The U.S. dollar’s gains may end in the middle of 2010 as central banks shy away from adding greenbacks to their reserves and the Federal Reserve raises rates at a slower pace than investors expect, Barclays Plc said.
Long-term demand for dollars is set to weaken after the currency’s share of global reserves added in the third quarter slid to less than 30 percent, a decline “unprecedented in a period of U.S. dollar weakness,” Barclays said in a note to clients. The dollar stemmed 11 months of declines versus the 16 most-traded currencies in December, gaining against all but two, after investors increased bets the Fed will remove monetary stimulus next year as the economy recovers.
“We see the dollar strengthening in the first six to nine months of 2010 when the focus is on liquidity withdrawal and tightening of rates,” said Steven Englander, chief U.S. currency strategist at Barclays in New York, in a telephone interview. “Once the market gets past this initial fear of tightening, the reality will be that the Fed isn’t going to be tightening very fast and we’ll see dollar selling again.”
The Dollar Index — which measures the currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona — has dropped 4.2 percent this year. It has climbed 4.1 percent in December and traded at 77.928 as of 9:28 a.m. in Tokyo. The U.S. dollar has registered its biggest declines against the Brazilian real, Australian dollar and South African rand dropping by more than 25 percent this year against each.
Global Reserves
Global reserves probably gained by about $180 billion in the third quarter with U.S. dollar-denominated reserves accounting for about $50 billion or less than 30 percent, Barclays estimated, using data from the International Monetary Fund and U.S. official reports.
The bank adjusted for changes in the value of currencies over that period to capture “actual buying and selling, rather than passive gains and losses” Englander wrote in the note.
The dollar declined against all but the yen among the 16 most-active currencies this year. That prompted China and Russia, holders of the world’s biggest and third-biggest currency reserves, to express concern about their U payday loans with no faxing.S.- denominated investments.
“Emerging market central banks are selling their local currencies and buying U.S. dollars to prevent appreciation of their currencies,” Englander said. “They’re avoiding having a bigger concentration of U.S. dollars in their portfolio by turning around and selling dollars against the euro and other currencies.”
Canadian Dollars
Canada’s Finance Minister Jim Flaherty said this week that China, may be poised to buy Canadian dollars as it seeks to shield its $2.3 trillion worth of reserves against the U.S. dollar’s decline. Russia’s central bank said last month it will add Canadian dollars to its reserves and may include more currencies to reduce its dependence on the U.S. dollar.
Declines in the greenback mostly stalled this month as traders bet on a 48 percent chance that Fed Chairman Ben S. Bernanke will increase the target rate for overnight lending between banks by June. Policy makers will end most emergency lending programs and debt purchases by March because of “improvements in the functioning of financial markets” and stabilizing labor markets, the Federal Open Market Committee said on Dec. 16.
Unemployment, Retail
Reports this month showed the U.S.’s jobless rate unexpectedly fell, retail sales beat forecasts and purchases of existing homes rose to the highest level in almost three years in November. Benchmark rates are as low as zero percent in the U.S. compared with 8.75 percent in Brazil and 3.75 percent in Australia. They are 0.1 percent in Japan and 1 percent in the Euro region.
Barclays forecasts that the Federal Reserve will begin raising rates at the end of the third quarter of next year, while the European Central Bank’s tightening cycle will begin at the start of 2011. The Fed’s target rate will reach 2 percent by the end of 2011, Englander said.
Barclays on Dec. 10 forecast the euro will fall to $1.40 in six months before rallying to $1.45 by the end of 2010. The euro traded at $1.4333 today.
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And the PM’s Indian audiences have reacted with jubilance.
"The south Asian tiger has awoken and the world is standing in awe," Harper told a business gathering at the posh Trident Hotel in Mumbai on Monday – and the audience rose to give the visiting statesman a standing ovation.
Yet for all its headline-grabbing dynamic growth this decade, India still has the world’s biggest poor population. At 400 million people, India’s destitute would, on their own, be the world’s third-most-populous country.
India ranks 45th in the latest Legatum Prosperity Index, which measures quality of life and economic progress in 104 nations accounting for 90 per cent of the world’s population.
