Financial Reform Watch : Financial Services News & Information : Blank Rome Government Relations Lobbying Firm : Government Relations, Corporate Governance : Financial Reform Watch Law Blog

The Obama administration’s February report that outlined a series of near-term and long-term proposals for reforming Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac provided a starting point for Congressional debate—and now House Republicans appear ready to act.

This afternoon, Republicans on the House Financial Services Committee held a press conference to unveil eight separate proposals for providing near-term reforms to Fannie and Freddie. Several of the GOP proposals mirror those made by the Obama administration, including an increase in Fannie and Freddie’s guarantee fees and a winding down of both GSE’s investment portfolios, which currently hover around $1 trillion. Of particular significance, however, is the GOP’s omission of a long-term proposal for replacing Fannie and Freddie, highlighting the difficulty in significantly decreasing the GSE’s outsized role in the U.S. housing finance market.

Below is a summary of each GOP proposal: 

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On January 25, 2011, the Securities and Exchange Commission ("SEC") adopted amendments to its proxy rules1 to implement the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the approval by shareholders of executive compensation and "golden parachute" compensation arrangements. Section 951 of the Dodd-Frank Act amended the Securities Exchange Act of 1934 by adding Section 14A, which requires public companies to conduct a separate shareholder advisory vote to approve the compensation of executives (the "say-on-pay" vote), as disclosed pursuant to Item 402 of Regulation S-K, and to permit shareholders to weigh in on how often a company should conduct a shareholder advisory vote on executive compensation (the "frequency of say-on-pay" vote). The SEC's new rules related to "say-on-pay" and "frequency of say-on-pay" votes are effective April 4, 2011. Companies that qualified as "smaller reporting companies"2 as of January 21, 2011 and newly public companies that qualify as smaller reporting companies after January 21, 2011 will not be subject to "say-on-pay" and "frequency of say-on-pay" votes until the first meeting of shareholders at which directors will be elected occurring on or after January 21, 2013.

The Dodd-Frank Act requires separate resolutions subject to a shareholder vote to approve executive compensation and to approve the frequency of say-on-pay votes in proxy statements relating to a public company's first annual or other meeting of the shareholders occurring on or after January 21, 2011. Any proxy statement that is required to include executive compensation disclosure pursuant to Item 402 of Regulation S-K, even if filed prior April 4, 2011, must include the separate resolutions for shareholders to approve executive compensation and the frequency of say-on-pay votes. Public companies will not be required to file proxy materials in preliminary form if the only matters that would require a filing in preliminary form are the say-on-pay vote and frequency of say-on-pay vote.

In addition, the new SEC rules require companies soliciting votes to approve a merger, acquisition, sale of all or substantially all of the assets provide disclosure of certain "golden parachute" compensation arrangements and conduct a separate shareholder advisory vote to approve these golden parachute compensation arrangements. The golden parachute compensation arrangements disclosure and a separate resolution to approve golden parachute compensation arrangements pursuant to new Rule 14a-21(c) are required in merger proxy statements for meetings of shareholders occurring on or after April 25, 2011

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On July 16, 2010, Blank Rome presented a webinar on The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010.

This legislation will affect everyone, from financiers working on Wall Street to publicly-traded companies in all industries to consumers on Main Street. To view a video presentation of the topics discussed during the webinar please click on the individual links below.

The Blank Rome team addressed the following provisions of the financial reform bill:

• Political Overview—the Evolution of the Financial Reform Legislation
• Executive Compensation and Shareholder Rights—New Rules for "Say-on-Pay" and Independent Compensation Committees
• New Rules for Banks and Derivatives—Capital Requirements, Bank Fees and "the Volcker Rule", Central Clearing and Trading, Increased Market Transparency, and Regulating Foreign Exchange Transactions
• Hedge Funds—SEC Registration, Providing Systemic Risk Data, and Expanded State Supervision
• Funeral Plans and Restructuring—Periodic Reporting for Rapid Shutdown and the Consequences of Non-Compliance
• Questions and Answers

To download a PDF copy of the presentation, please click here.

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This afternoon the Senate passed the Dodd Frank Wall Street Reform and Consumer Protection Act by a vote of 60 to 39.  As expected, all but three Republicans -- Senators Scott Brown (MA), Olympia Snowe (ME) and Susan Collins (ME) -- voted against the bill, and Sen. Russ Feingold (D-WI) was the only Democrat to vote against it. The president is expected to sign the legislation next week.

