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Friday, May 8, 2015

CCP's, #MMT Fraud, Census Data Reports, LSAPs & IFRS

  • The NY Fed published a brief about large-scale asset purchases, or LSAPs 

  • The OFR released two papers on CCP's 

  • The ESA issued a tool that allows anyone, including investors, to use census data 

  • Chief SEC Accountant reflects on IFRS 

  • SEC charged four former officers of Wilmington Trust

Liberty Economics published a brief in a series entitled "From the Vault: Monetary Policy and Government Finances", which looks at what the FOMC has to say about the success or failure of large-scale asset purchases, or LSAPs and their impact on remittances to U.S. Treasury over the next year. The Fed forecasts that net income will go down considerably as rates rise. Where is all this money going? Banks.

The OFR released two papers. One is entitled Hidden Illiquidity with Multiple Central Counterparties which focuses on the systemic risks in "markets cleared by multiple central counterparties (CCPs)". Each CCP charges a certain margin based on the risk of default. To get around this loophole, swaps dealers "split positions among multiple CCPs, effectively “hiding” potential liquidation costs". The lower the margin, the more business they get which "can drive competitors out of the market."

The other paper published by the OFR is entitled entitled Systemic Risk: The Dynamics under Central Clearing which suggests that large central counterparties crowd out smaller clearing members. The result is a "high clearing member concentration" which results in lower lending, higher cost of capital, and costly hedging. The paper proposes a "self-funding systemic risk charge".

The U.S. Department of Commerce’s Economics and Statistics Administration (ESA) released a report entitled, “The Value of the American Community Survey: Smart Government, Competitive Businesses, and Informed Citizens,” which shows how the Census Bureau’s American Community Survey (ACS) directs over $400 billion in federal funds to certain communities. The report is used by local government agencies, infrastructure projects, businesses looking for information, and investors looking for information on trends. Other reports released by the Office of the Chief Economist include: “Fostering Innovation, Creating Jobs, Driving Better Decisions: The Value of Government Data,” released July 2014, and “The Importance of Data Occupations in the U.S. Economy,” released March 2015, "which found that data jobs pay more than average and are growing faster than overall employment".

James Schnurr, Chief Accountant at the SEC addressed the 2015 Baruch College Financial Reporting Conference. He used the speech to discuss his views on IFRS or international financial reporting standards. According to Schnurr investors are interested in the following:
  • a single set of high–quality, globally accepted accounting principles,
  • understanding the financial implications of providing IFRS-based information on a voluntary basis; and,
  • creating similarities between IFRS and GAAP. 
The SEC charged four former officers of Wilmington Trust, subsidiary of M&T Bank (NYSE: MTB) for intentionally understating past-due bank loans during the financial crisis.  Acquired by M&T Bank in May 2011, the Wilmington Trust had to pay $18.5 million in September 2014 to settle related SEC charges of "improper accounting and disclosure fraud". The suit alleges that the bank’s former Chief Financial Officer David R. Gibson, former Chief Operating Officer and President Robert V.A. Harra, former Controller Kevyn N. Rakowski, and former Chief Credit Officer William B. North were all part of a scheme to mask the true "impact of real estate market declines on the bank’s portfolio of commercial real estate loans."  The team did this by "excluding hundreds of millions of dollars of past due real estate loans from financial reports filed by Wilmington Trust in 2009 and 2010". In total the four allegedly omitted ~$330.2 million of "these loans in the fourth quarter of 2009, so that the bank’s annual report disclosed just $30.6 million in matured loans 90 days or more past due". Wow.

In Case You Missed It

  • Monday, May 4, 2015 Recap: FRB Reports on Credit & Lending Practices, May CRA, Deutsche Bank Maintains WKSI Status, Peer Analysis May Lead To Overvaluation  
  • Tuesday, May 5, 2015 Recap: Does Compliance Matter For Bank Performance, Alger Fair Fund Established, FTC Allows $12.4B Merger
  • Wednesday, May 6, 2015 Recap: Does Tick Size Matter, Asia Economic Review, FDIC Strategic Plan, Low GDP Blamed on Baby Boomers, and The FRAC Wants You!
Last week 

  • Monday, April 27, 2015 Recap: Credit Detail, More CFTC Charges, Puzzling Low T-Yields, and the Fed Testifies Before The Senate 
  • Tuesday, April 28, 2015 Recap: Ex-Evercore Banker & Girlfriend Charged, IMF on Islamic Banking, Bank Profitability, and a $600K Payday For Whistleblower 
  • Wednesday, April 29, 2015 Recap: Fed Funds, Bernake's Response To Taylor's Rebuke, GDP, China's Looming RE Battle & Pay Vs. Performance 
  • Thursday, April 30, 2015 Recap: Algorithmic Trading, Community Banks, Personal Income Report, Another FX Scheme, Banking Applications and Compliance Outreach
  • Friday, May 1, 2015 Recap: Financial Literacy, 18yrs For Investment Fraud, FCStone Sanctioned, Pan-African Banks, Piwowar's Dissent and Alaska's $51B Fund

Two Weeks Ago 
  • Monday, April 20, 2015 Recap: Treasury Auctions, FX Ponzi, BlackRock Fail, Dudley's Fed Speech, and the FFER
  • Tuesday, April 21, 2015 Recap: More Regulation For Large Banks, Youth Savings, Piwowar's Speech, Flash Crash Culprit, the OFAC & FNRG Halted
  • Wednesday, April 22, 2015 Recap: #EXIM2015, Obama's PPPs, Goldman Sachs In The "Dark", $1.5M Payday, Massad Speaks, and Yellen Stabilizes
  • Thursday, April 23, 2015 Recap: GDP, Deutsche Bank, Community Banks, Repos, and the Treasury Gets New Blood
  • Friday, April 24, 2015 Recap: New Federal Reserve Auditor, Inventories Up, CEI Same, Insider Trading, Fair Fund Delays & Alizadeh's Grand Jury Indictment