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Financial Services Update – Issue 9

Senate Financial Regulatory Reform Bill

On Thursday, Senate Banking Committee Chairman Chris Dodd (D-CT) announced he was ending negotiations with Senate Banking Committee Republicans Bob Corker (R-TN) and Richard Shelby (R-AL) and moving forward with releasing his draft bill the week of March 15 with a likely markup in the Committee the week of March 22. Corker responded by announcing that he was disappointed that Dodd had ended negotiations but that he would continue to work towards a bipartisan bill.

The move by Dodd to abandon bipartisan negotiations was caused by the increasing pressure from Committee Democrats and House Financial Services Committee Chairman Barney Frank (D-MA) to move a bill with stronger consumer protections than what Republicans would agree to during the bipartisan negotiations. A sign of the increasing pressure on Dodd by fellow Democrats was seen on Thursday when Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI) announced they would be introducing legislation that would expand the proposed Volcker Rule to limit propriety trading and other risk-taking activities to include nonbank financial institutions. Dodd has till this point been resistant to including the Volker provisions in the legislation.

While the compromise between Dodd and Corker to house the new consumer protection agency in the Federal Reserve seems to have remained intact, Dodd has now acknowledged that the biggest outstanding issues remain how to regulate over-the counter “OTC” derivatives and how to finance the new “resolution” authority. Senate Majority Leader Harry Reid (D-NV) said Thursday that the Senate would pass the financial reform bill before its Memorial Day recess, which is scheduled to begin May 31.

Senate Passes Tax Bill

On Wednesday, the Senate passed the American Workers, State and Business Relief Act which extends unemployment insurance benefits and eligibility for the 65 percent COBRA health care tax credit during Dec. 31, 2010. The legislation retroactively extends tax cuts for middle-class families and businesses that expired at the end of 2009. The bill also provides relief for pension plans by allowing companies to amortize their obligations over a longer time period and prevents a reduction in the federal poverty level from taking effect through 2010. The scheduled reduction is caused by a decrease in the average cost of goods resulting from the economic downturn. It allows families to continue to qualify for programs such as stamps, Medicaid and home-heating assistance. Likewise, the legislation allows individuals living below the poverty level to continue to disregard refundable tax credits and refunds as part of their income for 12 months after receipt.

The bill also extends tax cuts for research and development, allows restaurant owners and retail stores to depreciate improvements over 15 years rather than 39.5 years, extends tax credits for small businesses that continue to pay employees who have been called to active duty in the military, extends tax credits biodiesel and renewable energy, extends tax credits for teachers who buy classroom supplies, creates tax credits for home energy efficiency improvements, and allows taxpayers to continue to deduct state sales tax on their federal tax returns.

The bill also extends the increased federal assistance for state Medicaid programs, made available through the American Recovery and Reinvestment Act, for six months. In addition, the legislation continues funding for loan programs for small businesses, extending funding to reduce or eliminate fees under the Small Business Administration’s 7(a) loan guarantee program and the 504 loan program through the end of this year. In addition, the legislation reverses a scheduled 21 percent payment cut for doctors who provide services through Medicare and Tricare. The legislation also extends several other Medicare protections, including the exceptions process for Medicare beneficiaries who exceed their cap on therapy services and provisions affecting doctors and other health care providers who serve rural communities.

The Senate passed the bill by a 62-36 margin, but getting a final bill to President Obama’s desk might prove more difficult. New Ways and Means Chairman Sander Levin (D-MI) said Tuesday he “wouldn’t be surprised” if the House forced a conference committee on the extenders bill to iron out the significant revenue issues.

Email This Content Email This Content Posted in Financial Services Update. Tagged with , , . By Matt Jessee - Monday, March 15, 2010

Financial Services Update – Issue 8

 
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 an amendment at the Committee’s markup that will insert language into the bill that would establish the consumer protection watchdog as an independent agency.
 
February Jobs Numbers Announced
 
On Friday, the Bureau of Labor Statistics announced that the nonfarm payroll employment declined by 36,000 jobs, fewer than the 50,000 that analysts predicted. February’s statistics place the total number of people out of work at 14.9 million or roughly 9.7%. While the Bureau of Labor Statistics, White House Economic Advisors Larry Summers and Christina Romer all cited the impact of February’s bad weather as a possible contributing factor to the continued job losses, Republicans cited the Administration’s yearlong battle to pass a health care bill as a distraction from job creation.
 
House Ways and Mean Committee Shakeup

On Thursday, after now-former Ways and Means Chairman Charles Rangel (D-NY) indicated he would step aside temporarily, Rep. Pete Stark (D-CA), who was next in line behind Rangel, indicated that he would not pursue the Chairmanship. House Democrats installed Rep. Sander Levin (D-MI) as acting chairman of the powerful tax writing panel for the remainder of the year, or until Rangel is sufficiently cleared by the Ethics Committee. If Democrats retain their majority in the House, however, the Chairmanship of the Committee would reopen and sources indicate Massachusetts Rep. Richard Neal, Washington Rep. Jim McDermott, and Georgia Rep. John Lewis may challenge Levin for the top spot.

