Week InReview
Friday | Apr 11, 2019
Is the party over?

"UBS Group AG fired a senior investment banker because he allegedly failed to apprise his managers of details of a leveraged-buyout loan, highlighting the pressure Wall Street firms are under to keep a lid on risk in the lucrative business.

"The Swiss bank in December dismissed James Boland, who ran its leveraged-finance group in the Americas, and a lieutenant. Their alleged offense: not informing superiors and the bank’s compliance officials that they had reclassified a bond the firm was underwriting as a loan, according to people familiar with the matter.…

"UBS had planned to finance the deal with a bond, the people said. But after officials at the Swiss bank realized they couldn’t provide enough disclosure for such a deal to pass legal muster, they switched it to a loan, which carries less-stringent disclosure requirements. Unlike bonds, however, loans are subject to the guidelines regulators put in place as part of broader efforts to limit excessive risk taking in the wake of the financial crisis.

"There is no sign that the loan ran afoul of government guidelines. Even though the loan was successfully syndicated to investors, UBS temporarily held on to a piece of it, and that is what caused the guidelines to come into play, one of the people said."

in case you missed it...
The International Monetary Fund warned of “dangerous” consequences for the U.S. economy if calls for Federal Reserve interest-rate accommodation lead to monetary policy mistakes. The importance of the Fed’s independence was demonstrated in the early 1970s, when President Richard Nixon pressured then-Fed Chair Arthur Burns to lower rates. (Bloomberg Politics | Apr 11) And then, there's this.

Bank CEOs including JPMorgan Chase & Co.’s James Dimon, Citigroup Inc.’s Michael Corbat, Morgan Stanley ’s James Gorman and Goldman Sachs Group Inc.’s David Solomon told lawmakers that their firms were more tightly overseen and less risky, with some using the opportunity to press for eased regulation. Lawmakers peppered the executives with questions about possible new threats to the financial system and pressed them on issues such as safety, Russia, and gun-industry ties. (The Wall Street Journal | Apr 10)

Financial regulators have done a lot to reform the derivatives markets that helped turn the financial crisis of 2008 into a global disaster. But their work is unfinished — and there’s even a danger that, in one way, they might have made things worse. (Bloomberg Opinion - Editorial Board | Apr 10)

Securities and Exchange Commission Chair Jay Clayton said that because mutual funds promise investors easy entry and exit, it’s probably not ideal for them to load up on thinly traded corporate debt. Investors should be aware that such loans can’t always be sold as quickly as other debt securities. (Bloomberg Law | Apr 9)

Some large foreign banks operating in the U.S. face having to hold more liquid assets under a regulatory shake-up proposed by the Federal Reserve. The changes to the post-crisis rule book would reduce capital requirements and frequency of stress tests for many institutions, but they also tighten liquidity rules for a list of banks that could include Barclays, Credit Suisse and Deutsche Bank. (Financial Times | Apr 8)
New, improved Basel III framework
(Apr 9) — In a bid to consolidate the myriad provisions of its global standards for the regulation and supervision of banks published over a 10-year period, the Basel Committee on Banking Supervision unveiled a streamlined version of the Basel III framework that is more user-friendly and easier to navigate.

Publication of the standards in the new format focused on reorganising existing requirements, not introducing new ones. Preparation of the framework did, however, reveal certain inconsistencies between Basel requirements as well as ambiguities that need to be addressed through minor policy changes.

The framework was published initially in draft form, together with a consultative document, in order to gather feedback on various proposed technical amendments to the standards.

Comments on the accuracy and clarity of the consolidated framework, and on the proposed technical amendments to the standards should be uploaded here by Aug. 9, 2019. All comments will be published on the Bank for International Settlements website unless a respondent requests confidentiality.
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