Finance Blog number 1

Opportunities for Nordic bank mergers will emerge as new capital rules expose weaker players in a post-crisis world, but big-scale tie-ups are doubtful in 2010 as lenders focus on loan losses and curbing risk.

Analysts say that the one possible big deal — between Nordea and Swedbank — is unlikely in the near term due to uncertainty over bad loans, adding that Swedbank’s shares do not fully discount the lender’s exposure to the troubled Baltics.

Consolidation in Nordic banking would make sense: markets are mature, growth opportunities limited and players too small to compete on a pan-European scale. The banks are good targets for foreign players because they are efficient and have been — at least until recently — highly profitable.

Add the new capital requirements that add to costs and eat into profits, and the need for scale is more acute than ever.

But the crisis has made banks shy of risk-taking and left the developments in the regulatory environment uncertain.

“Never say never, but I think all the Nordic players, or financial institutions, are quite busy running their own shops at the moment,” Nils-Fredrik Nyblaeus, senior advisor to SEB chief executive Annika Falkengren, told Reuters.

“The main owners of each of the banks have to be convinced that the synergies are by far outweighing the risk with it, and that’s obviously not the case at this moment.”

Predictions that Europe could see a wave of consolidation as a result of the crisis have so far not come true as most of the bigger players tread carefully.

But there have been rumblings.

The top executive of Nordea, which, with a $46 billion market capitalization, is on par in size with Deutsche Bank, recently said Swedish rival Swedbank made a good fit for his group.

Christian Clausen said the financial crisis had spurred the long-term need for strategic tie-ups, although he added that he expected little would happen in the near future.

SWEDBANK-NORDEA A HOT TIE-UP?

While the recent crisis has not led to any major bank failures or nationalizations in the region, lenders are still smarting from the worst downturn in decades.

Heavy exposure to the Baltics and Ukraine — economies among the worst hit by the recent downturn — and Ireland has left several Nordic players facing very painful loan losses.

The tough climate has made Swedbank — the biggest lender in the Baltics — the hottest tip for a tie-up, with Nordea seen as the main candidate. Some have put potential synergies at 400 million euros ($600 million) a year. 

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The Federal Reserve on Tuesday raised its estimate for economic growth next year and forecast lower unemployment ahead, although the jobless rate will stay uncomfortably high for at least the next three years.

The projections were included in the minutes of the Fed’s Nov. 3 and 4 meeting. The forecast shows the central bank expects gross domestic product, the broadest measure of the nation’s economic activity, to grow between 2.5% to 3.5% in 2010. That’s a bit more bullish than the 2.1% to 3.3% growth it had forecast for the period back in June.

The unemployment rate, which hit 10.2% in October according to the Labor Department’s latest reading, is expected to improve to between 9.3% to 9.7% for all of 2010. The Fed’s June forecast was for 2010 unemployment between 9.5% to 9.8%.

The central bank’s forecasts don’t show the labor market getting a lot better in the next few years. Its 2011 forecast is for unemployment between 8.2% to 8.6%, while 2012 unemployment is expected to be between 6.8% to 7.5%, still above the average 6% annual unemployment rate recorded by the Labor Department over the last 30 years.

Going forward from 2012, the forecast is for the unemployment rate to improve to between 5% to 5.2%, levels not seen since the first few months of the latest recession. But that long-term employment outlook is slightly more bearish than the Fed’s previous estimate of a 4.8% to 5% long-term unemployment rate.

Keith Hembre, chief economist First American Funds, said the slightly more optimistic numbers in the forecast are more bullish than the commentary in the minutes, which discuss many areas of weakness and uncertainty about the state of the recovery.

"They’ve had a tendency to be overly optimistic (in the numerical forecasts), and that’s likely the case again today," he said. For example, a year ago the Fed’s forecast was projecting that unemployment in 2009 would come in at between 7.1% to 7.6%. Unemployment hit the upper end of that forecast, 7 easy payday loan.6% in January and has risen steadily from there.

Hembre said the slightly more bullish numbers from the Fed shouldn’t be taken as a sign that the central bank is getting close to raising rates or removing other programs it has put in place to pump trillions of cash into the economy.

While Fed officials have said they believe that the recession that started in December 2007 likely ended at some point this summer, there have been repeated warnings that growth would be somewhat sluggish going forward. Fed Chairman Ben Bernanke recently said economic headwinds, including tight credit and continued weakness in the labor market would stop growth "from being as robust as we would hope."

