There's an OFR annual report

Treasury's Office of Financial Research puts out a very worthy annual report about the risks facing the U.S. financial system and here it is. It has lots of good charts; the bank "Funding Map" (Figure 31) is particularly illuminating, while "The Money Fund Network" (Figure 6) is mesmerizing. Other highlights include some amazing jargon and a -- strange? encouraging? I don't know -- identification of calm markets with risky markets. "Future risks to financial stability may actually rise precisely during periods of low volatility, a pattern that has been referred to as the 'volatility paradox,'" says the report, which is probably right. But there is also a "heat map" of "risk appetite" (Figure 3), in which various asset classes are red if they're performing well and green if they're performing poorly. One shouldn't read too much into one color bar but this seems a bit like a backwards way to think.

Small banks don't like the Volcker Rule

The Volcker Rule's semi-surprising ban on certain CDO investments will hit small banks hard, in that they'll need to sell those investments at today's market prices instead of at the inflated prices at which they're carried on the banks' books. That's bad for their capital levels, though it is up to you whether you think it is bad for, like, America. The point is that regulators seem, rather amazingly, to be surprised by this, and are working on "guidance to address concerns about the rule's impact on some small and midsize banks," "amid worries that banks will take a hit to their capital levels." Guys you wrote the rule! It took you like two years! It's kind of worrying that you've already found a big unanticipated problem.

Though, whatever, I shouldn't complain. Addressing a big unanticipated problem a week after releasing the rule is better than the obvious alternative, which is going around stonily saying "no that's exactly what we wanted to happen." So good job everyone I guess.

Poor Michael Steinberg

Michael Steinberg, a former senior portfolio manager at SAC Capital, fainted in court yesterday while awaiting the verdict in his insider trading trial. Then the judge sent the jury away and had him wait for another half an hour, which is not a great way to lower anyone's stress levels. Then he was found guilty. Unfortunately for Steinberg his judge, Richard Sullivan, isn't just a bit insensitive when it comes to delivering bad news; he's also a particularly harsh insider-trading sentencer.

There will be bonuses of some sort

It's that wonderful time of year when financial services employees speculate about their bonuses. Citigroup's "probably will be little changed or drop from last year," but individual bonuses will be up or down or unch'd or whatever because each of you is a special snowflake.

"Maybe Footnote 88 really is evil"

That's an FT Alphaville headline. Footnotes are really having a moment. Footnote 88 is a big one; it's a Commodity Futures Trading Commission rule that seems to bring a lot of foreign entities under U.S. swap execution facility rules. Industry groups argue that it is fragmenting the swaps trading business and forcing more trades out of nice transparent electronic trading and into evil opaque voice trading. Imagine a footnote increasing opacity.