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

As the July 21, 2011 Dodd-Frank implementation date rapidly approaches, it is becoming increasingly likely that the Bureau of Consumer Financial Protection will not have a Senate-confirmed director by the time its new authority begins. While some have tried to downplay the significance of the CFPB assuming authority without a director, it could seriously hinder the bureau’s ability to do so much as open its doors, let alone effectively regulate.

According to Title X of Dodd-Frank, the director is appointed by the President with the advice and consent of the Senate. Once confirmed, the director serves as the sole head of the CFPB. Dodd-Frank enumerates the director’s responsibilities clearly: appointing and directing all bureau employees; establishing all offices within the bureau; reporting to Congress; submitting budget requests to the Federal Reserve; requiring reports of covered firms; and prescribing rules and issuing orders and guidance, among others.

Additionally, there are a number of responsibilities assigned to “The Bureau,” though Dodd-Frank does not establish who has authority over The Bureau, if not the director. Assuming a case can be made for some other leadership structure, however, The Bureau is tasked with exclusively enforcing federal consumer financial law. The Bureau also may take action against those participating in unlawful acts, engage in joint investigations, conduct hearings and adjudication proceedings, and commence civil action against those who violate federal consumer financial law.

While this would suggest that The Bureau would have some capabilities absent a director, it may not be quite that easy. First, Dodd-Frank at times fails to clearly delineate where the exclusive authority of the director begins and ends as opposed to The Bureau as a whole. While this could arguably help The Bureau perform its duties without a director, there’s a second, stickier problem. The director has the sole authority to staff The Bureau, as well as to request and budget funding from the Federal Reserve. Consequently, even if The Bureau could find the statutory authority to perform some regulatory functions, it would be hard-pressed to do so without funding or personnel.

If a director is not confirmed by July 21, Dodd-Frank permits two courses of action. First, the Secretary of the Treasury may submit a request to Congress to delay the implementation date. The law requires that implementation cannot be delayed for more than 18 months, meaning that the Administration would only gain 6 months to get a nominee confirmed. Alternatively, Dodd-Frank states that the Secretary of the Treasury is authorized to perform the functions of The Bureau until the director is confirmed by the Senate, though it is unclear whether this authority expires on July 21.

Secretary Geithner has not yet announced plans to take either of these steps, but with only a month to go and Republicans in the House and the Senate vowing that they will go to any means necessary to block the confirmation of presumptive nominee Elizabeth Warren, delaying the implementation may be the Secretary’s only option.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

After an oh-so-close loss in the Senate last week, the banking industry is now planning to take the fight over debit card interchange fees to court.

The Federal Reserve has yet to issue a finalized rule, but once it does, the banking industry is likely to file suit, claiming that the Fed has misinterpreted the Dodd-Frank Wall Street Reform and Consumer Protection Act. The industry claims that the so-call Durbin Amendment, which imposed the cap, allows banks to make a “reasonable and proportional” profit. The industry also claims that the Fed is not taking into account the various costs associated with operating a debit card network.

Minnesota-based TCF National Bank sued the Federal Reserve in October 2010, challenging the constitutionality of the rule. The first hearing is set for this week.

Under the Dodd-Frank Act, debit card fees, which currently average about 44 cents per transaction, are capped at about 12 cents per transaction. Sens. Tester (D-MT) and Corker (R-TN) introduced an amendment that would have delayed the implementation of the fee cap, but it failed to pass the Senate by a six vote margin. The final count was 54-45, with 60 votes needed for passage.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Aiming to give their shareholders an early boost in 2011, the nation’s largest banks are looking to begin increasing payments on dividends, which have been either suspended or significantly reduced since the onset of the financial crisis in September of 2008. However, the Fed announced today that before any such moves take place amongst the largest U.S. banks, a “number of criteria” must first be met.