The Fed’s forecast comes the same day the Commerce Department lowered its estimate for the third quarter’s GDP growth rate to 2.8% from its earlier reading of 3.5%.

Despite the lower unemployment estimates released Tuesday, the minutes they were attached to said that Fed "staff boosted its projection for the unemployment rate over the next several years." Those projections were more detailed than the annual estimates spelled out in the summary.

The Fed policymakers were particularly concerned that the forecasts were more uncertain than normal, and they were worried about a sluggish recovery.

"Business contacts continued to report plans to be cautious in hiring and capital spending even as demand for their products increased," according to the minutes.

But Fed policymakers seemed to be more optimistic than they had been at their late September meeting, when they believed there was a greater risk of the economy not living up to the forecasts. Now they believe there is roughly equal chance that the economy could do better than expected as they are worried about it falling short. 

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While the national economic picture is starting to brighten, the states are still suffering their worst budget crises in decades, a new report found.

States that have already slashed services and raised taxes to close a collective $54 billion budget gap now face another $51 billion deficit this year and next, according to preliminary results from the Fiscal Survey of States released Thursday.

"These are the worst numbers we’ve ever seen in the decades of putting together this report," said Scott Pattison, executive director of the National Association of State Budget Officers. "States have been forced to lay off and furlough employees, raise taxes, drain rainy day funds and sharply cut state spending in ways that impact every part of state government."

The full report, which will be released in December, is jointly compiled by the budget officers’ group and the National Governors Association. Fiscal year 2010 started on July 1 in 46 states.

Some $135 billion in federal stimulus funding helped states avoid even more draconian cuts, particularly to health services and education. But it was not enough to put the states back on solid footing.

States typically continue to suffer for two years after a national recession is declared over. Many economists predict that the current downturn ended last quarter, when the gross domestic product grew at a 3.5% annual rate.

Back-to-back expenditure reductions

Governors and lawmakers are expected to reduce spending by at least 4% this fiscal year, on top of a 4.8% pullback last year, the study found. This is the first time that expenditures have declined in back-to-back years.

Based on preliminary projections, half the states plan to lay off workers in the current fiscal year, Pattison said in a conference call with reporters. "State governments consider layoffs or furloughs a last resort," he said.

The national recession and soaring unemployment rate, which topped 10% last month for the first time in 26 years, has wreaked havoc on state tax revenues. Some 42 states cut their fiscal 2009 budgets, and 33 states slashed spending for 2010.

Also, states hiked taxes and fees by a total of $23.8 billion, along with $7.7 billion in other revenue increases, for fiscal 2010.

The survey came a day after two other reports also depicted states’ grim financial situations. One, from the Center on Budget and Policy Priorities, said states need as much as $50 billion in additional stimulus funds to keep them from making severe cuts that could threaten the national economic recession and cost 900,000 people their jobs.

Meanwhile, the Pew Center on the States released the names of 10 states in the greatest economic peril.

Already, less than five months into fiscal 2010, several states are looking at additional budget cuts.

Rhode Island announced Tuesday that it is facing a revenue shortfall for the current fiscal year of $130.5 million. Gov. Donald Carcieri said the state must examine its aid to local governments, since it has already cut personnel and social service programs.

And in California, Gov. Arnold Schwarzenegger said Tuesday that his state is facing a budget gap of up to $7 billion. The state will likely announce across-the-board spending cuts in January.

"So we just have to hang in there, tighten our belts and live within our means," Schwarzenegger said.

Last month, Massachusetts Gov. Deval Patrick announced a plan to close a $600 million mid-year budget gap that includes $352 million in cuts across state government, limited revenues hikes and draining a $60 million surplus from the last fiscal year.

And earlier this week, New York Gov. David Paterson said the state would have to come up with an additional $10 billion in savings. He is cutting state agencies funding by 10%, and is proposing reducing $1.3 million in local assistance programs, $686 million in education funding and $471 million in health care spending.

"Frankly, we are running out of money," he said.  

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Job openings in the U.S. fell in August to the lowest level in at least nine years, signaling the economy hasn’t improved enough to prompt companies to take on more staff.

The number of unfilled positions fell by 21,000 to 2.39 million, the fewest since records began in 2000, the Labor Department said today in Washington. Openings were down by 2.4 million, or 50 percent, since peaking in July 2007.

The report showed hiring and firing both slowed in August, indicating last month’s acceleration in payroll losses may have been due to a lack of employment rather than a pick up in dismissals. Labor Department figures last week showed employers cut staff by a net 263,000 workers in September and the unemployment rate increased to the highest level since 1983.

