Recognos financial

WASHINGTON — The House of Representatives, in a display of anti-Wall Street sentiment, passed sweeping legislation Friday that rewrites the rules governing financial markets, aiming to restrict the operations of big banks and the powers of the Federal Reserve.

The legislation, if enacted, would bring the biggest change to financial rules since the 1930s, changing business practices for everyone from mortgage brokers in California to traders on Wall Street. The vote advances a major White House initiative designed to tackle the perceived causes of last year’s financial crisis.

The House’s action isn’t the final word. The Senate has yet to act, and an early version of its bill is different from the House version in many respects. But senators hope to have an agreement in principle by the end of December and to pass a bill in the first half of 2010.

The Wall Street Journal  (12/14)

Timothy Ryan, president and CEO of SIFMA, said large financial institutions in the industry should be supervised by a single regulator. “The biggest problem is the interconnectedness of the very big firms,” Ryan said. “That group is not as well regulated as it could be.” Ryan said the regulatory body would need to be able to help unwind troubled firms to ensure minimum disruption to healthy counterparties and other partners.

The Wall Street Journal/Dow Jones Newswires (9/30)

The Group of 20 nations set goals for banks’ capital standards at their summit in Pittsburgh, setting up what will likely be a long battle between bankers and national authorities. Morgan Stanley analysts said EU banks will have a more difficult time meeting capital requirements than their U.S. counterparts. Meanwhile, industry groups warned of unintended consequences of the proposed changes. SIFMA said the proposals “could negatively impact investors, capital flows and economic growth.”

Reuters  (9/28)

 Trying to prevent a repeat of the economic crisis, the European Union is proposing a total overhaul of the way banks, insurers and stock exchanges are policed.

It wants to create a super-watchdog – the European Systemic Risk Board – with the power to overrule individual EU member governments and a separate supervisor for insurers and markets to warn of early signs of problems.

Joaquin Almunia, the EU’s Economic and Monetary Affairs Commissioner said: “This new body will report at least annually to the European Parliament and to the Council and will liaise closely with the IMF, the Financial Stability Board and other international system risk counterparts.The creation of the ESRB will be a major contribution to safeguarding EU financial stability.”

Brussels hopes the European system can inspire a global one and will argue for that at the G20 summit in Pittsburgh.

But Britain, which is the region’s biggest financial centre, is worried that tighter European regulations will cause an exodus of companies to places where the rules are less strict:

Nicolas Véron, an economist with the Bruegel think tank was asked about that by euronews.

He said: “The biggest threat to London as a financial hub right now would be financial fragmentation in Europe and it may be the case that in the post crisis context, you need a strong European level of financial supervision to maintain this level of financial integration. So the calculation is not easy for London, but it’s not evident that this will be detrimental.”

Brussels would like all this to be in place by next year after being considered and approved by the European Parliament and the 27 EU member states.

Euronews  (9/23)