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Financial Services Update – January 14, 2011

January 17, 2011

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Consumer Products Safety Commission Announces Complaints Database

On Monday, the Consumer Products Safety Commission (CPSC) announced that for the first time the Agency will make public thousands of complaints it receives each year about safety problems with consumer products. The database, which was authorized in 2008 consumer product safety legislation, will be launched online in March. Until now, the only way for consumers to access safety complaints has been to file a public records request with the CPSC. The agency was then required by law to consult with the manufacturer before releasing information about their products, and the company could protest or sue to stop disclosure. The database, which is scheduled to be launched March 11, will be available at www.saferproducts.gov.

TARP Inspector General Criticizes Citi Bailout

On Thursday, Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, issued a report saying that Citigroup is still too big to be allowed to fail and could make future bailouts of big banks a necessity. The Treasury Department disputed part of the report’s conclusion in comments included in the report, saying that the Dodd-Frank law “provides the federal government with important tools that it did not have in the fall of 2008, which will be critical in addressing future crises.” The report now goes to the Treasury Department and Federal Reserve, however no specific action is required.

Bernanke Predicts 3% to 4% Economic Expansion

On Thursday, Federal Reserve Chairman Ben Bernanke said that the U.S. economy should expand at a rate of 3% to 4% in 2011. The Fed’s most recent forecast, released in November, was that the U.S. economy would grow between 3.0% and 3.6% in 2011 after expanding by 2.5% in 2010. Bernanke remarks, which occurred before a small business forum sponsored by the Federal Deposit Insurance Corporation, also included his prediction that the credit crunch is easing and small business should see greater access to capital in 2010. Bernanke appeared along with Federal Deposit Insurance Corp. Chairman Sheila Bair, Sen. Mark Warner, (D-VA) and House Financial Services Committee Chairman Spencer Bachus (R-AL).

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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 – January 7, 2011

January 7, 2011

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December Unemployment 9.4%

On Friday, the Labor Department announced that the United States economy ended the year with 9.4% unemployment in December. The agency also revised estimates from October and November saying that 210,000 jobs were created in October instead of 172,000 and 71,000 in November, instead of 39,000.

Obama Appoints Daley, Sperling To Key Posts

On Thursday, President Obama announced that William Daley will serve as his new chief of staff. Daley is the former U.S. Secretary of Commerce in the Clinton Administration and brother of Chicago Mayor Richard Daley. Daley replaces interim chief of staff Pete Rouse, who will become a Counselor to the President. Rouse replaced Rahm Emanuel, who stepped down to make a run for mayor of Chicago. On Friday, President Barack Obama also announced that Gene Sperling will be the new Director of the National Economic Council replacing Larry Summers. Sperling had previously served as Counselor to Treasury Secretary Tim Geithner and Deputy Director of the National Economic Council and National Economic Adviser for President Clinton.

Tax Reform Debate Gains Steam

On Thursday, Senate Majority Leader Harry Reid (D-NV) announced that the Senate Finance Committee would hold hearings on tax reform in the near future. Senate Minority Leader Mitch McConnell (R-KY) followed Reid’s comment by saying that he also welcomed discussions about how to improve the country’s tax code. House Majority Leader Eric Cantor (R-VA) also said that tax reform was one issue that he believes could garner bipartisan support and hopes the President addresses it in the State of the Union at the end of the month. While tax reform was initially thought to be a second or third tier issue, it could now become the next big issue for Congress to tackle this year after the debate on raising the national debt ceiling.

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Financial Services Update – December 30, 2010

January 5, 2011

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Cuomo Announces Settlement with Rattner

On Thursday,  New York Attorney General Andrew Cuomo announced that Quadrangle Group principal Steven Rattner has agreed to pay $10 million and refrain from doing business with any New York pension funds for five years, however the settlement does not require Rattner to admit any wrongdoing. The settlement was in response to Cuomo’s investigation of Rattner’s alleged role in a scandal involving the state’s public employees’ pension fund. Rattner already agreed to pay $6.2 million to settle a separate Securities and Exchange Commission case related to its pay-to-play investigation. The SEC settlement also prevents Mr. Rattner from associating with any investment adviser or broker dealer for two years.

Treasury Announces Six More Banks Repaid TARP Loans

On Wednesday, the Treasury Department announced that six more banks had repaid the government loans received through the Troubled Assets Relief Program, or TARP. The Treasury also said that out of $389 billion disbursed through TARP, the government had received repayments of $235 billion plus dividends and other payments totaling $35 billion, for a grand total of $270 billion. Banks repaying the government on Wednesday included East West Bancorp of Pasadena, CA; Webster Financial of Waterbury, CT; 1st Source Corporation of South Bend, ID; Surrey Bancorp of Mount Airy, NC; Nationwide Bankshares of West Point, NE; Haviland Bancshares of Haviland, KS.

