Archive for the ‘Challenges to Our Industry’ Category
Judge’s Rejection of SEC and Bank of America’s Settlement Raises Interesting Questions
September 15th, 2009 | 
Author: Jed Rakoff, a U.S. District Judge in New York, has rejected the proposed $33 million settlement between the SEC and Bank of America that was supposed to resolve the SEC’s claim that the bank deceived shareholders in a proxy statement concerning bonuses to be paid to Merrill Lynch executives. The proxy statement said that Merrill had agreed not to pay bonuses before the Merrill-Bank of America acquisition closed without the bank’s consent. The SEC claims that bank had actually approved payment of up to $5.8 million in bonuses.
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Judges Take Action While Regulators and Lawmakers Debate
There is an interesting article at Bloomberg.com that discusses how judges have taken the lead in punishing Wall Street for actions that have contributed to the first global recession since WWII, while regulators and lawmakers argue and discuss regulatory reforms designed to prevent future crises. I view this as a positive development as a history of light sentences in “country club” prisons did little to dissuade illegal activity that can make millions for financial executives. This can provide significant protection for consumers, providing that judges do not take it too far. It is important to ensure that ‘the punishment fits the crime.’
The kind of financial regulatory reform we really need- how do we best achieve it?
One of my interests that I study in my spare time is the history of Wall Street. Thinking about the events of the last few years in terms of the history of Wall Street disasters, I observed an oft repeated pattern- the SEC cites financial services firms for security law violations (usually in the aftermath of the collapse of the firms and/or financial markets), and it then assesses a fine that represents a tiny fraction of the profits earned from the illegal activity without requiring the firm to admit or deny guilt. Given this history, it is apparent that violating securities regulations is a relatively low risk and highly profitable proposition. In an industry that makes business decisions based on the risk/reward ratios, is it any wonder that regulatory violations occur on a fairly regular basis?
Court Ruling Underscores Need For National Consumer Protection
On June 29, the Supreme Court ruled 5 to 4 that states have the right to charge nationally chartered banks for violation of state consumer protection laws. The ruling in Cuomo vs. Clearing House Association denied states the right to unilaterally demand bank records the way a supervising regulator can, but they can pursue legal enforcement by suing national banks in court.
PWC 2009 Wealth Management Survey Shows How Crisis is Changing Industry
The Pricewaterhouse Coopers Global Private Banking and Wealth Management Survey 2009 has been released and provides some interesting insight into how the current financial crisis has impacted the wealth management industry, and what further changes lie ahead. Below are highlights of the survey:
Proposed Regulatory Reform- Wall Street Needs to Respond Carefully
Not surprisingly, parts if the regulatory reform proposal released last week by the Obama Administration have proven to be rather controversial. The plan has attracting criticism from both lawmakers and members of the financial services industry, and praise from consumer advocacy groups. Can the plan prevent future financial crises without overburdening financial institutions with unnecessary and redundant oversight? I believe it has the potential to succeed, but the devil will be in the details that have yet to be determined. Over the coming weeks and months, there will be a great deal of debate, lobbying, and negotiations that will determine what the financial regulatory structure will be going forward.
Off-Balance-Sheet Accounting Change-So Near Yet So Far
Here is some very good news that contains an interesting twist. According to Bloomberg.com, FASB is close to announcing rule changes that will force banks to severely limit off-balance-sheet accounting. The twist is that it will not be implemented until next year:
As Banks Try to Shore Up Their Balance Sheets With Profits, How Much Risk is Too Much?
It is clear that the recession that we are in is largely due to the excessive risks that banks were taking on (and off) their balance sheets. While some banks have become more risk averse as a result, Goldman Sachs continues its aggressive proprietary trading practices. According to Bloomberg.com:
What Will be the Biggest Challenge Facing the Financial Services Industry Over the Next 12-24 Months?
I posted the following question on LinkedIn.com: What will be the biggest challenge facing the financial services industry over the next 12-24 months?
Unexpected/additional fallout from the housing/subprime crisis and toxic assets?
Credit card/consumer loan default?
Plunging commercial real estate values?
Regulatory changes?
Restoring public trust?
Restructuring/downsizing?
Getting more done with less employees?
Other issues?
Yet it barely registers among journalists and industry commentators. In fact, I’m not even sure how aware the banks are of the potential problem.
