Financial Services Update – Issue 2

January 22, 2010

Authored by: Matt Jessee

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.

Geithner Meets With Top Bankers

On Wednesday, Treasury Secretary Geithner hosted Richard Davis, Chairman, President, and CEO, US Bancorp (Chair, Financial Services Roundtable) Russell Goldsmith, President and CEO, City National Bank Art Johnson, Chairman and CEO, United Bank of Michigan (Chair, American Bankers Association) Robert Kelly, Chairman and CEO, The Bank of New York Mellon (Chair, Financial Services Forum) Kelly King, President and CEO, BB&T Brian Moynihan, President and CEO, Bank of America for a discussion regarding financial reform.

Politics of the Bank Tax

Newly elected Republican Senator Scott Brown’s upset win over Democrat Martha Coakley in Massachusetts has many in Washington questioning the election’s impact on President Obama’s proposed bank tax. Democrats argue that the attacks on Wall Street came too late for Coakley. However, Republicans argue that since Brown publicly opposed the bank tax in the final days of the campaign, the Administration should reconsider its support. However, since the election, White House officials have come out strongly in favor of greater regulations on Wall Street which many observers see as a sign the election’s results will not blunt the President’s support.

Federal Reserve

In response to moves by the House of Representatives to increase scrutiny of the Federal Reserve, Fed officials have begun working to protect its jurisdiction and autonomy. An amendment by Rep. Ron Paul (R-TX) to the House-passed financial services reform bill would allow Congress to conduct a first-of-its-kind audit of the Fed. New York Fed President William Dudley said in a speech this past Wednesday, ‘The notion that the Federal Reserve’s financial dealings are somehow kept hidden from the public is a surprisingly widely held view-and it is simply incorrect.”

Bernanke Nomination

With Federal Reserve Chairman Ben Bernanke’s appointment set to expire on January 31, the speculation continues to increase about when Senate Majority Leader Harry Reid (D-NV) will bring Bernanke’s nomination to a vote on the Senate floor. Following Reid’s meeting with Bernanke this past week, the Majority Leader declined to commit to a date for the vote. Reid had hoped to file for cloture on the nomination-a procedural move to block a potential filibuster-as early as this week, but with the upset victory by Senator Brown in Massachusetts, Reid was forced to delay the vote another week in order to round up the 60 votes necessary to move the nomination.