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Financial Services Update – July 29, 2011

Q2 GDP Announced

On Friday, the Commerce Department released its report on the country’s gross domestic product for the second quarter showing that the GDP grew at an annual rate of 1.3 percent, after having grown at an annual rate of 0.4 percent in the first quarter — a number that itself was revised sharply down from earlier estimates of 1.9 percent.

Senate to Hold CFPB Nomination Hearing

On Thursday, the Senate Banking Committee held a hearing on the nomination of Richard Cordray to be the new Director of the Consumer Financial Protection Bureau. While the nomination can be sent to the floor, Senate Republicans have vowed to block Cordray’s nomination and any other nominees for the directorship because they insist that the agency be run by a Commission rather than a Director and have its funding determined by Congress.

Carper/Blunt Introduce Consumer Data Security Bill

On Thursday, Sens. Tom Carper (D-Dela.) and Roy Blunt (R-Mo.) introduced legislation titled “The Data Security Act of 2011” which would require entities such as financial establishments, retailers, and federal agencies to safeguard sensitive information, investigate security breaches and notify consumers when there is a substantial risk of identity theft or account fraud. These new requirements would apply to retailers who take credit card information, data brokers who compile private information and government agencies that possess nonpublic personal information.

Senate Nomination Hearings for New Bank Regulators

On Tuesday, the Senate Banking Committee held a hearing to consider the pending nominations for Martin Gruenberg to head the FDIC, Thomas Curry to be Comptroller, and Roy Woodall to be a member of the Financial Stability Oversight Council. Senator Richard Shelby, the Banking Committee’s top Republican, said after the hearing that he would support Gruenberg’s nomination but would need more to review Curry’s record before offering his support. The nominations will now be sent to the floor for full consideration by the Senate.

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 – April 29, 2011

Q1 GDP Slows to 1.8%

On Thursday, the Bureau of Economic Analysis announced that the U.S. GDP growth rate in the first quarter of 2011 slowed to an annual rate of 1.8 percent, compared to a rate of 3.1 percent in fourth quarter 2010 and 3.7 percent in first quarter 2010. The Bureau cited a combination of lower-than-expected economic data, global energy uncertainty, and concerns about the budget deficit as causes of the growth rate decelerating.

Bernanke Announces Rates to Stay at Near Zero, Ends Bond Buying Program

On Wednesday, Federal Reserve Chairman Ben Bernanke held his first quarterly press conference in which he said that the economy and job market are improving moderately, but the housing market and other factors such as gas prices continue to be a drag on growth. He announced that the Fed plans to end the $600 billion treasury bond-buying program in June and will leave interest rates at their current levels. The event followed a two-day meeting of the Fed’s policymaking committee at which the central bank indicated continuity in its strategy. The Fed’s bond buying program known as the second round of quantitative easing, or “QE2,” will expire as scheduled at the end of June. The Fed also maintained its near-zero target for short-term interest rates, where it has been since December 2008, and indicated that it expects to keep rates “exceptionally low” for “an extended period.”

Debt Ceiling Vote

The vote to increase the U.S. government’s borrowing ceiling beyond the current limit of $14 trillion has become the hot topic in Congress. While the Treasury Department’s original estimate was that the ceiling would need to be raised by mid-May, the Department is now saying it could hold out till July but would need to take extraordinary measures. While the measure is expected to easily pass the Senate, the question remains whether the House can pass such a bill. House Speaker John Boehner (R-OH) said this week that he will not guarantee a vote on bill to raise the debt limit, much less passage of such a bill, without cuts in discretionary spending and alterations of entitlements such as Medicare and Medicaid. Congress returns next week from its two week recess, and House Republicans plan to hold a series of meetings to gather feedback from their Members about the debt ceiling.

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Financial Services Update – January 28, 2011

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

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

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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Financial Services Update

Financial Services Update

August 27, 2010

Authored by: Matt Jessee

Bernanke Promises More Fed Action on Economy

On Friday, Fed Chairman Ben Bernanke said that the Federal Open Market Committee, the Fed panel that Bernanke leads and which sets interest rates, could make additional purchases of longer-term securities in order to prevent deflation. In regards to the overall state of the economy, Bernanke said “the pre-conditions for a pickup of growth in 2011 appear to remain in place, as banks increase lending, worries over the European sovereign debt-crisis abate and consumers increase their savings.”

SEC Votes to Give Shareholders “Proxy Access”

On Wednesday, the SEC Commissioners voted along party lines 3-2 to give shareholders what is commonly known as “proxy access,” which requires companies to include the names of all board nominees, even those not backed by the company, directly on the standard corporate ballots distributed before shareholder annual meetings. To win the right to nominate, an investor or group of investors must own at least 3% of a company’s stock and have held the shares for a minimum of three years.

Currently, shareholders who want to oust board members must pay for mailing separate ballots, as well as wage a separate campaign to win shareholder support. The new rule will be in place in time for the 2011 annual meeting season next spring.

However, the final rule did address concerns from the business community. Smaller companies will be exempt from complying with the rule for three years. Investors will be prevented from borrowing stock to meet the 3% threshold and will be restricted to nominating directors for no more than a quarter of a company’s board.

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