Is more bank regulation on the horizon
October 27, 2009 by admin
Long awaited legislation aimed at reigning in finance and banking companies may finally become a reality. Following an eventful week on Wall Street, where news out of Europe that ING would be broken up and divisions would be sold off in the near future certainly put a renewed emphasis on reform. European regulators are following through with their plans to ensure financial companies are no longer in position to singlehandedly take down the financial markets.
The highly controversial rescue package to the banking and finance industry continues to be an item that evokes heated criticism government regulation and oversight. AIG went from being one of the most recognized brands, to being labeled as the poster child for the economic catastrophe that followed the collapse of the credit markets. When financial companies were forced to dip into taxpayer funds to restore their balance sheets and improve their capital ratios, there was a large list of reforms promised from politicians from coast to coast to ensure the country would never find itself in a position of funding private companies to the tune of nearly one trillion dollars. To date, all of the proposed reforms have struggled to move beyond the initial promises.
The political promises of banking reforms may be taking a step closer to becoming enacted. Senator Barney Frank is now pushing forward legislation aimed at the too big to fail model. The process of identifying companies that may be to big to fail would be handled by a group made up of members from the Federal Reserve, FDIC, and Treasury Department. This coalition would be given the authority to contract companies that have grown so large and carry financial exposure that could prove to be damaging to the entire economic system if their financial positions were to change. To date, AIG remains the only firm the government is actively forcing to break up and sell off profitable pieces to repay their TARP funds. Certainly companies such as Citigroup and Bank of America will face additional scrutiny with the new legislation. Both companies are saddled with massive mortgage portfolios that continue to lose value and strain their capital raito positions. Members of Congress are certainly going to press for radical changes in the current system, including the possibility of more employee compensation reforms for these companies. Over the last week, the TARP’s pay czar evoked broad compensation plan adjustments for executives that have received money and work for companies that accessed capital through the TARP program. The compensation practices remains one of the publics largest grievances with the financial industry, especially when news such as the story from Citigroup, where an employee will reportedly earn over one hundred million dollars for the second year in a row. The process of reforming the financial and banking industry should be less political than the proposed health care reforms and stand a good chance of passing this year.
