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Financial Services Update – Issue 8

March 6, 2010

Authors

Matt Jessee

Financial Services Update – Issue 8

March 6, 2010

by: Matt Jessee

  Senate Financial Regulatory Reform Bill   On Friday, Senate Banking Committee Chairman Christopher Dodd (D-CT) said his Committee has not reached an agreement on the pending financial services regulatory reform bill, but he hopes one will be reached within days. Dodd also indicated that the independence of the proposed “Consumer Financial Products Agency” continues to be the major point of contention between Republicans and Democrats. Senate Banking Committee Republicans oppose making the watchdog an independent agency, but have said they could support it as a unit within an existing banking regulatory agency. Dodd has suggested putting the consumer protection division in the Federal Reserve as a possible compromise. However, Dodd has drawn the line at Republican demands that a banking regulator have veto power over the consumer entity’s rule-making authority. Meanwhile, the third ranking Senate Banking Committee Democrat, Jack Reed of Rhode Island, said he would still introduce

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Estimating the TARP Capital Purchase Program Value

April 24, 2009

Authors

Robert Klingler

Estimating the TARP Capital Purchase Program Value

April 24, 2009

by: Robert Klingler

The Wall Street Journal Economics Blog has an excellent post by Jon Faust, the director of the Center for Financial Economics at Johns Hopkins University, criticizing Elizabeth Warren’s claim that the Treasury is only getting 66 cents in value for every TARP dollar spent.

Overall, the 66 cent myth is based on the assumption that markets were functioning normally, that the Treasury would pursue a panic sale, and that banks required no compensation due to risk of Congressional meddling.

These arguments are not revelations. Before Warren’s panel commissioned the market-value report, the Panel asked Treasury to perform this valuation. According to testimony, Treasury replied that the market valuation was not relevant. Indeed, Treasury agreed that the assets would be below par if valued at prevailing market prices but argued that the investments would be “at or near par” on a more reasonable basis.

Finally, Treasury reminded the panel that

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Does the Treasury need to Mark-to-Market?

February 6, 2009

Authors

Robert Klingler

Does the Treasury need to Mark-to-Market?

February 6, 2009

by: Robert Klingler

On Friday, February 9, 2009, the TARP Congressional Oversight Panel released its February Oversight Report, with significant press coverage that the Treasury paid too much under TARP.

The Panel’s analysis revealed that in the ten largest transactions made with TARP funds, for every $100 spent by Treasury, it received assets worth, on average, only $66. This disparity translates into a $78 billion shortfall for the first $254 billion in TARP funds that were spent.

Extrapolation to Community Banks?

The Panel’s analysis explicitly extrapolates the value of the Treasury’s investments in 311 banks, including many private community banks will less than $1 billion in total assets, based solely on the individual risk characteristics of Bank of America, Citi, JPMorgan, Morgan Stanley, Goldman Sachs, PNC Financial, US Bancorp, and Wells Fargo.  While criticizing the Treasury for using a “one-size-fits-all investment policy,” the Oversight Panel’s analysis uses a one-size-fits-all investment analysis. 

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Obama's TARP Commitments

January 16, 2009

Authors

Robert Klingler

Obama's TARP Commitments

January 16, 2009

by: Robert Klingler

In connection with the Senate’s rejection of the withholding of the second $350 billion under the Emergency Economic Stabilization Act of 2008, Director-designate of the National Economic Council, Larry Summers, submitted a letter to Senator Reid containing additional commitments of the Obama administration.  The letter is generally focused on the use of the second $350  billion, but also contains several provisions that may affect existing TARP Capital programs.

The Obama administration has committed that the TARP funds will be used to protect the financial and housing markets, and will not be used to implement a broader industrial policy, and that at least $50 to $100 billion of the remaining funds will be allocated to an effort to address foreclosures.  In addition, the letter highlights four areas of reform that it intends to implement:

  • Provide a  Clean and Transparent Explanation for Investments
  • Measure, Monitor and Track the Impact on Lending
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    Treasury Publishes Second Report to Congress

    January 13, 2009

    Authors

    Robert Klingler

    Treasury Publishes Second Report to Congress

    January 13, 2009

    by: Robert Klingler

    On January 6, 2008, the Treasury released its Second Report to Congress as required under Section 105(a) of the Emergency Economic Stabilization Act.  While the Second Report does not contain any new information, it does contain two nuggets of information that may be of interest to community bankers: (a) how Treasury believes the effectiveness of the TARP Capital program should be measured; and (b) confirmation that terms applicable to S corporations and mutuals are still in the works.

    The Second Report begins with a note that Treasury has continued to make significant investments in financial institutions through the Capital Purchase program.  “These investments have improved the capitalization of these institutions, which is essential to improving the flow of credit to businesses and consumers and boosting the confidence of depositors, investors, and counterparties alike. With higher capital levels and restored confidence, banks can continue to play their vital role as

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    NPR Interview with Congressional Oversight Chair

    December 16, 2008

    Authors

    Robert Klingler

    NPR Interview with Congressional Oversight Chair

    December 16, 2008

    by: Robert Klingler

    On December 10, 2008, the Congressional Oversight Panel for Economic Stabilization issued its first report on the Treasury’s implementation of the Troubled Assets Relief Program. On December 11, 2008, the Chair of the Oversight Panel, Harvard Law Professor Elizabeth Warren, sat down with Terry Gross on NPR’s Fresh Air to discuss how taxpayer money is being spent in the financial bailout program.  The report and interview give insight into how the political process surrounding the TARP program may affect the program going forward.

    The Congressional Oversight Panel has presented ten questions for analyzing the TARP program.

  • What is Treasury’s Strategy?
  • Is the Strategy Working to Stabilize Markets?
  • Is the Strategy Helping to Reduce Foreclosures?
  • What Have Financial Institutions Done with the Taxpayers’ Money Received So Far?
  • Is the Public Receiving a Fair Deal?
  • What is Treasury Doing to Help the American Family?
  • Is Treasury Imposing Reforms on Financial
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