Email This Content Email This Content Posted in Financial Services Update. Tagged with , , , . By Matt Jessee - Saturday, March 6, 2010

Financial Services Update – Issue 6

Senate Financial Regulatory Bill

On Friday, Senate Banking Committee Chairman Christopher Dodd indicated he would introduce a new financial regulation reform bill next week.  The markup for the bill would therefore likely occur during the week of March 1-5.  Dodd and Republican Senator Bob Corker, who announced last week that the pair would be working together on the bill, are spending this week together on a Congressional trip to South America.  While there is bipartisan agreement on major issues including resolution authority, consumer protection remains one of the largest areas unresolved.  The role of the Federal Reserve in the new financial regulatory scheme also remains a point of contention.  In a change from the bill he introduced in November, Dodd is now likely to propose creating a council of regulators to monitor emerging risks, which would be chaired by the Treasury Secretary.

Fed Raises Discount Rate

On Thursday, the Federal Reserve Board of Governors raised the discount rate (the rate charged to banks for direct loans) by a quarter-point to 0.75 percent, effective Friday, February 19, 2010. It was the first increase in the discount rate since June 2006.  The change was sooner than most analysts had predicted which  indicated to many investors that the Fed would tighten monetary policy in the near future.  Banks have generally been reducing their reliance on the discount rate over the past year.  As of February 17th, banks had borrowed $14.1 billion as opposed to a year ago when borrowing stood at $65.1 billion.

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Email This Content Email This Content Posted in Financial Services Update. Tagged with , , . By Matt Jessee - Sunday, February 21, 2010

Financial Services Update – Issue 5

Senate Financial Regulatory Bill

On Thursday, Senator Bob Corker (R-TN) announced that he had agreed to work with Senate Banking Chairman Chris Dodd (D-CT) to draft a bipartisan financial reform bill. Despite giving Senate Minority Leader Mitch McConnell notice prior to the announcement, Corker surprised many in his own party since Banking Committee Ranking Member Richard Shelby (R-AL) broke off negotiations with Dodd over disagreements about a new consumer protection agency. Sources indicate Dodd sees Corker as an “honest broker” because of his work with Senator Mark Warner on resolution authority issues.

On Friday, Corker released a statement saying that a new Consumer Financial Protection Agency was a “non-starter” and he was only committing to “working towards a bipartisan agreement.” Corker also stated that the effort to prohibit commercial banks from having proprietary trading businesses by White House Economic Advisor Paul Volcker would not be the focus of his talks with Dodd.

FirstEnergy to Buy Allegheny Energy

On Friday, FirstEnergy announced it would buy Allegheny Energy for $4.7 billion in stock. The deal would create a company with 10 utilities and six million customers stretching across seven states. The companies will still have to get approval from numerous state regulators before the deal can close. The companies said merger savings could top $530 million by the fifth year. As part of the deal, FirstEnergy also would assume $3.8 billion of Allegheny’s debt.

Senate “Jobs” Bill

On Thursday, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA) circulated a $85 billion draft “jobs” bill that included many bipartisan items such as the much sought-after extension and creation of business tax credits. However, within a few hours, Senate Majority Leader Harry Reid (D-NV) announced he would instead offer his own scaled down $15 billion bill “jobs” bill that includes Build America bonds, a small-business tax program that allows quick expense write-offs, a one-year extension of highway construction funds and a new hires tax-credit which would waive the 6.2 percent Social Security tax for any employer who hires a worker who has been unemployed for at least 60 days. Senate Republicans were initially skeptical of Reid’s proposal and are likely to withhold their support.

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Email This Content Email This Content Posted in Financial Services Update. Tagged with , , . By Matt Jessee - Monday, February 15, 2010

Financial Services Update – Issue 4

January Unemployment Numbers Released

On Friday, the U.S. Department of Labor released its monthly report showing that the unemployment rate unexpectedly declined in January to 9.7% from an unrevised 10% in December. However, nonfarm payrolls fell by 20,000 compared with a revised 150,000 decline in December. The two statistics are generated by different surveys, which explains how the unemployment rate improved despite a net loss of jobs. Jobs numbers are generated by surveying employers, while the unemployment rate is derived from a household survey.

Senate Financial Regulatory Bill

Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) have reached an impasse during their negotiations over the Senate’s financial regulatory reform bill. Dodd and Shelby conducted a meeting Thursday that they had hoped could result in progress toward releasing a bipartisan bill. The primary point of contention between Dodd and Shelby continues to be over a possible new consumer regulatory agency. Dodd announced on Friday that he is forging ahead without Shelby and will release a draft bill later this month with the hope of gaining Republican support later in the process.