“We’re not going to signal the all-clear on the jobs market until we see hiring pick up,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “Firing has cooled off but firms have not really ramped up hiring activity.”

The rate of job openings in August held at 1.8 percent, matching July’s reading as the lowest in records dating back to 2000. The pace of hiring fell to 3.1 percent after increasing in July for the first time this year. The separations rate dropped to 3.3 percent, also matching the lowest on record.

The September payroll decrease exceeded the median estimate of economists surveyed by Bloomberg News and followed a 201,000 drop the prior month, last week’s Labor Department report showed. The unemployment rate climbed to 9.8 percent from 9.7 percent in August.

Obama on Jobs

President Barack Obama said Oct cheap pay day loans. 2 he is “working closely” with his economic advisers to “explore any and all additional options and measures that we might take to promote job creation.”

The U.S. economy may grow at an average 2.8 percent pace annual pace in the second half of the year, according to the median estimate of economists surveyed by Bloomberg News this month. Consumer spending, after rebounding last quarter as auto sales jumped because of the government’s “cash-for-clunkers” plan, will probably decelerate in the last three months of the year as the jobless rate reaches 10 percent, the survey showed.

Federal Reserve Chairman Ben S. Bernanke last week said economic growth next year probably won’t be strong enough to “substantially” bring down unemployment. The jobless rate will “still probably be above 9 percent by the end of 2010,” Bernanke said.

Dell Inc. is among companies still trimming staff to cut costs. The world’s second-largest maker of personal computers said this week it will shut a North Carolina factory by January, putting about 600 employees out of work.

Windstream Corp., a Little Rock, Arkansas-based fixed-line phone company, said last week it plans to trim about 350 positions, or 4.9 percent of its workforce, by the end of the year. The cuts are needed as the company changes its business model, Chief Executive Officer Jeff Gardner said in a Sept. 30 statement.

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The U.K. housing market improved last month as more London real-estate agents and surveyors said home values increased rather than fell for the first time in 20 months, the Royal Institution of Chartered Surveyors said.

Across Britain, the number of respondents saying prices dropped exceeded those reporting gains by 18.1 percentage points, the highest reading since September 2007, RICS said in its monthly survey released today in London. The balance for the capital became positive for the first time since October 2007.

The two-year long collapse in prices may be starting to end as the U.K. starts to emerge from its deepest recession in a generation. The Bank of England last week declined to extend its emergency bond-buying program, waiting until next month to reexamine its forecasts for economic growth and inflation.

“There’s a lot more optimism,” Simon Rubinsohn, chief economist at RICS, said in a Bloomberg Television interview. “There has been a wholesale shift in sentiment.”

A majority of surveyors now expect property prices to increase for the first time since May 2007, RICS said today. The indexes for new sales and buyer interest rose to the highest since 1999, according to the report.

While U.K. gross domestic product fell 2.4 percent in the first quarter, the most since 1958, the economy may now be stagnating, the National Institute of Economic and Social Research said last week. Warmer weather helped push up same- store retail sales in June by 1.4 percent from a year earlier, the British Retail Consortium said in a separate report today.

Long Haul

The economy has probably hit bottom and will pick up over time, Bank of England Deputy Governor Charles Bean said in an interview on BBC Radio Leeds yesterday. The recovery may be “a long haul,” he said cashadvance.

Lloyds Banking Group Plc’s Halifax division last week said that house prices fell 0.5 percent in June and 12.5 percent from a year earlier. Stephen Nickell, chair of the National Housing Planning and Advice Unit, said that the market won’t recover until banks become more willing to provide loans.

House prices are likely to fall further into next year before stagnating in 2011, PricewaterhouseCoopers LLP predicted in a report today.

“The recovery looks like it’s still going to be very patchy,” RICS’s Rubinsohn said. “Finance is still in short supply and unemployment is likely to keep rising.”

Parliament’s Communities and Local Government Committee said today that the government must do more to assist mortgage financing and encourage more homebuilding. The cost of two-year fixed mortgages rose to the highest this year in June, Bank of England data showed last week.

Homes Shortage

The outlook for house prices may be brighter because of a shortage of homes on the market. The average number of properties on agents’ books fell to 56.9 from 58.5 last month, a drop of 32 percent from a year earlier, RICS said.

The RICS index for prices was positive this month for London, the southwest and the southeast of England. The lowest index reading was for the West Midlands, where it was minus 48.

