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Peter Eavis says the too big to fail problem remains unsolved, and with the recent consolidation the "big four" accounting for 70% of all assets held by domestically cahrtered banks. There is no effort by the Obama administration to prevent banks from getting too big. And the Fed has accumulated greater powers as a regulator. It is still the same Fed, Eavis reminds one that failed as abank regulator by letting Citigroup's common equity ratios drop to perilous lows. And its overstimulative monetary policies having built up more risk than the system could handle. There will be more regulatory capital at these big banks as a result of actions by Treasury, but risk remains.

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By a vote of 223 to 202 largely along party lines the House passed a bill that brings sweeping changes to the American financial regulatory system. The 1279 page bill creates anew federal agency for consumer protection, establishes a council of regulators to police the financial system for systemic risks, initiates oversight of the derivatives market, and gives the government power to wind down large firms that are in danger of collapse and pose systemic risk. The bill also gives sharehlders advisory say on executive compensation, increases transparency of credit rating agencies, and sets aside billions in governmet money to help unemployed homeowners.

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GM is keen to proceed with an IPO that would give it a chance to be seen as not reliant on the government, to be a legitimate company once again.

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GM plans to sell stock at a range of $32-33 compared to $26-29 planned previously. The total value of the offering could reach $22.8 billion. Under an overallotment option the IPO could reach 550 million shares, with a value of common shares of $18.2 billion. After the IPO the government's stake would go down from 61% to 26%. The US spent $49.5 billion to rescue GM, the government now expects to raise $13 billion. $9.5 billion was returned to the government earlier.

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Robert Reich of the Clinton administration responds to a question by Charlie Rose, about Obama's failure to have a narrative of governing that connects the dots. Reich says Obama got caught up in tactical judgements and failed to grasp the larger strategic narrative. He sees Obama as having supported Wall Street and business as much or more than any previous administration, but is not perceived as pro-business.

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Efforts by Spain's government of prime minister Rajoy to come up with credible estimates about the actual needs for recapitalization of troubled parts of the banking system, and which banks should be closed. Report out in June by consulting firms Oliver Wyman and Roland Berger relies on information from the Bank of Spain. A detailed audit examining the books of the 14 largest banks in Spain will be completed by audit firms by the end of July 2012. Considerable criticism in banking circles in Barcelona and London about the procrastination by Spanish banking authorites in coming up with credible estimates of the actual bad loans and losses in the Spanish banking system. This would improve confidence in financial markets that the problems can be controlled and a way forward planned.

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Similiarities with Japan are in the exploding monetary base growth by the Fed, just as bank lending is dropping. And as in post bubble Japan of the 1990's, all of the behaviour says Wood invites legitimate comparisons with Japan. The government has lent, spent or guaranteed about $11 trillion to the financial sector broadly defined, because of letting financial institutions remain "too big to fail," whether Fannie Mae, AIG or Citigroup. None of them have been broken up. And this is similiar to the lack of bank cleanup in Japan with regulatory forbearance for years after the bubble. He thinks there is evidence that America is already in a Japanese style "liquidity trap."

