Bank Regulators Testify on Wall Street Reform Act
On Thursday, Deputy Treasury Secretary Neal Wolin, Federal Reserve Chairman Ben Bernanke, and Federal Deposit Insurance Corp. Chair Sheila Bair testified before the Senate Banking Committee on implementation of the Dodd Frank Wall Street Reform Act. The most salient piece of testimony came from Fed Chairman Bernanke who said the central bank is set to finally publish this summer tighter rules for big financial firms that pose a risk to the economy. The new rules will likely include more stringent requirements for large banks and financial companies, including stricter standards on capital and leverage ratios.
Treasury Auctions Will Exceed Debt Limit Monday
This week, the Treasury Department auctioned $72 billion in three and ten-year notes. When the notes are formally settled Monday, this will cause the U.S. Government to officially exceed its federal borrowing ceiling. As of Tuesday, total debt subject to the limit was $14.274 trillion. The Obama administration has asked Congress to raise the limit, warning that failure to act could lead the government to default by August 2nd. The federal budget deficit widened in April, with the government spending $ 40.49 billion more than it collected.
Bipartisan Housing Reform Bill Introduced
On Thursday, two members of the House Financial Services Committee — Rep. John Campbell (R., Calif.) and Rep. Gary Peters (D., Mich) — introduced legislation to replace troubled government-seized housing giants Fannie Mae and Freddie Mac and set up as many as fifteen or twenty private firms that would buy loans, then package and sell them with explicit government guarantees. The bill does not specify whether the new mortgage companies should hold a portfolio of mortgages the way Fannie and Freddie currently have on their books. It also seeks to limit taxpayer liability by creating a private sector financed reserve fund to cover any losses. The fund would be capitalized by assessing a special guarantee fee to buyers of the packaged mortgage securities. It also would seek to recoup any taxpayer funds spent to bail out the firms through a special assessment levied on the firms.
Administration Unveils Housing Reform Plan
On Friday, Treasury Secretary Tim Geithner announced the Obama Administration’s recommendations to phase out Fannie Mae and Freddie Mac and to set minimum down-payments for buyers. The proposal includes a mandatory 10 percent down payment for home buyers and three options for Fannie and Freddie to be wound down but stopped short of recommending outright privatization or closure. However, critics were quick to point out that there are no specific timelines for action in the proposal, and regardless of Geithner’s recommendations, ultimately it will be up to Congress to enact legislation on the issue.
Kevin Warsh to Leave Fed
On Thursday, Federal Reserve Board Governor Kevin Warsh announced that he is stepping down from his position at the end of March. President Obama will now have the opportunity to replace Warsh, a Bush appointee, with his own nominee. President Obama currently has another nominee, Peter Diamond, pending before the Senate for confirmation. Once President Obama has filled these two vacant slots, he will have named six of the seven currently sitting Fed Governors.
Senate Banking Committee Sets First Dodd-Frank Hearing
On Friday, the Senate Banking Committee announced it will hold its first hearing of the 112th Congress on the Dodd Frank Wall Street Reform Act on February 17. The hearing will focus on the Administration’s progress report six-months after the bill’s passage. Witnesses will include Fed Chair Ben Bernanke, FDIC Chair Sheila Bair, SEC Chair Mary Schapiro, CFTC Chair Gary Gensler and Acting Comptroller John Walsh.
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)
G20 Finance Ministers Meet in South Korea
On Friday and Saturday, global finance ministers from the G20 countries were to meet in South Korea to discuss international currency tensions, exchange rates, and broader concerns about the global economy. The meeting comes just two weeks after the G20 met in Washington but were unable to resolve currency differences. At the outset of the meeting, U.S. Treasury Secretary Timothy Geithner called for limits on trade imbalances, in an effort to broker an international compromise on exchange-rate tensions. Britain, Canada and Australia expressed immediate support, as well as France and Japan, but Germany and China have yet to formally weigh in. Geithner’s plan called for the biggest industrialized economies to keep their current-account balance — whether a surplus or a deficit — below 4 percent of gross domestic product.
Federal Probe into Mortgage Servicers
On Wednesday, Housing and Urban Development Secretary Shaun Donovan announced that a federal probe investigating five large mortgage servicers has found improper foreclosures, but officials have yet to find systemic, “structural” problems with processing. HUD’s 5-month probe of the Federal Housing Administration-insured loans acknowledged that the agency has been aware of problems at some servicers for months and that HUD will “take actions” against those firms to ensure that homeowners are made “whole and protected.” While Donovan declined to give specifics on which specific servicers were identified, Donovan said the lack of evidence of widespread structural problems reinforces the Administration’s decision to oppose a nationwide moratorium on foreclosures. Pressure has been mounting to figure out whether banks, processors and courts have improperly foreclosed on thousands of homeowners. All 50 state attorneys general have already announced investigations, and the FHA probe is expected to be completed in nine weeks.
