Fed Chairman Urges More Stringent Rules for Big Banks

Federal Reserve Chairman Ben Bernanke has said the Fed will unveil new regulations that would guard the US economy from another meltdown of the nation's largest financial companies.

(May 12, 2011) — As part of discussions over the Dodd-Frank financial law, Federal Reserve Chairman Ben Bernanke and other regulators have expressed efforts to encourage more stringent rules for “systemically important” financial institutions to guard the economy from another 2008 financial crisis-type collapse.

In testimony delivered to the House Committee on Banking, Housing and Urban Affairs, obtained by the Associates Press, Fed Chairman Ben Bernanke stated: “Our goal is to produce a well-integrated set of rules that meaningfully reduces the probability of failure of our largest, most complex financial firms, and that minimizes the losses to the financial system and the economy if such a firm should fail.”

According to Bernanke, larger financial firms — big banks and others, such as Wall Street firms, hedge funds and insurance companies — should face more stringent rules to make sure they can overcome the volatility to the economy.

Bernanke testified along with the heads of the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC), as well as other key regulators. The Fed will permit the public, banks and other interested parties to comment on the proposed regulations before implementing them in January 2012.

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To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

The Securities and Exchange Commission has joined state and federal investigators looking into whether State Street Corp. overcharged investment clients millions of dollars for foreign exchange transactions.

(May 12, 2011) — The Securities and Exchange Commission (SEC) is investigating State Street over its pricing of some foreign-exchange services, which has been a large source of revenue and profits at banks.

In its latest quarterly filing, Boston-based State Street, the third-largest custody bank, disclosed the SEC investigation, noting that “attorneys general from a number of [states] as well as US attorney’s offices, the SEC and other regulators have made inquiries or issued subpoenas.”

State Street is also currently being investigated by Massachusetts’ chief securities regulator over its handling of foreign-exchange transactions. Regarding the pricing of its foreign-exchange transactions, State Street has already been sued by California and the Arkansas Teacher Retirement System for alleged fraud. Filed in early February in the US district court in Boston, the suit alleges that State Street, the custody bank for more than 40% of US public pension funds, violated state law by overcharging customers for currency trades. According to the suit, the bank generated as much as $500 million in profits annually — a rate of profit that accounts for about 50% of State Street’s foreign exchange profits over the last decade. In response, State Street says the Boston-based company is “firmly committed to providing its clients with quality service and transparency in meeting their FX needs. We will vigorously defend the allegations made in the complaint and we stand by our business practices,” State Street says.

In 2009, the nation’s two largest public pension systems — the $226.6 billion California Public Employees’ Retirement System (CalPERS) and the $146.4 billion California State Teachers’ Retirement System (CalSTRS) — launched a case, which is ongoing, against State Street over it’s foreign-exchange fees.

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State Street’s rival, Bank of New York Mellon, is the subject of similar claims from Virginia, Florida, and a public pension fund in Pennsylvania, accused of manipulating FX transactions and overcharging pension systems for transactions in order to maximize their profits at the expense of clients.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742