Restricting Speculative Investments: The Volcker Rule

The Volcker Rule forms a key part of the Dodd-Frank Wall Street Reform and Consumer Act – specifically section 619 – aiming to restrict banks in the United States from making speculative investments that will not, and do not, benefit their customers.

Though the Dodd-Frank act is already law, the Rule itself is set to come into play in July of 2014 (the Act allows for a two year conformance period), having been the centre of regulatory debates since it was first proposed, and will affect every US federally insured depository institution. It will also affect any company that controls an insured depository institution (IDI). Any private investment funds dealing with the affected banks will also be subject to the rulings.

What does the Volcker Rule do?

The Volcker Rule aims to prohibit banks from engaging in what it terms “proprietary trading” – which is, in the words of the Rule itself, defined as: “engaging as principal for the trading account of the covered banking entity in any purchase or sale of one or more covered financial positions.  Proprietary trading does not include acting solely as agent, broker, or custodian for an affiliated third party.”

The Rule does not stop the banks from trading completely, but it tightens the controls on such activity and requires stronger documentation. It will be overseen and implemented by five separate government entities: the Federal Reserve, the U.S. Securities and Exchange Commission (SEC), U.S. Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC).

Who will the Volcker Rule affect?

Although the rule primarily bounds only banking institutions in the US, all global banks will likely be subject to Volcker, as any party to a trade that is in the US will be included in the agreement. This means any affiliates of US banks, including overseas bank branches, as well as any foreign banks with operations in the States, will be affected.

Non-banking financial institutions like insurance companies and hedge funds are not affected, and only the larger investment banks – such as Morgan Stanley, who agreed during the financial crisis to become banking institutions – will come under the remit of the Rule.

Ensuring conformity

Any organisations that are affected by the Rule will need to establish a compliance program to address their conformity, and meeting these standards will not be easy for many more complex institutions. Distinguishing market-making from proprietary trading, which is restricted by the Volcker Rule, requires regulators to apply five factors: risk management, source of revenues, revenue relative to risk, customer facing activity and payment of fees and commissions.

Institutions have two years from the date of Dodd-Frank’s enactment, giving a final deadline for compliance of July 21st 2014. During this time, they must perform four key duties:

- Prepare for full compliance in 2014

- Put together a detailed conformance plan

- Show a “good faith” effort to achieve compliance during this period

- Prepare for possible record-keeping and reporting requirements that federal agencies may impose before the 2014 implementation

Tools such as the London Stock Exchange’s UnaVista can help with conformance by providing data consolidation, regulatory reporting, reconciliation and advice for any one affected by these and similar legislations.

How Long Before You’re Reimbursed PPI

The mis-selling of PPI has become a huge issue in the UK. While there are some people who bought their payment protection insurance or PPI from their bank when they took out a loan, credit card or mortgage, many started paying for their PPI without them even realizing its costs had been added on. This is because many loan providers instantly added a PPI policy to the accounts of their clients – the huge commissions they got for each PPI policy sold explain why.

This is the reason why many individuals today are advised to check their loan or credit card accounts to see if they were paying for PPI all this time. Of course since you paid a lot of money for it, it’s only natural that you want to make use of it in case you too experience financial issues when paying for your debt. Unfortunately, banks will now reject PPIs and the only way you can still get money out from your PPI account is by filing a PPI claim.

How Long Do I Have Wait to Get Compensated?

Let’s say that you are one of the many people who filed for their PPI claims and you’re wondering when you will be reimbursed. Sadly, the compensation you’ll get from your PPI claim will take a while to be processed. While the help you’ll get from the Financial Ombudsman Service is free, your documents will take a couple of months to be processed. Keep in mind that there is a large backlog at the Financial Ombudsman Service. The FOS receives around 750 cases every week and PPI claims and complaints make up for more than ¼ of all these new cases. You can expect your PPI claim to be settled by the FOS after 8-9 months.

However if you’re experiencing financial or health troubles and you need the money fast, or you just don’t want to do all the paperwork yourself, you can also get in contact with a PPI claims specialist, like PPI Claims Advice Line.  With this company, some people have had refunds within 2 months of filing for a PPI refund. Note however, that claims companies will do all the work and get you a payment more quickly, in return for a fee from your compensation payout should it be successful.