Department of Labor Weekly Unemployment Report Released
On Friday, the Department of Labor announced that the unemployment rate fell in 18 states during the month of July. The Department also said the jobless rate rose in 14 states and stayed the same in the remaining 18 states. Nationwide, the unemployment rate remained stuck at 9.5 percent in July. New York and Massachusetts reported strong job gains with Massachusetts reporting that it added 19,200 private-sector jobs in July, the largest monthly gain for any state in more than 20 years.
On Tuesday, the Departments of Treasury and HUD invited a cross section of housing and banking industry participants to Washington for a summit on the future of the housing finance industry. The industry representatives voiced overwhelming support for the government to maintain a large role in supporting the nearly $11 trillion mortgage market. Participants expressed support for a new program that would allow homeowners to refinance their mortgages at lower interest rates through Fannie Mae and Freddie Mac, although Treasury officials indicated they have no plans to enact such a program.
Financial Regulatory Reform Bill
On Monday, the Senate resumed its consideration of S. 3217 the Restoring American Financial Stability Act of 2010. The Senate rejected an amendment sponsored by Sen. Mike Crapo (R-ID) which would have limited further bailouts of Fannie Mae and Freddie Mac and passed an amendment sponsored by Sen. John Cornyn (R-TX) that protects United States taxpayers from paying for the bailouts of foreign governments. On Tuesday, the Senate adopted an amendment sponsored by Sen. Tom Carper (D-DE) that limits the powers of state attorneys general to enforce consumer financial regulations, permits state attorneys general to enforce consumer regulations against any state-licensed or chartered bank but limits their powers to enforce regulations on national banks that are prescribed by the new consumer protection office, and removes a requirement that the federal government, prior to preempting states, must find an applicable substantive standard. The Senate rejected an amendment sponsored by Sen. Byron Dorgan (D-ND) that would have banned naked credit default swaps but passed an amendment sponsored by Sens. Charles Grassley (R-IA) and Claire McCaskill (D-MO) that prevents inspectors general at five financial regulatory agencies, namely the Federal Reserve Board of Governors, the Commodity Futures Trading Commission, the National Credit Union Administration, the Securities and Exchange Commission, and the Pension Benefit Guaranty Corporation, from becoming presidential appointments. On Wednesday, the Senate rejected a cloture motion sponsored by Senate Majority Leader Harry Reid (D-NV) to end debate on the bill and also rejected an amendment sponsored by Sen. Sheldon Whitehouse (D-RI) that would have forced lenders to abide by state-mandated caps on interest rates. Current federal regulations allow credit card companies to follow interest rate caps of the states in which they are located, rather than those prescribed by their customers’ home states. On Thursday, the Senate reconsidered and passed a cloture motion sponsored by Senate Majority Leader Harry Reid (D-NV) to end debate on the bill before passing the bill itself by a vote of 59-39.
The bill now proceeds to a House-Senate conference where the two bodies will iron out the substantial differences between their two bills. The key issues on which the House and Senate bills deviate are the new consumer financial protection agency, the regulation of auto dealers, over-the-counter derivatives, and the “Volcker Rule.” Regarding a new Consumer Financial Protection Agency, the Senate bill would move a proposed consumer protection agency into the Federal Reserve and the House bill would create it as a stand-alone agency with more leeway to implement regulations. House Speaker Nancy Pelosi (D-CA) and House Financial Services Committee Chairman Barney Frank (D-MA) have both voiced their strong support for keeping the House-passed language in the final version of the bill.
Financial Regulatory Reform Bill
On Tuesday, the Senate resumed its consideration of S. 3217 the Restoring American Financial Stability Act of 2010. The Senate passed an amendment sponsored by Sen. Bernie Sanders (I-VT) that would require the non-partisan Government Accountability Office to conduct an independent audit of the Board of Governors of the Federal Reserve System as well as an amendment by Sen. Chris Dodd (D-CT) that would require the Secretary of the Treasury to conduct a study on ending the conservatorship of Fannie Mae and Freddie Mac and reforming the housing finance system.
