BRUSSELS (AP) -- European Union finance ministers are to meet in in Brussels Tuesday to hammer out an agreement over how high banks should build their defenses against future financial shocks, with the U.K. running the risk of being isolated over who should set the height.
The EU's 27 members agree on the need to increase capital reserves of banks, following an international agreement called Basel III, which was negotiated by the world's largest economies to avoid another financial meltdown such as the one brought on by the collapse of U.S. investment bank Lehman Brothers in 2008.
But the U.K. wants national regulators to be able to set requirements significantly higher than those of the EU — a position opposed by almost all other EU members, who fear investors might then prefer UK banks and flee from those in other countries.
On his way into the meeting Tuesday morning, George Osborne, the British chancellor of the exchequer, was non-committal about the possibility of reaching an agreement.
"This is a time of considerable uncertainty in the eurozone economies," he said, referring to the 17 countries — the U.K. not among them — that use the euro currency. "And that uncertainty is undermining the entire European recovery. And I think we're reaching a point where we've got to make a decision to see the eurozone stand behind their currency. A very important part of that, of course, is strengthening the entire European banking system. And that is what we intend to do today."
Once enacted, Basel III would require lenders to increase their highest-quality capital — such as equity and cash reserves — gradually from 2 percent of the risky assets they hold to 7 percent by 2019. An additional 2.5 percent would have to be built up during good times. All members of the G-20 have agreed to implement Basel III; if the European Union succeeds, it would become the first entity to institute the new requirements.
The U.K. is arguing that, because national taxpayers have to bail out banks when they fail, national authorities should be able to set more stringent requirements to guard against such failures. A compromise proposal offered by the Danes, who hold the rotating presidency of the European Union, would allow national authorities some leeway to increase requirements beyond those called for in the Basel III agreement. That proposal has broad support — except, so far, from the U.K.
The finance ministers can approve the compromise proposal without British support, through what is known as qualified majority voting, in which member countries have different numbers of votes according to their populations. However, there is a tradition in the EU that changes that would affect an industry in a particular country — such as the banking sector in the U.K. — are not forced into effect over the objections of that country, and consensus is sought.
"I think there should be a unanimous decision on such an important issue," Swedish Finance Minister Anders Borg said on his way into the meeting.
Islamic finance must finance its diversification - Business Times Malaysia
“To be competitive in the new world order, one has to think like an immigrant, create like an artisan, work like a start-up and provide service like a waitress, and continuously create a unique value add.” Thomas Friedman, Foreign Affairs Correspondent of the NY Times.
IN a “hyper-connected world, the age of ‘average’ is officially over”. Is Islamic finance hearing and, more importantly, listening?
The baby-cum-toddler is eventually taken off the bottle and consumes “people food”. Islamic finance, unfortunately, is still suckling on the bottle called “real estate” and the natural growth-cum-diversification is a bottleneck risk that needs to be addressed.
Yes, real estate is linked to the real economy, but so is venture capital (knowledge based economy), SME financing (backbone of employment), micro-finance/funding (financial inclusion of non-bankable), private equity (focused financial intermediation), etc. The real estate concentration risk is actually creating a high entry barrier for diversification, entrenching the status-quo mind-set, discouraging a (calculated) risk taking approach, etc, hence, quite possibly creating a systemic risk for the industry.
Query: Is it “fair” to say the build-out of the iECM will result in reduced deposit funding by banks, hence, some natural resistance by banks?
The question then becomes:
q Who will lead Islamic finance in building-out the iECM, as it has a direct correlation in the diversification and expansion into and of the real economy?
q Will it be the Islamic development bank providing seed money?
q Will it be a sovereign wealth fund that has experience and exposure to Islamic finance, like Khazanah?
q Will it be a leading Islamic finance hub, like Malaysia?
q Will it be mixture of private investors who understand the (negative) consequences of the status quo?
q Will it be a combination of the above?
q Or none of the above, as the philosophy of “it (Islamic finance model) ain’t broke, what’re you gonna fix”.