Christmas Week Jobless Claims Drop

On Thursday, the Labor Department announced that jobless claims for the week of Christmas dropped to a level that has not been seen since July 2008. The number of people filing for unemployment fell by 34,000 to a seasonally adjusted 388,000 the week ending December 25. The four-week moving average decreased by 12,500 to 414,000 from 426,500. New filings have been hovering below 450,000 a week since the beginning of November. The Labor Department reports next Friday on the number of jobs added and the unemployment rate in December which is based on a survey taken in mid-December.

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Financial Services Update – December 17, 2010

December 17, 2010

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Congress Passes Tax Package

On Monday, the Senate passed the $858 billion tax package sending the bill back to the House where it passed late Thursday night. The bill now heads to President Obama’s desk for his signature into law. While the package does not include a repeal of the Form 1099 health care requirement or extension of the Buy American Bond program, the bill does the following major items:

  • extends through 2012 the current individual income tax brackets, capital gains and dividends rates for all taxpayers;
  • increases the AMT exemption amounts for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for 2011 to $48,450 (individuals) and $74,450 (married filing jointly);
  • extends through 2011 the ability to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction permitted for state and local income taxes;
  • exempts from taxation the first $10 million of a couple’s estate and the first $5 million of an individual’s estate, with the remaining portion taxed at the 35 percent rate;
  • extends and temporarily increases the bonus depreciation provision for investments in new business equipment;
  • reduces the payroll/self-employment tax during 2011 to 4.2 percent on wage-earners and to 10.4 percent on self-employment income up to the threshold;
  • reinstates through 2011 the research and development credit;
  • extends the 100 percent exclusion of the gain from the sale of qualifying small business stock that is acquired before January 1, 2012 and held for more than five years;
  • extends through 2011 the special 15-year cost recovery period for certain leasehold improvements, restaurant buildings and improvements, and retail improvements;
  • extends through 2011 the $0.50 per gallon alternative fuel credit and credit for energy-efficient improvements to existing homes.

Fed Proposes New Interchange Fees

On Thursday, the Federal Reserve announced a set of new debit-card fee restrictions more aggressive than most industry experts expected. The new restrictions, most of which will not be made final until April 21, are designed to restrict the fees that debit-card issuers can charge merchants. Banks would face a seven-to-12-cent-per-transaction cap on the interchange fees under either of the two proposals unveiled Thursday. Under the first plan, card-issuing banks could use a formula to determine the maximum amount of the interchange fee that it would collect, based on certain processing costs and would set a “safe harbor” standard at seven cents per transaction. The second alternative would set the cap at 12 cents without any safe harbor. Under the Fed’s proposal, the Fed Board would re-evaluate the cap every two years.

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Financial Services Update – December 10, 2010

December 10, 2010

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Senate to Vote on Tax Package Monday; House Passage Remains Uncertain

On Thursday, the Senate unveiled final details of its $858 Billion 10-year tax bill and will vote on the procedural motion to pass the bill Monday.  However, it is unclear whether the House can pass the bill in its current form.  Below is a summary of the provisions.  Click here for a copy of the entire bill.

Fannie and Freddie in Negotiations on Write Downs

Reports this week indicate that Fannie Mae and Freddie Mac are in negotiations with the Federal Housing Finance Agency (FHFA) on a plan to write down so-called “underwater loans” on their balance sheets. The Obama administration wants the firms to join a program run by the Federal Housing Administration that allows banks and other creditors, which agree to write down mortgages, to essentially hand off the reduced loans to the FHA. Unlike most loan-modification efforts, the FHA program is open only to borrowers who aren’t behind on their payments. Starting in October, banks were able to receive additional subsidies if they first write down loan balances for borrowers owing at least 15% more than their home’s current value.

House Financial Services Committee Announces New Members

On Thursday, the House Financial Services Committee announced the following leadership for the 112th Congress:

Rep. Spencer Bachus, Chairman

Rep. Jeb Hensarling, Vice Chairman, Financial Services Committee

Rep. Judy Biggert, Chairman, Insurance, Housing and Community Opportunity
Jurisdiction: Insurance generally, housing, urban development, and the Department of Housing and Urban Development.

