As legislators debated how for the revision of the financial regulations, their mantra was that, if nothing else, the "too big to fail" era was over. Never taxpayers would save the world's major banks to prevent capsizing the entire financial system. At the time that the Dodd-Frank financial reform act was signed in mid-2010, 10 banks controlled three-quarters of all banking assets, place of 68% in 2006, in part because large banks have dug institutions in difficulty. "Very large, systemically important institutions have been at the heart of the crisis", says David a. Moss, a professor at Harvard Business School.
It is therefore all the more surprising that federal agencies putting reforms into effect are written rules to strengthen the dominant position of the largest banks. The Federal Reserve, for example, issued regulations designed to curb the payments of commission that gave mortgage brokers an incentive to guide owners to risky mortgages, but these rules could make it easier for large banks dominate the mortgage market. During the housing bubble, brokers usually earned by selling high-cost loans, even if the borrowers qualify for lower rates. The rules now require effective loans officials to pay a salary and prohibit commissions related to the loan interest rates. No doubt the regulations are necessary to protect the purchasers of corrupt practices, but the Fed rules could provide a fatal blow to mortgage brokers, who help shop owners for mortgage loans from different lenders. As securities brokers, they earn most of their remuneration by the volume of sales, not wages. Brokers have more fobbed by big retail banks, which are based on branches and building sales force employees, says Guy Cecala, Publisher of commercial paper in mortgage financing.
Large bank even bias is built in the rules proposed by six organizations end of March that would require issuers of mortgage-backed securities to keep 5 percent bonds on their books. The hope is that, by holding a share of the risk, banks will limit to loans of poor quality. Conservative mortgage - for borrowers with good credit and at least 20% down - would be exempt. Big banks can afford to keep the risk required on their books, while "community banks did not have the necessary means for their balance and ability to raise additional capital which would be necessary", explains Karen M. ThomasHead of relations with the Government for America's independent community bankers. Wells Fargo (WFC), which comes from a quarter of all residential mortgages last year, has lobbied for still more conservative requirements, saying that those with 30% down should be exempted from rules. "That they regard as a competitive advantage to have grand and purses," said Cecala.
Derivatives rules also encourage smaller institutions. The market is already highly concentrated, with the commercial offices of five major actors in the implementation of 96 per cent of swaps by commercial banks. The big players "want to do all they can do to control the market post-Dodd-Frank," said Michael Greenberger, Professor of law at the University of Maryland and a former official of the Commodity Futures Trading Commission. The Act requires that merchants to pledge and treat most derivatives through documentation centres. It is a question open, although if regulators will prevent large banks to control documentation centres. In the fall, the CFTC proposes to leave the dominant players to possess up to 5% of the centres of documentation without any cap on their collective property. The Ministry of Justice, said the absence of an overall limit "not enough will to reduce the risk that primary dealers can control" exchanges and the block of the small players. Rules favouring large banks may be not a problem if regulators are extremely "tough" in the monitoring of the risks that the giant institutions, said Moss of Harvard, but these rules are too yet to win.
The bottom line: The financial reform act, Dodd-Frank was supposed to end "too big to fail", but its implementation could still make the big banks.
Weise is a reporter for Bloomberg Businessweek.
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