Under the guidance issued by the Fed, all 19 of the bank holding companies that participated in the Fed and Treasury-administered “stress tests” in 2009 will be required to submit capital plans—which include a demonstration of a bank’s ability to absorb losses under “adverse” economic conditions and its ability to comply with Basel III capital standards—by early 2011 for the Fed’s review. The capital plans will be submitted to the Fed, regardless of whether a bank plans to either raise dividends or repurchase stock shares. In addition, all government investments in a bank must be repaid or replaced with common or preferred stock before any dividend increases or stock repurchases take place. The Fed said it expects to begin responding to bank requests for such actions beginning in the first quarter of 2011.

The results of the Supervisory Capital Assessment Program (SCAP), or stress tests, which occurred during the spring of 2009 on the nation’s largest bank holding companies to predict “potential losses, the resources available to absorb losses, and the resulting capital buffer needed” based on various economic scenarios, revealed that ten of the 19 participating banks needed to increase their capital buffers for a combined total of $74.6 billion. SCAP was largely credited with boosting market confidence by providing a much-needed certification of the health of each bank’s balance sheet.

Federal Reserve—Revised Temporary Addendum to SR letter 09-4: Dividend Increases and Other Capital Distributions for the 19 Supervisory Capital Assessment Program Bank Holding Companies (PDF)

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010, the agencies charged with implementing the Act have begun laying the groundwork for managing their new responsibilities.

The Department of Treasury’s Assistant Secretary for Financial Institutions Michael Barr provided a window into the action during his remarks to the Chicago Club yesterday. The first meeting of the Financial Stability Oversight Council (FSOC) – the council of financial regulators charged with managing systemic risk – will be in September. The Treasury is currently working to stand up the new Office of Financial Research that will support the FSOC by collecting and analyzing data pertaining to systemic risk. Internationally, Treasury is working to raise capital requirements – the ratios and the quality of the underlying capital – and also institute explicit, quantitative liquidity requirements. According to Barr, the Dodd-Frank reforms also require that, “Regulators must supplement existing approaches to supervision with mandatory ‘stress tests,’ credit exposure reporting, and ‘living wills,’ so that they can adequately assess the potential impact of the activities and risk exposures of these firms on each other, on critical markets, and on the broader financial system.”

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

Beginning at noon tomorrow, House and Senate conferees for the financial reform legislation will return to the negotiating table for round two – this time with their attention fixed on the contentious Title 10, which props up a new regulator for consumer financial protection.

In preparation for tomorrow’s proceedings, House Financial Services Chairman Barney Frank (D-MA) unveiled this afternoon the House’s proposals for amending the Senate language in regards to not only consumer financial protection, but also mortgage reform and predatory lending, and risk retention.

In a critical concession, Frank’s proposal would retain the Senate version’s placement of the newly-created Consumer Financial Protection Bureau (CFPB) inside the Federal Reserve, a move that is likely to provoke disapproval amongst Frank’s Democratic colleagues who favor the creation of a stand-alone agency. Even Frank, himself, panned the idea of housing a new consumer regulator inside the Fed when it was first proposed in the Senate in March. But once again, Frank’s concession largely reflects the political dynamics in the Senate, where the creation of a stand-alone agency would likely unravel a fragile coalition of 60 votes required for passage.

Striking another controversial note, Frank defied long-standing White House objections by reviving language included in the House-passed version and offered as amendment in the Senate by Sen. Sam Brownback (R-KS) – but which did not receive a vote -- that would exempt auto dealers from the CFPB’s regulatory oversight. It remains uncertain whether the White House will continue to lobby against the provision during negotiations this week.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

After wrapping up another eventful voting week that involved the consideration of nearly 15 amendments to the Restoring American Financial Stability Act of 2010 (S.3217), the Senate – and perhaps the Congress – now appears headed towards the finish line on financial regulatory reform.

