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Financial Stocks Roundup: Bank CEOs Lobby Against Regulations Behind Closed Doors


Bank CEOs will meet with regulators at the New York Fed to argue against a proposed rule that could limit systemic risk in the financial system.

MINYANVILLE ORIGINAL CEOs of the biggest US banks, including JPMorgan Chase (JPM), Goldman Sachs (GS), Bank of America (BAC), Citigroup (C), and Morgan Stanley (MS) will be meeting with Fed Governor Daniel Tarullo at the New York Fed this Wednesday to argue against regulations designed to limit the systemic risk that they collectively pose. The banks are opposing a proposed 10% limit on counterparty risk for the biggest banks, saying that it will limit their ability to provide liquidity to one another. This rule would affect companies with credit risk to one another if each has more than $500 billion in total assets.

In a letter to the Federal Reserve, the American Bankers Association and several other industry groups said, "The Federal Reserve has provided no basis to determine that imposing the dramatically lower and arbitrary 10% credit limit on certain major covered companies would even help mitigate risks to the US financial stability, much less be necessary."

Though most banks did rather well in the last round of the Fed's "stress tests" that tested banks' ability to maintain a certain level of capital in a simulated financial disaster scenario, they will also lobby the Fed for more transparency in the vague tests. The methodology of the stress tests, which decide whether banks are allowed to raise dividends, mostly stays undisclosed.

With the exception of Morgan Stanley and Goldman Sachs, those major financial institutions are all posting steeper losses than the broader stock market today. Bank of America is the worst performing component of the Dow Jones Industrial Average (^DJI). The Financial Sector Select SPDR ETF (XLF) declined 0.68% and the KBW Bank Index (^BKX) dropped 1.11% while the S&P 500 (^GSPC) fell 0.45%.

Personal income and spending both increased in March, according to a government report released this morning. Income rose by more than forecast, but spending, which makes up more than half of the US economy, trailed estimates. A reading of business activity in the Chicago area disappointed, raising concerns about the economic recovery.

Financial stock investors will have their eyes set on labor market indicators leading up to the big jobs report that will be released on Friday. Financials, uniquely sensitive to jobs and the unemployment rate, could suffer losses if the report disappoints. A particularly bad report might raise speculation that the Fed will expand its asset-purchase program of quantitative easing, however. Goldman Sachs has a bearish estimate on job creation. The investment bank is expecting that the report will show that the US economy added just 125,000 jobs in April, less than the consensus estimate of 170,000.

Twitter: @vincent_trivett
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