Technology & Finance

Tuesday, August 31, 2010

Will Obama appoint a tough-talking bank regulator to protect consumers?

How often does a bank regulator feature in a rap video?  Here’s one.

Elizabeth Warren, a Harvard law prof who is now in line to become head of the new Consumer Financial Protection Bureau, an idea she proposed and Congress recently wrote into its financial reform legislation.

Joe Nocera in The New York Times cited it in his Saturday “Talking Business” column, which is always worth reading. The lyrics are not exactly what you expect from a YouTube video:

“Sheriff Warren’s what we need-o/ She’s not about the money and the green-o… /She wants to expose the banks and all the greed/ and get rid of unnecessary fees/Which means more money in my pocket?”

In the late 1980s, writes Nocera, she did a landmark study with Jay Lawrence Westbrook on personal bankruptcy in the US which refuted bank claims that consumers filed for bankruptcy because they were too lazy to pay off their debts.

People who filed for bankruptcy were genuinely in over their heads, the researchers found. They had accumulated debt they couldn’t repay because they had lost their jobs or had some other life event that robbed them of their ability to earn a decent paycheck. They were often middle class, homeowners even. They filed for bankruptcy because they were desperate. Looking through thousands of bankruptcy filings, Mr. Westbrook said a few days ago, “you got a sense of human beings in real trouble.” He added, “All of us were very much affected by what we found in those files.”

She uses very clear language, accusing the banks of “tricks and traps, and fleecing their customers. She wants credit card contracts written in plain English that a high school student can understand to end the practice she terms “cheating by contract.”

Nocera says that Timothy Geithner, Treasury secretary, would prefer to have one of his deputies take the slot, and President Obama hasn’t made any decision yet.

But if she does win the job, she could set a new global standard for bank regulation and encourage others to take a tougher stand with financial institutions.

Tuesday, August 03, 2010

Sybase and Aite Group on Liquidity Risk

"Liquidity risk...is the most significant of all business risks in that the inability to fund a position imminently can lead directly to insolvency,” said John Jay, senior research analyst, Aite Group and author of “Leveraging Technology to Shape the Future of Liquidity Risk Management,” a report sponsored by Sybase.
The UK’s FSA has been the most aggressive regulator in pushing banks to monitor and be able to report on liquidity risk, but the concern has been growing among regulators around the world.

“The single most consistent and significant challenge identified by practitioners is that of gathering information from disparate systems,” said Sinan Baskan, Senior Director of Business Development, Financial Services, Sybase. “Lack of timely and accurate visibility into all components influencing bank liquidity hinders a financial institution’s ability to manage liquidity risk-for many large banks, the number of systems containing liquidity information is upwards of 25.”

The report contains several recommendations for effective risk management. Unfortunately, the press release didn’t provide a link to the report. However, in a June report on liquidity risk, Jay said that

““Global regulators have put financial institutions on notice that the LRM process must now be a robust endeavor.Firms that fail to heed LRM regulatory imperatives run the risk of being forced to close shop; market participants will view these institutions as counterparty and funding risks — ironies that cannot be overlooked.”

Thursday, July 29, 2010

JP Morgan Ramps up for International Trade Growth

Looks like JP Morgan expects the global economy will bounce back in the next couple of years. The bank has announced that under the leadership of Global Trade Executive Daniel Cotti, J.P. Morgan is expanding the bank’s award-winning Global Trade organization, hiring several new senior managers for key positions and adding nearly 100 trade and supply chain professionals.

“J.P. Morgan is positioning itself for unprecedented growth in its Global Trade business,” said Cotti. “By adding key personnel and redesigning our business to more quickly meet clients’ needs, we aim to increase our traditional trade market share and expand our supply chain management and structured trade finance businesses.”

Among the new senior management positions are:

Pravin Advani, MD,, Global Trade Executive for Asia where most of JP Morgan’s clients remain very active and tremendous growth opportunity exists.
Andrew Betts, MD, Global Head of Supply Chain.  In this new Global Trade position, Andrew Betts and his global team will deliver modular, integrated solutions to address clients’ financing and regulatory needs across the entire supply chain. The organization incorporates the existing Logistics practice globally. 
David Conroy, Regional Trade Executive for North America and Global Trade Sales Head; Andrea Leonel, Regional Trade Sales and Advisory Head, Latin America; Kao Fang Ming, Trade Head for China.  Ming assumes this newly created position with responsibility for partnering with the Global Corporate Bank to lead Global Trade’s business and growth in this important market.  Also announced is Prashant Pillai, Trade Head for India and South Asia. 

Reg E -- Screw Customers or Offer Mobile Overdraft Alerts?

In response to new regulations in the US restricting overdraft fees, banks have the choice of trying to preserve the fees or use mobile alerts to allow consumers to move funds and avoid overdraft fees, according to Javelin Strategy & Research report on Reg E.
Almost twice as many overdraft violators – consumers who have paid at least one overdraft charge in the past year – use mobile banking as do consumers overall and they want to be alerted before an overdraft occurs, said the research firm.
“Many consumers see financial regulations as a victory and feel they now have greater say over what fees to pay,” said Mary Monahan, research director. “FIs can transform their image from adversary to partner by being more transparent about the fees they charge and by giving their customers the control they want – such as being able to respond to a mobile alert before incurring an overdraft fee.”

The Reg E and Overdrafts report gives an overview of Reg E and its existing fee structure and covers how banks and credit unions can reposition themselves and revamp their business models to recoup lost fees due to Reg E – and what certain FIs are doing already. It also discusses who overdraft violators are, the behavior of overdraft violators and how they should be targeted, how consumers are impacted and their options post Reg E and how mobile can be used as a solution for both banks and customers.

Selected Key Report Findings – Reg E and Overdrafts
• Mobile banking can play a key role in enabling financial institutions to communicate more effectively with their customers by delivering relevant information and notifications in real time whenever customers want it, wherever they are located and through a lower cost channel.
• The mobile alert that both overdraft violators and all consumers most want is a warning that an overdraft is about to occur.
• Young consumers and the newly banked – consumers who opened their first checking account in the past three months – are the most likely to incur overdraft fees due to their inexperience with banking.
• Consumers cite ‘too many fees’ as the No. 1 reason they leave their financial institution.

“The last thing a bank should do is alienate a new – and especially an inexperienced – customer by automatically imposing a hefty fee when they have overdrafted on a one-time debit card transaction or at their ATM,” said Mark Schwanhausser, senior analyst, multi-channel financial services.  “Instead, the bank can send them a mobile alert, which empowers the consumer to choose what action to take to avoid overdrafting such as transferring funds from another account or paying in cash. By working with the consumer, the FI can reap the added benefits of reducing fraud costs, creating future cross-selling opportunities, and building customer loyalty.”

Haircuts for Creditors as a Solution to Too Big to Fail?

Gillian Tett in the FT recently wrote about a concept she describes as a “bail-in”, rather than a “bail-out” for systemically important banks.

“This idea, mooted by Credit Suisse in an essay this year, argues that in essence the best way to handle a crisis at a large, systemically important bank is to force creditors – not taxpayers – to swallow losses if disaster strikes; and, more importantly, to do this while the bank is still operating as a going concern, so it does not collapse – and cause Lehman-style havoc.”

Unlike contingency capital, or cocos, this would not occur when certain triggers are reached but would be undertaken by regulators.

That would thus prevent banks from trying to game complex triggers, and investors from endlessly speculating about when triggers might be activated. 
The U.S. financial reform should be seen as a first step. Now that some of the big items are agreed, it is time to look at some of the big issues that were sidestepped, such as Too Big To Fail.

§ Syndicate

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