It is held back by malnutrition affecting one in five Indians, an average life expectancy of just 53 years and a severely inadequate health care system. With a GDP of about $1 trillion (U.S.), this nation of 1.2 billion people still trails in size the $1.2 trillion (Canadian) economy of Canada.
It’s the nature of such friendly exchanges – and this one is long overdue – that pleasantries dominate the conversation.
And in that context it was admirable of Harper to complain that while "between us, our combined GDP is well on the way to $4 trillion … at the moment we are only doing $5 billion worth of business per year."
That’s equal to five days’ trade between Canada and the U.S. "Where we are today is not where we ought to be," Harper said.
In fact, both nations are in catch-up mode in what has long been a relationship of mutual disdain. Canada recently boosted from five to eight its permanent trade missions in India. The Harper government has sponsored 11 ministerial visits to India, whose GDP growth will far outstrip that of the West over the next few years.
India’s largest firms at last are taking on multinational status. The century-old Tata family empire has acquired the former British Steel and the Jaguar and Land Rover brands. Names such as Reliance, another old-line conglomerate; ICICI Bank, which operates in Canada; and IT giant Infosys, which now has a branch in Mississauga, are becoming familiar to North American business clients low cost payday loans.
A handful of Canadian firms have established toeholds in India, including Sun Life, Bombardier, SNC-Lavalin, Cameco and Bank of Nova Scotia.
Yet, the larger picture is one of stalled initiatives.
Talk of a free-trade pact has been just that. A deal to protect foreign investors from bureaucratic meddling in each country is stalled, apparently over Indian fears of tainted Canadian meat products. A civilian-nuclear materials export program announced in January remains in limbo, long after the U.S., Britain and other nations signed such agreements.
There is no annual ritual of Team Canada political-business missions to south Asia, as there were under Jean Chretien in China, the other emerging economic superpower, and the one that has always claimed much more of Canada’s attention in matters of diplomacy and business.
Annual Canadian corporate investment in India trails that of Sweden, Belgium and even Bermuda. Despite the presence in Canada of about a million people claiming Indian descent, Canadian universities have enrolled just 4,000 Indian students. Australian universities have 80,000 Indian students.
Yet India also is home to the world’s largest middle class, at about 300 million people. There’s no question that with expected heady economic growth of 5.75 per cent next year, India and China are leading the world out of the global recession. There are euphoric local predictions of an Indian economy surpassing that of the U.S. in size by mid-century.
But real progress in Canada’s potentially crucial relationship won’t come from PM photo-ops with Indo-Canadian heartthrob Akshay Kumar, which the PMO spent weeks lining up.
It will require a sustained, low-key effort by notoriously unadventurous Canadian firms to understand the Indian market.
That won’t happen until Canadian entrepreneurs grasp that India’s economic growth is destined to be far more dynamic than North America’s for decades, and that the easier trip south will gradually yield less rewarding returns on investment.
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Here’s another sign of a sickly banking sector: a flurry of letters urging banks to raise money — and fast.
Federal bank watchdogs issued 29 so-called prompt corrective action letters for the year through August. That’s up from just seven over the same period a year ago, according to data tracker SNL Financial.
A prompt corrective action letter comes when regulators determine a bank has become undercapitalized, meaning it doesn’t have a big enough cushion against future losses. The directives typically give banks as long as a month to bulk up, usually through issuing more shares.
In addition, officials have filed broader actions against hundreds of banks, covering issues ranging from capital and management deficiencies to risk management. All told, actions against institutions more than doubled in the first eight months of 2009, to 347, according to SNL.
Regulators have been pressing banks to straighten out their problems at a time when they are struggling under the weight of home-lending losses and bracing for a commercial real estate downturn. This year has brought 98 bank failures, with many more expected.
"There is an awful lot of softness on bank balance sheets," said Hal Reichwald, a banking lawyer at Manatt Phelps & Phillips in Los Angeles. "There’s real concern about problems coming down the road and how much it will take to deal with them."
The number of banks deemed troubled by the Federal Deposit Insurance Corp. hit 416 in the quarter ended June 30, a 15-year high and nearly four times the number a year ago. The FDIC doesn’t name the banks on its list or comment on open institutions, because doing so could spark damaging deposit runs.