Today, most Muslim countries are net capital exporters, for a number of reasons, and the focus needs to be on less “return on capital” investing, and more on “return of capital” home. How to bring some of it back, as it would send a positive signal for the country?
Financial Bridge
Islamic micro-finance is not the only path for financial inclusion or transforming philanthropy for the non-bankable. Actually, Islamic microfinance gets more air-play in the contained environment of conference speeches and in lofty articles than in the real world where the bulk of Muslims/humanity reside.
We talk about building bridges, like between GCC and SE Asia, but what about building a financial bridge to the “have-nots” in another way?
A Malaysian licensed Islamic mega bank may soon be a reality, and there may be some “inclusion” lessons from the official recent launch of Warba Bank in Kuwait by the Emir of Kuwait, HH Sheikh Sabah Al Ahmed Al Jaber Al Sabah.
According to the press release, “…the government, represented by the Kuwait Investment Authority (KIA), owns 24 per cent of the bank’s total capital. The remaining 76 per cent has been granted to the entire Kuwaiti population, with 684 shares per individual, subscribed and paid by the government.”
In “granting” the shares to the entire Kuwaiti population, the Kuwaiti government has taken a novel chapter from the 1990s privatisation programmes from parts of Eastern Europe and elsewhere. In general terms, the programme entailed distributing shares (via vouchers) to the citizens during the sale of the state owned enterprises, hence, a populace “buy in” to the economic reforms.
(There were some challenges with the programme, but there were also takeaways on how to fix them, hence, stipulations would be in place to prevent, say, share accumulation.)
Now, for the proposed Islamic mega bank, why not offer a similar grant, as percentage of the total authorised shares, to the “interested” Malaysian populace and FoM (Friends of Malaysia) as part of the financial inclusion (for all) policy objectives.
Yes, there is trade-off between raising capital and financial inclusion, but the thinking has to be about the long term growth objectives of Islamic finance.
Why not take it one step further and link an Islamic mega bank to microfinance. The shares of the bank can be set up in “trust”, and dividends, zakat, and purification can be allotted to the microfinance (prefer micro-funding).
Thus, if “citizen financial democracy experiment” is successful in Malaysia, it has application (buy-in) for existing Islamic finance hubs and those wanting to be hubs.
Real Estate Twist
An Islamic finance club facility, led by an Islamic bank, Al Hilal Bank, and conventional bank, Mashreq, was closed in Dubai to establish a theme park, City of Arabia. The promoters of the project, Ilyas and Mustafa Galadari Group (IMG), have made the link between family value based entertainment and faith-based finance.
The press release quoted Mohamed Jamil Berro, CEO of Al Hilal Bank (AHB) said, “… our involvement in this theme park development reflects our vision as a progressive Islamic bank to extend the reach of our syariah-compliant financial services to various growth areas, such as financing the Middle East’s first fully integrated entertainment destination. This transaction also exhibits AHB’s experience in structuring Islamic Finance facilities through its dedicated and experienced team.”
There are two high-profile of takeaways worth highlighting: Financing is linked to the real economy (family tourism), and not just another mixed-use commercial tower for the bankable.
(Query: When a tower is financed Islamically, does it matter to those espousing the principals of Islam that workers toil in 40-49 degrees centigrade? Does it matter that they do not get anything beyond a salary, which may be higher (minus all the “withholding” taxes) than home country, when it’s “sold?”.
For the Islamic finance institution, Al Hilal Bank, there is a high profile connection to the family and the greater community. That should generate goodwill translating into (additional) customers, who may also be depositors and shareholders, being proud of the bank. This is the type of financing that deserves an Islamic finance award for a category, say, most admired Islamic bank or a polling survey shows the bank is “great place to work for”.
Education
Connection
One of the most sought after areas of Islamic financing is not for mortgages, vehicles, white goods, vacation, cards, etc., but for education, be it private, university or post graduate. The irony of the situation is there are many universities (and on-line entities) offering Islamic finance courses, diplomas, degrees, certificates, etc, yet one does not come across (with same level of promotion on) the compliant financing of this expensive education.