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This afternoon at 5 p.m. the Senate Banking Committee will meet and likely adopt along party lines Chairman Chris Dodd's "Manager's Amendment" to his financial regulatory reform draft unveiled earlier this month. Instead of dedicating a week or more to consideration of the 473 amendments filed by committee members -- 98 of which were filed by Sen. Bob Corker (R-TN) -- Dodd decided to incorporate a fraction of the amendments into one roughly 100-page package and then move the bill swiftly and successfully out of committee.

Corker said this morning that he was disappointed about the process, since he had hoped to work through many of the issues in a bipartisan fashion within the Banking Committee.  Assuming things go as predicted tonight, many compromises to the bill will be worked out behind the scenes prior to floor consideration, while still other issues will play out on the Senate floor.

Corker still believes the bill has a 90 percent chance of passing ultimately and thinks that there may be a "better opportunity with a different cast of characters -- the full Senate -- to do something policywise."
 

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In the spirit of football season—when trite gridiron analogies are abundant—the Federal Reserve exhibited an aggressive defensive stand this week, asserting its regulatory authority in the face of an administration proposal to curb its independence through the creation of a Consumer Financial Protection Agency (CFPA). This, coupled with the SEC actions yesterday—moving to ban flash orders that enable certain market participants to execute trades faster than everyone else and proposing new rules to crack down on credit rating agencies—suggests that regulators are beefing up their own authority to head off anticipated reform efforts on Capitol Hill. How well the agencies address the perceived regulatory gaps may have a significant impact on a legislative reform bill and could potentially slow down its momentum.

The Fed’s first defensive play came on Tuesday when it announced new regulatory policies that will extend its oversight to certain non-bank institutions, including many of the top originators of subprime loans. As part of the consumer compliance supervision program, the Fed will immediately begin overseeing the activity of non-bank subsidiaries of bank holding companies and foreign banking organizations, specifically by enforcing existing consumer protection laws and investigating all consumer complaints leveled against such entities.

The Fed’s second play – although reportedly still a few weeks from final completion – is the drafting of a proposal that will allow the Fed to reject bank compensation structures that the regulators believe could promote risky financial incentives and practices. According to the Wall Street Journal, the forthcoming proposal would allow the central bank to review and amend not only the compensation polices for executives, but also those for mid-level employees such as traders and loan officers, likely forcing banks to utilize “clawbacks” or mechanisms to reclaim the pay of employees who engage in risky behavior. The Fed is citing its existing regulatory authority over bank safety and soundness to impose its reach into the normal workings of corporate boards and bank executives. 

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The House of Representatives took the first steps towards enacting President Obama’s sweeping financial reform proposal today, voting 237-185 to approve the Corporate and Financial Institution Compensation Fairness Act of 2009 (H.R. 3269) requiring all publicly-held companies to hold non-binding annual shareholder votes and expanding SEC authority over incentive-based compensation structures. Although the bill’s passage represents a major victory for the president and the Democratic Congress, it may prove to be the least controversial element of financial reform, as stark divisions remain on both sides of the aisle concerning the creation of a Consumer Financial Protection Agency and an expanded role for the Fed as a systemic risk regulator.

Unsurprisingly, this afternoon’s vote fell largely along party lines, with only two GOP members supporting the measure and 16 Democrats opposing. The House also approved, by a vote of 242-178, an amendment offered by Chairman Barney Frank (D-MA) that struck language prohibiting “clawbacks ” of executive compensation approved by shareholders. The amendment also inserted language that would prohibit clawbacks of incentive-based pay if a compensation agreement was in effect prior to this bill's enactment.

As the executive compensation legislation moves to the other side of the Capitol, conventional wisdom dictates that the Senate saucer will ultimately cool the House’s hot teacup – but this historical assumption may not apply for this bill.  The executive compensation debate was further inflamed yesterday following the release of New York Attorney General Andrew Cuomo's report showing that the nine largest U.S. banks paid out $32.6 billion in bonuses in 2008 -- a year in which total losses reached $81 billion and nearly $200 billion of taxpayer money was directly injected through the Troubled Asset Relief Program (TARP).  Moreover, a handful of lawmakers on the Senate Banking, Housing and Urban Affairs Committee currently facing tough re-election bids in 2010 – including Committee Chairman Christopher Dodd (D-CT) – will likely avoid putting themselves in a vulnerable political position by advocating reforms that deviate too much from the House legislation.