Meanwhile, the federal deposit insurance fund has been dwindling. Member banks pay into the fund to protect account holders with balances up to $250,000. The FDIC said recently the fund has a negative balance and could run out of cash by the end of the first quarter next year. Over the past year, the deposit insurance fund balance has dropped to $10 billion from $45 billion.
The FDIC said recently that it expects expenses tied to failed banks to surge to $100 billion over five years — up 43% from the agency’s last estimate in May.
Trouble raising capital
Among the institutions that has come under regulatory scrutiny is FBOP Corp., an Oak Park, Ill., holding company that owns nine banks in Illinois, California, Arizona and Texas.
Owner Michael Kelly has built the firm over nearly three decades. Starting in 1981 with one bank — First Bank of Oak Park, from which the firm takes its name — Kelly built the company through acquisitions into the 46th biggest bank holding company in the U.S., according to Federal Reserve data, with more than $18 billion in assets.
But FBOP was hit hard in September 2008 when Treasury took over Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), the government-sponsored mortgage investors. Treasury’s decision to wipe out those firms’ preferred stock left numerous banks and insurers nursing losses. FBOP has also been hurt by its longtime focus on commercial real estate. FBOP posted a loss of $708 million for 2008.
By the end of June, FBOP’s resources had dwindled so low that the firm ranked below 98% of similar bank holding companies in terms of tier 1 leverage ratio, a measure of bank capital.
In August, FBOP signed a so-called written agreement with the Fed that gave it a schedule to raise capital, improve risk management and reduce its concentration of commercial real estate loans. The bank was to submit a capital plan within 30 days.
But raising capital isn’t easy when banks have taken big losses and are looking at more of the same ahead, and FBOP hasn’t made any announcement on the status of its planned capital raise. The company didn’t return a call seeking comment.
Most banks that go on the FDIC problem list or are subject of enforcement actions survive — though two-thirds of the banks that have received prompt corrective actions this year have already failed.
But in numerous instances over the past year, regulators — facing deteriorating fundamentals at banks in a weak economy — have stepped in earlier than they might have planned.
Take, for instance, Irwin Financial, a holding company that owned two banks in Ohio and Kentucky.
It agreed Sept. 11 to a so-called cease-and-desist order from the Federal Reserve, which called for it to boost its capital by the end of the month.
A week later, regulators closed Irwin’s banks — at a cost of $850 million to the deposit insurance fund.
Stocks meandered Friday, at the end of a second straight week of losses, as investors worried that a worse-than-expected jobs report was further evidence that the rally has gotten ahead of the recovery.
The Dow Jones industrial average (INDU), the S&P 500 (SPX) index and the Nasdaq composite (COMP) all lost a few points.
"The [jobs] report was a disappointment, but a recovery is not going to go in a straight line," said John Wilson, chief technical strategist at Morgan Keegan.
Since the rally highs were hit last week, stocks have lost about 5%. Wilson said stocks may need to ease another 5% lower over the next few weeks, but that a 10% pullback would be sufficient to bring buyers back in to push the market higher.
Stocks got hammered Thursday after weaker-than-expected readings on manufacturing and jobless claims sparked worries about the pace of the economic recovery. The Dow closed down 204 points.
Stocks are also vulnerable to a bit of selling after a strong July through September period in which the Dow and S&P 500 both jumped 15%, their biggest quarterly gains in more than a decade. The Nasdaq gained 15.7%, its best quarterly performance since 2003.
The advance was part of a bigger run up that has propelled the leading indexes for roughly 7 months straight. The advance has been driven by slowly improving economic news and tremendous amounts of fiscal and monetary stimulus.
But lately, a number of the reports have been missing expectations, including readings on jobs, manufacturing and consumer confidence earlier this week.
Since bottoming at a 12-year low March 9, the S&P 500 has gained 51.2%, and the Dow has gained 45% as of Friday’s close. After hitting a six-year low, the Nasdaq has gained nearly 61%.
Economy: Employers cut 263,000 jobs from their payrolls in September after cutting a revised 201,000 in August, the Labor Department reported Friday morning. Economists were expecting 175,000 jobs cuts, on average, according to Briefing.com.
