IMF Leader Resigns
On Wednesday, International Monetary Fund (IMF) President Dominique Strauss-Kahn resigned following his arrest in New York. European officials quickly moved to assert their claim over the leadership of the IMF, however emerging economic powers Brazil, China and India are seeking a process that prevents the top position from being granted to a European, as has been the convention since the fund was founded 65 years ago. European leaders appeared to unite behind Christine Lagarde, France’s finance minister, as their preferred candidate to succeed Mr. Strauss-Kahn. Other possible candidates include Kemal Dervis, a former finance minister of Turkey; Arminio Fraga Neto, former governor of the central bank of Brazil; Tharman Shanmugaratnam, finance minister of Singapore; Agustín Carstens, governor of the central bank of Mexico; and Montek Singh Ahluwalia, deputy chairman of India’s planning commission. The IMF’s 24-member executive board has begun discussions about the selection process for the new managing director. The board is scheduled to hold its regular weekly meeting on Friday when the timetable for succession, like deadlines for nominations, may be discussed. Countries will nominate their candidates, and then the board will vote, with large financial contributors like the United States and Japan getting a bigger share of voting rights. The entire process could take months, as it has in the past.
Fed to Propose New Stress Tests
On Monday, press reports indicated that a draft of the Federal Reserve’s new rules regarding stress tests is set to be approved by the Federal Reserve Board and put out for public comment within weeks. The Fed is seeking to subject banks to annual capital tests and to reserve the right to veto dividend pay-outs. In between the Fed’s annual reviews, banks would be able to resubmit capital plans should they wish to increase dividend payments or stock buybacks. However, industry executives say the restrictions on capital distribution are excessive and will inhibit their ability to compete globally.
DOJ Forces Nasdaq/ICE to Withdraw NYSE Proposal
On Wednesday, Nasdaq OMX Group and IntercontinentalExchange said they were withdrawing their April joint proposal of $11 billion to acquire NYSE Euronext, citing discussions with the Justice Department’s Antitrust Division that “surprised and disappointed” Nasdaq and ICE. Speculation has been that the Justice Department’s Antitrust Division blocked the merger for two reasons. First, because the combined company would have too much market power — 50% of the market for U.S. stock trading NYSE with 28%, Nasdaq 22%. Second, because the merger’s $740 million in proposed cost savings would cause massive layoffs. Experts now believe that Deutsche Boerse’s (DB1) $10 billion bid for NYSE Euronext will prevail. The Futures Industry Association estimates that the NYSE/DB1 merger would create the top-ranked global futures trader, controlling 11 derivatives markets in the U.S. and Europe with 4.8 billion in contracts.
HUD to Release Report Accusing Five Biggest Mortgage Firms of Fraud
On Tuesday, press reports indicated that the Department of Housing and Urban Development will soon release audits that accuse the nation’s five largest mortgage companies (Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial) of defrauding taxpayers in their handling of foreclosures on homes purchased with government-backed loans. The reports indicate the audits accuse the five major lenders of violating the False Claims Act, a Civil War-era law crafted as a weapon against firms that swindle the government. The audits were completed between February and March. According to the reports, HUD’s auditor has referred its findings to the Department of Justice, which must now decide whether to file charges.
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Matt Jessee, Policy Advisor
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OCC Criticizes Durbin Amendment
Last Friday, John Walsh, the Acting Comptroller of the U.S. Currency who oversees regulation of the nation’s largest banks, sent a letter to the Federal Reserve criticizing the Fed’s proposed rule to implement the Wall Street Reform Act’s “Durbin debit card swipe fee” amendment. In the letter, Walsh said the Durbin amendment “takes an unnecessarily narrow approach to recovery of costs that would be allowable under the law and that are recognized and indisputably part of conducting a debit card business. This has long term safety and soundness consequences – for banks of all sizes – that are not compelled by the statute.”
Locke to Leave Commerce for China
On Thursday, President Obama announced that he had chosen Commerce Secretary Gary Locke to succeed Jon Huntsman as U.S. Ambassador to China. While the President has yet to announce Locke’s replacement, speculation has centered on the former Mayor of Dallas and current U.S. Trade Representative Ron Kirk.
