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Financial Services Update – March 25, 2011

March 25, 2011

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Bernanke to Hold Regular Press Briefings

On Thursday, the Federal Reserve announced that Chairman Ben Bernanke will begin holding press briefings four times per year to present the Federal Open Market Committee’s current economic projections. In 2011, the Chairman’s briefings will be held on April 27, June 22 and November 2.

Fed Rejects Bank of America Dividend Increase

On Wednesday, Bank of America announced that the Federal Reserve had vetoed its plans for a dividend increase in the second half of 2011. Bank of America did not disclose the central bank’s reason for rejecting the dividend proposal, and the Fed declined to comment on how individual institutions fared in its latest round of examinations. The Bank said it had originally submitted its dividend proposal to the Fed in January, and it now intends to submit a revamped dividend proposal at a later date.

Treasury Department Opposes Tax Repatriation Holiday

On Wednesday, Michael Mundaca, the Assistant Treasury Secretary for Tax Policy, announced that he opposed proposals to give corporations a tax holiday on their overseas profits. Mundaca pointed to an earlier assessment from the Joint Committee on Taxation that estimated the tax holiday would cost billions, rather than raise revenue as proponents have argued. He added that a second holiday might even weigh even more heavily on revenue, by encouraging multinationals to shift even more profits overseas. The federal government currently taxes businesses up to 35 percent on overseas earnings. Win America, a coalition of multinational corporations including Apple, Google, Microsoft and Pfizer, argues that a temporary tax holiday would allow businesses to invest an estimated $1 trillion in America, creating jobs in the process.

Treasury Announces Mortgage-Backed Securities Sale

On Monday, the Treasury Department announced that it will begin to sell its portfolio of $142 billion in agency-guaranteed mortgage-backed securities (MBSs) amassed during the financial crisis. Starting this month, the department plans to sell up to $10 billion in MBSs per month subject to market conditions. The sales are expected to generate a profit for taxpayers of $15 billion to $20 billion. The Fed currently holds just under $945 billion of MBSs on its balance sheet.

More Information

If you have any questions regarding any of these issues, please contact:

Matt Jessee, Policy Advisor
matt.jessee@bryancave.com
1 314 259 2463

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Financial Services Update – March 18, 2011

March 18, 2011

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G7 Rescues the Yen

On Friday, the central banks of the United States, the United Kingdom, Canada, and the European Central Bank joined with Japan to intervene and strengthen the Yen in foreign exchange markets. The Yen’s unexpected surge on Wednesday was driven by speculation that Japanese firms would repatriate some of their huge foreign assets to help meet insurance claims and pay for reconstruction.

Temporary Government Funding Bill Passed and Signed into Law

The House and Senate passed, and President Obama signed into law, a stopgap spending measure to keep the government operating through April 8. The 87-13 Senate vote averts any threat of a shutdown Friday and delivers another $6 billion in cuts to current fiscal year spending. The temporary funding bill is the sixth such continuing resolution, or CR, for the 2011 fiscal year which began October 1. To an unprecedented degree, the entire government, including war funding, has been without permanent appropriations for almost six months.

Senate and House Bills Introduced to Delay Durbin Rule

On Wednesday, lawmakers in the House and Senate introduced bills to delay a Federal Reserve proposal that would cap debit-card “swipe” fees. The main sponsors of the bipartisan legislation were Senator Jon Tester, a Montana Democrat, and Representative Shelley Moore Capito, a West Virginia Republican. The Senate bill would put off implementation of the rule for two years while the House version would delay it for one year. Tester’s bill, which has nine co-sponsors, would require a joint study of the rule’s impact to be conducted within the first year by the Fed’s board, the chairman of the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the chairman of the National Credit Union Administration. The bill by Capito, the Chairman of the House Financial Services subcommittee on Financial Institutions and Consumer Credit, has twenty-seven cosponsors and would require the same agencies to conduct an impact study.

FDIC Proposes New rules for Liquidation

On Tuesday, the FDIC unanimously approved a proposed rule that regulates the repayment of creditors if the federal government seizes and breaks up a large, faltering financial firm. The proposed rule establishes criteria the FDIC would use to determine if a firm’s senior executives or directors are “substantially responsible” for the failure of the firm, and thus could be forced to repay past compensation. Under the new rules, as has been the case with banks for decades, the FDIC can take over flailing firms, pay off some creditors, fire the management and temporarily operate the entities until it closes or sells them. The draft rule also lays out the order in which unsecured creditors would get paid and how creditors would file claims. After the proposal is published in the Federal Register, it is opened to public comment for 60 days. It would then be subject to another vote before it would take effect.