Despite the numerous votes, Senate Banking Committee Chairman Christopher Dodd’s (D-CT) overhaul legislation escaped relatively unscathed from problematic amendments that could have disrupted future conference negotiations with the House, as a flurry of proposals – including those related to credit rating agencies, Fannie Mae and Freddie Mac, community banks, oversight of the Federal Reserve’s monetary policy, underwriting standards, the newly-created consumer financial protection bureau (CFPB) and interchange fees – all were brought up for consideration (see below for additional details on amendments). When the chamber returns to action next week, Senate Majority Leader Harry Reid (D-NV) is expected to set up a vote that will occur on Wednesday to invoke cloture – or limit further debate to 30 hours – which if approved, would likely lead to the bill’s final passage later in the week. Some sources around Capitol Hill are even predicting that after the Senate completes its work, House Financial Services Chairman Barney Frank (D-MA) and fellow Democrats will push for House passage of the Senate bill, precluding the need for a formal conference and ultimately shortening the timeline for the President’s signature.

But predictions aside, Dodd must still contend with the burgeoning frustration of his Democratic colleagues in the Senate, who expressed dismay this week that only 31 amendments out of the over 300 introduced have been formally debated on the floor thus far. In addition, particular contention still lingers with respect to the legislation’s provisions regulating derivatives transactions, specifically the scope of the bill’s "commercial end-user" exemption and its prohibition on commercial banks and bank holding companies from directly engaging in derivatives transactions. The Senate rejected, 39-59, a Republican derivatives proposal offered by Senators Saxby Chambliss (GA), Richard Shelby (AL), Judd Gregg (NH) that sought to limit the types of swaps transactions that would face clearing requirements by exempting “bona-fide hedging swap transactions.”
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Following a nearly three-day logjam, the Senate is now voting , and voting often, as leaders on both sides continue to queue up a broad array of amendments dealing with nearly every component of the Restoring American Financial Stability Act of 2010 (S. 3217).

Yesterday, the Senate jumpstarted the amendment process by passing overwhelmingly two proposals aimed at ending “Too Big To Fail” through modifications to the bill’s resolution authority language. The first amendment, offered by Senator Barbara Boxer (D-CA), attaches language specifying that “no taxpayer funds shall be used to prevent the liquidation of any financial company”; and the second amendment, offered by Senators Christopher Dodd (D-CT) and Richard Shelby (R-AL), removes the controversial $50 billion fund that would have been used to finance the resolution of failing financial institutions and would limit the payments received by creditors during liquidation. The Boxer amendment passed by a vote of 96-1 and the Dodd-Shelby amendment was approved 93-5.

Although both parties were able to resolve the “Too Big Too Fail” dilemma relatively peacefully through closed door negotiations, the gulf between Democrats and Republicans over a contentious proposal to create a new consumer financial protection bureau (CFPB) may prove to be more difficult. At some point today, the Senate is expected to consider an alternative GOP proposal offered by Shelby and Senate Minority Leader Mitch McConnell that would, as opposed to the current Dodd proposal that places the CFPB within the Federal Reserve, put the new bureau inside the FDIC and grant its board with significant oversight authority over the bureau's rulemaking decisions. The Shelby-McConnell proposal would also limit the bureau’s authority to that of rulemaking, as banking regulators would retain their enforcement and supervisory authority. But nonetheless, the GOP alternative’s prospects of passage are dismal by most accounts.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

After 15 months of unprecedented intervention in the secondary mortgage market, the Federal Reserve—currently the proud owner of nearly 25 percent of mortgage debts—is calling it quits. The Fed's $1.25 trillion emergency program to stabilize the U.S. housing market through the purchase of mortgage-backed securities (MBS) officially expires today.

First announced in November 2008, the Fed initiative to purchase MBS issued by government sponsored enterprises (GSEs )—including Fannie Mae, Freddie Mac, and Ginnie Mae—has largely been viewed as a catalyst in spurring the nascent recoveries in both the housing and stock markets, helping to lower home mortgage rates and free up capital for private investors. In particular, market analysts credit the Fed purchasing program with paving the way for a record $375.4 billion of investments into bond mutual funds in 2009, as lower returns on mortgage securities led investors to corporate bonds, equities, and other riskier assets.

At a time when the U.S. economy remains fragile, the Fed’s departure from the housing sector may help determine just how fragile economic conditions really are. For months, market observers have raised concerns that a Fed exit could cause significant spikes in mortgage rates, leading to higher foreclosures and a slump in investor confidence. In fact, Fannie Mae's and Freddie Mac’s February announcement that they will repurchase $200 billion in delinquent mortgage loans, was a tacit acknowledgement that government backstops cannot be removed swiftly.