Rep. Shelley Moore Capito, Chairwoman, Financial Institutions Subcommittee and Consumer Credit
Jurisdiction: Banks and banking, depository institutions, federal deposit insurance, and safety and soundness.

Rep. Scott Garrett, Chairman, Capital Markets and Government-Sponsored Enterprises Subcommittee
Jurisdiction: Capital markets, securities, and government sponsored enterprises.

Rep. Ron Paul, Chairman, Domestic Monetary Policy Subcommittee
Jurisdiction: Domestic monetary policy, currency, precious metals, valuation of the dollar, economic stabilization, defense production, commodity prices, financial aid to commerce and industry.

Rep. Gary Miller, Chairman, International Monetary Policy Subcommittee
Jurisdiction: International monetary policy, international finance and banking, international financial and monetary organizations, including the IMF and World Bank, and the promotion of international trade in financial services.

Rep. Randy Neugebauer, Chairman, Oversight and Investigations Subcommittee
Jurisdiction: Oversight of all matters within the jurisdiction of the full Committee.

While not yet formally announced, the expected new members on the committee are:

Rep. Blaine Luetkemeyer (R-MO), Rep. Lynn Westmoreland (R-GA), Nan Hayworth (R-NY), Rep. Michael Grimm (R-NY), Rep. Robert Hurt (R-VA), Rep. Steve Stivers (R-OH), Rep. Bob Dold (R-TX), Rep. Bill Huezienga (R-MI), Rep. Michael Fitzpatrick (R-PA), Rep. Steve Pearce (R-NM), Rep. Quico Canseco (R-TX), Rep. Sean Duffy (R-WI), Rep. Randy Hultgren (R-IL)

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Financial Services Update

November 29, 2010

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Financial Services Update

November 29, 2010

Authored by: Matt Jessee

Irish Bailout Finalized Sunday

On Sunday, Ireland finalized plans for a bailout from the European Union (EU) and International Monetary Fund (IMF), after approval from EU finance ministers. European leaders hoped that such a measure would be a firewall against further bailouts in other Eurozone countries, but concern has grown over the past week that Portugal and Spain could also need such loans. The rescue package for Ireland is estimated to be worth tens of billions of dollars. Individual European nations have also announced their own loans to Ireland. Britain is putting together a $11.5 billion package and Sweden’s prime minister announced a $1.5 billion loan on Thursday. Irish Prime Minister Brian Cowen last week announced a four-year “austerity plan” designed to cut spending and increase taxes. The plan would save $13.4 billion through welfare cuts and raise $6.7 billion through higher taxes. The plan’s spending cuts include reductions in the minimum wage and public-sector pay and fee increases in the VAT, utilities, education tuition, and income taxes.

Car Czar Announces Reduction in Government Oversight of GM

On Friday, the Obama administration’s “Car Czar” Ron Bloom said the government will reduce its oversight of General Motors (GM) as the government sells more of its GM stock. Since GM emerged from bankruptcy sixteen months ago, it has provided the Treasury with “regular, detailed” briefings on its financial condition. Bloom and other Administration officials took an active role during the run-up to GM’s initial public stock offering Thursday, helping to determine how much stock to sell and what price the underwriters should pay. Bloom and others will also attend GM’s first annual meeting as a public company and will vote the government’s shares on key issues. Bloom denied that the government exerted any pressure and pushed for an early IPO. However, Bloom noted that the size of the deal, the pricing and the fees to be paid to underwriters were in the government’s purview. The government ultimately sold more shares than it previously had planned — 358 million of its 912 million shares — at $33 a share. The government will need to sell its remaining shares at an average price of $52.80 to break even.

Geithner Opposes Reduction in Fed Mandate and Extension of Bush Tax Cuts

November’s election results have empowered Congressional Republicans to assert new found authority, leading Republicans to increase their criticisms of the Federal Reserve’s plan, known as “quantitative easing,” to buy $600 billion in assets, saying it would fuel inflation and asset bubbles. Republicans have cited the Fed’s dual mandate to pursue full employment as well as to promote price stability as the cause of the problem. On Tuesday, in reaction to Republican attacks, U.S. Treasury Secretary Timothy Geithner said the Obama administration would oppose any effort to strip the Federal Reserve of its mandate to pursue full employment, saying such attacks by Republicans would politicize the central bank. While Geithner also declined to say what compromise the Obama administration would be willing to make on extending the Bush income tax cuts, he did say he opposed making permanent the tax reductions for those making more than $250,000.

