With the last two meetings o the European Central Bank each ending up with an interest rate cut, one of the ECB’s key policymakers believe it isn’t sufficient to boost the faltering Eurozone, and has publicly called for a quantitative easing scheme. According to comments made by the ECB’s Lorenzo Bini Smaghi, he cannot understand the hush-hush sentiment of the bank as regards the topic of quantitative easing, which he points out is used in the U.S. and the U.K. as the first move against deflationary risks.

While the ECB has, in their most recent economic forecast, said that they don’t believe deflationary risks exist for the Eurozone, Mr. Bini Smaghi believes that if conditions change the bank should reconsider QE, which he says is “tailor-made.” Analysts view his comments as an indication that the central bank might at least be considering expansion of the monetary tools at its disposal. Mr. Bini Smaghi, from Italy, will be relinquishing his post on the Executive Committee by year’s end to allow a representative from France to sit.

The Financial Stability Oversight Council in the United States will propose rules on how it will determine non-bank firms that are important enough to the financial system for additional oversight by the Federal Reserve. Institutions such as insurance companies, mutual funds and other key players in the financial markets who are identified under the new program will be designated as systematically important financial institutions (SIFIs) and be subject to new capital and liquidity rules. The institutions will also be required to draft detailed plans on how they can be unwound in worst case scenario.

Banking regulators are scheduled to vote on a proposal banning proprietary trading done by banks, also known as the Volcker rule. The Volcker rule has been in focus after Swiss Bank UBS announced that it was a victim of fraud by one of its own trader, who lost $2.3 billion in losses related to trading. UBS chief executive Oswald Gruebel resigned over the failure of the bank to implement risk control measures. The Volcker prevents banks from speculating in securities, derivatives and other financial instruments for profit. Banks will be allowed to act as market makers and hedge against risks.

These rules were created as part of the 2010 Dodd-Frank financial oversight law. The law was put in place after the collapse of American International Group, Inc which was not subject to banking regulators at that time. Bank holding companies with more than $50 billion in assets are already subject to additional scrutiny.

U.S. stock markets are consolidating as investors wait for a vote in Slovakia on increasing the size and abilities of the European bailout fund. The Dow is trading around 11,437, the Nasdaq around 2,585, and the S&P 500 around 1,198 at the time of writing this report. Traders on OpenBook are primarily long on the Dow (DJ30). The longs have their limits around 11,600 and stops around 10,500.

Provided by eToro

Huge news out of Bloomberg, especially if it winds up becoming true.

According to the New York-based financial publication, European Union regulators may start drafting legislation for a Eurobond to help control the debt crisis, which appears to be spiraling out of control. This is a stark contrast from what German Chancellor Angela Merkel has said in recent days.

Earlier in the week, Merkel and French President Nicolas Sarkozy held a press conference on the European Union financial crisis, and it was nothing short of disastrous. Both said there would be no Eurobonds, thought Sarkozy said that something might happen in future regarding that. Both also said that the European Financial Stability Fund (EFSF) would not be increased. Both were seen as major negatives in the marketplace.

The European Commission said it may start drafting legislation on euro bonds, despite the German objections.

“The report will, if appropriate, be accompanied by legislative proposals,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a written response. “These euro securities would aim to strengthen fiscal discipline and increase stability in the euro area through markets,” wrote Rehn, in quotes obtained by Bloomberg.

The European Union has 17 countries, with France and Germany being the two strongest nations in the union, and Portugal, Italy, Spain, Ireland, and Greece being the weakest. We have talked ad nausea about the problems of Italy, Greece, and the rest of the “PIIGS.” Both France and Germany are rated AAA, while Greece is at junk, and the others could be on their way there.

Merkel again came out today and said “we don’t want that,” in response to Eurobonds. The country would face an additional $67.6 billion in costs if a Eurobond was enacted. It is obvious to see why she and the rest of Germany do not want to do it, but they may have no other choice.

Analysis provided by eToro.