Financial Services Update – Issue 7

February 27, 2010

Authored by: Matt Jessee

Senate Set to Begin Debate on New Jobs Bill

Soon after Senate passage of the first “jobs” bill, on Friday it was announced that the Senate had reached an agreement to begin consideration of a second “jobs” bill on Monday, March 1.  Senate Finance Chairman Max Baucus is expected to offer a substitute amendment which will include the remaining items from the original Baucus/Grassley bill, namely extensions to tax credits, pensions amortization, unemployment insurance, COBRA, Small Business Administration stimulus extensions, state Medicaid aid, satellite television reauthorization, and a delay of cuts to physicians’ Medicare reimbursements.

White House Unveils New Rules on Financial Advisors

On Friday, Vice President Biden unveiled the annual report of the Middle Class Task Force which included new proposals designed to shield workers from potential conflicts of interest by financial advisers.  Under the proposed rule, financial advisers may give advice only if they do not receive a commission for directing investments to funds with which they are affiliated.  The rules will be available for public comment until May 5. The Department of Labor will then issue a final rule, which would apply to all financial institutions that both provide investment options such as 401(k)s to employers and offer financial advice to their employees

Geithner Pushes for Consumer Protection in Financial Reform Legislation

On Thursday, Treasury Secretary Timothy Geithner met with leading executives from the Chamber of Commerce, Private Equity Council, Financial Services Roundtable, American Bankers Association, Independent Community Bankers Association, Financial Services Forum, Managed Funds Association and SIFMA regarding the financial regulatory reform legislation currently pending in Congress.  According to sources, Geithner reiterated that the Administration’s strong support fora new consumer protection entity with rulemaking and enforcement authority in the legislation. However, sources also said Geithner is no longer insisting on the creation of a stand-alone consumer protection agency and is open to having the new consumer regulator inside the Treasury Department.  In response to this shift, the Chamber of Commerce announced this week it would oppose the new agency whether it becomes a stand-alone entity or if it is within an existing department.

Federal Reserve Investigates Firms’ Ties with Greece

On Wednesday, Federal Reserve Chairman Ben Bernanke acknowledged during testimony before the House Financial Services Committee that the Fed was investigating U.S. financial firms’ involvement in the recent Greek financial crisis and named Goldman Sachs as one of its targets.  The investigation is centered around the U.S. firms’ derivatives arrangements with Greece and how they may have contributed to the country’s fiscal problems.  In discussing the nation’s employment outlook, Bernanke said he expects the unemployment rate to decline slowly to between 6.5 percent and 7.5 percent by the end of 2012, which will require the Fed to maintain interest rates at low levels for an extended period.

President Discusses Tax Deferral Rule

On Wednesday, President Obama addressed the CEOs of the nation’s largest companies during their annual Business Roundtable meeting in Washington.  The CEOs have been critical of the Administration’s proposal to end a tax provision that allows U.S. companies to defer taxes on foreign income until they repatriate the profits.  In its 2011 budget blueprint released this month, the Administration estimated it could raise $122 billion by eliminating the provisions which allow deductions of interest expense in proportion to the amount of previously-deferred foreign-source income that becomes subject to U.S. tax.

Change in Short Sale Rule

On Wednesday, the Securities and Exchange Commission approved along party lines final changes to short selling rules which apply to stocks that decline at least 10% in a single day. For such stocks, the new SEC rule will allow short selling only if the sale price is above the highest bid price nationally.