ICYMI - April 8 - SmartBrief

ICYMI – April 8

A collection of stories from SmartBrief publications and around the web.

4 min read

Modern Money

Tower-of-Basel-210x300

A collection of stories from SmartBrief publicationsand around the web…

Bank for International Settlements / BIS

It has been a week of regulatory relief in the world of finance. The Basel Committee on Banking Supervisionkicked things off by proposing a new method for banks to assess their exposure to derivatives. The new method may reduce the amount of capital banks need to meet restrictions on leverage.

The Labor Department followed suit with a less-aggressive-than-previously-mooted fiduciary rule. It might seem strange that the DoL back-pedaled a bit during a year that has seen so much rancor on the campaign trail directed at the financial services industry, but lobbying money talks on Capitol Hill and it appears the DoL went with a rule it thought might actually achieve some additional protection for consumers and not get thrashed by lawmakers.

A couple random thoughts on the DoL’s final fiduciary rule:

  1. The rule still allows for firms to sell relatively expensive in-house “proprietary” products to clients. That is a huge win for advisors. Plus, I suspect the definition of “proprietary” might end up being malleable. If an advisor’s firm develops partnerships and licensing agreements with the sellers of various products, will those products then become proprietary?
  2. The DoL’s earlier proposal identified asset classes that could be included in retirement accounts. Certain asset classes, such as listed options and non-traded REITs, were not on the list and stood to be precluded from being used in individual retirement accounts. The final fiduciary rule dropped the list entirely, meaning those asset classes are fair game for individual retirement accounts. If there are asset classes that the DoL at one time deemed not appropriate for retirement accounts, then investors ought to know that. It would at least give them pause about piling their money into such asset classes. If only there were a government agency or bureau that could take the torch from the DoL and work to inform consumers about these dodgy products… a bureau designed to protect consumers from financial shenanigans … even if all that bureau did was put a list up on its site of all the suspect asset classes … wouldn’t that be nice, Mr. Cordray?

Maybe It’s NOT the Economy, Stupid: Pundits trying to identify the underlying motivation of some of the most fervent voters during the presidential primaries have been quick to lay the blame on income inequality and other aspects of the economy. But what if what it all really boils down to it hate? And I am not talking about hating Muslims, Mexicans or Megyn Kelly.

Eurozone banks’ dividend payments dampen recovery, BIS says: The 90 eurozone banks in a Bank for International Settlements study paid 196 billion euros in dividends from 2007 to 2014, while retained earnings reached 261 billion euros in 2014. By retaining more of their profits, banks could have increased their capital and boosted lending, benefiting the economic recovery and the banks’ bottom line, said Hyun Song Shin, head of research at BIS.

Old economic model can shed light on financial policy: Returning to an older tradition of econometric modeling provides tools that are more useful for examination of financial shocks and unconventional policy compared with recent approaches, James Cloyne, Ryland Thomas and Alex Tuckett write. The biggest strength of a structural econometric framework is that it provides economists and policymakers quantitative results at the sector level. The data can then be aggregated.

Block chain test for CDS trading successful, firms say: Four Wall Street banks, along with Depository Trust & Clearing Corp., Markit and distributed-ledger company Axoni, have successfully used block chain for record keeping of credit default swaps. “The ink is still drying on the results, but they are positive,” said DTCC’s Chris Childs.