JimofPennsylvan
Platinum Member
- Jun 6, 2007
- 859
- 500
Federal regulators have been working on detailed regulations for banks pertaining to implementing the Volcker rule which was mandated by the 2010 Dodd-Frank law passed to correct abuses by the financial industry that caused the Great Recession. Generally, the Volcker Rule is a prohibition on banks engaging in speculative activity the thinking is that if that speculative activity goes bad the American people will have to bail out these banks and this is a costly endeavor the country should seek to avoid. Federal regulators are "poised" to relesase specific regulations with regard to the Volcker rule telling banks what type of "hedging activity" is permitted. These are extremely important rules because hedging activity allows banks to engage in transactions that protect them from economic lossess from financial industry activity they are involved in, if they were not permitted to do this banks stabilty would fluctuate and they would incurr higher economic losses they would otherwise harming their ability to lend and help the economy.
The problem and it is a seriouis one is that the federal regulations are not going to allow portfolio hedging activity. In part, this is because of the JP Morgan whale incident where some JP Morgan traders in London under the guise of doing portfolio hedging got themselves into a predicament where they lost like $ 5 plus billion dollars. This is totally bogus for the regulators to use this incident this way because these JP Morgan London traders obviously were not doing portfolio hedging activity that was just a cover for their activity; the reports in the media were that these traders investments way overstated the risk in JP Morgan's portfolio and/or they made hedging investments to correct prior hedge investments that overstated the risks. How illegitimate for federal regulators to mischaracterize an incident like this and use it to justify their behavior they are supposed to be the good guys.
This pending prohibition on portfolio hedging is terrible government regulation because it will cause the banks to have to spend more labor and engage in more transaction to hedge against losses from their business activity. The affected investment banks are engaged in extremely valuable activity for the country like underwriting stock and bond issuance for businesses and bond issuances for governement entities. Sometimes these investment banks have to let their inventory of bonds and stocks from these underwriting activity grow for countless different reasons because maybe the government or business entiity doing the issuance credit profile took a setback at the time of issuance or maybe something bad is occurring on the macroeconomic front at the time of the issuance the country needs the investment banks to be virtuous and absorb a larger than planned portions of the issuance so a good outcome for the government entity or business in question can experience a good outcome. This prohibition against portfolio hedging by federal regualators will almost certainly hurt the issuance of stocks and bonds in our coutnry as well as market making activity of financial institutions a bad move by the government and a bad outcome for America!
Federal regulators obvious inability to come up with regulations that can separate portfolio hedging from speculating by investment banks just shows how inept and incompetant today's U.S. financial regulators are and is further evidence of this Presidentiall administration's poor performance in carry out their regulatory duties. It really doesn't make any sense at all what is going on here federal regulatory agencies today have actual federal regulators in these investment banks permanently stationed there. Why don't the federal regulators make the regulations be such that portfolio hedging is permitted as long as in writing the portolio is identified and the risk is identified and the hedging investment is reasonably related to protecting against that risk especially from the standpoint that the hedge doesn't try to protect against an over assessment of the risk in the portfolio and this writing has to be presented to a federal regulator on the investment banks premises and if the regulator so chooses he or she is given three hours to consult with their office and deny the hedging investment; if the federal regulatory agency is unfairly using its authority and unfairly blocking portfolio hedging the affected investment bank can go to the local federal court and if the local judge agrees he or she can appoint any qualified person to do this oversight and the fedeal regulatory agency that is deemed to have acted unfairly is banned from getting involved in this oversight activity for the following seven years and the process can be repeated when needed.
The problem and it is a seriouis one is that the federal regulations are not going to allow portfolio hedging activity. In part, this is because of the JP Morgan whale incident where some JP Morgan traders in London under the guise of doing portfolio hedging got themselves into a predicament where they lost like $ 5 plus billion dollars. This is totally bogus for the regulators to use this incident this way because these JP Morgan London traders obviously were not doing portfolio hedging activity that was just a cover for their activity; the reports in the media were that these traders investments way overstated the risk in JP Morgan's portfolio and/or they made hedging investments to correct prior hedge investments that overstated the risks. How illegitimate for federal regulators to mischaracterize an incident like this and use it to justify their behavior they are supposed to be the good guys.
This pending prohibition on portfolio hedging is terrible government regulation because it will cause the banks to have to spend more labor and engage in more transaction to hedge against losses from their business activity. The affected investment banks are engaged in extremely valuable activity for the country like underwriting stock and bond issuance for businesses and bond issuances for governement entities. Sometimes these investment banks have to let their inventory of bonds and stocks from these underwriting activity grow for countless different reasons because maybe the government or business entiity doing the issuance credit profile took a setback at the time of issuance or maybe something bad is occurring on the macroeconomic front at the time of the issuance the country needs the investment banks to be virtuous and absorb a larger than planned portions of the issuance so a good outcome for the government entity or business in question can experience a good outcome. This prohibition against portfolio hedging by federal regualators will almost certainly hurt the issuance of stocks and bonds in our coutnry as well as market making activity of financial institutions a bad move by the government and a bad outcome for America!
Federal regulators obvious inability to come up with regulations that can separate portfolio hedging from speculating by investment banks just shows how inept and incompetant today's U.S. financial regulators are and is further evidence of this Presidentiall administration's poor performance in carry out their regulatory duties. It really doesn't make any sense at all what is going on here federal regulatory agencies today have actual federal regulators in these investment banks permanently stationed there. Why don't the federal regulators make the regulations be such that portfolio hedging is permitted as long as in writing the portolio is identified and the risk is identified and the hedging investment is reasonably related to protecting against that risk especially from the standpoint that the hedge doesn't try to protect against an over assessment of the risk in the portfolio and this writing has to be presented to a federal regulator on the investment banks premises and if the regulator so chooses he or she is given three hours to consult with their office and deny the hedging investment; if the federal regulatory agency is unfairly using its authority and unfairly blocking portfolio hedging the affected investment bank can go to the local federal court and if the local judge agrees he or she can appoint any qualified person to do this oversight and the fedeal regulatory agency that is deemed to have acted unfairly is banned from getting involved in this oversight activity for the following seven years and the process can be repeated when needed.