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Expanding shareholder voting rights to include corporate executive compensation has been a topic of considerable debate in Washington over the past few years, but not until the fall of 2008—when the federal government began undertaking unprecedented steps to stabilize the financial system—did “say on pay” gain real momentum. By late fall, there was strong public outcry for action as recipients of government bailout money reported high executive salaries and bonuses that appeared disconnected from their companies' financial health.

Congress took the first steps towards strengthening investor influence by imposing say on pay requirements for all Troubled Asset Relief Program (TARP) recipients in the American Recovery and Reinvestment Act, passed in February. However, in response to public uproar over American International Group’s (AIG) distribution of $165 million in corporate bonuses to their much-maligned financial products unit, the Obama Administration went one step further in early June by proposing an extension of say on pay to all publicly-traded companies.

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The Treasury Department today released draft legislative language that would require all public companies to hold annual, non-binding shareholder votes on executive compensation packages as well as impose stricter standards to ensure the independence of corporate compensation committees. The "Say on Pay" proposal is modeled after a rule the United Kingdom adopted in 2002. Starting December 15, 2009, proxy materials will have to include tables summarizing the salary, bonus, stock option awards, and total compensation package for senior executives and also narrative explanations of any golden parachute and pension compensation packages. In the event of a merger or acquisition, companies will need to hold separate votes on golden parachutes and must lay out simply and clearly what the departing executives will receive.

To ensure the independence of corporate compensation committee members, the legislation calls for "exacting new standards" modeled on how Sarbanes Oxley established the independence of audit committees. The provisions would require compensation committees to be granted the funding and authority necessary to hire compensation consultants, legal counsel, and other advisers—all of whom should be independent of the company's management—to help the committee negotiate pay packages that are "in the best interests of shareholders."

Financial Reform Watch will be tracking this legislation as it moves through Congress.

Treasury: Proposed Legislation re Executive Compensation or "Say on Pay" (PDF)

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President Obama today released the long-awaited proposal for reform of the regulatory structure overseeing the financial services industry. It is a sweeping proposal with broad implications for the entire industry. It reshuffles regulatory powers, combines some agencies, creates a new one and extends federal regulatory powers to products and firms which are currently not federally regulated or regulated at all. Congress, the industry,the media and other stakeholders are poring over the 85-page "white paper" describing the proposal. Click here to go to the document.
 

Brief Summary

1.      Avoid Future Systemic Risk/Promote Robust Supervision and Regulation – Raise capital and liquidity requirements for banks and systemically significant financial firms; establish a Financial Services Oversight Council of regulators to coordinate and prevent systemic risk; establish a new National Bank Supervisor in Treasury to oversee federally chartered banks; bring hedge funds and other private pools of capital into the regulatory framework; require public companies to hold non-binding say-on-pay shareholder votes and have independent compensation committees; review accounting standards; establish the Office of National Insurance within Treasury to enhance oversight of the sector.

2.      Reform the Structure of the Financial System – impose “robust” reporting requirements on issuers of asset-backed securities; reduce reliance on credit rating agencies; require the originator, sponsor or broker of a securitization to retain a financial interest in its performance; harmonize the regulation of futures and securities; safeguard payment and settlement systems; subject all derivatives trading to regulation; strengthen oversight of systemically important payment, clearing and settlements systems.

3.      Protect Consumers and Investors – improve the SEC’s ability to protect investors and establish a new Consumer Financial Protection Agency to identify gaps in supervision and enforcement; ensure the enforcement of consumer protection regulations; improve state coordination; and promote consistent regulation of similar products.

4.      Enable the Government to Manage Financial Crises -- establish a resolution mechanism, similar to the FDIC’s,  for non-bank financial firms and subject those whose failure could harm the financial system (Tier I Financial Holding Companies) to Fed supervision; require the Fed to get Treasury sign off when the Fed invokes its emergency lending authority for “unusual and exigent circumstances.”

5.      Improve International Supervision and Coordination – improve oversight of global financial markets; strengthen the capital framework; coordinate supervision of international firms; enhance crisis management tools.

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The Obama Administration took additional steps to rein-in executive compensation today by announcing the appointment of a "pay czar" at the White House and announcing proposed principles for regulating executive compensation where authority exists to do so. They also asked for legislation to advance the concept of giving shareholders a "say on pay." The suggested principles are not as prescriptive as some may have feared, but taken together, today's proposals and actions are generating some concerns about how the rules of the game are being changed.