More Information

If you have any questions regarding any of these issues, please contact:

Matt Jessee, Policy Advisor
matt.jessee@bryancave.com
1 314 259 2463

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Financial Services Update – March 11, 2011

March 11, 2011

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OCC Criticizes Durbin Amendment

Last Friday, John Walsh, the Acting Comptroller of the U.S. Currency who oversees regulation of the nation’s largest banks, sent a letter to the Federal Reserve criticizing the Fed’s proposed rule to implement the Wall Street Reform Act’s “Durbin debit card swipe fee” amendment. In the letter, Walsh said the Durbin amendment “takes an unnecessarily narrow approach to recovery of costs that would be allowable under the law and that are recognized and indisputably part of conducting a debit card business. This has long term safety and soundness consequences – for banks of all sizes – that are not compelled by the statute.”

Locke to Leave Commerce for China

On Thursday, President Obama announced that he had chosen Commerce Secretary Gary Locke to succeed Jon Huntsman as U.S. Ambassador to China. While the President has yet to announce Locke’s replacement, speculation has centered on the former Mayor of Dallas and current U.S. Trade Representative Ron Kirk.

Attorneys General Mortgage Settlement Stalled

The proposed settlement by state attorneys general with the five biggest U.S. mortgage servicers leaked out this week. The proposal, which calls for a dramatic increase in loan modifications, is intended as the basis for settling allegations of widespread wrongdoing by the big loan servicers in handling millions of foreclosures. The settlement would be with Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup and GMAC/Ally Financial Inc. In a press conference earlier this week, Iowa Attorney General Tom Miller, who led an investigation on behalf of the 50 states’ attorneys general, predicted that a broad settlement could be reached within about two months. Miller said the agreement was worked out jointly with federal agencies including the Federal Deposit Insurance Corp, the newly created Consumer Financial Protection Bureau and Justice Department. On Tuesday, Brian Moynihan, chief executive of Bank of America, the largest U.S. servicer, said at a meeting with analysts and investors that he opposes widespread principal reductions for homeowners in default. On Thursday, Rep. Spencer Bachus (R-AL) and Sen. Richard Shelby (R-AL), the top Republicans on the House and Senate banking committees, also criticized the proposed settlement as a “regulatory shakedown.”

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Financial Services Update – March 4, 2011

March 7, 2011

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February Unemployment Falls to 8.9%

On Friday, the Department of Labor reported that the nation added 192,000 jobs in February, up from a gain of 63,000 in January. The unemployment rate was down to 8.9 percent, falling below 9 percent for the first time in nearly two years. Altogether, 13.7 million people are unemployed and actively looking.  A broader measure of unemployment, which includes people working part-time because they could not find full-time jobs and those so discouraged that they have given up searching, was listed at 15.9 percent in February, down from 16.1 percent in January.

Congress Passes Stopgap Funding Measure

This week the House and Senate passed a continuing resolution funding the government until March 18, thereby avoiding a government shutdown and cutting $4 billion from current fiscal year spending. House Majority Leader Eric Cantor (R-VA) said Thursday that House Republicans plan to keep cutting spending at a rate of $2 billion a week, through two-week spending bills, until the Senate makes clear its position on a budget for the rest of FY 2011. House Republicans last month passed a bill to finish out the fiscal year, cutting $61 billion from 2010 levels. However, President Obama has issued a veto threat on that bill, saying House Republicans’ cuts are unacceptable. Senate Democrats have said that the non-spending “policy” provisions of the House Republicans’ bill regarding the environment and healthcare will also have to be struck before an agreement can be reached.

SEC Votes to Restrict Bonuses

On Thursday, the Securities and Exchange Commission voted to pass new restrictions on bonuses at large brokers and investment advisers, including hedge funds. The new restrictions are nearly identical to rules proposed by the Federal Deposit Insurance Corp. (FDIC) last month that apply to the banks that the FDIC oversees. The Dodd-Frank Wall Street Reform Act, which mandates the bonus rules, requires seven federal banking regulators to write the rules jointly. The SEC’s proposal will require brokers and advisers with more than $1 billion in assets to disclose the bonus arrangements of their executives, directors and lower-rung employees to the SEC annually. The proposal will also require firms with at least $50 billion in assets to hold half of the bonuses of top executives and heads of business units for three years. Any bonuses would have to be adjusted for losses at the firm after the pay was awarded. A 45-day public comment period follows Wednesday’s vote. A second vote by the commission is required before the proposal can be made final.