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It is not clear whether Citigroup is off the problem list of banks, banks which rate a 4 or a 5 on the scale of 1 to 5. This could change even now after the stress tests. Here's why. Since late 2007, Citigroup has more than $50 billion in write-downs and loan defaults. The recent stress test of the 19 largest banks produced results that showed additional large losses looming over Citigroup, and questions are raised how Citigroup passed. The test found that estimated losses could reach $104.7 billion in loan losses through 2010 under the government's worst case scenario, and face nearly $20 billion in losses on its credit card portfolio. Yet the Fed's conclusion that Citigroup needed to bolster its capital by only $5.5 billion to withstand another economic shock did not reflect these facts. Investors and analysts also saw Citigroup as being in much worse shape than the other banks. THe FDIC did not agree with the Fed's conclusion. Only the Comptroller of the Currency agrees with Citigroup CEO Pandit, that the Citi model is not broken and just needs more time. THe FDIC wanted the rating lowered for the Citibank unit, and sparred with the Comptroller of the Currency over this. The FDIC has 305 banks on the "problem" list, and would like to add Citigroup to this list, so that it could keep a tighter review of what is going on at Citigroup. FDIC is helping finance a $300 billion loss sharing agreement with Citigroup, and has large exposure to Citigroup. FDIC's Bair thinks Citigroup has not moved fast enough to get rid of unwanted assets which might cause problems if the economy deteriorates, and would like to see a change in management. FDIC officials have approached former US Bancorp CEO, Mr Grundhofer, who is highly regarded in the industry, as a possible replacement. One reason being that while most of the problems of Citi stem from consumer loans, Pandit's experience is in investment banking, and he has not moved fast enough to get rid of risky and unwanted assets. He has failed to bring in managers with experience in handling the kinds of problems Citigroup faces in this crisis. With the FDIC's Bair having anticipated the crisis earlier than other regulators, the FDIC is expected to get additional powers in the new regulatory structure. This may result in tighter supervision of Citigroup. It also shows gaps and flaws in the stress tests that let some banks off too lightly, and make them vulnerable to the next episode in this crisis. ...

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Jon Huntsman, Republican candidate for President in 2012, calls for a fee on banks with a size that is above a certain percentage of the GDP. This would cover the cost banks impose on taxpayers when they are bailed out. It would eliminate the advantage banks gain from "too-big-to-fail," a subsidy Huntsman estimates to be one half percentage point in today's market. He points to efforts by the UK and Switzerland for more stringent financial standards than the U.S.

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Spain will allow a European banking supervisory authority to visit banks and exercize financial supervision over banks receiving aid from the EFSF, the EU rescue fund. In addition investors including small retail investors will have to take losses to reduce the loans required to recapitalize Spanish banks.

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As a result of provisions in the bailout, GM won't have to pay about $45 billion in taxes on future profits. In a little noticed ruling in 2009, the federal government decided that companies receiving TARP bailout money won't fall under the rule which restricts their tax benefits. The rationale was that the tax credit would make these companies more attractive to investors, and the value of the benefit is greater than any lost tax payments.

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The largest U.S. bank holding companies, including Bank of America, J.P. Morgan Chase and Citigroup, and two foreign banks Deutsche Bank and Barclays PLC must submit initial plans for "living wills" by July 1, 2012. The Dodd-Frank legislation requires financial firms to develop plans that lay out how they could be liquidated if they went under in a crisis. This legislation gives the FDIC and other regulators the power to seize and dismantle a failing financial firm, to help mitigate the problems of "too-big-to-fail" firms. The FDIC and U.S. regulators lacked such powers at the time of the collapse of Lehman Brothers in 2008. The FDIC and the U.S. Fed co-wrote the living will rule for "comprehensive and coordinated resolution planning." In all, 124 banks, including 100 foreign banks with U.S. affiliates, which have over $50 billion in assets worldwide, must submit plans and update on a regular basis. Smaller banks will have the deadline extended to December 2013.

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Spain's borrowing costs increase reaching a high of 7.180% on yields for 10 year Spanish government bonds. There is considerable uncertainty about the bad loans in Spain's banking system and fears that the bad loans could be much larger than previously expected. Consultants hired by the Spanish government of prime minister Mariano Rajoy are expected to report on their findings this week about the extent of bad loans.

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An assessment of the Financial Regulatory Reform that is emerging in House and Senate Bills. Yes reforms will be passed but will they prevent another crisis and are they tackling the root causes of the financial crisis. The assessment here is that they fail on both accounts. According to Christopher Whalen of the Institutional Risk Analyst it tackles the symptoms more than it responds to the causes of the crisis. He sees the response in the areas of derivatives trading, credit ratings agencies, consumer proteciton agency, as inadequate to meet a future crisis.