Bernanke Confirmed
On Thursday, the Senate approved the nomination of Ben Bernanke to chair the Federal Reserve by a vote of 77-23. His confirmation nonetheless drew a record-breaking level of opposition, four years after he easily passed through the Senate. Seven lawmakers voted to end the filibuster then pivoted to vote against the confirmation itself, which required a simple majority. Two noteworthy ‘no’ votes on the Democratic side: Sens. Barbara Boxer (D-Calif.) and Arlen Specter (D-Pa.), who both face difficult reelection fights. Some have speculated that the closer than expected vote may make it harder for Bernanke to defend the Fed as Congress prepares to intensify its oversight of monetary policy and curb the Fed’s authority over the banking system.
Jobs Bill
As the Senate works towards a “jobs bill” expected to be released next week, disagreement remains among Democrats as to what the bill should include. The House already passed a $154 billion stimulus plan in December, including an expansion of unemployment and health-care benefits, as well as new infrastructure spending. Senate Democrats have met resistance from moderates who object to such a high cost. Senate Majority Leader Reid is expected to announce a new proposal next week incorporating ideas from the Administration including shifting $30 billion from TARP and sending it to community banks for lending.
Geithner Testifies on AIG
During testimony and questioning Wednesday before the House Oversight and Government Reform Committee, Treasury Secretary Timothy Geithner defended his own performance and the actions of federal officials during the financial crisis more generally. “I was there; I know what I was responsible for. I take full responsibility and take great pride in those judgments,” Geithner said in testimony. “I hope you will give the same care and judgment to looking at those decisions in retrospect and with benefit of hindsight that we gave in making those decisions at the time.”
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In his January 27, 2010 State of the Union address, President Obama renewed his call for using some of the TARP money for community banks in an effort to drive small business lending.
So tonight, I’m proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat.
This proposal would be consistent with President Obama’s speech last October in which he stated the broad outlines of a new program to provide additional capital to community banks in an effort to spur lending to smaller business, as well as Secretary Geithner’s extension of the TARP program.
We understand that government officials have indicated that additional details on the program will be rolled out by Treasury officials in the coming days. We have previously analyzed the known terms of such an expansion, based on the guidance provided last October.
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Two of the more commonly discussed programs that Treasury implemented pursuant to its discretion under TARP, the Capital Purchase Program (the “CPP”) and the Capital Assistance Program (the “CAP”), have been closed.
According to the Treasury’s FAQs, as of December 31, 2009, the Treasury will not make any additional investments under the CPP. Over 700 institutions participated in the CPP, representing institutions from every state, except Montana and Vermont, and from Puerto Rico and Washington D.C. California’s institutions were most highly represented, with 72 institutions receiving CPP funds. Illinois and Missouri followed with 47 and 32 institutions, respectively, receiving CPP funds.
Although Treasury Secretary Geithner has extended TARP generally to October 3, 2010 and President Obama previously announced an that initiative would be developed for small community banks, there is currently no Treasury program aimed at providing capital support for community banks.
The CAP, which was intended to provide capital support to financial institutions in conjunction with the stress tests, was closed on November 9, 2009, without making any investments.
We will provide an update if the Treasury develops and implements any new program.
On January 7, 2010, the Federal Financial Institutions Examination Council (FFIEC), a collection of federal regulators of financial institutions, issued an advisory on interest rate risk management. This advisory, which was issued as part of an effort to supplement and clarify existing interest rate risk (IRR) guidance provided by individual federal regulators, indicates that federal regulators will have increased expectations during future examinations of a financial institution’s management, modeling, stress testing and documentation of IRR.
In light of the current economic environment in which financial institutions are experiencing downward pressure on capital and earnings, FFIEC has grown concerned with the potential IRR associated with institutions funding longer-term assets with shorter-term liabilities in order to generate earnings. As a result, as part of future federal examinations, IRR assumed by a financial institution will be evaluated relative to the institution’s capital and earnings levels, and management will be evaluated on its efforts to identify, measure, control and document the institution’s IRR.
In particular, FFIEC reiterates its previous position that the ultimate responsibility for the financial institution’s IRR rests with its board of directors; as a result, the board of directors or a specially designated asset/liability committee “should oversee the establishment, approval, implementation, and annual review of IRR management strategies, policies, procedures, and limits.” The board of directors is expected to receive and review regular reports that allow them to accurately assess the IRR sensitivity of the institution to an increasing rate environment and to the important assumptions that underlie management-proposed IRR and liquidity projections. Further, the board of directors is directed to approve comprehensive written policies and procedures in place to monitor and manage IRR continuously. Although the advisory indicates that these processes and systems “should be commensurate with the size and complexity of the institution,” FFIEC indicates that “well-managed institutions” possess IRR management policies that include specific targets under a variety of short and long term scenarios.
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During the month of December, the Treasury completed rounds fifty-two, fifty-three, fifty-four, fifty-five, and fifty-six of TARP Capital infusions. In these five rounds, which closed on December 4, December 11, December 18, December 22, and December 29, respectively, the Treasury purchased a total of approximately $159 million in securities from 37 financial institutions (24 of which previously received a TARP capital infusion). Through December 2009, the Treasury had invested in 709 institutions, totaling approximately $204.9 billion.
