Bank Liquidity, CoCo Market Swells, Madoff Son Dies: Compliance
Sept. 4 (Bloomberg) — U.S. regulators adopted requirements for the level of high-quality liquid assets banks must stockpile to survive a 30-day liquidity drought, a major step in efforts to prevent a repeat of the 2008 credit crisis.
Big banks are said by the Federal Reserve to be about $100 billion short of $2.5 trillion in easy-to-sell assets they need to meet the standards approved yesterday by the Fed and Office of the Comptroller of the Currency and set for a Federal Deposit Insurance Corp. vote. Municipal bonds are excluded from the category of assets banks can use to reach the target.
The agencies also will propose a rule on collateral for swaps traded outside of clearinghouses and wrap up rules on how much loss-absorbing capital must be held against total assets.
The liquidity and leverage-ratio rules are based on accords reached by the Basel Committee on Banking Supervision.
Banks have four months to reach an 80 percent liquidity level at the start of the year, and will have another two years to reach full compliance by Jan. 1, 2017.
Compliance Action
CoCo Market Seen Swelling to $80 Billion on Review
The market for the riskiest bank debt will probably swell by more than 50 percent to $80 billion in Europe by year-end as lenders bolster capital ratios.
Faced with stress tests and an asset quality review in coming weeks, European banks will issue about 20 billion euros ($26 billion) more additional Tier 1 notes this year, according to Barry Donlon, head of capital solutions for Europe, the Middle East and Africa at UBS AG in London. There are about $52 billion of the securities currently outstanding.
Regulators created contingent capital bonds, known as CoCos, to push the burden of policing the banks onto investors by forcing bondholders to pay for collapses.
Swiss Regulator Probes Espirito Santo Unit Over Securities Sales
The Swiss financial regulator is probing the role played by Banque Privee Espirito Santo SA’s owners and whether the lender breached rules in selling investments linked to the Portuguese financial group.
The probe by the Swiss Financial Market Supervisory Authority, or Finma, follows similar inquiries in Portugal, where regulators are investigating the sale of securities involving Banco Espirito Santo SA and how the group’s companies helped fund each other. Banco Espirito Santo was bailed out last month after losses on loans.
The company “will collaborate closely with Finma within the bounds of this procedure,” Banque Privee Espirito Santo, based in Pully, said in an e-mailed statement.
Notable Passing
Andrew Madoff, Convicted Con Man’s Surviving Son, Dies at 48
Andrew Madoff, convicted con man Bernard Madoff’s only surviving son, died at age 48.
He died yesterday at Memorial Sloan Kettering Cancer Center in New York after battling mantle cell lymphoma, his attorney, Martin Flumenbaum, said in an e-mailed statement.
As heads of the trading desk at Bernard L. Madoff Investment Securities LLC, Madoff and his brother, Mark, led the market-making business, while their father, based on another floor, invested clients’ money.
The firm’s clients invested $17.5 billion in principal and were led to believe they had a total of $64.8 billion in their accounts. On Dec. 10, 2008, the brothers contacted the Federal Bureau of Investigation to expose their father’s long-running fraud.
Though sued for millions of dollars, the brothers were never charged with criminal wrongdoing.
Madoff’s father was sentenced to 150 years in prison. Mark Madoff took his own life on Dec. 11, 2010, the second anniversary of his father’s arrest.
–With assistance from John Glover in London.
To contact the reporter on this story: Carla Main in New York at cmain2@bloomberg.net To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Charles Carter, David Glovin
