Two years after a severe credit crisis that was in large part of their own making, top financiers met on Monday at a conference held by their lead lobbying group where they vowed to help “shape” reforms still being hammered out.
Morgan Stanley Chief Executive James Gorman complained at the annual meeting of the Securities Industry and Financial Markets Association (SIFMA) about polarizing anti-Wall Street “rhetoric.”
Just days after an election that handed Republicans control of the House of Representatives, Gorman appealed to the public, angry about Wall Street’s role in the crisis, to give markets more time to recover.
“The financial system nearly shut down. It’s only two years on. You need a little bit of patience to rebuild, to accumulate the capital you need,” he said.
The giants of U.S. finance are still finding their footing after the 2007-2009 crisis that shook the world financial order, tipped the U.S. economy into a deep recession and ushered in a global move toward stricter oversight.
Another senior banker at the SIFMA event blamed lax mortgage lending for a housing market crash that he called “avoidable.” He also called for new home loan underwriting standards far tighter than those now being imposed.
“It’s absolutely terrible” what has happened to U.S. homeowners and the foreclosure wave that ensued in the crisis was “totally avoidable,” said Bank of New York Mellon Chief Executive Robert Kelly, who is Canadian, in an interview at the SIFMA conference with PBS talk show host Charlie Rose.
“We need good national standards for mortgage underwriting,” Kelly said. “The banks should own 50 percent of the paper, with the other half sold through a privatized securitization process.”
President Barack Obama in July signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, imposing tough new rules for banks and financial firms. These are being put into practice now by regulators under tight deadlines.
One of the new rules will require mortgage lenders to keep 5 percent of the risk of loans they make on their books, rather than selling loans in their entirety into the secondary debt market in the form of mortgage-backed securities.
Republicans who won control of the House last week have vowed to try to soften parts of Dodd-Frank, but face an uphill climb against a continued Democratic majority in the Senate and the virtual certainty that Obama would veto any major rollback.
Profits for many U.S. banks were better than expected in the third quarter, as they set aside less money to cover bad loans, but revenue was still weak. Wall Street bonuses are expected to be slightly higher this year compared to last year’s low levels, but still below 2007’s all-time highs.
VOLCKER RULE TARGETED
SIFMA President Tim Ryan said at the conference that his group wants to help flesh out the “Volcker rule” on risky bank trading, among other measures contained in Dodd-Frank.
SIFMA represents hundreds of securities firms, banks and asset managers, including Morgan Stanley, JPMorgan Chase, Goldman Sachs and Bank of America.
Ryan last month said his group was not seeking to roll back key parts of Dodd-Frank, though inevitably there would be areas of the law that industry will want changed.
The three-part Volcker rule curbs “proprietary trading” by banks; limits their involvement with hedge and private equity funds; and caps domestic expansion by the largest banks.
Congress laid down some parameters for regulators on defining “proprietary trading” — or trading for banks’ own accounts unrelated to customer needs — but left room for banks to retain some in-house trading operations in an area where drawing clear lines will be difficult.
“The important aspect of this set of rulemaking will be how regulators define what activities are deemed ‘proprietary’ and thus prohibited,” Ryan said. “Our focus here is to help Treasury determine what qualifies as proprietary trading.”