The unemployment rate, generated by a separate survey, rose to 9.8%, a 26-year high. That was in line with economists’ forecasts and up from the 9.7% rate in August. Most economists expect the national unemployment rate to hit 10% by year end, although in a number of states it is much higher.
A separate government report showed that factory orders plunged in August versus forecasts for a rise. The Commerce Department said factory orders fell 0.8% versus forecasts for a flat reading. Factory orders rose 1.4% in the previous month.
Company news: Troubled lender CIT (CIT, Fortune 500) launched a debt-exchange plan as part of its efforts to restructure and avoid bankruptcy. But the company said if the plan is not successful, it will likely file for Chapter 11 protection.
Apple (AAPL, Fortune 500) shares gained after both Morgan Stanley and UBS issued bullish notes on the company’s forecast.
Market breadth was positive. On the New York Stock Exchange, losers beat winners two to one on volume of 1.4 billion shares. On the Nasdaq, decliners topped advancers two to one on volume of 2.47 million shares.
World markets: Global markets tumbled. In Europe, London’s FTSE 100 lost 1.2%, France’s CAC 40 lost 1.9% and Germany’s DAX lost 1.5%. Asian markets declined as well, with the Japanese Nikkei losing 2.5%.
Currency and commodities: The dollar tumbled versus the euro and the yen, resuming its recent plunge against a basket of currencies.
U.S. light crude oil for October delivery fell 87 cents to settle at $69.95 a barrel on the New York Mercantile Exchange.
COMEX gold for December delivery rose $3.60 to settle at $1,004.30 an ounce. Gold closed at a record high of $1,020.20 two weeks ago.
Bonds: Treasury prices tiptoed higher, lowering the yield on the benchmark 10-year note to 3.21% from 3.18% late Thursday. Treasury prices and yields move in opposite directions.
China’s commerce ministry said on Sunday it had launched an anti-dumping investigation into imports of U.S. chicken products and vehicles, as the foreign ministry slammed the United States for protectionism.
Domestic industry had asked the government to counter unfair trade practices used to help import products, the Ministry of Commerce said on its website (www.mofcom.gov.cn).
China and the United States have vowed to cooperate in seeking to revive global economic growth.
“China consistently and resolutely opposes trade protectionism, which has been proved by its behavior since (the start of) the financial crisis,” the commerce ministry said.
But foreign ministry spokeswoman Jiang Yu also reinforced commerce ministry criticism of a U.S. decision to impose extra duty on Chinese-made tires, saying the move sent a dangerous protectionist signal before a G20 summit my credit score.
“This is going to damage financial and trade cooperation between China and the United States, and does not help push the world economy toward an early recovery,” Jiang said in a statement posted on the ministry website (www.fmprc.gov.cn).
The tire dispute brought continued friction over trade into focus, which could spill into the G20 summit this month and U.S. President Barack Obama’s scheduled visit to China in November.
Jiang said China had already had stern talks with U.S. officials, and reserved the right to take further countermeasures.
(Reporting by Emma Graham-Harrison and Langi Chiang; Editing by Dan Lalor)
Much of the money given to General Motors and Chrysler to prevent them from collapsing will never be recovered, according to a report released Wednesday by the Congressional Oversight Panel.
"Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount," the report says, citing estimates from the Treasury Department and Congressional Budget Office.
The oversight panel, headed by Harvard University professor Elizabeth Warren, was created by Congress last year to oversee the $700 billion Troubled Asset Relief Program.
GM and Chrysler were each teetering on collapse this spring when the Obama administration effectively forced both automakers into bankruptcy, lending them enough to survive. Both have shed billions of dollars in debt and are now rebuilding.
All told, since late last year, the government has provided or pledged the two companies, icons of American manufacturing, more than $60 billion in aid.
Treasury estimates that about $23 billion of initial loans to the two companies "will be subject to ‘much lower recoveries,’ " the panel’s report says. In particular, $5.4 billion of loans to Chrysler are "highly unlikely to be recovered," it continued.