The Bank of England on July 9 kept the benchmark interest rate at 0.5 percent and refrained from expanding its 125 billion pound ($201 billion) asset-purchase plan. Policy makers will make their next interest-rate decision on Aug. 6.

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If you want to know how the recession is playing out in the average American city, you’ve got a front-row seat right here in St. Louis.

A report out today by the Brookings Institution ranks the country’s 100 largest metropolitan areas by their performance on four key economic indicators since the recession began. St. Louis ranked 49th. The only place more average is Nashville.

What it means to be in the middle of the economic pack these days is that 2.3 percent of the region’s jobs have vanished, and its unemployment rate is up by 3.2 percentage points. It means a relatively steep 4.6 percent fall in our "gross metropolitan product" — the sum value of everything that gets made here — and a much shallower 0.2 percent drop in housing prices, adjusted for inflation.

In other words, the economy here is lousy.

But the Brookings report also illuminates where things are lousiest, and where they are less so.

The best performing regions, it found, are largely in Texas, Louisiana and Oklahoma — the energy belt — followed by Northeastern cities with strong higher education, health care and biotech sectors and manufacturing that’s not tied to the auto industry.

The hardest-hit cities were housing boomtowns in Florida and inland California, and auto-making hubs such as Toledo, Youngstown and Detroit — which sits at the bottom of the list.

Now, as thoughts turn to recovery, those places that have fallen the furthest likely will take the longest to recover, said Howard Wial, a Brookings fellow who co-authored the report.

Meanwhile, a few lighter-hit regions such as Baton Rouge, La., and McAllen, Tex., already are beginning to bounce back.

"This is, regionally, going to be a tremendously varied recovery," Wial said free credit score online.

He thinks St. Louis likely will track the national economy, which many experts think will start growing again late this year or early next — though the job market will take longer to revive. Auto sector cuts have hurt here, Wial noted, but St. Louis’ economy is diverse and other, more-stable sectors have helped cushion the blow.

Still, St. Louis long has been slow-growth, and if it wants to jump ahead of the pack coming out of the recession, Wial said, it must build on its strengths in health care, advanced non-auto manufacturing and biotech.

That last one — biotech — is what brought dozens of local business leaders to Creve Coeur on Tuesday for the grand opening of the Bio Research and Development Growth Park. The $40 million building, next door to the Danforth Plant Science Center, will house plant sciences companies that are trying to turn their research into products they can sell.

As the center opens, it is 63 percent leased, said President Sam Fiorello, and two more buildings are planned. He envisions a campus with 400,000 square feet of offices and labs and more than 1,100 scientists, technicians and entrepreneurs, building new companies and making the region a real hub for plant sciences.

"Those are really good jobs," he said.

And it’s the kind of thing St. Louis must do, Fiorello and others at Tuesday’s ribbon-cutting said, if it hopes to get someplace after the recession that is, economically speaking, a little better than average.

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U.K. house prices unexpectedly jumped by 1.2 percent in May in a sign the property market slump is easing, Nationwide Building Society said.

The average cost of a home rose to 154,016 pounds ($245,701) after declining 0.3 percent in April, the mortgage lender said in a statement today. Economists predicted a drop of 0.9 percent, according to the median of 14 forecasts in a Bloomberg News survey.

Consumer confidence matched the highest level in 11 months in May as people became more optimistic that they can weather the recession, GfK NOP said in a separate report today. Prime Minister Gordon Brown’s government still predicts that Britain faces its worst recession since World War II this year as the mortgage squeeze extends the housing market’s slump.

The report is “further evidence of some improvement in housing market conditions over the last few months,” Martin Gahbauer, Nationwide’s chief economist, said in the statement. “Although the short-term trend in house prices has clearly improved from where it was at the beginning of the year, it is still too early to say that the market is turning definitively.”

Home values fell 11.3 percent from a year earlier in May, compared with a 15 percent drop in April, Nationwide said paperless payday loans. Mortgage approvals rose in April, the British Bankers Association said earlier this week.

GfK’s index of sentiment stayed at minus 27 in May, the same as in April, which had the strongest reading in 11 months, the market researcher said in a statement.

Dearth of Property

A lack of supply of properties for sale on the market may help explain this month’s gains as home sales still remain close to record lows, Nationwide said.

Rising unemployment may still curb the housing market’s recovery. U.K. house prices may keep falling for the rest of this year as more Britons lose their jobs, Nationwide’s finance director, Mark Rennison, said on May 27.