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Financial Services Update – February 25, 2011

February 25, 2011

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Government Shutdown Looms

On Friday, House Republicans are expected to release a two-week stop-gap funding measure that would cut $4 billion in spending from the current fiscal year’s budget. While Senate Democrats have indicated they will likely not support the proposed $4 billion in cuts, momentum has shifted towards reaching an agreement to avoid a March 5th shutdown when the current funding measure expires. The new Republican spending measure will come on the heels of the just passed House Republicans’ seven-month appropriation bill that would have slashed $61 billion from the current fiscal year spending. The yet to be released House Republican spending plan is expected to make the cuts in the two-week spending bill proportional to the levels in the measure passed last week.

However, if House Republicans and Senate Democrats are unable to reach an agreement, the federal government shutdown would be guided by the Anti-Deficiency Act, which mandates that the only government activities allowed in the absence of a funding plan are those connected to “the safety of human life or the protection of property.” Programs and agencies that would be likely exempt from the shutdown are Social Security, uniformed military personnel, the Federal Reserve, the U.S. Postal Service, the Federal Aviation Administration, the Transportation Security Administration, and border security. However, among the most likely high profile federal government activities that would be shutdown are applications for passports and visas, accepting visitors at national parks, new patients at the National Institutes of Health, disease surveillance at the Centers for Disease Control, and toxic waste clean-up by the EPA.

Federal Reserve Closes Comment Period on New Debit Card Rules

On Tuesday, the Federal Reserve closed its comment period on its proposed rules to implement new interchange regulations and other debit card provisions of the Dodd-Frank financial-reform law’s Durbin Amendment. The Fed is expected to issue its final rules in April.

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Financial Services Update – February 18, 2011

February 19, 2011

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House to Pass Funding Cuts

This week the House debated an extension of the current fiscal year’s funding resolution that expires on March 4th. While the measure is not expected to pass until tonight, among the largest funding cuts passed so far are a $336 million cut to the School Turnaround Grant program, a $22.5 million cut to the National Endowment for the Arts, a $131 million cut to the Securities and Exchange Commission, as well as defunding of the Federal Communications Commission’s implementation of the so-called “Net Neutrality” rules and defunding portions of the Equal Access to Justice Act. The House plans to vote on over 100 more amendments today ranging from funding cuts to the healthcare law, the IRS, and the CFPB among others. While the Senate has already recessed for the President’s Day District Work Period, after the House passes the pending funding resolution, it will also recess until the week of February 28. When both bodies return, the will attempt to resolve differences between their respective funding bills before the March 4th deadline.

Issa Issues Subpoenas to Bank of America for Countrywide Documents

On Tuesday, House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA) issued subpoenas regarding Countrywide Financial’s VIP program. The subpoenas ask for Bank of American to turnover all communications and documents relating to government officials in the VIP loan program by March 7th.

OCC Pushes for Mortgage Probe Settlement

On Wednesday, Federal Housing Administration Commissioner David Stevens announced that the Office of the Comptroller of the Currency (OCC), the federal bank regulator which oversees the nation’s banks, is pushing for a settlement to the months-long federal and state probes into abusive mortgage practices to take place in the next month. The federal review involves the OCC and other bank regulators, as well as the Departments of Justice, Housing and Urban Development and the newly formed Bureau of Consumer Financial Protection. The 50-state probe involves state attorneys general and state bank regulators.  According to sources, the OCC is negotiating an agreement that would cost the industry less than $5 billion in fines and mortgage modifications for troubled homeowners.

Corporations Campaign For Foreign Revenue Repatriation Deal

A group of multinational corporations is planning a campaign for a tax holiday that would allow them to repatriate their estimated $1 trillion in current foreign revenue. Specifically, the companies’ aim is to win a one-year tax amnesty on their foreign earnings, allowing them to repatriate that money at a tax rate of 5%, instead of the current 35% rate. In 2004, multinationals were successful in convincing Congress to approve a similar one-year foreign revenue tax holiday.

