NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) announces the launch of “Bank Talk” a new monthly publication by Ethan Heisler, Senior Director at KBRA and founder and editor-in-chief of the Bank Treasury Newsletter. Bank Talk was already launched this month as a monthly audio podcast, featuring Ethan Heisler and Van Hesser, Senior Managing Director for Corporates and Financial Institutions at KBRA. Ethan and Van were talking on the podcast about the just enacted Crapo Act and the written edition of Bank Talk, and future editions, will continue and expand on the conversation Ethan and Van had and will have on future audio podcasts.
This month’s edition of Bank Talk, “The Trouble with Volcker and the Small Bank Holding Company Rule,” looks into the Crapo Act’s Section 207, and the Fed’s new proposed rulemaking on the Volcker Rule. Section 207 directs the Fed to increase the balance sheet threshold for a small bank holding company from $1 billion to $3 billion. Fed supervisory policy permits a small bank to lever up its parent company balance sheet beyond recommended standards for safety and soundness to acquire another bank. The Fed believes small banks are constrained from accessing equity financing as easily as larger banks and the Fed wants to facilitate mergers and acquisitions to reduce the number of banks in the system. Ultimately, Ethan and Van do not see much risk that small banks will take full advantage of the law, given that most small banks have little, if any leverage at their holding company, and given the growing trend by small banks to eliminate their holding company and Fed bank supervision that comes with it.
Ethan transitions from small banks to large banks, and tells Van the real problem with the Volcker Rule is that it does not work. Regulators were supposed to devise a reporting system to monitor banks for proprietary trading, but the system has failed to figure out a trader’s intent, whether the transaction to buy or sell a security was to fill a customer order, current or anticipated, or proprietary in competition with the trader’s clients. Rebuttable presumption, which requires an investment to be held for at least 60 days is one aspect of the Volcker rule which created a headache for bank treasurers, but as Van points out, is eliminated in the Fed’s new proposed rulemaking. Van challenges Ethan to explain why Volcker really matters to bond investors and Ethan reminds Van that the Volcker Rule was put in place to avoid the unthinkable alternative of breaking up the large banks. If regulators ultimately conclude that they are unable to monitor the trading activities of the large dealer banks, the unthinkable may need to be thought.
To read the full report, please click here. Look out for our upcoming Bank Talk discussions on the banking industry.
About KBRA and KBRA Europe
KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.