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Financial Services Update

November 22, 2010

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Financial Services Update

November 22, 2010

Authored by: Matt Jessee

Debate Over Extension of Bush Tax Cuts Continues

On Thursday, House Majority Leader Steny Hoyer (D-MD) and House Speaker Nancy Pelosi (D-CA) told House Democrats at a closed door meeting that the House would vote before the end of the year on extending the Bush tax cuts for only those individuals making less than $250,000. However, even if such a measure were to pass in the House, it is unclear whether the Senate will agree to such a vote. There is still the possibility the bill may not pass the House if Republicans are able to successfully pass a procedural response, known as a “motion to recommit,” that could force a House vote on a full extension of the Bush tax cuts.  According to sources, Pelosi told President Barack Obama that House Democrats remain firmly committed to allowing Bush-era tax cuts to expire for earners making more than $250,000, which complicates the Administration’s efforts to reach a compromise with Senate Republicans.

Preview of Next Year’s Budget Fight

On Thursday, Senate Minority Leader Mitch McConnell (R-KY) announced he would oppose the pending omnibus appropriations bill, thereby forcing Congress to rely on another stopgap “continuing resolution,” or CR, to keep the government funded after December 3. If Republicans are able to block the omnibus spending bill, it would set up an early confrontation with President Obama next year over not just deeper cuts from the President’s 2011 budget but also tens of billions of dollars in rescissions from prior years. The White House is seeking a continuing funding resolution which would cover the next 10 months of the fiscal year until September 30, which would deny House Republicans a chance to defund portions of the healthcare bill early next year.

Fed Orders New Stress Tests

On Wednesday, the Federal Reserve announced plans to scrutinize the nation’s top 19 banks through a second round of “stress tests.” The stress tests will require the bank-holding companies to submit capital plans by early 2011 proving their capability to handle losses under a set of conditions including “adverse” economic conditions and continuing real estate-related problems. In its announcement, the Fed said it plans to perform such reviews regularly on an ongoing basis. The Fed also issued a road map for banks that want to raise dividends or buy back stock saying firms must show they have sufficient capital in place to withstand losses over the next two years and demonstrate an ability to satisfy new, tougher global capital requirements.

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Financial Services Update

November 12, 2010

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Financial Services Update

November 12, 2010

Authored by: Matt Jessee

Obama Trade Mission to Asia

On Friday, President Obama landed in Japan, the last leg of his 10-day, four-nation trade mission which included previous stops in India, Indonesia, and South Korea. The most recent stop in Seoul was marred by negotiators’ failure to finish a long-delayed U.S.-South Korea free trade agreement and squabbling at a G-20 summit over U.S. monetary policy. In Japan, Obama will attend an Asia-Pacific economic summit in Yokohama, which will set the stage for the next APEC summit scheduled for 2011 in Hawaii. He will also meet with Japan’s new prime minister, Naoto Kan, to discuss Japan’s potential membership in the U.S.-backed Transpacific Partnership free-trade initiative. However, Kan faces opposition from Japan’s politically powerful farm groups who oppose Japan’s membership in the trade measure.

Axelrod on Taxes and Healthcare

On Wednesday, White House Senior Advisor David Axelrod acknowledged during an interview that President Obama might agree to extend the Bush tax cuts for all income brackets. In the interview with the Huffington Post, Axelrod said ” we have to deal with the world as we find it. The world of what it takes to get this done. There are concerns that Congress will continue to kick the can down the road in the future by passing temporary extensions for the wealthy time and time again. But I don’t want to trade away security for the middle class in order to make that point.” Axelrod also said that President Obama would veto repeal of the recently passed health care reform law, which was the first time that a top Administration figure had issued such a threat on the record.

Deficit Commission Releases Preliminary Report

On Wednesday, Deficit Commission co-chairs former Clinton White House Chief of Staff Erskine Bowles and former Sen. Alan Simpson (R-WY) unveiled their preliminary report that would cut $200 billion in spending by 2015, raise taxes by $100 billion, and continue deficit cutting until 2020. However, Bowles and Simpson did not bring the report to a vote of the 16 other members of the commission because they acknowledged its passage was unlikely. The 18-member commission appointed by President Barack Obama earlier this year was supposed to produce a 14-vote majority around a deficit reduction plan – a margin that would have required Congress to vote on the package unchanged. But the commission was dominated by current Members of Congress who staked out inflexible partisan positions. The seven Republicans office-holders, including Sen. Judd Gregg of New Hampshire and Rep. Jeb Hensarling of Texas said they would not support a plan that raises taxes. The Democratic lawmakers on the commission, including Sen. Dick Durbin, D-Ill., said they would not agree to Social Security adjustments or Medicaid benefit cuts.