Corporations Weigh in On New SEC Whistleblower Program

In 2010, the Dodd-Frank Wall Street Reform Act created a new corporate whistleblower program within the Securities and Exchange Commission (SEC). With the SEC set to release the final rules in April, more than two dozen companies Fortune 500 companies have written letters asking the agency to revise its proposed rules for awarding workers who report information about corporate fraud or wrongdoing. The letters express concern that employees will bypass hot lines and other internal reporting mechanisms and thus hurt the companies’ internal efforts to encourage employees’ compliance with the law. Under the current law, the SEC offers awards of at least $100,000 and as much as 30% of the penalties and recovered funds to people who report knowledge of a fraud. To qualify for an award, the information must lead to a successful enforcement action with sanctions of at least $1 million. Under the SEC’s draft rules proposed in November, whistleblowers would not be required to report suspected wrongdoing to their employers in order to win a reward. In an effort to address the companies’ concerns, the SEC proposed to encourage internal reporting by giving credit to informants for first reporting the wrongdoing through company channels in setting the size of the award.

Obama Budget Includes New CFTC User Fees

On Monday, President Obama released his FY 2012 Budget which included proposed user fees as an option to help the Commodity Futures Trading Commission (CFTC) carry out its derivatives oversight. The user fees, which require congressional approval, would raise $117 million in the 2012 fiscal year and $588 million through 2016. The CFTC would assess the fees on “the regulated community” to pay for the CFTC’s non-enforcement activities. The user fees represent an alternative source of funds for the CFTC, which is now funded through annual funding legislation.

More Information

If you have any questions regarding any of these issues, please contact:
Matt Jessee, Policy Advisor
matt.jessee@bryancave.com
1 314 259 2463
 
 
 
 

 

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Financial Services Update – February 11, 2011

February 12, 2011

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Administration Unveils Housing Reform Plan

On Friday, Treasury Secretary Tim Geithner announced the Obama Administration’s recommendations to phase out Fannie Mae and Freddie Mac and to set minimum down-payments for buyers. The proposal includes a mandatory 10 percent down payment for home buyers and three options for Fannie and Freddie to be wound down but stopped short of recommending outright privatization or closure. However, critics were quick to point out that there are no specific timelines for action in the proposal, and regardless of Geithner’s recommendations, ultimately it will be up to Congress to enact legislation on the issue.

Kevin Warsh to Leave Fed

On Thursday, Federal Reserve Board Governor Kevin Warsh announced that he is stepping down from his position at the end of March. President Obama will now have the opportunity to replace Warsh, a Bush appointee, with his own nominee. President Obama currently has another nominee, Peter Diamond, pending before the Senate for confirmation. Once President Obama has filled these two vacant slots, he will have named six of the seven currently sitting Fed Governors.

Senate Banking Committee Sets First Dodd-Frank Hearing

On Friday, the Senate Banking Committee announced it will hold its first hearing of the 112th Congress on the Dodd Frank Wall Street Reform Act on February 17. The hearing will focus on the Administration’s progress report six-months after the bill’s passage. Witnesses will include Fed Chair Ben Bernanke, FDIC Chair Sheila Bair, SEC Chair Mary Schapiro, CFTC Chair Gary Gensler and Acting Comptroller John Walsh.

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Financial Services Update – February 4, 2011

February 8, 2011

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Warren Interviews AGs for Consumer Protection Agency

Reports this week indicate that Elizabeth Warren, who is interim head of the U.S. Consumer Financial Protection Bureau, has interviewed four Democratic state attorneys general to be her permanent successor. The four AGs reportedly in the running are Tom Miller of Iowa, Lisa Madigan of Illinois, Roy Cooper of North Carolina and Martha Coakley of Massachusetts. The bureau is scheduled to officially start work on July 21. Under the Dodd-Frank Wall Street Reform Act, which President Obama signed in July, the bureau must have a Senate-confirmed director to perform certain functions such as the supervision and regulation of non-bank financial firms.

House Republicans Release Top Line Budget Numbers

With President Obama set to release his FY 2012 budget on February 14, House Republican leaders on Thursday announced they would seek $32 billion in spending cuts from the resolution currently funding the government. Republicans framed their proposal as cutting $74 billion from President Obama’s 2011 budget request.  However, because Obama’s budget was never approved by the last Congress, the cuts would actually be made against a continuing resolution now funding the government. That resolution is to expire on March 4, and if lawmakers do not agree on another short-term measure or one funding the government for the rest of the year, they risk a government shutdown. The spending ceiling announced by House Budget Committee Chairman Paul Ryan (R-WI) represents a $58 billion cut in non-security discretionary funding. While details of the specific department cuts were not announced on Thursday, the House Appropriations Committee next week will release its bill detailing the specific department budgets based on the spending ceiling. Reports indicate that the Democratic majority in the Senate is opposed to the House Republican budget cuts.

