Despite Reform, Banks Have Room for Risky Deals

By Simon Johnson The New York Times reports that financial reform is the next top priority for Democrats.  Barney Frank, fresh from meeting with the president, sends a promising signal,

FORTUNE -- Have you ever watched something unfold, knowing that it hasn't got a prayer of succeeding? Then you understand how I feel about the provision in the Dodd-Frank financial reform legislation that would supposedly avoid future federal bailouts by requiring giant financial institutions to draw up so-called living wills. These "wills," which banks are currently discussing informally with regulators, are a weak, pathetic substitute for what Washington should have really done: that is, break up "systemically important financial institutions" into much smaller pieces.

Kimball Corson submits: The trick for bankers is to appear reformist, and have their agents in Congress appear to be so too, while all the while making very sure any real reform is left to the discretion of someone who can be “influenced” or “controlled.” This is simply an extension of the Congressional model that the financial industry and others have used so successfully in Washington.

The U.S. Federal Reserve released a proposal Friday that would make foreign banks, including some of Canada’s biggest financial institutions, with a significant presence in the United States, subject to the same capital cushion reserves as domestic banks. The wide-ranging rules requiring the creation of U.S. holding companies by foreign bank subsidiaries are expected to generate a significant response over the next few months from the countries of affected banks, possibly involving governments and regulators.

By Simon Johnson During the Dodd-Frank financial reform debate in early 2010, newly elected Senator Scott Brown of Massachusetts was referred to as an ATM for the bankers – meaning that whenever they needed some more cash, they would stop by his office.  It was not paper money he was handing out, of course, it was something much more valuable – rule changes that conferred a greater ability to take on reckless risk, damage consumers, and impose higher future costs on the taxpayer.

From Economics of Contempt (hat tip Brad DeLong): “The single best thing we could do for financial reform: Triple the budgets of all financial regulatory agencies. Immediately. Regulators are woefully understaffed; this is fact.”

WASHINGTON  — U.S. banks are ending the year with their best profits since 2006 and fewer failures than at any time since the financial crisis struck in 2008. They’re helping support an economy slowed by high unemployment, flat pay, sluggish manufacturing and anxious consumers. As the economy heals from the worst financial crisis since the Great Depression, more people and businesses are taking out — and repaying — loans. And for the first time since 2009, banks’ earnings growth is being driven by higher revenue — a healthy trend.

WASHINGTON  — U.S. banks are ending the year with their best profits since 2006 and fewer failures than at any time since the financial crisis struck in 2008. They’re helping support an economy slowed by high unemployment, flat pay, sluggish manufacturing and anxious consumers. As the economy heals from the worst financial crisis since the Great Depression, more people and businesses are taking out — and repaying — loans. And for the first time since 2009, banks’ earnings growth is being driven by higher revenue — a healthy trend.