However, a number of analysts are also predicting that the effects of the Fed pullout will be rather minimal, as the current shortage of AAA-rated debt has made private fund managers increasingly eager to begin reinvesting in MBS, especially when such securities are backed by propped-up GSEs like Fannie Mae and Freddie Mac. In addition, these analysts also project that U.S. banks—which have steadily increased capital levels and are now flush with extra cash—will step up to fill the void left by the Fed.

The role of both Fannie and Freddie in ensuring a smooth transition for the housing finance system will be something to watch closely over the next few months. The GSEs are under intensified scrutiny on Capitol Hill, as the Obama administration prepares a sweeping proposal for a GSE overhaul. Treasury Secretary Tim Geithner told Congress last week that the administration will initiate a public comment period on April 15 in order to solicit ideas for Fannie and Freddie’s restructuring.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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."
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Not surprisingly, the Federal Reserve announced today that it is extending the TALF program from the December 31, 2009 deadline to March 31, 2010 for newly issued ABS and legacy CMBS and to June 30, 2010 for newly issued CMBS. While the Fed acknowledges that conditions in the financial markets have improved, it still views the markets for asset backed securities and commercial mortgage backed securities as "impaired." The Fed is also leaving the door open to further extensions should conditions warrant. Another outstanding issue is whether to expand the TALF to include other types of eligible collateral. The Fed said in its announcement that it and Treasury will reconsider the issue "if financial or economic developments indicate that providing TALF financing for investors' acquisitions of additional types of securities is warranted."

Federal Reserve Press Release, August 17, 2009

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

Even Cabinet Members (maybe ESPECIALLY Cabinet Members) need an August break. Various media outlets have reported that Treasury Secretary Geithner delivered an expletive-laced tirade to the principal U.S. financial regulators during a meeting last Friday, in what sources say was a clear show of frustration over the internal opposition to some key elements of the Obama administration's financial regulatory proposal.

Fortunately, for inquisitive lawmakers, several of the meeting attendees were on Capitol Hill today to testify before the Senate Banking Committee on “Strengthening and Streamlining Prudential Bank Supervision,” including Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair, Federal Reserve Governor Daniel Tarullo, Acting Director of the Office of Thrift Supervision (OTS) John Bowman and Comptroller of the Currency John Dugan.

Confirming the veracity of the reports, the regulators were also unwilling to soften their criticism, as Bair and her fellow regulators expressed sharp resistance to the administration's proposal to consolidate the bank supervisory functions of the OTS and the OCC into a new National Banking Supervisor -- citing concerns that unified regulation would undercut the interests of community banks and would do little to close the most glaring regulatory gaps that occurred in the non-bank, or "shadow," banking system.

After hearing from the witnesses, Senate Banking Committee Chairman Chris Dodd (D-CT) openly speculated about the administration's plan, commenting that it is “…a thoughtful proposal but I wonder if it is the right prescription.”  Then again, Dodd’s comments may offer more insight on where his mind has focused these past several weeks than about the financial reform outlook.

The House adjourned last Friday and the Senate will adjourn this Friday for the August recess. Dodd is going home to face some challenging poll numbers as he gears up his 2010 re-election campaign. The opinion landscape is shifting rapidly, and legislators may come back in September with some different notions than they left with in August. One thing is for certain, it is going to be a very busy fall.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Your Financial Reform Watch team has reported before on key legislators' misgivings with the administration's plan to make the Fed the systemic risk regulator for so-called "Tier 1" financial holding companies. Those misgivings are holding sway now on Capitol Hill and are beginning to take hold in the administration itself.

Just yesterday, SEC Chairman Mary Shapiro and FDIC Chairman Sheila Bair were the latest to endorse what Shapiro referred to as a “hybrid approach,” one that would significantly strengthen the president’s current proposal of creating a Financial Services Oversight Council, responsible for collecting data and identifying emerging financial market risks for the Fed. Instead, both Shapiro and Bair envision a council of regulators that would work in concert with the central bank. Additionally, Bair recommended that, in order to ensure independence, the chairman of the council should be a presidential appointee subject to Senate confirmation.