TARP Program Breaks Even with Fifth Third Bank Repayment

On Thursday, the Treasury Department announced that Fifth Third Bank has now fully repaid its $3.4 billion in TARP loans and that total repayments and other income from programs within TARP (approximately $243 billion) have nearly surpassed total disbursements under those programs (approximately $245 billion). The Treasury Department also announced that current estimates indicate that bank programs within TARP will ultimately provide a profit of nearly $20 billion to taxpayers.

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Financial Services Update – January 28, 2011

February 2, 2011

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Fourth Quarter GDP Released

On Friday, the Department of Commerce announced that the U.S. economy grew at a 3.2% rate in the fourth quarter, an improvement from the 2.6% pace in the prior period. For all of 2010, GDP grew by 2.9% after contracting by 2.6% in 2009. The report showed that fourth quarter numbers were boosted by strong personal spending, reflected in the best holiday retail sales since 2006. The report also showed U.S. exports accelerated while the rate of import growth slowed. Company investments also helped the economy, although business spending for equipment and software slowed.

IMF Report Criticizes US Debt

On Thursday, the International Monetary Fund issued a report criticizing the U.S. response to its rising public debt. The IMF report focused on criticism that the United States is falling behind on a promise it made to other top economic countries to halve its budget deficit by 2013. At a gathering of the world’s top economic leaders in Canada last summer, U.S. officials promised to reduce the deficit to roughly 6 percent of gross domestic product. However, according to data released this week by the Congressional Budget Office (CBO), recent tax cuts and expected spending will keep the annual deficit this year at about 10 percent of GDP.

Financial Crisis Inquiry Commission Releases Final Report

On Tuesday, the Financial Crisis Inquiry Commission (FCIC) releases its final majority and dissent reports. The majority report concluded that the 2008 financial crisis was caused by the Fed’s ” pivotal failure to stem the flow of toxic mortgages,” the SEC ” [not] requiring more capital and halted risky practices,” and banks ” recklessly taking on too much risk, with too little capital, and with too much dependence on short-term funding.” The dissent report signed by FCIC Vice Chair Bill Thomas and Commissioners Douglas Holtz-Eakin and Keith Hennessey criticized the majority’s report for being ” more an account of bad events than a focused explanation of what happened and why.” The dissent also focused it blame for the crisis on policymakers who “poorly designed government housing policies that distorted market outcomes and contributed to the creation of unsound mortgages.”

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Financial Services Update – January 21, 2011

January 21, 2011

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Immelt Appointed Chairman of Council on Jobs and Competitiveness; Volcker Resigns

On Friday, President Obama announced that General Electric CEO Jeff Immelt will serve as Chairman of the newly created “Council on Jobs and Competitiveness.”  The Council will advise the President on job creation policies and on the establishment of a long-term growth strategy.  Immelt previously served on the board of the President’s Economic Recovery Advisory Board (PERAB).  On Thursday, the President also announced the resignation of PERAB Chairman Paul Volcker and dissolution of the PERAB.

SEC Issues New Rules on Asset Backed Securities

On Thursday, the Securities and Exchange Commission (SEC) approved new regulations regarding asset-backed securities. Among a series of new rules which will take effect in 2012, one requires that financial firms that issue asset-backed securities assess and disclose the quality of the underlying assets, including mortgages, credit card debt and student loans. The rule, which the SEC first proposed in October, passed in a 3-2 vote. The agency’s two Republican commissioners, Kathleen Casey and Troy Paredes, opposed the changes. Another new rule requires that banks and other issuers disclose the number of requests they have received to buy back troubled assets. Starting in February 2012, the issuers will have to report how many loans they have repurchased, dating back three years.

Geithner Declines First House Republican TARP Hearing

On Wednesday, House Oversight and Government Reform Committee Chairman Darrell Issa invited Treasury Secretary Timothy Geithner to testify next week before the Committee regarding the Troubled Asset Relief Program (TARP). Geithner declined Issa’s invitation but offered to send in his place Tim Massad, an acting Assistant Treasury Secretary. While Issa could have issued Geithner a subpoena, he instead accepted the offer of Massad’s testimony for next week’s hearing.

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