"The initial loans made last fall as the industry was imploding and when no restructuring plan was in place are not likely to be repaid in full," Warren said during a conference call with reporters.
How much of the remaining funds will be recovered is impossible to predict, Warren said, because the loans have been converted to stock.
"The American taxpayer is now an equity investor in Chrysler and GM," Warren said. "And the return on its investment depends on what those companies are worth in a year or two."
The government owns 10% of Chrysler and 61% of GM.
Rep. Jeb Hensarling, R-Texas, who is the only member of Congress on the oversight panel, declined to sign the final report. In a statement, Hensarling cited his objections to the use of TARP funds to help the auto industry and the structured bankruptcies of the two automakers.
"By making such an unprecedented investment in Chrysler and GM the Administration by definition chose not to assist other Americans that are in need," Hensarling said in a statement. "The government clearly picked winners and losers."
‘Somewhat mixed’ record
On the whole, the report said Treasury had a "somewhat mixed" record in how it handled the two bailouts.
Officials acted "aggressively" and demanded concessions from the companies. Yet they were not fully clear with the public about "the decisions to enter into the transactions in the first place."
The report made several recommendations. One was that the government’s shares in GM and Chrysler should be placed in an independently managed trust to prevent any potential political entanglements, the report said. That would be preferable to simply holding the shares as a "passive" investor.
Warren said the question of whether TARP gave Treasury authority to help the auto industry "is the subject of considerable debate," the report said.
Treasury should provide a detailed legal analysis of this use of TARP funds, Warren said. Still, she said, there is unlikely to be a serious legal challenge to Treasury’s actions in this case.
One of the signature proposals in the Obama administration’s efforts to reshape the regulatory framework for banks has been slowed as supporters regroup in the midst of mounting opposition.
The creation of a new consumer protection agency to regulate mortgages, credit cards and credit insurance was never going to be easy. But the forces trying to stop or water down the proposal have grown beyond banks and financial sector lobbyists.
Federal Reserve Chairman Ben Bernanke, testifying Wednesday before the Senate Banking Committee, argued strongly that the central bank should keep its consumer protection powers, which would otherwise move to the new agency.
Bernanke also suggested that Congress take steps to elevate consumer protection to a more prominent role at the Fed.
Fed leaders have been making their case behind the scenes for weeks. Bernanke’s comments represented the Fed’s most high-profile public opposition to a stand-alone consumer agency.
The push-back has prompted top Democrats supporting the consumer agency to change strategies.
House Financial Services Chairman Barney Frank, D-Mass., said he would delay pushing for a vote on the consumer agency bill until September, in part to give top Democrats more time to win more support in Congress and outside of Washington.
"This became somewhat more controversial than I expected," Frank said Wednesday at a press conference with consumer advocates. "I believe the votes were there, on the part of the Democrats, to put it through. Even a few Republicans or two had talked about it … but this is worthy of an actual debate."
How it would work: The Consumer Financial Protection Agency would be run by a presidentially-appointed, five member board and would wield broad power, including the ability to examine and subpoena information from banks.
A main task of the new agency would be to create simple templates for basic financial products, such as fixed-rate, 30-year mortgages. All banks and mortgage brokers would have to offer the simpler product and use an agency-approved standard, one-page application. More complicated mortgages would have to spell out how they differ from the simpler "plain-vanilla" financial product.
The agency would also have the power to ban products deemed deceptive. That has prompted critics to warn that the new agency could stifle innovation in financial products and make credit less available for consumers.
The debate: The financial services sector has come out swinging against the proposed new agency.
The head of the Financial Services Roundtable, a powerful lobbying group representing Wall Street, has talked publicly about efforts to kill the proposal. On Wednesday, the U.S. Chamber of Commerce issued a press release praising the delay of the "flawed" proposal.
Lawmakers opposed to the plan are also speaking out.
"I think this is a tremendous overreach and very disturbing to listen to," said Sen. Bob Corker, R-Tenn., last week during a hearing on the new consumer panel. "And I hope that as [the bill goes forward], we will be able to work together to do something that is not an overreach, where the federal government is telling citizens the types of products they should and shouldn’t buy and telling companies what they should and shouldn’t offer life insurance rates."