On the Senate side, Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) are both giving voice to concerns about the enhanced role for the Fed. Shelby has been an outspoken critic of giving the Fed such authority from the start, but Dodd’s statements at a committee hearing yesterday that the “new authority could compromise the independence of the Fed when it provides monetary policy,” and that he “expect[s] changes to be made to this proposal," made it clear the Senate is heading in a direction different from the administration's.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

After nearly four months of delay, the Treasury on Wednesday launched the Legacy Securities program—a key component of the administration’s Public-Private Investment Program (PPIP) aimed at relieving financial institutions of illiquid assets that continue to hamper the flow of credit markets.

Scaling back the scope of the Legacy Securities program as originally envisioned in March, the Treasury, together with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, offered a framework that will provide government investments of up to $30 billion so that private sector fund managers and private investors might purchase legacy commercial mortgage-backed securities (MBS) and non-agency MBS off the balance sheets of banks and other financial institutions.

Selected from a pool of over 100 applicants, below is a list of the nine private fund managers pre-qualified by Treasury to participate in the initial round of the Legacy Securities program:

• AllianceBernstein, LP and its sub-advisors Greenfield Partners, LLC and Rialto Capital Management, LLC
• Angelo, Gordon & Co., L.P. and GE Capital Real Estate
• BlackRock, Inc.
• Invesco Ltd.
• Marathon Asset Management, L.P.
• Oaktree Capital Management, L.P.
• RLJ Western Asset Management, LP.
• The TCW Group, Inc.
• Wellington Management Company, LLP

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Demonstrating that Congress intends to put its own stamp on financial reform legislation, House Democrats on July 8 introduced their own scaled-back version of the new consumer protection agency proposed by President Obama. Coming on the heels of the president’s release of draft legislation to create a new independent regulator for financial products and services, House Democrats responded quickly on Wednesday by unveiling the Consumer Financial Protection Agency Act of 2009 (HR 3126).

The bill was introduced by House Financial Services Committee Chairman Barney Frank (D-MA). While it retains many of the key provisions outlined within the White House bill—including the transfer of consumer financial regulations to the CFPA in order for the new agency to write and enforce rules on financial products of both banks and non-banks—it is notable for several significant differences from the Obama proposal that may limit the CFPA’s jurisdiction.

In particular, the House bill preserves the current regulatory enforcement structure for the Community Reinvestment Act (CRA), which is overseen by the Office of the Comptroller of the Currency (OCC), the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS) in order to ensure that depository institutions are engaging in fair lending practices to low-income communities. Additionally, unlike the President’s bill, which assumes a merger with OTS and OCC to form a new prudential regulator titled the National Bank Supervisory (NBS), H.R. 3126 makes no mention of NBS. Frank’s press release goes on to state that the details of the President’s merger proposal will be considered “at [a] later date.”
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Treasury Department today released draft legislation outlining a central pillar of the Obama administration’s financial regulatory overhaul: the creation of the Consumer Financial Protection Agency (CFPA), an independent regulator with broad authority over “any financial product or service” used by consumers. Seeking to clarify the administration’s June 17th white paper on financial regulatory reform, the legislation provides lawmakers and industry leaders with the statutory details regarding the proposed CFPA.

According to the draft language, in order to continuously monitor consumer risks, the agency—composed of a five-member board led by a presidentially-appointed director subject to Senate confirmation—would collect information related to loans, products, and services from both banks and non-banks. Additionally, consumer financial regulations that are currently divided among several agencies—the Federal Reserve, FDIC, Office of Comptroller of the Currency, Office of Thrift Supervision, Federal Trade Commission, and National Credit Union Administration—will be consolidated within the CFPA. The legislation would have these regulators transfer functions, rules, and employees to the new CFPA within six to eighteen months following enactment. The agency must research, analyze, and report on consumer awareness and understanding of financial products, related disclosure statements, related risks and benefits, and consumer behavior related to such products. The agency would also collect and track consumer complaints and create a new, integrated disclosure form for mortgage transactions, unless the Department of Housing and Urban Development and the Fed can achieve the same goal prior to the transfer of such responsibilities to the CFPA. There are also provisions related to civil penalties and enforcement authority.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

Now that everyone has had a day or more to digest the Obama administration’s plan for Financial Regulatory Reform, suggestions, questions, and critiques are coming from all corners. Here is a sampling of the top issues under discussion.