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Financial Services Update

November 5, 2010

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Financial Services Update

November 5, 2010

Authored by: Matt Jessee

Election Day Implications

Based on this week’s election results, next year’s Senate ratio will be 51 Democrats, 47 Republicans, and 2 Independents who will most likely caucus with Democrats. Nine races have yet to be called in the House of Representatives, but the final Republican net gain will most likely be 64 seats. The House Republican leadership will most likely consist of John Boehner (OH) as Speaker, Eric Cantor (VA) as Majority Leader, Kevin McCarthy (CA) as Majority Whip, and Greg Walden (OR) as Chairman of the House Leadership. The Democratic leadership in the House has not been determined, but current-Speaker Nancy Pelosi (CA) has announced she will run for Minority Leader, current-Leader Steny Hoyer (MD) has announced he will run for Minority Whip, and current-Whip James Clyburn (SC) has also announced he will run for Minority Whip. The most important committee leadership change impacting the financial services industry will be Rep. Spencer Bachus (R-AL) as the next likely chairman of the House Financial Services Committee. Bachus has indicated his top priorities include GSE reform and oversight of the newly empowered CFTC and CFPA. The other important committee leadership changes for the industry will be Rep. Darrell Issa (R-CA) as the next chairman of the House Government Reform Committee, Rep. Dave Camp (R-MI) as the next chairman of the Ways and Means Committee, and Sen. Tim Johnson (D-SD) as the likely new chairman of the Senate Banking Committee.

Debt Panel Returns for Final Votes on Recommendations

Eight months ago President Obama created the bipartisan “National Commission on Fiscal Responsibility and Reform” charged with proposing spending cuts to Congress. Under the leadership of Erskine Bowles and former-Senator Alan Simpson (R-WY), the eighteen member panel will be reconvening next week to vote on final recommendations to Congress before the committee’s December 1st expiration date. However, expectations remain low that any plan can get the 14-vote supermajority required to send the spending cuts to Congress for a vote in December.

October Jobs Report Released

On Friday, the Department of Labor released its October jobs report showing the domestic economy added 151,000 jobs after four months of job losses. However, nearly 15 million people remain unemployed and actively looking, and the unemployment rate, which remained steady at 9.6 percent, has been relatively flat since May.

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Financial Services Update

November 2, 2010

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Financial Services Update

November 2, 2010

Authored by: Matt Jessee

Election Day Implications

With Republicans expected to make large gains in today’s elections, speculation has started to focus on what the election’s impact will be on recently passed major legislation including the healthcare and financial services reform bills.  While the most likely outcome will be two years of legislative gridlock, if Republicans are able to take back the majority in the House of Representatives, the House will be expected to pass bills that defund key parts of the healthcare and financial services reform bills.  However, the question will be whether such bills will be able to pass the Senate.  The possible new Republican House majority will likely increase oversight of the key agencies implementing the bills, thereby frustrating the agencies’ abilities to implement and to enforce the new regulations.

Third Quarter GDP Figures Released

On Friday, the U.S. Department of Commerce released its report for third quarter GDP showing that the domestic economy grew by 2% in the third quarter, which is up from the last quarter but still below expectations.  The GDP breakdown showed that spending by Americans, accounting for about 70% of demand in the U.S. economy, rose at a rate of 2.6%.  The price index for personal consumption expenditures excluding volatile food and energy items, rose by an annualized 0.8% in the third quarter, slowing down from the second quarter’s 1.0% increase.  Friday’s report also showed that federal government spending and investment rose by 8.8%, following a 9.1% increase in the second quarter.

TARP Inspector General Releases Third Quarter Report

Last Tuesday, nearly two years after the TARP bill’s passage, TARP Inspector General Neil Barofsky released his quarterly report to Congress which suggested that the Treasury Department engaged in a politically motivated attempt to hide losses at bankrupt insurance giant AIG with “manipulated” data.  The report cited Treasury’s failure to disclose that it had changed its valuation methodology and should have published a side-by-side comparison of its new numbers with what the projected losses would be under the auditor-approved methodology.  The report also criticized the Treasury for its claims that the Home Affordable Modification Program (HAMP) has helped 1.3 million homeowners by reducing their monthly payments.  Barofsky’s report claims that only 467,000 HAMP modifications have been permanent, and the remaining modifications have been only temporary changes that may ultimately fail to keep families in their homes and may do additional harm by depleting troubled homeowners’ savings, increasing outstanding principle on loans, and further damaging borrowers’ credit scores.

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