Analysis: Improvement? Big Banks $70 Billion Short in Fed Push to Prevent Bailouts
Wall Street banks are about $70 billion short in building up funds the Federal Reserve says they’ll need to tap following a collapse, down by almost half from the central bank’s earlier estimates, Bloomberg News reported today. The eight biggest U.S. financial firms are required to build cushions of long-term debt that can be transformed into equity in a new company if the old one fails, according to a rule the Fed governors approved today. Stockpiles of capital will also be needed to meet the new standard known as total loss-absorbing capacity (TLAC), which is a vital component of the plan to make giant banks easier to unwind without taxpayer bailouts. In October 2015, the Fed estimated banks had a total shortfall of $120 billion. “This requirement means taxpayers will be better protected because the largest banks will be required to pre-fund the costs of their own failure,” Fed Chair Janet Yellen said about the rule, which aims to prevent a repeat of 2008’s financial-sector disaster by making sure the biggest firms can absorb more losses — even after failing. The Fed estimates that four of the banks need about $70 billion more in qualifying unsecured debt and capital by the Jan. 1, 2019, deadline, while the other four banks already satisfy the standard.
Subprime Borrowers to Feel Pinch as Fed Raises Rates
Subprime borrowers are set to feel the pinch as U.S. banks nudge interest charges up in response to the Federal Reserve’s rate rise, threatening to sour more credit card loans and some other types of debt, the Financial Times reported today. Millions of Americans with weak credit scores, high debt burdens or low incomes are expected to struggle to make future loan repayments. Lenders including JPMorgan Chase, Bank of America and Citibank said immediately after the Fed’s move that they would increase so-called prime rates, which are used to determine the prices of several types of loans. The Fed raised interest rates yesterday for the second time in a decade, delivering an as-expected 25-basis-point increase, and signaled a faster pace of tightening. About 92 million consumers who have taken out loans with variable rates, such as credit cards, face higher monthly debt-service payments as a result, according to TransUnion, which maintains a database of 220 million borrowers.
D.C. Circuit Refuses to Block Labor Dept.'s New Retirement-Savings Rules
A federal appeals court today refused to block Obama administration regulations that were adopted to minimize conflicts of interest in the retirement-investment industry, a significant setback for financial planners, insurance agents and other advisers who said the rule will disrupt the marketplace, the National Law Journal reported. The National Association for Fixed Annuities in November urged the Washington, D.C., court to freeze for at least 10 months the April 10, 2017, start date of the new rule, which requires financial professionals who give retirement advice to put the best interest of their customers before commissions or fees. The U.S. Labor Department in April adopted the new regulations, a project that was more than six years in the making. Rules governing retirement investment advice had remained unchanged for decades. The annuities association, which advocates for financial advisers, brokers and insurance agents, earlier told the U.S. Court of Appeals for the D.C. Circuit that its members “will be forced to accelerate irreversible, costly, and industry-altering actions in the weeks ahead to restructure their entire distribution system, which has been in place for decades.” D.C. Circuit Judges Karen LeCraft Henderson, David Tatel and Sri Srinivasan said in the order today that the annuities association “has not satisfied the stringent requirements for an injunction pending appeal.” The association could ask the full appeals court to reconsider, or take the dispute to the U.S. Supreme Court.
Data Tools Offer Hints at How Judges Might Rule
Lawyers looking for an edge in court are increasingly turning to hard data to predict how judges might rule, in some cases long before the judges put pen to paper, the Wall Street Journal reported yesterday. New tools, mined from millions of court documents, offer lawyers statistics on the likelihood of a lawsuit’s being dismissed, for instance, or the average wait time until a trial. Lawyers say that the data can help temper client expectations, influence courtroom decision-making and even save money by flagging strategies unlikely to succeed. Judges don’t seem to mind being tracked, though some wonder if the data is attempting to give deeper meaning to decisions than actually exists. “I look at it with a little bit of a skeptical eye,” said Shira Scheindlin, a recently retired federal judge who now works as a mediator and arbitrator. Averages on how judges rule may be misleading, she said, without drilling deeper into the data to see if differences emerge between a securities case and a prisoner lawsuit, for instance.
Miss Supreme Court Expert Erwin Chemerinsky’s Keynote at WLC? Watch It Now!
Dean Erwin Chemerinsky of the University of California, Irvine School of Law provided his perspectives on the future of the Supreme Court during his Winter Leadership keynote. Watch his address here:
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New on ABI’s Bankruptcy Blog Exchange: Yellowstone and the Barton Doctrine in the Third Circuit
A recent blog post examines the Yellowstone case and the status of the Barton doctrine in the Third Circuit, with a focus on a potentially significantly difference in how the doctrine is applied in the Third and Ninth Circuits.
To read more on this blog and all others on the ABI Blog Exchange, please click here.
