Anthony Hall
The Dodd-Frank financial overhaul bill is still being written, debated and rewritten -- fiddled with, let's say -- as U.S. regulators finalize some rules.
The public debate is still public, but it has moved to new neighborhoods, as regulators post new rules, see them through hearings and make decisions on how they will be implemented. Hundreds of rules were left to regulators to write after the bill was signed into law last year -- a good thing for lobbyists who did not want to be laid off after the ink dried.
Regulators are currently writing the fine print on how to mandate banks maintain part of the risk when bundling mortgages, so they are not just selling losses if a loan goes sour.
The bill calls for banks to hold onto at least 5 percent of the risk and regulators are aiming to enforce that for all but the safest loans, The New York Times reported. In response, "It is quite draconian," attorney Ellen Marshall, who represents banks, told the Times.
"It is requiring the 5 percent of risk retention on a huge swath of the market. It is permitting securitization without the retention of 5 percent only in the case of very old-fashioned mortgages," she said.
Moving loans around is all about grease. Without grease there is no movement and banks are stuck holding onto a 30-year loan for -- talk about draconian -- 30 years instead of bundling them up and passing them along. They get their money much more quickly that way. A bundled security is supposed to be a bird in the hand. And risk, well, risk is what it is all about, but nobody likes it -- not even banks.
Especially banks. But after the financial system crumbled in 2008, lawmakers agreed to have banks maintain a portion of the risk to ensure they would write better loans. The fear is they will just write fewer loans or pass costs on to customers. Loans then become similar to an insurance pool with losses shared categorically by other borrowers.
The debate, in turn, has returned to square one: What loans are so secure they do not require the 5 percent risk retention and which ones do. Pointedly, there are not many debates that cut any closer to the heart of the financial mess than this one. Banks are lobbying to broaden the definition of sound lending, while regulators are looking to ensure those who write the loans are not given a get-out-of-jail free card when the loans are sold.
From Mediterranean Avenue to Boardwalk, the debate is an important one.
In international markets Tuesday, the Nikkei 225 index in Japan slid 0.21 percent while the Shanghai composite index in China fell 0.87 percent. The Hang Seng index in Hong Kong was flat, off 0.03 percent while the Sensex in India rose 0.94 percent.
The S&P/ASX 200 index in Australia rose 0.47 percent.
In midday trading in Europe, the FTSE 100 index in Britain was off 0.05 percent while the DAX 30 in Germany fell 0.49 percent. The CAC 40 in France dropped 0.22 percent while the Stoxx Europe 600 lost 0.31 percent.