One hears of situations whereby the graduating student is conventionally indebted for a degree in Islamic finance and cannot find a job (career is another issue) in this niche market. It’s equivalent to having a factory that produces halal foods, but was financed conventionally, hence, a missing “end to end” compliant solution.
Thus, there needs to be some intelligent thinking by the industry on linking Islamic finance education to compliant financing to appropriate job openings in the field. The present alternative may (inadvertently) producing “bad-will”, and turning away tomorrow’s Islamic bankers to do “God’s work” at Goldman Sachs today.
Social Connection
Today, we have Islamic Facebook, Halaltube, Mecca Cola, Muslim dolls (Dara and Sara), The99 (Muslim superheroes), etc. Hopefully I am wrong, but I do not believe these initiatives were financed Islamically.
The niche market needs to not only connect with the “have nots”, but also the younger generation in the Muslim world (and non-Muslim countries) who are building companies and industries and would prefer compliant financing.
Imitation may be the best form of flattery, but, now, the Muslim world needs to be flattered, and “create like an artisan” and Islamically finance it or continue to stay average.
Rushdi Siddiqui is Thomson Reuters’ Global Head of Islamic Finance based in New York.
Finance Services Leaders Appeal for Limited Government Aid to Fight Cyber Attacks - PC Advisor
A group of industry experts representing the financial services industry, an increasingly popular target for cyber criminals, on Friday appealed to members of a House subcommittee for limited government action to help banks and other institutions protect themselves and their customers from the growing breadth and sophistication of online attacks.
Their wish list includes policy changes to facilitate greater sharing of threat information among public- and private-sector entities, stricter law enforcement in the United States and abroad, and a more holistic approach to the policing the Internet ecosystem.
Banks and other financial services firms already have sophisticated cybersecurity mechanisms in place, of course, but even state-of-the-art perimeter defenses can't guard against every threat vector, according to Michele Cantley, senior vice president and chief information security officer with Regions Bank, who testified at Friday's hearing on behalf of the Financial Services Information Sharing and Analysis Center. That group counts more than 4,400 members, accounting for the majority of the U.S. financial services sector.
"[C]orporate account takeover attempts cannot be stopped solely by the financial institutions," Cantley said. "All participants in the Internet ecosystem have roles to play. Banks, for instance, have no direct control over the end customers' computers, nor can banks control what emails bank customers open or what websites they visit prior to accessing their online systems."
Cantley concurred with other witnesses in their appeal for removing legal and compliance barriers to sharing threat information, an issue addressed by a bill that recently won approval in the House and awaits consideration in the Senate, where it faces an uphill climb amid competing cybersecurity legislation in an election season. Though they expressed some reservations about privacy and confidentiality concerns in the bill, the witnesses said they broadly supported the Cyber Intelligence Sharing and Protection Act.
But Cantley also told lawmakers that financial firms and others across the public and private sectors need to do more to educate users about safe computing, training them to detect the warning signs of phishing attacks, malware and other threats. Additionally, Cantley suggested that lawmakers could pursue legislation that would give Internet service providers more flexibility to filter out traffic carrying malicious content so that fewer threats would ever make to unsuspecting users' desktops.
Those appeals came with the predictable caveat that industry groups would resist initiatives to impose more prescriptive regulations that would oversee their cybersecurity efforts on a technical level.
Friday's hearing comes amid rising concerns about vulnerabilities not only to individuals transacting with financial institutions, but to the corporate networks themselves. After all, as the notorious outlaw Willie Sutton is said to have quipped when asked why he robbed banks, "That's where the money is," recalled Rep. Scott Garrett (R-N.J.), chairman of the House Financial Services Committee's Subcommittee on Capital Markets and Government-Sponsored Enterprises.
"Unfortunately, just as there have been many and numerous instances of identity theft out there, where individuals have credit cards stolen or accounts looted, there has also been a significant rise in corporate account takeovers as well," Garrett said.
But there is an important distinction between the garden-variety denial-of-service attacks perpetrated by hacker collectives such as Anonymous that can knock a site off line—grabbing headlines in the process—and the attacks that can infiltrate the inner walls of critical digital infrastructure such as financial trading platforms or top-secret nuclear systems, said Mark Graff, chief information security officer at NASDAQ OMX.