Early in the day, Treasury Secretary Geithner unveiled the administration’s approach to regulating executive compensation practices at financial institutions and publicly-traded companies. In order to “encourage sound risk management” and to align pay practices with long-term corporate health, the administration laid out the following broad principles:

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Ever since the AIG bonus brouhaha, TARP recipients knew the day would come when federal officials would step in to manage their compensation structure. Several have been scrambling to raise the private capital necessary to repay their TARP loans just to avoid the anticipated executive compensation restrictions. There are reports today that Treasury Secretary Geithner may announce new guidelines as early as this week. However, he is not currently scheduled to appear on Capitol Hill on this topic until the House Financial Services Committee hearing on June 18th. Whenever he makes his announcement, we expect he will explain that the new executive compensation rules will apply to some TARP recipients permanently – those that accepted more than one round of bailout money -- regardless of whether or not they have paid back the federal funds. In addition, it is also reported that Treasury will be suggesting "guidelines" to be used for executive compensation in financial services firms that have not receive TARP assistance.

It appears the restrictions will be imposed on a company’s 25 highest earners. Reportedly, federal bank regulators will also be granted new authority to impose compensation restrictions on banks not in the TARP program whose pay systems encourage too much risk. How much risk is too much and who determines that remain important questions.

The expected move to extend the pay restrictions beyond the life of the TARP involvement in the firms raises some important questions. Are restrictions that outlive TARP money in the firms consistent with the agreements the institutions made originally with the government? Will there be any sunset whatsoever on the proposed restrictions? Where GM is concerned, will the company emerging from bankruptcy be considered a "new" company?

To the extent the new guidelines would reach into companies who have not received TARP funds, it is legitimate to ask the question as to whether these are a legitimate shareholder's rights issues or an overreach by federal regulators into areas best left to the executive suite and the boardroon.

Since there are very few facts available and only rumors, Financial Reform Watch will reserve judgment until the Treasury releases the new rules, however, there is much to ponder in the meantime.

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The House of Representatives approved yesterday, by a vote of 247 to 171, the “Pay for Performance” bill (H.R. 1664), which would prohibit TARP recipients from paying “unreasonable or excessive compensation” to its employees. The legislation tasks the Treasury Department with defining exactly what is “unreasonable or excessive.” The bill also repeals the controversial amendment in the American Recovery and Reinvestment Act that exempted bonuses based on employment contracts dated prior to February 11, 2009. While this is a far cry from the AIG-targeted bill the House passed earlier— imposing a 90 percent excise tax on AIG bonuses—H.R. 1664 is one more example of government treading into traditionally private sector turf.

The legislation applies to companies that have outstanding capital investments from the TARP or through the Housing and Economic Recovery Act, which covers Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. In addition to prohibiting unreasonable or excessive compensation, affected companies could not pay bonuses or other supplemental payments not directly based on performance standards set by Treasury. The Treasury Secretary has the authority to exempt community investment institutions and institutions receiving less than $250 million from the TARP. The legislation also directs Treasury to establish a payback process for those institutions that would prefer to return the government’s money rather than be subject to the new compensation rules. For those institutions subject to the rules, the bill requires them to submit an annual report to Treasury with the number of employees whose compensation falls into each of these categories: over $500,000; over $1 million; over $2 million; over $3 million; and over $5 million.

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In a more subdued response to the AIG bonus brouhaha than last week, the House Financial Services Committee yesterday approved legislation that would amend the Emergency Economic Stabilization Act to prohibit companies receiving TARP money from paying “unreasonable and excessive compensation and compensation not based on performance standards.” Two Republicans, Reps. Ed Royce (CA) and Walter B. Jones (NC), broke ranks to vote with the committee’s Democrats in favor of the bill (H.R. 1664). Some of our Congressional sources have said the full House may vote on H.R. 1664 as early as next week. The Senate, however, is almost certain not to address executive compensation until after it returns on April 20th from the spring Congressional recess. Democratic leaders from both sides of the Capitol have greatly dialed down the executive compensation rhetoric since last week.

Under H.R. 1664, the Treasury Secretary, with the members of the Financial Institutions Examination Council, would have a month to define “unreasonable and excessive compensation” and set performance based standards that companies would use to determine circumstances under which a bonus or retention payment would be allowed. Examples of the standards Treasury is to include are the stability of the financial institution; its ability to repay the government; individual performance; employees’ adherence to risk management requirements; and any others that would provide greater accountability to shareholders and taxpayers.

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Congress took the first major step yesterday in levying heavy taxes on bonuses paid to executives of AIG and to institutions who have been recipients of significant (more that $ 5 billion) assistance from the Troubled Asset Relief Program (TARP) in recent months. In a move best described as spasmodic, the House voted 323-93 to place a 90 percent tax on the bonuses of TARP-recipient executives with adjusted gross incomes over $250,000.