Attorneys General Mortgage Settlement Stalled
The proposed settlement by state attorneys general with the five biggest U.S. mortgage servicers leaked out this week. The proposal, which calls for a dramatic increase in loan modifications, is intended as the basis for settling allegations of widespread wrongdoing by the big loan servicers in handling millions of foreclosures. The settlement would be with Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup and GMAC/Ally Financial Inc. In a press conference earlier this week, Iowa Attorney General Tom Miller, who led an investigation on behalf of the 50 states’ attorneys general, predicted that a broad settlement could be reached within about two months. Miller said the agreement was worked out jointly with federal agencies including the Federal Deposit Insurance Corp, the newly created Consumer Financial Protection Bureau and Justice Department. On Tuesday, Brian Moynihan, chief executive of Bank of America, the largest U.S. servicer, said at a meeting with analysts and investors that he opposes widespread principal reductions for homeowners in default. On Thursday, Rep. Spencer Bachus (R-AL) and Sen. Richard Shelby (R-AL), the top Republicans on the House and Senate banking committees, also criticized the proposed settlement as a “regulatory shakedown.”
Government Shutdown Looms
On Friday, House Republicans are expected to release a two-week stop-gap funding measure that would cut $4 billion in spending from the current fiscal year’s budget. While Senate Democrats have indicated they will likely not support the proposed $4 billion in cuts, momentum has shifted towards reaching an agreement to avoid a March 5th shutdown when the current funding measure expires. The new Republican spending measure will come on the heels of the just passed House Republicans’ seven-month appropriation bill that would have slashed $61 billion from the current fiscal year spending. The yet to be released House Republican spending plan is expected to make the cuts in the two-week spending bill proportional to the levels in the measure passed last week.
However, if House Republicans and Senate Democrats are unable to reach an agreement, the federal government shutdown would be guided by the Anti-Deficiency Act, which mandates that the only government activities allowed in the absence of a funding plan are those connected to “the safety of human life or the protection of property.” Programs and agencies that would be likely exempt from the shutdown are Social Security, uniformed military personnel, the Federal Reserve, the U.S. Postal Service, the Federal Aviation Administration, the Transportation Security Administration, and border security. However, among the most likely high profile federal government activities that would be shutdown are applications for passports and visas, accepting visitors at national parks, new patients at the National Institutes of Health, disease surveillance at the Centers for Disease Control, and toxic waste clean-up by the EPA.
Federal Reserve Closes Comment Period on New Debit Card Rules
On Tuesday, the Federal Reserve closed its comment period on its proposed rules to implement new interchange regulations and other debit card provisions of the Dodd-Frank financial-reform law’s Durbin Amendment. The Fed is expected to issue its final rules in April.
House to Pass Funding Cuts
This week the House debated an extension of the current fiscal year’s funding resolution that expires on March 4th. While the measure is not expected to pass until tonight, among the largest funding cuts passed so far are a $336 million cut to the School Turnaround Grant program, a $22.5 million cut to the National Endowment for the Arts, a $131 million cut to the Securities and Exchange Commission, as well as defunding of the Federal Communications Commission’s implementation of the so-called “Net Neutrality” rules and defunding portions of the Equal Access to Justice Act. The House plans to vote on over 100 more amendments today ranging from funding cuts to the healthcare law, the IRS, and the CFPB among others. While the Senate has already recessed for the President’s Day District Work Period, after the House passes the pending funding resolution, it will also recess until the week of February 28. When both bodies return, the will attempt to resolve differences between their respective funding bills before the March 4th deadline.
Issa Issues Subpoenas to Bank of America for Countrywide Documents
On Tuesday, House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA) issued subpoenas regarding Countrywide Financial’s VIP program. The subpoenas ask for Bank of American to turnover all communications and documents relating to government officials in the VIP loan program by March 7th.