Graff, who only joined NASDAQ in April, has spent more than two decades in information security, including a recent stint overseeing the defenses at Lawrence Livermore National Laboratory, where nuclear secrets were among the more sensitive assets under his guard.
"I changed industries, but most of the challenges and many of the adversaries remain the same," said Graff, who stressed the need for tiered security that isolates mission-critical assets behind additional firewalls or in distinct network zones, keeping them away from the Internet.
"One key message in both institutions is the isolation of critical systems from the Internet at large. While many of the services we deliver to customers worldwide are housed on Internet-facing Web services, our trading and market systems are safely tucked away behind several layers of carefully arranged barriers," he said. "This is an important distinction to remember, and we should all keep this in mind when you hear about denial-of-service attacks against one institution or another. Any troublemaker can run up to the front door of a house and ring the doorbell over and over again, and that's what most denial-of-service attacks amount to."
Graff said that those attacks, while they might temporarily block consumers from accessing certain websites, are typically nothing more than an act of "vandalism," hardly a sign that anyone has gained entry to the house, by his metaphor.
But even in seeking to remove the sensationalism from the often breathless media coverage of cyber attacks, Graff acknowledged that the threats are very real.
"Effectively, all of the systems represented at this table," he said, "they're all under attack all the time at some level, in contrast to the situation just a few years ago. Today Internet attacks are a little bit like weather. We have a little bit more rain or a little less rain. Sometimes there's a hurricane that comes at us, but generally speaking they're all under attack."
In addition to a more fluid information-sharing framework—a point on which nearly all observers agree— Graff argued that corporate systems could achieve a higher degree of stability if hardware manufacturers and software producers did a better job of building security in at the time of production.
Additionally, he suggested that lawmakers and government officials could dramatically improve the nation's security posture if they took steps to shore up the supply chain for parts that tech companies import from overseas, citing concerns that compromised hardware could provide hostile foreign actors, including those working at the behest of their government, with an entry point into critical U.S. systems.
"The supply chain problem, the threats of supply chain attack, are really, I think, perhaps the knottiest problem, the most serious issue that faces us, and the one that would be most susceptible to help from government," Graff said. "I think it's one where the U.S. government really could make the biggest assistance."
Kenneth Corbin is a Washington, D.C.-based writer who covers government and regulatory issues for CIO.com.
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Big Money: Stuffing The Ballot Box? - NPR News
You wouldn't think politicians would have any trouble raising enough money these days. The presidential race is expected to be a billion-dollar affair, and spending records have been shattered at the congressional level.
But many candidates are being outgunned by superPACs and other outside groups with nearly unlimited funds at their disposal. Those dollars have swayed primaries in states such as Pennsylvania, Indiana, North Carolina and Ohio. More than $500,000 in superPAC cash from a 21-year-old college student helped decide the winner of a contested GOP primary last week in Kentucky.
With billionaires dashing off multimillion-dollar checks to superPACs, political scientists and some politicians themselves are worried that candidates have become mere bystanders in their own campaigns.
"Those on the ballot are much more of an afterthought than they ever were before," says Jon Erpenbach, a Democratic state senator in Wisconsin. "In some cases, candidates don't even matter."
Is The System Broken?
All of this has triggered debate about whether it makes sense to have a system in which campaign finance limits apply mainly to political parties and candidates. Opinion on how best to fix the problem remains split roughly along party lines.
An increasing number of Republicans want to close what they consider the opposite of a loophole, saying it makes no sense to handcuff candidates when money is otherwise flowing so freely.
"The problem is the limits," Tennessee GOP Sen. Lamar Alexander said at a recent Rules Committee hearing. "These new superPACs exist because of the contribution limits we've placed upon parties and candidates. Get rid of the limits on contributions, and superPACs will go away."
So, You Want To Create A SuperPAC? Fill In The Blanks
Comedian Stephen Colbert got permission from the Federal Election Commission last summer to launch his super political action committee.
