It has become a little harder for the largest banks to make a profit — at least in the securities markets. Trading desks turned an impressive profit as long as the stock market was going up, but the strategy began to show strain last year and fell apart, based on the early reports, in the first quarter of this year. We knew all along that giant banks could not continue to make their money in the markets indefinitely. The interest rates banks pay to borrow money for trading will not stay low forever, the stock market cannot go up forever, and every gambler eventually places a bad bet. But also, some of the shadow-banking investors that have funded banks’ trading desks have come under scrutiny; banks have been paying too big a share of gains out as bonuses, while absorbing the losses; new regulations narrow the range of trading that banks can do on their own accounts. The era of securities trading at banks is certainly not over, but the big profits may be harder to find now.
A federal court in New York has approved SAC Capital’s insider trading settlement. The fund manager will pay $1.8 billion in fines and penalties and will scale down its operations, no longer managing investments for the public. Eight employees have been convicted for their involvement.
Vatican Bank will remain open for now, as Pope Francis has decided to pursue reform instead of closing the bank.
The Commodity Futures Trading Commission may draft clearer guidance on swaps and related derivatives, it is hoped, after a Senate committee approved Timothy Massad to head the agency. Massad has worked in the international swaps trade in recent years and may be more able to spot potential loopholes in the rules.