On the other side of the debate, the Treasury Department joined in the public campaign Wednesday. Deputy Treasury Secretary Neal Wolin pressed for the new agency at a meeting of the American Bankers Association, which is strongly opposed to the idea.
"The agency will not limit consumers’ ability to choose the products they want," Wolin said. "Quite the contrary, our proposed legislation explicitly charges the CFPA with preventing abusive and unfair practices and, at the same time, promoting efficiency, innovation and consumer access to financial services."
Fed pushback: On Wednesday, Bernanke added his voice to the list of those trying to reshape the proposal.
While agreeing the Fed was not "aggressive enough to address consumer issues earlier in this decade," Bernanke defended the Fed’s role as an advocate for consumers.
"We have the capacity, we have the ability [and] we have the expertise … to be effective when we are working in that direction," Bernanke said.
He recommended that Congress rewrite the Federal Reserve Act to elevate consumer protection as a "major goal" of the Fed, equal in importance to assuring full employment and price stability.
The Fed chairman could report regularly on how they’re monitoring consumer protection — similar to monetary policy updates, Bernanke said. He suggested Congress could hold hearings to question how the Fed is addressing consumer protection.
Bernanke also suggested beefing up the Fed’s Consumer Advisory Council, giving the group more power and requiring it to meet more often. Currently, the 30-member council comprises industry and consumer representatives and meets three times a year. Yet, its authority is limited to advising the Federal Reserve Board.
"I think there are steps that could strengthen the institutional framework that would address your legitimate concern about the long-term commitment of the Fed to this particular area," Bernanke said.
Campaign continues: While Bernanke testified, on the opposite side of the Capitol, House financial leaders, including Frank and Rep. Maxine Waters, D-Calif., held a press conference with a new group organized last month to push for the new consumer agency.
Americans for Financial Reform is comprised of union and consumer advocate groups. It has also signed on a few financial firms to its cause.
The coalition was the brainchild of consumer groups disappointed with their failure to convince Congress to pass a measure that would have allowed judges to modify underwater mortgages, a move successfully blocked by the financial sector industry.
The number of Americans filing initial unemployment claims fell sharply last week, while those filing ongoing claims rose to another all-time high, according to government data released Thursday.
There were 565,000 initial jobless claims filed in the week ended July 4, down 52,000 from a revised 617,000 the previous week, the Labor Department said.
It was the lowest number since January and was below the consensus estimate of 603,000 from economists surveyed by Briefing.com.
Analysts said last week’s drop was distorted by a change in the pattern of seasonal layoffs in the automotive industry.
Initial claims typically spike in July as automakers idle certain manufacturing plants, and the Labor Department adjusts its data for such seasonal factors.
However, many plant closures occurred early this year, said Mark Vitner, an economist at Wacovia Economics Group.
On a non-seasonally adjusted basis, initial claims were 577,506.
"The improvement in first week of July was exaggerated by the timing of plant closures," Vitner said. "This is something we’re going to be dealing with throughout the month."
Meanwhile, the number of people requesting continued jobless benefits rose to a record high, indicating that the labor market remains weak business cards.
The government said continuing claims rose to 6,883,000 in the week ended June 27, the most recent data available.
That’s an increase of 159,000 from the previous week’s revised total of 6,724,000 and was the highest reading since the Labor Department began keeping records in 1967.
The 4-week moving average of continuing claims rose 12,000 to 6,769,000.
The ongoing rise in continuing claims suggests that more workers are struggling to re-enter the work force.
"While layoffs have topped out, hiring has not picked up," Vitner said. "The increase in unemployment rate going forward will be more a result of lack of hiring rather than layoffs," he said.
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The Obama administration is weighing a plan that would put the Federal Reserve in charge of monitoring systemic risk and give the Federal Deposit Insurance Corp. authority to unwind insolvent bank holding companies, sources familiar with the proposal said on Wednesday.
The idea, which is being circulated to U.S. lawmakers as they embark upon an overhaul of financial regulation, could be announced soon after June 8, the two sources said. They spoke on condition of anonymity because the plan has not been widely shared and cautioned that the plan is not final.