Comedian Stephen Colbert got permission from the Federal Election Commission last summer to launch his super political action committee.
There are 450 superPACs currently registered with the Federal Election Commission. If you want to create your own superPAC, you have to fill out two forms. And it's really, really easy.
First comes the "Statement of Organization," FEC Form 1. Every PAC must file this within 10 days of raising or spending more than $1,000 on a federal election. And crucially, it's where you provide the FEC with the name of your committee.
Choosing a name is one of the main ways you can define your superPAC's purpose. And many of these names appear to have tongue planted firmly in cheek — see comedian Stephen Colbert's superPAC, Americans for a Better Tomorrow, Tomorrow. Other names already in use: "Bears for a Bearable Tomorrow" and the "Peeps PAC," which raised more than $1,000 in a two-and-a-half month period.
At least 11 existing superPACs, in fact, use the word "tomorrow," and several use it more than once, including Colbert's group and "Cats for a Better Tomorrow, Tomorrow." Another popular word choice is "future." It's used by 18 superPACs, including the pro-Romney group, Restore Our Future. Other top choices are "action," "America" and "super." But none can measure up to the superPACs' superword: "liberty," used by 71 registered groups in all.
OK, so once you've filled out Form 1 listing the name of your superPAC, your treasurer and your custodian of records, there's only one more thing the FEC needs from you. It's a letter that officially defines your group as a superPAC and announces your intent to "raise funds in unlimited amounts" and not coordinate with a party or candidate. There's even an FEC-approved template that provides you with fill-in-the-blank spaces for your committee name, the date and the treasurer's signature.
— Padmananda Rama
Abolishing those limits would only open the door to outright influence peddling, according to those who advocate keeping the rules in place.
"To suggest that the solution to the problem is for candidates to raise the money themselves would just double down the possibilities for corruption," says Josh Orton, political director of Progressives United, a liberal political action committee that favors campaign finance limits. "Can you imagine the kind of conversations that could happen if we lifted the restrictions on corporations giving to candidates themselves?"
Newt Gingrich, who was targeted by pro-Mitt Romney superPAC ads before ending his presidential bid, says he favors a system in which individuals give directly to campaigns instead of superPACs.
"We would be better off with a system that says any American can donate any personal amount of income after personal taxes as long as they report it online that night, and they give it to the candidate," Gingrich said Thursday. "And then the candidates would have to be responsible for the advertising. You would have a cleaner, more positive, healthier system."
Individuals are limited to donations of $2,500 per candidate per election, which means they can contribute that amount for both primary and general election campaigns. Limits on gifts to parties are higher; for instance, an individual may give a national party $30,800 per year and a state party $10,000.
The limits on what outside groups can spend on campaigns have largely been eroded since the Supreme Court's Citizens United ruling in 2010. That decision has been hailed — and derided — for ushering in a new era of campaign finance law. But it was an earlier Supreme Court decision, in Buckley v. Valeo, that made it hard to make campaign finance restrictions stick.
That case found that money in politics is protected as equivalent to free speech. Ever since the 1976 Buckley decision, money has been like water, finding its way into the political system through new means, regardless of what restrictions have been enacted.
Here Today, But Maybe Not Tomorrow
"Right now, you have the worst of all worlds — unlimited contributions to third-party entities, with some, but certainly not instant, disclosure," says Trey Grayson, a former Republican secretary of state from Kentucky who now directs the Harvard University Institute of Politics.
Grayson says he'd rather see money put in the hands of candidates and parties, who are more accountable to voters than campaign committees that may disappear after the election.
Currently, messages from candidates themselves in a contested race are likely to make up only a "small sliver" of total campaign advertising, says Ed Goeas, a Republican consultant who favors lifting limits while requiring disclosure of donors.
Great Moments In Campaign Finance
2012: SuperPACs become a primary feature of presidential campaigns in both the Republican primary and general election.
2010: The Supreme Court strikes down the ban on direct corporate spending in campaigns in Citizens United v. Federal Election Commission, while the D.C. Circuit Court of Appeals rules that contribution limits for independent groups violate the Constitution.