“If the supply of homes onto the market does increase, the recent moderation in the pace of house price falls may not be sustained,” Nationwide’s Gahbauer said. “In the current downturn, the combination of rapidly rising unemployment and tight access to credit implies that the last of the price declines has probably not been seen yet.”

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Malaysia’s central bank may refrain from cutting interest rates for a second straight meeting, betting the economy is recovering after contracting last quarter for the first time since 2001.

All 20 economists surveyed by Bloomberg News expect Bank Negara Malaysia to hold its overnight policy rate unchanged at 2 percent in the decision due at 6 p.m. today. The central bank may report tomorrow that gross domestic product shrank 3.9 percent in the first quarter from a year earlier, according to the median estimate of 16 economists.

Asian policy makers, who have slashed borrowing costs and pledged more than $950 billion of stimulus plans, have started saying their economies may be past the worst of the deepest global recession since the Great Depression. Bank of Japan Governor Masaaki Shirakawa said last week the region’s largest economy is improving after a record first-quarter contraction.

“Assuming economic activity picks up as we move forward, Bank Negara will probably not see the need to cut rates further,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. “An expected turnaround in global export demand” will support a recovery in the second half of the year, he said.

Malaysia’s 1.5 percentage points of interest-rate cuts since late November and the government’s 67 billion ringgit ($19 billion) of public spending, loan guarantees and other measures should help the economy resume growth in the second half after a “marked contraction” in the first six months, Governor Zeti Akhtar Aziz said May 9.

Stimulus Spending

Zeti refrained from lowering Malaysia’s benchmark interest rate last month after cutting it in the three previous meetings. Prime Minister Najib Razak, whose coalition has lost three of four regional elections this year, has unveiled two stimulus plans and allowed more foreign ownership of banks and services companies to spur growth as exports of Intel Corp. computer chips and IOI Corp payday loan. palm oil tumbled.

Singapore’s government said last week the economy shrank less than initially estimated in the first quarter and the nation may have “hit the bottom” of its worst recession since independence in 1965. Thailand’s central bank unexpectedly kept interest rates on hold last week, and South Korea has left borrowing costs unchanged for three months.

“Right now the assessment is there will be an improvement in the second half of the year, especially in the fourth quarter,” Zeti said in a May 9 interview with Bloomberg Television. “Unless that assessment changes, then the current rate is the appropriate rate.”

‘Resuming Growth’

Malaysia’s ringgit has strengthened 2.6 percent since Bank Negara held rates steady on April 29.

Still, a worse-than-expected slump in exports early this year will force policy makers to lower the country’s full-year economic forecast, Zeti said. Southeast Asia’s third-largest economy will “definitely” shrink more than 1 percent in 2009, Second Finance Minister Ahmad Husni Mohamad Hanadzlah said today. The central bank currently predicts a contraction of 1 percent or growth of that much at best.

“Malaysia’s economy may observe a contraction for the first three quarters of the year before resuming growth in the final quarter,” said Patricia Oh, an economist at TA Securities Holdings Bhd. in Kuala Lumpur. “Should there be anticipation for future economic weakness ahead, there is room for further interest-rate reductions” as inflation eases, she said.

Inflation slowed to a one-year low of 3 percent in April as transport and communications costs fell amid slowing growth. Malaysia’s $187 billion economy grew 0.1 percent in the fourth quarter from a year earlier, the least in seven years.

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President Barack Obama said a bailout of states such as California won’t be necessary and that his administration is in talks with state treasurers nationwide to find “creative” ways they can deal with frozen credit markets.

Many states will end up having to make some “very difficult choices” as demands on services rise while tax revenue falls, Obama said in an interview with C-SPAN.

The Democratic president said probably the biggest area in which states need help is in rolling over debt. Obama said his administration is trying to find “creative ways that we can help them get through these difficult times.”

“They are still being affected by some of the freezing in the credit markets,” Obama said in the interview, according to a transcript released by the cable-television network. Obama said “no,” when asked whether he will be forced to help financially strapped states such as California.

California’s top finance officials told lawmakers yesterday that they must slash spending and shore up the budget by the end of next month to prevent the most-populous U affordable health insurance.S. state from running out of cash as soon as July.

Bill Lockyer, the Democratic treasurer who handles the state’s bond sales, said short-term securities can’t be sold without a plan to eliminate a deficit that the Legislative Analyst’s Office says may total $24 billion in the next 13 months. Such borrowing allows the state to meet its obligations until the bulk of tax receipts are collected later in the year. Controller John Chiang, who pays the state’s bills, echoed that sentiment.

