Street said it would likely continue to cut staff, having closed a fixed-income trading unit in the fourth quarter.
- Intended to find ways to improve the timing, content and format of disclosures, by identifying the “most useful and understandable relevant information” needed by retail investors.
- Designed to find ways to improve transparency about conflicts of interest.
- Bloomberg: China May Relax Bank Capital Requirements
- China is allowing the nation’s five biggest banks to increase first-quarter lending and weighing a plan to relax capital requirements as economic growth cools.
- CBRC may allow banks to increase the excess bad-loan reserves used in calculating risk buffers.
- Risk weighting on personal operating loans to small businessmen may be cut to 75% from current 100%, while ratio on loans to small and micro-sized firms would be lowered to 50 % from 75%.
- BoE: Andy Haldane: Accounting for banks uncertainty
- Accounting rules in general, and fair value principles in particular, appear to have played a role in both over-egging the financial upswing and elongating the financial downswing. They have tended to over-emphasise return in the boom and under-emphasise risk in the bust.
- Proposed Regulatory Prudent Valuation Return:
- An upside and downside range for fair-valued assets be identified, categorised into distinct buckets. This would give a guide to the potential variation in a bank’s solvency position arising from model uncertainty.
- It also asks banks to identify portfolios where valuation uncertainty is so severe that it is not possible to provide a plausible bound and to make disclosures around portfolios of particular interest to regulators.
- A VaR-equivalent figure needs also to be disclosed for each asset class, with reconciliation to the net and gross values of all fair-valued assets and liabilities.
- Norman Chan (CEO HKMA): Hong Kong – an offshore renminbi business centre
- After successful development of the offshore RMB market last year, certain regulatory requirements will be relaxed.
- Dan Tarullo: The Volcker Rule
- Volcker Rule generally prohibits banking entities from engaging in two types of activities: 1) proprietary trading and 2) acquiring an ownership interest in, sponsoring, or having certain relationships with a hedge fund or private equity fund.
- Statute applies only to positions taken by a banking entity as principal for the purpose of making short-term profits; it does not apply to positions taken for long-term or investment purposes.
- Permits additional activities if they would promote and protect safety and soundness of the banking entity and the financial stability of the United States.
- Distinguishing between prohibited proprietary trading activities and permissible market-making activities is difficult.
- The statute distinguishes between these activities by looking to the purpose of the trade and the intent of the trader. These subjective characteristics can be difficult to discern in practice, particularly in the context of complex global trading markets in which a firm may engage in thousands or more transactions per day.
- A similar challenge attaches to efforts to distinguish a hedging trade from a proprietary trade.
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