Volcker Testifies Before Senate Banking Committee

On Tuesday, White House Economic Advisor Paul Volcker testified before the Senate Banking Committee regarding his plan to decouple what he calls “proprietary and speculative activities” from traditional banking activities. During his testimony, Volcker stated “hedge funds, private equity funds, and trading activities unrelated to customer needs and continuing banking relationships should stand on their own.” During the hearing Chairman Dodd expressed frustration about the timeliness of Volcker’s proposal in relation to the Committee’s work on the legislation. Following the hearing, sources indicated that Dodd is likely to drop or change many of the recommendations in the proposed Volcker rule.

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Email This Content Email This Content Posted in Financial Services Update. Tagged with , , , . By Matt Jessee - Friday, February 5, 2010

Financial Services Update – Issue 3

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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Email This Content Email This Content Posted in Financial Services Update. Tagged with , , . By Matt Jessee - Friday, January 29, 2010

Financial Services Update – Issue 2

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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Email This Content Email This Content Posted in Financial Services Update. Tagged with , , , . By Matt Jessee - Friday, January 22, 2010

Financial Services Update – Issue 1

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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Email This Content Email This Content Posted in Financial Services Update. Tagged with , , . By Matt Jessee - Friday, January 15, 2010

News Roundup — June 15, 2009 to June 19, 2009

Consumer Financial Protection Agency

President Obama announced a series of proposals that would involve the government much more deeply in the private markets, from helping to steer consumers into affordable mortgage loans to imposing new limits on the largest financial companies, in a sweeping effort to prevent the kinds of risk-taking that sparked the economic crisis. More information at the Washington Post and The New York Times.

A fact sheet on the administration’s proposal can be viewed here.

Felix Salmon at Reuters posts his reaction. Arnold Kling at the Library of Economics and Liberty has a reaction posted here. Douglas Eliott at The Brookings Institution comments here. Here is an overview at The Economist. The Center for Economic and Policy Research has a reaction; ditto for The Competitive Enterprise Institute.

Rep. Carolyn Maloney (D-NY) issued this statement with respect to President Obama’s proposal. Mrs. Maloney is the chairperson of the Joint Economic Committee.  Senator Dodd released this statement in his capacity as chair of the Senate Committee on Banking, Housing and Urban Affairs. Finally, Rep. Spencer Bachus (R-AL), the ranking Republican member on the House Financial Services Committee released this rejoinder on the Administration’s reform plan.

Regulatory Reform

An article at American Banker examines how the Obama administration’s proposal for financial industry regulatory reform could result in certain kinds of special purpose banks, such as retailer-owned credit card banks, being eliminated.

Senator Dodd has issued a blistering critique aimed at financial industry groups who have expressed opposition to the Obama administration’s proposal to create an independent consumer financial protection agency.

Meanwhile, WaPo columnist Steven Pearlstein adopts a wait-and-see attitude while Eliot Spitzer, former scourge of Wall Street, thinks the the plan doesn’t go far enough.

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Email This Content Email This Content Posted in News Roundup. Tagged with , , , , , , , , , , , . By Stan Santos - Tuesday, June 23, 2009

Obama Proposes Comprehensive Regulatory Reform

On June 17, 2009, the Obama administration publicly announced its vision of regulatory reform.  Among the key points for community banks and thrifts:

  • Combine the Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS) into a new federal agency, the National Bank Supervisor, which would remain an office of the Treasury Department.  The National Bank Supervisor would have all the powers of the OCC and the OTS.  The Federal Reserve and FDIC would retain their respective roles with respect to state banks.
  • Eliminate the federal thrift charter, subject to “reasonable” transition arrangements.
  • Eliminate restrictions on interstate branching by national and state banks.  States would not be allowed to prevent de novo branching into the state, or to impose a minimum age requirement of in-state banks that can be acquired by an out-of-state banking firm.
  • Thrift holding companies and Industrial Loan Company (ILC) holding companies would both be required to become Bank Holding Companies supervised by the Federal Reserve.
  • Create a new federal Consumer Financial Protection Agency (CFPA).  The CFPA is proposed to have sole authority to promulgate and interpret regulations under existing consumer financial services and fair lending statutes, including TILA, HOEPA, RESPA, CRA, and HMDA.  The CFPA is also proposed to assume from the federal prudential regulators all responsibilities for the supervision, examination and enforcement of consumer financial protection regulations.
  • States would have the authority to adopt and enforce stricter laws, and federally chartered institutions would be subject to nondiscriminatory state consumer protection and civil rights laws to the same extent as other financial institutions.

As a reminder, we are the very beginning of regulatory reform; the final reforms are undoubtedly not going to be exactly as laid out in the President’s current proposal.

Email This Content Email This Content Posted in BHC Regulations, Bank Regulations. Tagged with , . By Rob Klingler - Wednesday, June 17, 2009