Treasury Secretary Tim Geithner has said the administration will come out with a comprehensive proposal in mid-June. June 8 is the Monday after President Barack Obama returns from a trip to Saudi Arabia, Egypt, Germany and France.
White House spokeswoman Jen Psaki said no final decision had been made about the shape of the regulatory proposal.
"Officials at the White House and the Treasury department are continuing work with Congress on the final phases of a proposal, but there is no final proposal in place and any announcement will not be for a couple of weeks," she said.
The sources said the administration is mulling a consumer protection agency to supervise financial products, such as credit cards and mortgage-related products. Securities would not fall under the consumer supervisor’s jurisdiction.
The revamp could also create an agency in charge of investor protection and market integrity, which would likely be a merged Securities and Exchange Commission and Commodity Futures Trading Commission.
Such a move would stop short of trying to eliminate either the SEC, which regulates securities, or the CFTC, which oversees commodity futures, one of the sources said. The new investor protection agency would oversee all investment products, the source said.
The administration will also try to stop banks from shopping for their regulator by creating a new, single government agency to be the hands-on regulator for most banks and insurers, the sources said easy cash advance.
Many financial institutions can currently choose between four bank regulators, creating the opportunity for regulatory arbitrage. The plan being considered would have the new agency be the primary supervisor of state and federally chartered depository institutions, bank holding companies and insurers, according to the sources.
It was not immediately clear what such a plan would mean for the current primary regulators of banks.
Some policymakers have suggested merging the Office of the Comptroller of the Currency, which regulates the nation’s largest banks, and the Office of Thrift Supervision, which regulates many mortgage-related financial firms.
The administration is also considering a financial regulatory advisory council, which would include the heads of major financial regulators. This would be similar to the President’s Working Group on Financial Markets, which is chaired by the Treasury secretary and composed of the chairmen of agencies like the SEC, the Fed and the CFTC.
"It is important to modernize the system to prevent the financial crisis from happening again," said Scott Talbott, a senior vice president with the Financial Services Roundtable, which represents the largest financial services companies.
The Obama administration has said it wants financial regulatory reform legislation passed by the end of the year. But any overhaul faces difficult turf battles among the agencies who could be stripped of responsibilities and among the congressional committees that oversee the agencies.
Frivolous spending, one of the hallmarks of America’s consumer-driven economy, is on its way out, with budget shopping becoming the mantra for households.
April store sales results Thursday showed clearly how the recession is training consumers to embrace value at all levels - whether it is shopping for food at Wal-Mart (WMT, Fortune 500), or buying clothes for your kids at a discount department store such as Ross Stores (ROST, Fortune 500) instead of at Macy’s (M, Fortune 500).
Consumer psychology expert Paco Underhill believes this change in the "mindset" of the consumer will define the post-recession shopper.
"Our retail culture is in a major transition. Conspicuous consumption is now bad manners," he said. "Too many of us have spread ourselves far beyond our means. We can’t do this anymore."
"Our closets are full, are houses are too big, we have too many cars," he said. "It’s time to make some very wrenching changes."
Post-recession consumers will spend very carefully. Buying previously owned products, for instance, will lose its stigma.
Also, more consumers will feel comfortable buying stores’ "private label" products versus higher-priced branded goods.
Luxury market expert Andrew Sacks, head of advertising firm AgencySacks, said even high-income shoppers will shop a little differently in the months ahead americashadvance.
"Even for those whose jobs haven’t been affected, they will be thinking about putting more money away. Everyone values their dollars more now," he said.
Not all high-income shoppers will trade down in prices, but they will be "more selective" with what they buy, focusing on quality rather than quantity, Sacks said.
Underhill, who’s also CEO of retail-focused consulting firm Envirosell, said the recession — whenever it ends — will dramatically change not only the "shop at any cost" mentality of the American consumer but also retailers’ approach to selling.
Retailers, he said, will have to adapt to a new reality in American consumerism by really selling the concept of "value."
Merchants will also have to focus on how they sell rather than "how much" they sell.
"I am 6′ 4". I can walk into a Gap store and find just two pairs of pants that will fit me," Underhill said. "I don’t think this makes any sense. Retailers have to become more sophisticated sellers."
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