Senate Majority Leader Harry Reid (D-NV) moved to bring the legislation to the floor yesterday, but Sen. Kyl (R-AZ) blocked the attempt, saying the Senate needs more time to consider the ramifications. Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Chuck Grassley (R-IA) introduced a bill late yesterday that would impose a 70 percent excise tax—35 percent on the TARP recipient companies and 35 percent on their executives—on excessive bonuses, defined as anything exceeding $50,000 in a calendar year.

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Buried in the American Recovery and Reinvestment Act (ARRA), which is making its final march through Congress on its way to the president’s desk, is a section imposing limits on executive compensation for Troubled Asset Relief Program (TARP) recipients. The White House and the Treasury Department announced new executive compensation restrictions last week, but Congressional leadership obviously believed there was a need to codify some of those rules and strengthen others.

Here is an overview of the legislative provisions that, when enacted, will apply to companies until they repay their TARP money.

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A short time ago, Treasury Secretary Hank Paulson announced some much-awaited details about the Department’s Capital Purchase Program (CPP). The Treasury will invest $250 billion of capital to U.S. financial institutions in the form of preferred stock. Nine of the largest banks have already agreed to participate in the CPP, which leaves $125 billion remaining. Paulson stressed that the program will not be implemented on a first-come-first-served basis, stating, "Sufficient capital has been allocated so that all qualifying banks can participate."

The Department has developed a single application form for qualified, interested banks to submit to their primary federal regulator—the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of Comptroller of the Currency, or the Office of Thrift Supervision. Once a bank’s primary regulator reviews the application, the regulator will forward the bank’s application to Treasury’s Office of Financial Stability for approval. Paulson said Treasury will "give considerable weight" to the recommendations of the federal regulators. The terms will be the same for all applicants, and regulators will use a standardized review process. Treasury will announce all transactions within 48 hours of execution; however, the Treasury will not publicly reveal any applications that are withdrawn or denied. The application deadline remains November 14, 2008.

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Washington is stepping back from yesterday's debacle in the House of Representatives and taking a deep breath. Yesterday's surprising 205-228 defeat of the financial rescue plan has caused leaders of both parties to assess the situation within their caucuses, and they are thinking about what is required to gain passage of the package. Our first report today will focus on an analysis of the vote yesterday. Our second report will discuss potential changes to the plan that might garner the necessary votes.

Our analysis suggests that if leaders make carefully selected changes to the package, the votes will be there when Congress returns on Thursday. We draw that conclusion after a careful review of the roll call in the House.

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According to our contacts, Congressional leaders do not expect to finish drafting the financial rescue legislation before early this evening. As reported earlier, House Speaker Nancy Pelosi promised to post the final legislation on the Internet by noon today. The timing indicates the House will not vote on the package before tomorrow afternoon at the earliest, given that all sides will need time to review the final package. At a news conference this afternoon, key negotiator Sen. Judd Gregg (R-NH) said he would like to see the Senate vote on Monday. We expect the Senate will vote on the House-passed bill later in the week, following the Jewish holiday. In the meantime, we have received outlines from House and Senate staff privy to the negotiations.

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Between the bookends of last night's presidential debate and tomorrow's 4:15 p.m. kickoff of the Redskins-Cowboys game, official Washington is working hard to reach a compromise financial rescue plan. Staff members from both parties and both Houses of Congress met into the wee hours of the morning today on the legislation. Leaders hope to announce a plan on Sunday before the Asian markets open for their Monday sessions. Votes in the House and Senate are currently planned for Monday.

Staff members are meeting as this is written. The lead negotiators on the package are expected to meet this afternoon to review staff progress. As we noted in our final update yesterday, negotiators appear ready to graft onto the package a proposal from the House GOP to allow Treasury the option to develop an insurance program to support mortgage backed securities. Given Secretary Paulson's earlier comments that an insurance program would not be adequate to address the problems in the marketplace, it is unlikely he would use this option. However, including it in the plan provides a fig leaf to those who indicated they would try to block the plan that appeared headed for enactment before Thursday's White House meeting.

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Momentum continues to build for enactment of the $700 billion Administration plan to buy troubled assets from financial institutions. As an indicator of the increasingly upbeat mood around the package, the Dow Jones Industrial Average increased by over 200 points for the day.