Starbucks’ Sales Strong in US and Asia

There aren’t many in the developed world that haven’t heard of Starbucks. Starbucks Coffee, based in the city of Seattle in the USA, is known to be the worlds biggest coffee chain.  The company has established a lot of chains worldwide – no wonder why its sales soared higher than expected. Starbucks Corporation has made their company visible and grows in every country in the world.

The company, Starbucks Corporation, has reported stronger sales in the United States and in Asia despite the economic problems experiences worldwide. Their share price increased in trade markets recently. The company topped the profit expectations and now raises its forecasts. The company reported their net earning of $432.2 million for the quarter that ended December 30 of last year, meeting the averages that were compiled by Thomson Reuters.

The sales of the company in some of its established chains were up to 11 percent in the countries like China and the Asia Pacific region and down slightly at 1 percent in Europe, the Middle East and Africa.

Chief Financial Officer Troy Alstead told the Reuters that it is too early to say if the tax hike in the United States that would reduce take-home pay will be having an impact on the business of the company.

Europeans Fight Against Debt Crisis

Government officials throughout Europe are trying to find a way to reverse the debt crisis. They have imposed deep budget cuts for a couple of years now. These austerity measures have had serious implications for citizens throughout the continent. Citizens throughout Europe are speaking out against austerity and hope governments will focus on improving economic conditions for the lower and middleclass.

State of the Eurozone Economy

According to Joseph Stiglitz, an economics professor from Columbia University, most of the Eurozone is suffering a deep depression. Policy makers are reluctant to use that word, but the people of Europe know how bad conditions are. Economists believe that the austerity measures are only making matters worse. Stiglitz warns that Europe will need a decade to recover from the damage caused by these budget cuts.

Most economists agree that the Eurozone needs some structural changes. However, they said that policymakers are focusing too heavily on reforms within the individual countries. They said that they are going to need to focus on fixing the framework of the euro itself.

Citizens have thrown austerity strikes over the last year. They are calling for their leaders to stand up to the ECB and the European Commission leaders demanding austerity. Pier Luigi Bersani is pledging to stand by their request. He recently said that Italy must “leave the austerity cage.”

Nevertheless, politicians like Bersani don’t appear to have enough political clout to convince other lawmakers to reverse austerity measures. Austerity will probably remain a reality until enough people support Bersani and other lawmakers who share his views.

Will Austerity Work?

Some experts speculate that the citizens of Europe will refuse to tolerate austerity in the very near future. They may side with Bersani and other leaders who promise to stand up against the budget cuts. Politicians may feel pressured to give into their demands and increase spending.

However, austerity could fail even if leaders don’t back down on their budget cuts. Revenues may continue to shrink in the coming months, which would make it more difficult for individual states to meet their debt obligations.

Some experts have called for alternate solutions, but feel that the government doesn’t want to consider them. Stiglitz said that Germany won’t even consider any of the sound ideas that many economists have proposed. He said that Germany seems adamant about protecting the sanctity of the single currency, even though Europe is struggling to survive. Mario Draghi, the president of the European Central Bank, agrees with his sentiments. The Guardian recently quoted Draghi stating that the ECB will do whatever it takes to save the euro.

Tensions rise over Cyprus’ financial crisis

The Cypriot Parliament has been advised by the European Union and high profile bankers to raise the required 5.8 billion euros in order to be eligible for a bailout.

News of negotiations over attempts to raise the money have been confirmed by Christos Stylianides, a government spokesperson who said that there were “hard negotiations with the troika”; the troika being the EU, International Monetary Fund and the European Central Bank.

Cyprus’ Government have been facing a large amount of public pressure on the matter with protests occurring outside Parliament. Michael Sarris, the Cypriot Finance Minister had tried to obtain financial support from Russia on his trip to Moscow but failed. An alternative method of raising the funds needed was suggested which would mean the use of pension funds in order to save the country’s banks, however this has been met with strong opposition from Germany’s leader Ms Merkel.

Andreas Artemis, the Bank of Cyprus’ chairman commented, “ It should be understood by everyone… especially from the 56 members of parliament… there should not be any further delay in the adoption of the eurogroup proposal to impose a levy on deposits more than 100,000 [euros] to save our banking system.”

In response to this businesses within Cyprus have now started to decline card and cheques in favour of cash due to the uncertainty around the government’s decision on how to deal with the crisis.

