Reform reading: Goldman fights back against Senate investigative report

Introduction

A daily round-up of analyses and news related to the Dodd-Frank financial reform law.

Goldman Sachs backlash – Goldman Sachs Group Inc. aims to discredit a U.S. Senate subcommittee’s 639-page report that lies at the heart of a New York investigation into the bank’s role in the U.S. credit crisis.

Goldman may release documents about its 2007 mortgage bets to show that the Senate’s report is based on “sloppy math and incomplete analysis,” the Wall Street Journal reported on Monday. The New York district attorney subpoenaed Goldman last week based on information provided by the Senate Permanent Subcommittee on Investigations, led by Michigan Democrat Carl Levin, that claimed the firm misled clients on mortgage-backed securities.

SEC may rebuke Lehman – The Securities and Exchange Commission may issue a rare public rebuke of Lehman Brothers Holdings Inc. and its former executives, unnamed sources told Bloomberg.

The rebuke — more formally known as a 21(a) report of investigation — could be issued in place of a lawsuit if SEC lawyers believe they are unlikely to win a suit attacking Lehman’s accounting practices before its 2008 failure. The 21(a) reports lay out allegations of misconduct without imposing penalties, and only six have been issued by the SEC in the past decade.

Capital cushion – The Federal Reserve is considering a plan to force the largest and riskiest U.S. banks to hold a hefty amount of capital between 8.5 percent and 14 percent of their risk-bearing assets.

The international Basel III accord sets a capital requirement of 7 percent, but the Fed’s Daniel Tarulllo is calling for a bigger buffer to reduce the risk that the failure of such “systemic” firms would bring down the global financial market. Such an increase in capital would be expensive for large banks and financial firms because they will have to hold onto capital they could otherwise lend, reports Reuters.

Contract diversity – One outcome of the Dodd-Frank Act will be more minority and female contractors doing business with the federal government, and that additional competition should mean taxpayer savings, according to a commentary published in the Washington Post.

Buried in the financial reform law’s section 342 is language requiring nearly 30 federal agencies that oversee the financial system — including the Fed, Treasury Department, and Federal Deposit Insurance Corp. — to establish offices of minority and women inclusion to monitor diversity within the 27,000 financial institutions they regulate. The beefed-up oversight should influence banks to hire more minority employees and to spend more money on minority contracts, wrote William Michael Cunningham, a social investing adviser with Creative Investment Research Inc.