The year 2012 saw the Federal Reserve subjecting the banking industry under strict scrutiny under the Dodd-Frank Wall Street Reform. And as the fifth anniversary of the Lehman Brothers bankruptcy looms on the horizon, no other than US President Barack Obama conveyed a “sense of urgency” to complete the implementation of the new Wall Street rules.
Selected top U.S. financial regulators are set to meet on Monday, to discuss financial regulation of investment banks on Wall Street. This move hopes to prevent a re-occurrence of the largest bankruptcy filing in U.S. history, as what happened with the Lehman Brothers.
The distrust placed towards the banking industry as a whole had members of the American Bankers Association worried; however, were pacified by the efforts shown by the White House as it emphasizes the urgency in overhauling the regulation of the financial industry. According to a spokesman from the White House, “We’re certainly pleased with the level of cooperation and coordination that’s taken place among these independent regulators. The president wants to encourage them to capitalize on the momentum they’ve already built up to put this regulatory regime in place.”
The Dodd-Frank Wall Street Reform
According to the Dodd-Frank Wall Street Reform, it is within the authority of the Fed to collect fees from banking institutions who have incurred regulatory expenses under its supervision. Banks with a minimum asset of $50 billion are within the jurisdiction of the Fed, which could collect cash from them. It is only now that the Fed has invoked its rights to do so.
The Dodd-Frank Law was passed by Congress to implement a new set of financial rules that will address events such as a market meltdown, and the oversight of consumer financial products, mortgages and huge swaps market.
One specific rule appreciated by investors is the Volcker rule. It prohibits banks from using their own money to place high-risk trades.
The Regulatory Fees
In an announcement released by the Fed last Friday, an estimated $440 million may be collected from the top 70 banks in the U.S. The deadline for payment is set on December 15th; however, further details available by June 30 will expect payments to be settled as early as September 15th.
The initial fee plan was drafted four months ago, and so far, the implementing rules are 40% complete. Additional details are set to be released in October; yet early estimates see financial institutions with $50 billion assets owe fees around $1 million. Financial institutions with an asset base of $1 trillion dollars owe at least $22 million in fees.
In its final ruling, the Fed would consider the size of the company in determining the cost in monitoring it. “Larger companies are often more complex companies, with associated risks that play a large role in determining the supervisory resources necessary in relation to that company.” Also noted in the rule, “The largest companies, because of their increased complexity, risk, and geographic footprints, usually receive more supervisory attention.”
Investment banks are not subject to the same regulations applied to depository banks. Regulating these banking institutions has reverberating repercussions across the economic market. It has brought back the much-needed confidence in the U.S. banking industry, which maintains a strong presence in the international trading scene. The Fed has taken every effort to maintain a check and balance over financial institutions. In a way, the responsibility lies on the banks themselves to pay for their own monitoring, and not rely on tax payers’ money to keep track of their safe banking practices.