There have been calls from within the Eurozone for Cyprus to reform its banking system which is currently too dependent on foreign investments. The crisis has caused foreign investors to be wary of investing money in Cyprus for fear of losing what they put in. Anton Siluanov, Russia’s Finance Minister said that there was little interest in the offshore gas reserves of Cyprus.

UK University Bans Payday Loans

In a recent move to protect their students, the University of East London have decided to ban payday loans from their campus completely.

This means that any magazines or posters advertising payday loan companies are now forbidden, as well as access to payday loan websites being completely restricted.

Officials at the university came to the decision after seeing that a number of their students were at a high risk of falling prey to payday loan lenders. Specifically, single parent students are considered to be at the greatest risk, especially when they are struggling to pay the bills and put food on the table.

Many of these single parents have been driven to desperate measures in the past, and it’s all too easy for them to get stuck in a vicious cycle of taking out a payday loan to pay off another.

In some cases, the cycle of debt has become so much, that a minority of students have turned to prostitution and other illegal activities to raise the money necessary to pay what they owe.

The Chaplain of the University, Rev Jude Drummond, recently said, “payday loans lead to desperate measures. We have got a lot of crime and social problems in this area, and a lot of people on the street because of money worries. I’ve seen evidence of people turning to sex work because they can’t make ends meet.”

This move to ban payday loans from the University of East London is sure to be watched closely by other universities around the country. Last year alone, it is estimated that thousands of students got into financial trouble due to payday loans, which means the problem is not unique to London.

In fact, it would not be surprising to see other universities follow suit in the coming months, and ban payday loan companies for good to protect their vulnerable students.

Many payday loan lenders have come under fire in recent years, as experts and government officials warn that they are “almost unlawful” and designed to target the vulnerable.

What is most worrying is the long-term repercussions of getting into trouble with payday loans, especially for students. The financial implications of getting into a lot of debt could haunt them for years to come, and make securing credit in the future almost impossible.

Ultimately, it’s probably safe to say that payday loans were not designed to be a good match for students, and they would be better advised to seek out a student loan to help with their finances.

Cap on Cost of UK Social Care to be put at £75,000

A sad reality for many people in the UK is the having to sell the homes they own in order to pay for social care when they become too old to care for themselves.  The British Health Secretary Jeremy Hunt called it a ‘scandal’ that every year ’30,000 to 40,000 people are having to sell their houses to pay for their care costs,’ and states one in ten have care bills amounting to more than £100,000.

To answer this situation, the government proposed setting an upper limit on the cost of care at £75,000.  The idea is that it would help homeowners to hold onto their homes and family’s inheritance – Nick Clegg, Deputy Prime Minister, wrote in the Sunday Telegraph that “We will make sure no one is forced to sell their home to pay for care in their lifetime, and no one sees their life savings disappear just because they developed the wrong kind of illness.”

The cap is dependent upon people having to take out health insurance of their own to enable them to pay the possible full £75,000 cost of elderly care when the times comes for it to be needed.

Nevertheless, the proposal of the cap does come at a cost to the government – in the region of a billion pounds.  This is to be recovered from a freeze on Inheritance Tax at its 2009 frozen rate of £325,000.  The freeze would stay in place until 2019 and would mean the tax wouldn’t rise in line with inflation.

The proposals have had a mixed response, with some praise and some criticism stating they don’t go far enough in helping meet the needs of the country’s aging population.

Restructure your business debt and buoy your corporate finances

Business organizations can drown in a sea of high interest debt just as easily as individuals. While debt can mar the growth of a business organization, business debt restructuring can help a business regain control over its finances. Excessive business debt can be incurred due to various reasons like unexpectedly large monthly expenses, sudden expansion of infrastructure and even due to poor financial management. Unfortunately there are many business managers who refrain from seeking help of the professionals, possibly due to the feelings of failure and embarrassment of not being able to keep up with the competition. Unattended business debt can invariably lead to an intense pressure from the debt collectors and might also lead to lawsuits. If you don’t want to go through such circumstances, you should opt for business debt restructuring. Check out the 2 most common ways of restructuring your corporate financial debt.