On Wednesday, the Senate passed three amendments to the bill. The first, offered by Senator Jeff Merkley (D-OR), would prohibit certain types of commission payments to loan originators and require greater oversight of lenders. The second, offered by Sen. Kay Bailey Hutchinson (R-TX), would maintain the role of the Federal Reserve Board of Governors as the supervisor of holding companies and state member banks. The final amendment that passed on Wednesday was offered by Sen. Jack Reed (D-RI). It would establish a specific consumer protection liaison for service members and their families.
On Thursday, the Senate adopted three more amendments. The first, sponsored by Sen. Al Franken (D-MN), would instruct the Securities and Exchange Commission to create a new self-regulatory organization that would choose, in a lottery or a rotation, which credit rating agency rated a new security. The second amendment which passed was sponsored by Sen. George Lemieux (R-FL). It would remove all references to credit ratings agencies from the statute effectively requiring federal regulators to develop their own standards for credit rather than relying on assessments from credit rating agencies. The third and most controversial amendment that passed was sponsored by Senator Dick Durbin (D-IL). Durbin’s amendment would empower the Federal Reserve to curb debit-card interchange, or “swipe” fees, charged to merchants for every card transaction.
Financial Regulatory Reform Bill
Last Wednesday, Republicans agreed to drop objections to a unanimous consent agreement to allow debate to begin after Senator Richard Shelby (R-AL), the ranking Republican on the Banking Committee, announced that his negotiations with Banking Chairman Chris Dodd (D-CT) had reached an impasse over disagreements in the bill. However, Republicans believe the standoff brought them concessions, including the removal of a $50 billion industry-financed resolution authority fund.
Last Tuesday, Republicans offered their own financial services reform plan that would have tightened regulation of Fannie Mae and Freddie Mac, and created a liquidation process of a troubled financial company, paid for by the company’s creditors and its shareholders. The Republican plan would have established a limited consumer protection agency to deal with financial companies, but the agency’s powers would regulate only smaller banks and nonfinancial companies.
Moving forward, Senate Democrats still need to resolve several internal differences, including a section of the bill regulating derivatives. The Senate bill goes farther than the Obama Administration and the Federal Reserve would like in requiring financial firms to spin off their derivatives trading operations. On Friday, FDIC Chairman Sheila Bair urged the Senate to remove the controversial provision saying it could destabilize banks and drive risk into unregulated parts of the financial sector.
The Senate will resume debate on Tuesday, and Senate Majority Leader Harry Reid (D-NV) has promised an open amendment process. Both Democrats and Republicans are preparing hundreds of amendments, including Sen. Ben Nelson (D-NE) who voted with Republicans to block debate on the bill. Nelson has expressed concern about a provision that would require companies such as his home-state’s Berkshire Hathaway to put forward billions of dollars as collateral on existing derivatives contracts. Republicans will need either a majority of Senators or sixty votes to pass amendments to the underlying bill. Senate leaders expect debate to last through the end of next week.
Senate Financial Regulatory Reform Bill
On Monday, the Senate Banking Committee held its much anticipated markup of Chairman Christopher Dodd’s (D-CT) “Restoring American Financial Stability Act of 2010.” Republicans declined to offer any of their more than 200 prepared amendments to the financial reform bill because Ranking Republican Richard Shelby (R-AL) believes they will have a better chance of incorporating their suggested changes as the pressure builds on Dodd to bring the bill to the floor and get the measure passed – an effort that will require Republican support. Dodd’s bill was passed out of the Committee on a strict party line vote of 13-10. Following the markup, Dodd indicated he will be reaching out to Republicans off the Committee such as Senators Olympia Snowe (R-ME) and George Voinovich (R-OH). President Obama met with Dodd and House Financial Services Committee Chairman Barney Frank (D-MA) on Wednesday to discuss the legislation and to develop a strategy following the expected Senate passage of a bill in the near future. The meeting signals the White House’s decision to turn its focus to the financial legislation following the conclusion of the health care debate.
In a speech at the U.S. Chamber of Commerce on Wednesday, Senate Banking Committee member Republican Bob Corker (R-TN) offered a sharp rebuke to the emerging Republican strategy of trying to keep all 41 GOP senators united against the bill in order to change key aspects of the reforms. In a letter to Secretary Geithner on Thursday, Senator Shelby also stated a desire to work toward a bipartisan bill. However, the letter also expresses concern that Chairman Dodd’s current draft fails to end the problem of “too big to fail” and “taxpayer bailouts.”