2002: Congress enacts the Bipartisan Campaign Reform Act, known as McCain-Feingold, which bans so-called soft money fundraising by political parties and federal officeholders and candidates.
1996: Soft money, unlimited funds raised by parties for voter turnout and education efforts, emerges as a major component of the year's presidential race.
1976: In Buckley v. Valeo, the Supreme Court upholds limits on contributions but strikes down limits on campaign spending.
1974: After Watergate, the Federal Election Campaign Act is amended to limit spending and contributions to campaigns. The law also creates the Federal Election Commission.
— Alan Greenblatt
"Money is now at the end that's furthest away from the candidates and furthest away from the parties," Goeas says. "The money is with these other groups that are having more impact on the campaign than the campaign itself."
SuperPACs are not supposed to coordinate their messages or strategies with candidates, but many campaign finance advocates concede the line often gets blurry.
Still, they say erasing the line entirely would do great damage to the political system. Having politicians directly receive large or unlimited funds from entities they might regulate would be a surefire recipe for corruption, they say.
"We're in pretty bad shape right now, but there are still some lines," says Meredith McGehee, policy director for the Campaign Legal Center. "By funneling large amounts of money to politicians, what you would actually have is just more candidates elected who are beholden to a small elite."
Genie May Be Out Of The Bottle
Supporters of such limits point to possible models to stem the tide of money. Public financing systems in Maine and Arizona, as well as one being bandied about in New York State, for example, give politicians incentive to raise small amounts of money from constituents.
Earlier this month, Connecticut's Legislature passed a bill that would require corporations to be more transparent about their election spending. It's not clear whether Democratic Gov. Dannel Malloy will sign it, due to concerns about its constitutionality.
And next month, the Supreme Court may decide to take up a Montana case that would determine whether corporations can be banned from contributing to state-level campaigns. But unless there's a change in the court's voting makeup or proclivities, it's unlikely any restrictions will remain in place to prevent large funds from pouring into campaigns in one form or another.
In a speech Wednesday, former Justice John Paul Stevens, who dissented in the Citizens United case, suggested the court would at some point have to revisit the logic of the 2010 decision. The court concluded that corporate donations amount to protected free speech but did not address whether the same holds true for foreign corporations. "It will be necessary to explain why the First Amendment provides greater protection of some nonvoters than to that of other nonvoters," Stevens said.
Even those who would seek to level the playing field by allowing candidates and parties to raise more money directly believe that the genie may already be out of the bottle. Many rich donors have come to like superPACs, which allow them to control their own messages.
"I do think the current system will get worse until we have significant reforms," says Nick Nyhart, president of the Public Campaign Action Fund, which favors fundraising limits.
"As bad as things are in 2012, they will continue to get worse in 2014 and 2016 unless we have some change," Nyhart says. "The current system cannot hold.
Canada Finance Minister Rejects Dutch Disease Arguments - NASDAQ
By Karen Johnson
Toronto--Canadian Finance Minister Jim Flaherty Monday rejected accusations that Canada is threatened with so-called Dutch Disease, saying resource development benefits all of Canada.
The leader of Canada's official opposition party, Thomas Mulcair, has argued that oil-sands development in Canada's west is hurting exports from other sectors of the economy because it raises the value of the Canadian dollar. Mr. Mulcair is head of the left-leaning New Democratic Party. His position sharply contrasts that of the ruling Conservative government of Prime Minister Stephen Harper, which has made it a priority to promote the growth of Canada's energy exports.
In a speech Monday on a tool-and-die factory floor in Toronto, Mr. Flaherty highlighted resource projects throughout the country's provinces and territories, and talked about the government's plan for what it calls "responsible resource development," a plan for job creation and growth.
The term Dutch Disease refers to the 1960-70s era in the Netherlands, when the discovery of natural gas in the North Sea drove a rise in that country's currency, making other exports more expensive and resulting in a hollowing out of the country's manufacturing sector.
Write to Karen Johnson at karen.johnson@dowjones.com
(END) Dow Jones Newswires 06-04-120956ET Copyright (c) 2012 Dow Jones & Company, Inc.
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