New Regulations for US Banks

S&P 500 futures went over fair value when it rose to 3.6 points. The formula it used evaluates pricing by taking into account the following factors- interest rates, dividends and time to expiration on the contract. Dow Jones and Nasdaq also were on a high. Dow Jones industrial average futures went up by a good 18 points and Nasdaq 100 futures were up 8.75 points.


Oil prices went up by 1% and the price now stands at US$97.90 per barrel. Experts fear that price hike in oil will affect other sectors and consequently equities may hit a low. It was reported that US regulator Sheila Bair warning the US banks. She was reported as warning the big international banks of US to redesign their undertakings. She suggested the banks to plan their ventures in a low budget unless they gather the sufficient backup to combat any further financial melt-down.


Bair told the Reuters Future Face of Finance Summit that more foreign subsidiaries are required to be set up by multinational companies. She further said that multinationals should redesign their legal structures so that it becomes easier for regulators to liquidate them if necessary. Bair, the chairman of the Federal Deposit Insurance Corp, said that the popular idea that some big firms will never fail is baseless. She was reported as zestfully saying that she wants to spend the time till her near-at-hand retirement in doing away with such misconception regarding the stocks. Even if it compels firms to divest business, it should not be denied.


Bair stressed on the fact that if banks are not prepared to combat a sudden bankruptcy, they should consider cutting down on their ventures immediately. She advised investors to be patient with the bank. She said that investors should not get angry at slow returns and low rates. This, in most cases, shows that their deposit is in safe hands.


Bair’s warnings were specially aimed at Citigroup, Bank of America, JPMorgan Chase. These banks are scheduled to submit their ‘living wills’ to regulators by the end of the year. Other G20 countries have agreed in principle to an orderly liquidation process for big firms. But The United States is more advanced in the "living will" process than other G20 countries. The reason to submit a "living will" is to show the regulators that the bank is capable of facing and dealing with a sudden bankruptcy situation. This rule has been formulated to avoid the nasty bankruptcy situation of Lehman Brothers under Bush administration in 2008. Bair expressed her faith in the living will process.


Bair announced that some small scale banks might have to file for a shutdown. The larger financial banks should also file for a remodel. Bair made it clear that the banks need state in crystal clear terms why they do not need subsidization and give legitimate reasons for it. A former general counsel at Bair's agency said that banks might have to struggle to meet these new criteria while at the same time trying to increase customer value.