Opt for a debt consolidation loan: A commercial debt consolidation loan is a single loan that may be used to pay off all the other business debts. Rather than splitting your monthly revenue among multiple creditors, the businesses only require making a single monthly payment towards the debt consolidation loan. In addition to single and convenient monthly payments, the interest rates on the loan will also be lower than what you were paying on the previous loans. However, unfortunately, acquiring a debt consolidation loan for a business is significantly difficult than getting a personal debt consolidation loan. As the amount involved is huge and there’s no guarantee of the future profits of the corporate organization, the business owners often require accompanying their approach with a detailed budget that will show the profits and the growth that the company anticipates in the next few years. If they agree, you can take out the loan and use the proceeds in repaying your creditors and then start repaying the consolidation loan with ease.

Opt for commercial debt counseling: The commercial debt counselor accomplishes for business organizations what the consumer debt counselor does for the individuals who are in debt. The commercial debt counselors will combine financial support with debt settlement so that the counselors can assist you in both educating the business managers but also detecting the economic issues that is barring the business from taking firm financial decisions. The goal of the counselor will be to boost the revenue by locating the problem and by reallocating the funds to various departments of the business efficiently. The counselor will suggest managers about handling their finances in a way that can help them improve their situation. Although this part will be completed within a few weeks, the counselor will then negotiate with your individual creditors so that he can alter the repayment schedule and facilitate the payments for you.

Business organizations solely exist for the purpose of creating revenue for the nation. Therefore, if the revenue is not enough to satiate the costs, the lenders won’t give you enough funds for combining your commercial loans. Just ensure that you manage your finances and repay your business debt restructuring loan on time so as to help yourself become debt free as soon as possible.

Rapid Growth of China’s Economy

As China’s economic importance has grown, so has attention to the structure and health of the economy.

China is the world’s second largest economy by nominal GDP and by purchasing power party after the United States. It is the world’s fastest-growing major economy, with growth rates averaging 10% over the past 30 years.China is also the largest exporter and second largest importer of goods in the world. On a per capita income basis, China ranked 90th by nominal GDP and 91st by GDP (PPP) in 2011, according to the International Monetary Fund (IMF).

“The country’s gross domestic product rose by 7.9% from a year earlier in the fourth quarter”, the National Bureau of Statistics said Friday.That was up from 7.4% growth in the third quarter and slightly above expectations for a 7.8% rise, according to the median forecast in an earlier Wall Street Journal poll of 17 economists.

It was Xi Jinping’s accession to power that has raised hopes on China to restart economic reforms.In  2012,some Analysts estimated that bank loans will fall to their lowest level as a share of total funding in the economy, to around 55%.This is not because capital is drying up in China, total funding for the economy is up over 20% this year and is set to exceed an incredible 30% of GDP for the fourth year in a row.

However, the state-owned banks are the biggest buyers in the bond market. The most important thing to understand about China’s a financial market is that the big five state banks is nearly the only source of capital, simply because they control 70% of all retail deposits.These banks hold over 60% of all outstanding bonds, including government, policy-bank and corporate bonds. Other state-owned entities hold a further 30%.

China’s economic growth accelerated in the fourth quarter of 2012, confirming a rebound for the world’s second-largest economy after more than a two-year slowdown.

World Bank’s Forecast

The World Bank Headquarters

According to the World Bank on Tuesday, there has been a slow economic recovery among developed nations causing a hold back in the global economy. The World Bank has not been so optimistic about the global economic outlook, downgrading its growth forecasts. The forecast was not entirely reassuring the people.

A part of World Bank’s forecast, the global gross domestic product (GDP) will increase to 2.4 percent this year, from 2.3 last 2012. The forecast in June projected a global growth would reach 3.0 percent this year. The Bank also that said most developing countries were operating at or near a full capacity with additional efforts to boost the output risk hitting inflation speed bumps.

The lead author of the bank’s Global Economic Prospects report, Andrew Burns said that “a recovery the bank had anticipated last year was now expected “closer to the end of the first quarter and into the second quarter of 2013, rather than beginning a little earlier. “Burns has urged the developing countries to “maintain a steady hand on monetary policy” and not to react too forcefully to changes in developed countries. He said the developing nations “should focus on structural policies and investments to support sustained growth.”

The developing countries were chalking up growth rates of around 7.5 percent, with China growing at an annual rate of 10 percent before the global financial crisis hit in 2007. The World Bank forecast that the Chinese growth would already reach 8.4 percent this year.

Growth is expected to barely move at 2.4% in 2013, and gradually strengthen to 3.1% in 2014 and 3.31% in 2015.