Systemic Risk Regulator –

Sen. Mark Warner (D-VA), who sits on the Banking Committee, objects to the plan’s expansion of the Federal Reserve’s role in managing systemic risk, believing it would concentrate too much power in one entity. Warner instead proposes the establishment of a Systemic Risk Council comprised of the Treasury, the Fed, and the other financial regulators that would, together with a permanent council staff, be able to assess and minimize risks comprehensively across the financial landscape. The House Republicans also prefer the council approach, proposing their own version – the “Market Stability and Capital Adequacy Board”-- last week.

Tier I Financial Holding Companies --

What companies will be considered Tier I Financial Holding Companies and subject to new regulation by the Fed? The Fed and Treasury are to establish the criteria, but some companies that are not currently subject to federal regulation might include General Electric, Berkshire Hathaway, State Farm Insurance, or even WalMart. Those not used to federal regulation will be given five years to ease into the new regime – the non-financial activity restrictions in the Bank Holding Company Act.
 

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

President Obama is today releasing his plan for a new regulatory structure to mitigate risk in the financial marketplace. Please click here to see the proposal from the Administration. Financial Reform Watch will be posting analysis shortly.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Tired of being labeled as obstructionists, Republicans on the House Financial Services Committee on Thursday issued their plan for financial regulatory reform. Led by the committee’s Ranking Minority Member Spencer Bachus (R-AL) and TARP Congressional Oversight Committee member Jeb Hensarling (R-TX), the Republican solutions stem from three principles – prevent any future Wall Street bailouts; stop the government from picking winners and losers in the financial system; and restore market discipline.

While the Republican plan does not address every issue -- most notably missing is insurance regulation – those included represent a consensus view within their caucus. Bachus described their plan as a “line in the sand” from which Republicans can negotiate with the Democrats. Hensarling, who before coming to Congress served on the executive compensation committee of a company publicly traded on the New York Stock Exchange, was particularly critical of the latest push to regulate compensation. A better approach, Hensarling believes, is the creation of a new “Market Stability and Capital Adequacy Board,” which would be charged with flagging risky practices across the board. The Republicans offered as an example the practice of rewarding loan originators for loan volume with no regard to loan quality, saying that such a board would have been able to halt that.

The White House plans to release its comprehensive reform plan on June 17th. Will the Obama administration give a nod to bipartisanship by including a few elements of the Republican plan? Financial Reform Watch will compare and contrast the plans later this week.

Central Elements of the Republican Plan

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Occasionally, the FRW team ventures out to take the pulse of the country on key issues coming up. Based on several days talking to journalists, business leaders, and government officials in California, we bring to our readers words of caution: the fiscal meltdown in California holds no small dangers for the recovery.

When California voters on May 19th rejected the key elements of the budget deal which averted disaster earlier in the year, top officials in Sacramento were sent back to the drawing board for an approach that will stave off a budget gap of more than 15 percent. With observers of the legislature saying that tax cuts, program cuts, and layoffs are all non-starters, where lies the answer?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

At 5 p.m. Eastern Daylight Time today, the Federal Reserve and Treasury unveiled the official results of the Supervisory Capital Assessment Program (SCAP), revealing that ten of the 19 participating banks need to increase their capital buffers for a combined total of $74.6 billion. The SCAP conducted stress tests on the nation’s largest bank holding companies to predict “potential losses, the resources available to absorb losses, and the resulting capital buffer needed” based on various economic scenarios.

