Thursday, 24 March 2016 18:41
Posted by Shoaib-ur-Rehman Siddiqui
LONDON: An engineered slowdown in European Union financial rulemaking has turned into outright stalling in parts, holding back reforms to boost growth and leaving banks unclear over future business models.
With EU rules mandatory for banks and markets across the 28-country bloc, the sector wants clarity on the final shape of regulation after the most intensive bout of legislation in living memory.
Draft rules still left in the EU pipeline are among the most contentious, with even the European Central Bank expressing concerns over a proposal to rein in risky trading at banks. The draft law is stuck in the European Parliament with bankers hoping it will wither on the vine. "It's superfluous," said Wim Mijs, chief executive of the European Banking Federation.
The Association of Financial Markets in Europe, which counts investment banks like Goldman Sachs and Deutsche Bank among its members, said it was very unclear what the outcome of the draft law would be.
"Market participants are increasingly concerned about the political uncertainty," Jouni Aaltonen, AFME's director of prudential regulation said.
Banks worry the reform in combination with global moves to review capital charges on bank trading books will harm already stressed liquidity in markets, Aaltonen said.
A slower pace in EU rulemaking is deliberate after Brussels pushed through more than 40 laws to rein in risks at lenders and shine a light on markets like derivatives in the aftermath of the 2007-09 financial crisis.
"I've been very clear since I took office: my objective is not to try and legislate as much as I possibly can," EU financial services commissioner Jonathan Hill told Reuters. With the "big stuff" done, Hill has so far proposed only three new laws, and bankers are not complaining. "We are not bored," Mijs said.
Hill has focused on writing 400 standards to implement laws already approved, and on enforcement, with 120 actions taken against member states last year.
But many of the remaining draft reforms still in the works have become bogged down, making it harder for banks and investors to prepare for changes. Brussels lobbyists warn it may take some time to approve these remaining reforms as the sense of urgency seen in the crisis has gone and issues like migration now dominate in-trays. "What was a frenzy has gone back to a new normal," an EU diplomat said. With fewer new draft laws, the European Parliament, which has joint say with member states, has more time on its hands.
"Parliament has always objected to legislation going through quickly, and if you haven't got much to do, you can be like a dog with a bone - you make it last," said Sharon Bowles, who chaired parliament's economic affairs committee during the financial crisis.
DAYS LOST
A draft law to increase the use of securitised or pooled-debt to raise funds for companies to grow is core to Hill's capital markets union plan to boost funding for growth. While EU states passed their version in record time, it may not be voted on for months in parliament, much to Hill's frustration.
"Every extra day this proposal takes to pass into law is one more day of missed opportunity for growth, Hill said. Germany has expressed doubts about a separate draft law introducing a common bank deposit insurance scheme in the euro zone, the final leg of creating a banking union to put the single currency area on a stabler footing.
The EU's Dutch presidency is trying to kickstart talks on rules for money market funds, a key sector for bank funding, as financial centres like Luxembourg and Ireland have concerns.
Sweeping changes to securities markets to reflect lessons from the crisis are being put back a year to 2018, a decade after Lehman Brothers bank went bust.
Core elements of the MiFID II rules governing firms that provide investment services are also being changed. Adding to the mix, Hill is reviewing rules passed so far, making some policymakers question if all the outstanding proposals are needed. Few, however, expect any major easing.
"I wouldn't call it pushback.
It's righting wrongs, correcting mistakes," Bowles said, citing new "Solvency II" insurance capital rules as an example.
"The word is tweaks," Mijs agreed. Other factors are also affecting momentum in EU rulemaking. Bowles said easier rulemaking like forcing banks to hold more capital has been done, leaving more difficult issues, such as improving corporate governance and conduct at banks.
Mijs said some new rules will be needed for "fintech" -- the nascent industry of financial technology startups like crowdfunding and investment apps -- though so far the European Commission said it would wait and see how the sector develops.
"I do expect some initiatives going on in the digital transformation of banking to require rules to be changed," Mijs said.
article link
Corporate Debt Defaults Explode To Catastrophic Levels Not Seen Since The Last Financial Crisis
By Michael Snyder, on March 28th, 2016
If a new financial crisis had already begun, we would expect to see corporate debt defaults skyrocket, and that is precisely what is happening. As you will see below, corporate defaults are currently at the highest level that we have seen since 2009. A wave of bankruptcies is sweeping the energy industry, but it isn’t just the energy industry that is in trouble. In fact, the average credit rating for U.S. corporations is now lower than it was at any point during the last recession. This is yet another sign that we are in the early chapters of a major league economic crisis. Yesterday I talked about how 23.2 percent of all Americans in their prime working years do not have a job right now, but today I am going to focus on the employers. Big corporate giants all over America are in deep, deep financial trouble, and this is going to result in a tremendous wave of layoffs in the coming months.
