Banking Industry: Yellen: U.S. Banks Are Still a Risk to Financial Stabilityby- by David Francis

As the US economy gains strength, the near-collapse of the U.S. financial system after the fall of Lehman Brothers in 2008 is fading from the memories of most Americans. On Wednesday, Federal Reserve chief Janet Yellen warned the United States is still at risk of something similar happening again. 
 
Testifying before the House Financial Services Committee, Yellen said “substantial compliance and risk management issues” remain at some of the larger financial firms that the Fed regulates. She didn’t get into specifics, but her message to lawmakers was clear: Banks are healthier than they were at the start of the Great Recession, but they still aren’t in tip-top shape — and that poses a risk to the U.S. economy. 

“While we have seen some evidence of improved risk management, internal controls, and governance … compliance breakdowns in recent years have undermined confidence,” Yellen said in prepared testimony. She was speaking specifically of 16 large financial companies, including the biggest U.S. banks, that are overseen by the Fed. 

“[This] could have implications for financial stability, given the firms’ size, complexity, and interconnectedness,” Yellen said.

Read more: Yellen: U.S. Banks Are Still a Risk to Financial Stability | Foreign Policy

US Banking Industry: Fierce battle over card fees goes on - by im Spencer

After helping negotiate the largest antitrust settlement in U.S. history against credit card companies and banks, Minneapolis lawyer K. Craig Wildfang might reasonably have expected a standing ovation from the retail industry. So far, much of what he's received are Bronx cheers.

Many of the country's biggest retailers, who were not parties to the case, want the $7.25 billion deal dead. Mark Williams, president of financial services at Richfield-based Best Buy, said the settlement "does almost nothing to address why U.S. consumers and merchants continue to pay higher [credit card] costs than nearly every other developed country."

Minneapolis-based Target Corp. believes the settlement has "serious substantive and legal defects" that "perpetuate a broken system" of uncontrolled credit card fees that costs Target hundreds of millions of dollars each year, said spokeswoman Jenna Reck.

Visa and MasterCard accounted for 71 percent of credit card purchasers in 2008, the GAO reported. From 1991 to 2009, MasterCard raised its standard credit card fees by 22 percent, the GAO said. From 1995 to 2009, Visa raised its standard fee by 23 percent.

Experts expect major retailers and trade associations to fight all the way to the U.S. Supreme Court if necessary to kill or materially change the settlement. Opponents say it leaves credit card companies with too few limits on fee increases and prohibits future lawsuits.

Georgetown University law Prof. Adam Levitin, a consumer finance expert, speculated that credit card fees could become a flash point in the U.S. House and Senate, the way debit card fees did in 2011 when Congress voted to restrict them in an amendment to financial regulatory reform.

Read more: Fierce battle over card fees goes on | StarTribune.com

US Banking Industry: JPMorgan trading loss nearly triples to $5.8B US

JPMorgan Chase, the largest bank in the United States, said today that a trading blunder had cost the bank $5.8 billion since the beginning of the year — nearly triple its original estimate.

The company also raised the prospect that traders had attempted to conceal the trading loss. "This has shaken our company to the core," CEO Jamie Dimon told analysts.

The bank said all managers in the London office responsible for the trade had been dismissed without severance pay and that it planned to revoke two years' worth of pay from each of those executives.

For more: Business - CBC News

US Banking System recipe for disaster: JP Morgan debacle reveals flaw in Federal Reserve thinking

Experienced Wall Street executives and traders concede, in private, that Bank of America is not well run and that Citigroup has long been a recipe for disaster.

But they always insist that attempts to re-regulate Wall Street are misguided because risk-management has become more sophisticated — everyone, in this view, has become more like Jamie Dimon, head of JP Morgan Chase, with his legendary attention to detail and concern about quantifying the downside.

In the light of JP Morgan's stunning losses on derivatives, announced yesterday but with the full scope of total potential losses still not yet clear (and not yet determined), Jamie Dimon and his company do not look like any kind of appealing role model.

But the real losers in this turn of events are the Board of Governors of the Federal Reserve System and the New York Fed, whose approach to bank capital is now demonstrated to be deeply flawed.
JP Morgan claimed to have great risk management systems — and these are widely regarded as the best on Wall Street.

But what does the "best on Wall Street" mean when bank executives and key employees have an incentive to make and misrepresent big bets — they are compensated based on return on equity, unadjusted for risk?

Bank executives get the upside and the downside falls on everyone else — this is what it means to be "too big to fail" in modern America.


Read more: JP Morgan debacle reveals flaw in Federal Reserve thinking | The Nelson Daily