The banks needing to increase their capital buffers will have to work with their primary regulators, in consultation with the FDIC, to develop a capital plan sometime in the next 30 days (by June 8, 2009), and they will have six months to implement the plans (by November 9, 2009).

Each capital plan must contain the following three elements:

• A detailed description of specific actions the bank will take to increase capital in order to satisfy the capital buffer requirement. Treasury and the Fed encourage banks to raise new capital from private sources.
• A list of steps to address weaknesses in the bank’s internal processes for assessing capital needs and engaging in capital planning.
• An outline of steps the bank will take over time to repay government-provided capital.

As part of their 30 day review process, banks are also directed to evaluate their existing management and board of directors to make certain their leadership has the capability to “manage the risks presented by the current economic environment and maintain balance sheet capacity sufficient to continue prudent lending to meet the credit needs of the economy.”

The banks needing to increase their capital buffer (amounts in billions) are Bank of America ($33.9); Citi ($5.5); FifthThird ($1.1); GMAC ($11.5); KeyCorp ($1.8); Morgan Stanley ($1.8); PNC ($0.6); Regions ($2.5); SunTrust ($2.2); and Wells Fargo ($13.7). See the Fed report for more details.

Federal Reserve: Supervisory Capital Assessment Program - Overview of Results (PDF)

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Call it green shoots or mustard seeds or hope, but according to some of the nation's leading economic experts, the outlook for the American economy is improving. These experts are venturing the opinion that the economy has hit bottom and the recession is ending. Some of the evidence cited is the fall in unemployment claims from March to April; the first quarter increases in consumer spending and consumer prices; and the stabilization in sales of existing and new homes over the past couple of months. Even Federal Reserve Chairman Ben Bernanke sounded optimistic (for a Fed Chairman) about the recovery. During testimony before the Joint Economic Committee this morning, Bernanke said, “We continue to expect economic activity to bottom out, then to turn up later this year.” Although he qualified his statement as dependent on a restored and healthy financial system, that too could be interpreted as a positive sign since the Fed is supposed to go over stress test results with the affected banks today.

Bernanke did not comment on the test results, but media leaks suggest that ten of the 19 banks will need to find more capital. The results are not supposed to be publicly available until later this week, but markets rallied somewhat yesterday based on White House spokesman Robert Gibbs’ comments that the administration does not anticipate needing more financial bailout money from Congress and suggesting the banks will be able to raise private capital.

Since unemployment is a lagging indicator, most experts predict it will be a few months before people feel the effects of an economic upturn. If the economy is pronounced in recovery by the fall, it will be far enough into his presidency that President Obama will likely receive appreciable credit . The potential return to better times could add momentum to a major administration priority: health care reform. Despite the White House Chief of Staff’s strategy of capitalizing on a crisis, we suspect the White House will find it is much easier to score congressional victories when there is hope on the horizon rather than fear.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Federal Reserve announced this afternoon that starting in June, commercial mortgage backed securities (CMBS) would be eligible assets for the Term Asset Backed Securities Loan Facility (TALF). The Fed is also expanding the term on some CMBS TALF loans to five years, up from three year terms for other assets. The Federal Reserve Bank of New York plans to set up a separate TALF subscription cycle for CMBS, which will occur later each month than the regular TALF cycle. The longer-term CMBS loans will also have larger haircuts.

Term Asset-Backed Securities Loan Facility (CMBS): Terms and Conditions

• Email This
• Print
• Comments
• Trackbacks
• Share Link

This afternoon, the Federal Reserve released its white paper explaining the “design and implementation” of the Supervisory Capital Assessment Program (SCAP), more popularly known as the stress tests applied to the nation’s largest banks. The Fed said most banks have capital “well in excess of the amounts required to be well capitalized.” That said, it found that the nation’s 19 largest banks, including the banks they acquired, have together lost approximately $400 billion in the six quarters leading up to the end of 2008.

The SCAP required the banks to submit data and projections to their financial regulators in early March. The bank supervising agencies assigned over 150 of their supervisors, examiners, analysts, and economists working in teams to “conduct a comprehensive and consistent assessment simultaneously across the 19 largest BHCs [bank holding companies] using a common set of macroeconomic scenarios, and a common forward-looking conceptual framework.”