As we write this, President Bush is meeting with Sens. McCain and Obama and Congressional leaders to discuss how to advance the plan. While this meeting is viewed by many as a sideshow, a forceful statement by the sitting president and the two men seeking to replace him will add to the overall sense that action on Capitol Hill is soon possible.

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There has been a seismic shift in Congressional attitude over the past 48 hours. Skepticism over the administration’s plan has evolved into hardened resolve to achieve consensus and pass a financial relief package as soon as possible. People are still reluctant to commit to a timeframe, but the pace has quickened. Whereas two days ago, Senate staff were waiting for their House counterparts to draft a plan, reports now indicate that both sides began working together yesterday to craft a single, unified plan.

Publicly, several lawmakers, including Senate Banking Chairman Chris Dodd (D-CT) and House Financial Services Chairman Barney Frank (D-MA), have said Congress and the administration are very close to striking a deal in the next “day or so.” At 10 a.m. this morning Frank hosted Dodd as well as Sen. Bob Bennett (R-UT), a senior member of the Senate Banking Committee, and Rep. Spencer Bachus (R-AL), the ranking member of the House Financial Services Committee, to continue drafting the plan. We have reports that the drafting session will expand to include others and will continue all day. Congressional leaders are working to have a consensus plan by today’s 4 p.m. meeting at the White House with President Bush and the presidential candidates.

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Spending their every waking hour on Capitol Hill trying to convince lawmakers to accept the financial bailout plan may finally be paying off for Treasury Secretary Paulson and Fed Chairman Bernanke. Reports coming out of meetings held this morning and early afternoon have been decidedly more upbeat than anything we have heard thus far.

In addition to testifying at hearings and briefing large groups, Paulson held a private meeting earlier with House Speaker Nancy Pelosi (D-CA) and Minority Leader John Boehner (R-OH). While aides would not confirm whether the leaders and Paulson struck an agreement, there are signs the administration has made changes to the Paulson plan. In his House Banking Committee testimony this afternoon, close watchers noted that Paulson modified his remarks to allow for a compromise on limiting executive compensation as long as it does not "undermine the effectiveness of the program."

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Washington continues its bipolar approach to dealing with the Bush Administration's proposed plan to purchase, manage and sell troubled assets from financial institutions. Key leaders continue to work on the contours of a plan so that it can be voted on late this week. At the same time, rank and file Members, particularly on the GOP side, are turning up the volume on their objections. We continue to believe prospects are good for enactment of a plan to create a $700 billion investment to purchase assets. However it is clear that several pounds of flesh will be extracted from Secretary Paulson along the way.

Since yesterday, it has become more evident that executive compensation limits of some kind will be included in the final plan. The Administration still opposes this strongly, but they will have little choice but to accept it. Otherwise, there appears to be agreement on including outside oversight over Treasury on the program, protections against foreclosures on homeowners, and the option for Treasury to take warrants for stock from companies that sell assets to them.

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This morning’s Senate Banking Committee hearing was still continuing as the Bush Administration, House Banking Committee Chairman Barney Frank (D-MA), and House leadership were making plans for an urgent briefing today at 4 p.m. to convince House members to agree to the Treasury’s Troubled Asset Relief Program (TARP). Press reports about this morning’s House Democratic and Republican conference meetings characterized members’ reactions as “resistant.” Our sources on the Hill and off are saying the meetings were worse than reported, and the mood at both was antagonistic. As of now, the House does not have anywhere near the 218 votes needed to pass the Treasury plan, even with Chairman Frank’s endorsement.

Members of the Senate Banking Committee, including Sen. Chuck Schumer (D-NY), questioned whether the TARP could be funded in installments, precluding the need for Congress to authorize $700 billion in one lump sum. However, both Federal Reserve Chairman Bernanke and Paulson rejected the suggestion, saying that bolstering consumer confidence requires Treasury to have the full $700 billion authority, even if they do not utilize the entire amount. Both Paulson and Bernanke repeated on several occasions that lawmakers must not view the $700 billion as an expenditure, but as an investment that would be recovered – though perhaps not in full – over time.

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Congress and the Administration have made significant progress today in refining the proposal released Saturday by Treasury Secretary Hank Paulson for a $700 billion purchase by the government of troubled financial assets. Prospects remain strong for Congress and the Administration to adopt a plan by the end of the week.

Between the release of the plan on Saturday and the opening of the markets today, Paulson made two important changes to his original plan. The first change was to broaden the class of assets eligible for purchase to include non-mortgage assets as deemed necessary. The second change was to allow foreign institutions with a significant US presence to participate in the asset purchase program.

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