In these five rounds, First Community Financial Partners received the largest infusion, $22 million, and Valley Financial Group Ltd. received the smallest infusion, $1.3 million.
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Obama Unveils New Regulations on Investment Banks
On Thursday, President Barack Obama unveiled a new set of proposals aimed at cutting the size and risk-taking behavior of the nation’s largest banks. The proposed restrictions includes size and complexity limits specifically on proprietary trading. The restrictions have been long advocated by former Federal Reserve Chairman Paul Volcker who chairs the President’s outside economic advisory board and met with the President before the announcement Thursday. The proposal could have the biggest effect on Bank of America Corp., Wells Fargo & Co., and J.P. Morgan Chase & Co., Goldman Sachs, Morgan Stanley, and Citigroup Inc.
Democratic Congressional Leadership Responds
In response to the President’s proposed new regulations, House Financial Services Committee Chairman Barney Frank (D-MA) said Senate Banking Committee Chairman Christopher Dodd (D-CT) would incorporate the restrictions into the Senate’s financial regulatory reform bill and that he (Frank) would push for the measures in conference committee. Frank also said the new restrictions would have to be phased in over 3-5 years to avoid ‘fire sales’ of bank divisions.
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Obama Unveils Proposal on Bank Taxes
President Barack Obama unveiled a “Financial Crisis Responsibility Fee” yesterday, which, if approved by lawmakers, would go into effect June 30, 2010, and last at least 10 years. It would amount to 0.15% of total assets, minus high-quality capital such as common stock and disclosed and retained earnings. Insurance policy reserves and deposits covered by the Federal Deposit Insurance Corporation (FDIC) would not be taxed because such assets are already subject to federal fees. The tax would hit approximately 50 banks, insurance companies and large broker-dealers. Of those, approximately 35 would be U.S. companies, and 10 to 15 would be U.S. subsidiaries of foreign financial firms.
The tax is expected to raise $117 billion over 12 years, and $90 billion over the following 10 years. Approximately 60 percent of the revenue will come from the 10 largest financial firms. The White House plan excludes small banks and auto makers that accepted funds from the government’s Troubled Asset Relief Program. The banking industry strongly opposes the White House fee, calling it a political exercise that will stifle the economic recovery, force it to pay for the auto sector’s bailout, and ultimately burden consumers.
House Democrats Introduce 50% Tax on Bonuses
On Thursday, House Democratic lawmakers introduced a bill to slap a 50% tax on bonuses paid in 2010 by banks that took federal bailout funds. Rep. Peter Welch (D., Vt.) said the bonus tax proposal is “complementary” to the fee proposed by Mr. Obama.
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With attorneys and staff worldwide, attorneys in Bryan Cave’s financial institutions practice often make the news. Sometimes media mentions highlight the firm’s involvement with notable clients, sometimes the individual accomplishments of attorneys and staff. Recent media mentions include:
Andreassen, Rinearson in Business Lawyer
New York Partner Judith Rinearson and DC Associate Kristine Andreassen co-authored an article in the November issue of the ABA’s The Business Lawyer on the impact of state money transmitter licensing laws on prepaid payment products.
Garrett in MarketWatch
Kansas City Counsel Karen Garrett was quoted Dec. 23 by MarketWatch on a bill before Congress that would require big banks to pay into a $150 billion fund to be used to dismantle a failing bank thought so big or so interconnected that if it collapsed suddenly it would threaten the economy’s stability. The piece was picked up Dec. 27 by McClatchy News Service.
Klingler on National Public Radio
Atlanta Associate Robert Klingler was interviewed Dec. 29 on National Public Radio regarding bank failures, with a particular focus on Georgia banks.
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SEC Approves Rule Changes Regarding Executive Compensation and Corporate Governance
On December 16, 2009, the SEC approved rule changes that would expand proxy statement disclosures relating to executive compensation and corporate governance. Additionally, Chairman Shapiro confirmed that the SEC expects to act on the controversial proxy access proposal (which was discussed in a June 22 Client Bulletin) in early 2010.
For more information, please read the client alert published by Bryan Cave LLP’s Corporate Finance and Securities Client Service Group on December 17, 2009.
Preparing for the 2010 Proxy Season
As public companies turn their attention to the preparation of their annual reports and proxy materials, we want to highlight several developments for the 2010 season.
For more information, please read the client alert published by Bryan Cave LLP’s Corporate Finance and Securities Client Service Group published December 8, 2009.
New (Temporary) 50% Bank Payroll Tax in The United Kingdom
The Government announced yesterday that between December 9, 2009 and April 5, 2010, the award of bonuses to bank employees will render the bank liable to a new “bank payroll tax”.
For more information, please read the client alert published by Bryan Cave LLP’s Tax Advice and Controversy Client Service Group (London) on December 10, 2009.
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Miscellaneous TARP Stories
We’ve identified a number of stories that or posts that never quite made it into individual BankBryanCave.com posts. Rather than continuing to hold on to them, I’ve assembled them here.
The Simpsons
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