Barney Tips Wall Street The Wink

Representative Barney Frank, the man tasked with leading the Congressional talks to merge the US House and Senate financial reform bills, has said that the provision in the Senate bill that requires commercial banks to spin off their derivative operations 'goes too far'.

Bloomberg reports that Frank said earlier this week that: 'I don't see the need for a separate rule regarding derivatives, because the restriction on banks engaging in proprietary activity would apply to derivatives'. This provision is perhaps the most controversial under consideration by Congress, as critics says that it will effectively prevent banks from hedging their risks, increasing the likelihood of systemic risk rather than reducing it.

In the meantime, The Wall Street Journal reports that rating agency Standard and Poor's has said that it won't be immediately changing its ratings on banks as soon as the financial reform bill makes it into law. S&P analysts have said: 'We do not expect (the bill's) effect, if any, on the ratings of financial institutions to be clearer until more information is available concerning implementation details and transition issues. This assessment could take several months'.

Finally, The Times reports that the EU is announcing plans for a Europe-wide levy on banks to create a bank crisis fund which will be used to ensure the orderly winding-down of any systemically important firm which finds itself in great difficulty. The levy will be in the form of an upfront tax.

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