Regulators Wrestle with I-Bank Oversight

Looking for a bounce in the financial stocks? Don't hold you breath, the knuckleheads in Washington will not be settling the issue of regulatory oversight anytime soon, which might be an important piece in handicapping the puzzle. The ball is in the Beltway's court, but Congress is unlikely to act until next year. For the time being chaos will reign:

At issue is whether the SEC or the Fed has the best expertise and the right regulatory model to oversee these institutions.

There could also be a role for the Federal Deposit Insurance Corp, mentioned for its skills in liquidating failed commercial banks.

"There is now a mild tug of war going on between the Fed and the SEC, and sort of behind the scenes, the FDIC is involved," said Robert Litan, a senior fellow at the Brookings Institution. "The field is wide open." Reuters

Many of the bad actors in this drama are counting down their days before bolting to new jobs; without a plan it is tough to handicap the banks vs the brokers. Will Vikram Pandit get his wish for a level playing field?

Tim is not an economist, but clearly two-handed
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Hard to say, and the murkiness is not likely exactly a prescription for multiple expansion in the stocks. Tim Geithner of the New York Fed will no doubt press his case to get Goldman, Lehman, Merrill and Morgan Stanley under his thumb, stealing the SEC’s thunder and consolidating his power:

New York Fed President Timothy Geithner has said the central bank needs more oversight of the broker-dealer firms now that they are able to borrow from the Fed.

“Our ability to directly oversee the risk profile of these institutions is essential to our capacity to make the judgments necessary for using our lender-of-last resort tools,” Geithner told the House Financial Services Committee on July 24.

But the SEC has a long history of supervising the broker-dealer activities that are at the core of the investment banking business, and the agency is seeking expanded powers.

A quick peek at the calendar might sober up the bulls on financials. The selloff of the past 48 hours has improved their attractiveness if you like’m lower, but in a few weeks the BuySide will turn to their annual tradition of brooming the losers off their sheets as the annual puke-a-thon commences. This year might be a little different given there are few winners out there, but buying losers too far ahead of the November fiscal year for many mutual funds can be a dicey proposition, and an annual dilemma.

Sitting on your hands will give the housing market further time to recover and GSE’s time to cave in on their cat n’ mouse recapitalization efforts.

Kill some time, and go to the beach.
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Fed, SEC vie for post-Bear investment bank oversight
Reuters
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The content contained in this blog represents the opinions of underthecounter. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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