OCC Pushes for Mortgage Probe Settlement
On Wednesday, Federal Housing Administration Commissioner David Stevens announced that the Office of the Comptroller of the Currency (OCC), the federal bank regulator which oversees the nation’s banks, is pushing for a settlement to the months-long federal and state probes into abusive mortgage practices to take place in the next month. The federal review involves the OCC and other bank regulators, as well as the Departments of Justice, Housing and Urban Development and the newly formed Bureau of Consumer Financial Protection. The 50-state probe involves state attorneys general and state bank regulators. According to sources, the OCC is negotiating an agreement that would cost the industry less than $5 billion in fines and mortgage modifications for troubled homeowners.
Corporations Campaign For Foreign Revenue Repatriation Deal
A group of multinational corporations is planning a campaign for a tax holiday that would allow them to repatriate their estimated $1 trillion in current foreign revenue. Specifically, the companies’ aim is to win a one-year tax amnesty on their foreign earnings, allowing them to repatriate that money at a tax rate of 5%, instead of the current 35% rate. In 2004, multinationals were successful in convincing Congress to approve a similar one-year foreign revenue tax holiday.
Corporations Weigh in On New SEC Whistleblower Program
In 2010, the Dodd-Frank Wall Street Reform Act created a new corporate whistleblower program within the Securities and Exchange Commission (SEC). With the SEC set to release the final rules in April, more than two dozen companies Fortune 500 companies have written letters asking the agency to revise its proposed rules for awarding workers who report information about corporate fraud or wrongdoing. The letters express concern that employees will bypass hot lines and other internal reporting mechanisms and thus hurt the companies’ internal efforts to encourage employees’ compliance with the law. Under the current law, the SEC offers awards of at least $100,000 and as much as 30% of the penalties and recovered funds to people who report knowledge of a fraud. To qualify for an award, the information must lead to a successful enforcement action with sanctions of at least $1 million. Under the SEC’s draft rules proposed in November, whistleblowers would not be required to report suspected wrongdoing to their employers in order to win a reward. In an effort to address the companies’ concerns, the SEC proposed to encourage internal reporting by giving credit to informants for first reporting the wrongdoing through company channels in setting the size of the award.
Obama Budget Includes New CFTC User Fees
On Monday, President Obama released his FY 2012 Budget which included proposed user fees as an option to help the Commodity Futures Trading Commission (CFTC) carry out its derivatives oversight. The user fees, which require congressional approval, would raise $117 million in the 2012 fiscal year and $588 million through 2016. The CFTC would assess the fees on “the regulated community” to pay for the CFTC’s non-enforcement activities. The user fees represent an alternative source of funds for the CFTC, which is now funded through annual funding legislation.
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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.
Treasury-HUD “Conference on the Future of Housing Finance”
Next Tuesday, August 17th, the U.S. Departments of Treasury and Housing & Urban Development (HUD) will co-host the “Conference on the Future of Housing Finance,” an open press, day long event where Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan will moderate panel discussions which will include the following panelists: Barbara J. Desoer, President of Bank of America Home Loans; Ingrid Gould Ellen, Professor of Urban Planning and Public Policy at New York University; · Bill Gross, Co-founder and Co-chief Investment Officer of PIMCO; Mike Heid, Co-president of Wells Fargo Home Mortgage; S.A. Ibrahim, Chief Executive Officer of Radian Group Inc.; Marc H. Morial, President and Chief Executive Officer of the National Urban League; Alex Pollock, Resident Fellow at the American Enterprise Institute; Lewis Ranieri, Chairman of Ranieri and Company, Inc.; Ellen Seidman, Ellen Seidman, Executive Vice President ShoreBank Corporation; Michael A. Stegman, Director of Policy and Housing at the John D. and Catherine T. MacArthur Foundation; Susan Wachter, Professor at the University of Pennsylvania’s Wharton School; Mark Zandi, Chief Economist of Moody’s Analytics. Sources indicate the topic of eliminating GSEs could emerge as one of the most contentious points of discussion.
July Retail Sales and Consumer Price Index Reports Released
On Friday, the Department of Commerce released its July retail sales report showing an increase of 0.4% during the month. This positive report follows Mary and June sales figures showing consecutive declines. The Department of Labor also issued its July consumer prices report for July on Friday showing the seasonally adjusted Consumer Price Index rose 0.3 percent. The June report also showed prices fell 0.1 percent, and therefore such positive July figures could ease concerns about deflation.