We should rejoice that U.S. stocks have rebounded a bit in the short-term, but the euphoria in the markets is not doing anything to stop the wave of corporate defaults that is starting to hit Wall Street like a freight train. Zero Hedge is reporting that we have not seen this many corporate defaults since the extremely painful year of 2009…
While many were looking forward to the weekend in last week’s holiday-shortened week for some overdue downtime, the CEOs of five, mostly energy, companies had nothing but bad news for their employees and shareholders: they had no choice but to throw in the towel and file for bankruptcy.
And, as Bloomberg reports, with last week’s five defaults, the 2016 to date total is now 31, the highest since 2009 when there were 42 company defaults, according to Standard & Poor’s. Four of the defaults in the week ended March 23 were by U.S. issuers including UCI Holdings Ltd. and Peabody Energy Corp., the credit rating company said.
And by all indications, what we have seen so far is just the beginning. According to Wolf Richter, the average rating on U.S. corporate debt is already lower than it was at any point during the last financial crisis…
Credit rating agencies, such as Standard & Poor’s, are not known for early warnings. They’re mired in conflicts of interest and reluctant to cut ratings for fear of losing clients. When they finally do warn, it’s late and it’s feeble, and the problem is already here and it’s big.
So Standard & Poor’s, via a report by S&P Capital IQ, just warned about US corporate borrowers’ average credit rating, which at “BB,” and thus in junk territory, hit a record low, even “below the average we recorded in the aftermath of the 2008-2009 credit crisis.”
What all of this tells us is that we are in the early stages of an absolutely epic financial meltdown.
Meanwhile, we continue to get more indications that the real economy is slowing down significantly. According to the Atlanta Fed, U.S. GDP growth for the first quarter is now expected to come in at just 0.6 percent, and Moody’s Analytics is projecting a similar number…
First-quarter growth is now tracking at just 0.9 percent, after new data showed surprising weakness in consumer spending and a wider-than-expected trade gap.
According to the CNBC/Moody’s Analytics rapid update, economists now see the sluggish growth pace based on already reported data, down from 1.4 percent last week.
Of course if the government was actually using honest numbers, people wouldn’t be talking about the potential start of a new recession. Instead, they would be talking about the deepening of a recession that never ended.
We are in the terminal phase of the greatest debt bubble the world has ever experienced. For decades, the United States has been running up government debt, corporate debt and consumer debt. Our trade deficits have been bigger than anything the world has ever seen before, and our massively inflated standard of living was funded by an ever increasing pile of IOUs. I love how Doug Noland described this in his recent piece…
With U.S. officials turning their backs on financial excesses, Bubble Dynamics and unrelenting Current Account Deficits, I expected the world to lose its appetite for U.S. financial claims. After all, how long should the world be expected to trade real goods and services for endless U.S. IOUs?
As it turned out, rather than acting to discipline the profligate U.S. Credit system, the world acquiesced to Bubble Dynamics. No one was willing to be left behind. Along the way it was learned that large reserves of U.S. financial assets were integral to booming financial inflows and attendant domestic investment and growth. The U.S. has now run persistently large Current Account Deficits for going on 25 years.
Seemingly the entire globe is now trapped in a regime of unprecedented monetary and fiscal stimulus required to levitate a world with unmatched debt and economic imbalances. History has seen nothing comparable. And I would strongly argue that the consequences of Bubbles become much more problematic over time. The longer excesses persist the deeper the structural impairment.
As this bubble bursts, we are going to endure a period of adjustment unlike anything America has ever known before. I talk about the pain coming to America in my new book entitled “The Rapture Verdict” which is currently the #1 new release in Christian eschatology on Amazon.com. To be honest, I don’t know if any of us really understands the horror that is coming to this nation in the years ahead. None of us have ever experienced anything similar to it, so we don’t really have a frame of reference to imagine what it will be like.
This spike in corporate debt defaults is a major league red flag. Since the last financial crisis, our big corporations went on a massive debt binge, and now they are starting to pay the price.
We never seem to learn from the errors of the past. Instead of learning our lessons the last time around, we just went out and made even bigger mistakes.
I am afraid that history is going to judge us rather harshly.
Those that are waiting for the next great financial crisis to begin can quit waiting, because it is already happening right in front of our eyes.
(The Economic Collapse)