“We are experiencing the greatest fiscal crisis since the Great Depression,” Chiang, a Democrat, said during a Sacramento legislative budget hearing.

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The Obama administration may call for stripping the Securities and Exchange Commission of some of its powers under a regulatory reorganization that could be unveiled as soon as next week, people familiar with the matter said.

The proposal, still being drafted, is likely to give the Federal Reserve more authority to supervise financial firms deemed too big to fail. The Fed may inherit some SEC functions, with others going to other agencies, the people said. On the table: giving oversight of mutual funds to a bank regulator or a new agency to police consumer-finance products, two people said.

The 75-year-old SEC, chartered to oversee Wall Street and safeguard investors, has seen its reputation tarnished as some lawmakers blamed it for missing the incipient financial crisis and failing to detect Bernard Madoff’s $65 billion Ponzi scheme. Any move to rein in the agency is likely to provoke a battle in Congress, which would need to approve the changes, and draw the ire of union pension funds and other advocates for shareholders.

“It would be a terrible mistake,” said Stanley Sporkin, a former federal judge and enforcement chief at the SEC. “Whatever the SEC has done or didn’t do, it is still the premier investor protection agency around.”

SEC Chairman Mary Schapiro’s agency has been mostly absent from negotiations within the administration on the regulatory overhaul, and she has expressed frustration about not being consulted, according to people who have spoken with her. She has pledged to fight any attempt to diminish the SEC, they said.

Geithner, Summers

Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers are leading the administration’s effort to redraw the lines of authority for policing the financial system.

“We’re going to have to bring about a lot of changes to the basic framework of oversight, so there’s better enforcement,” Geithner, said May 18 at the National Press Club in Washington. “That’s going to require simplifying, consolidating this enormously complicated, segmented structure.”

Geithner may be asked about his plans for a regulatory revamp at a Senate Banking Committee hearing on financial-rescue efforts in Washington today.

Treasury spokeswoman Stephanie Cutter didn’t respond to requests for comment. The SEC also didn’t immediately respond.

Dinner Meeting

Geithner was set to discuss the proposals at a dinner last night with Summers, former Fed Chairman Paul Volcker, ex-SEC Chairman Arthur Levitt and Elizabeth Warren, the Harvard University law professor who heads the congressional watchdog group for the $700 billion Troubled Asset Relief Program.

President Barack Obama has said he wants to sign legislation on regulatory changes by year-end. House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, is planning hearings with the aim of drafting a bill by the end of June paydayloan.

The SEC’s job is to regulate stock markets, police securities sales and make sure public companies make adequate disclosures to investors about their finances. The commission has five members, with the chairman and two commissioners typically from the president’s political party and the other two from the party not in the White House.

Schapiro was appointed by Obama to replace Christopher Cox, who was named by President George W. Bush.

Cox Record

Under Cox, the SEC ceded some of its authority to the Fed after the central bank responded to Bear Stearns Cos.’ near collapse last year by inserting its own examiners into Wall Street securities firms.

Former Treasury Secretary Henry Paulson, Geithner’s predecessor, urged Congress in a March 2008 “blueprint” for overhauling financial rules to give the Fed broader powers to oversee risk in the system.

Opponents of giving the Fed more authority, such as former SEC chief Levitt, have said the central bank’s focus on keeping the financial system solvent may trump efforts to punish companies for violating securities laws. Levitt is a board member of Bloomberg LP, the parent company of Bloomberg News.

The SEC’s reputation took a hit last week when U.S. Senator Charles Grassley, an Iowa Republican, released a report saying two of its enforcement attorneys face an insider-trading investigation by the Federal Bureau of Investigation.

Trades Questioned

The report, written by the SEC inspector general’s office, faulted the SEC for inadequately monitoring trades by the employees and said one of them sold shares in companies after co-workers opened probes into the firms. Both employees, who are enforcement attorneys in the SEC division that investigates securities fraud, denied any wrongdoing.

While the agency has been battered recently, it still has powerful supporters, including a number of Democrats on the Senate Banking Committee who aren’t likely to support having an agency they oversee cut back.

In addition, public pension funds that hold $872 billion of assets urged lawmakers this month to protect the SEC’s turf in any legislation overhauling financial regulation.

The California Public Employees’ Retirement System, the New York retirement fund and 12 other pension funds wrote letters to Frank and Senate Banking Committee Chairman Christopher Dodd, arguing that the SEC “must maintain robust regulatory and enforcement authority” over securities trading, brokers, money managers, corporate disclosures and accounting rules.

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