The goal of the SCAP is to determine how much capital these systemically significant banks should hold in order to “absorb losses should the economic downturn be longer and deeper than now expected.” Firms that will be required to “augment” their capital to create a buffer, will have the options of tapping the Treasury’s Capital Assistance Program; applying “to Treasury to exchange their existing Capital Purchase Program Preferred stock to help meet their buffer requirement;” and/or raising private capital. The Fed stressed that SCAP results requiring a bank to build a buffer should not be viewed as “a measure of the current solvency or viability of the firm.”

The SCAP results will not be made public until May 4th.

Federal Reserve: The Supervisory Capital Assessment Program - Design and Implementation (PDF)

• Email This
• Print
• Comments
• Trackbacks
• Share Link

At last Treasury has come forward with its Public Private Investment Program for dealing with toxic assets, only now that there is a plan, the proper term is “troubled legacy assets.” Stocks have rallied since Treasury announced the plan this morning, and legislators on Capitol Hill have halted their rush to claw back the AIG bonus money, some say partly in order to study the new plan. The Treasury Secretary is scheduled to testify before the House Financial Services Committee on Thursday. Will the positive momentum continue up to and following his hearing performance? Secretary Geithner has a lot riding on this week.

The plan, which will use $100 billion of TARP funds, has two parts intended to revive the anemic financial system—the Public Private Investment Fund (PPIF) for Legacy Loans and the PPIF for Legacy Securities. Both are aimed at residential and commercial real estate-related assets. Banks tend to hold the assets as loans and entities such as insurers, pension funds, mutual funds and individual retirement accounts tend to hold the assets as securities backed by loans. The Federal Deposit Insurance Corporation with Treasury will work to create PPIFs that will purchase “loans and other asset pools” from participating banks, and the FDIC will determine eligibility criteria. The FDIC will also be using contractors to help it analyze loan pools and determine the level of debt to be issued by the PPIFs (with leverage not exceeding a 6 to 1 debt-to-equity ratio). The FDIC will then auction off each loan pool to the highest bidder. Treasury will provide 50 percent of equity financing and the private sector auction winner will provide the other 50 percent. The private sector winner can obtain financing by issuing new debt, which the FDIC will guarantee, that is collateralized by the purchase.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

The Obama Administration has stepped up its preparation for the G20 summit next week by moving on two fronts—a plan to purchase toxic assets from banks and a new regulatory regime for financial products and companies. Taken together, these emerging plans appear designed to allow President Obama to come to London saying the U.S. has addressed the three major pillars of a recovery program—stimulus, bank rescue and regulatory reform .

Today's announcement by Treasury Secretary Geithner of the plan for toxic assets follows the broad outline he announced to poor reviews last month. The stock market's swoon after the previous Geithner announcement was blamed on the lack of detail he offered. Today, Geithner described how a program of up to $1 trillion to relieve banks of bad assets will be managed. Based on a public/private partnership concept, the Geithner plan allows for the participation of hedge funds and private equity funds as managers of portfolios of assets. Those managers will have the opportunity to make significant profits if they are successful in selling those assets back into a healthier market in the future. The government will also share in those profits. The reaction of the media and Congress to this plan bears watching. They will focus immediately on the issue of executive compensation for managers participating in the program and on the issue of allowing the very kind of firms that helped create the mess to make a profit on cleaning it up. Careful selection of managers will be crucial.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Some surprises were included in today's announcement by the Federal Reserve and the Treasury on new developments with the soon-to-be $1 trillion Term Asset-Backed Securities Loan Facility (TALF). Of particular note is the statement that the two agencies will push for legislation to re-tool the program.

According to the joint release, the TALF is “designed to catalyze the securitization markets by providing financing to investors to support the purchase of certain AAA-rated asset-backed securities” and will at first be limited to newly and recently originated auto, credit card, student, and SBA-guaranteed small business loans. The TALF funds will go out monthly starting in March, and they are already anticipating a program expansion for April that will include “asset backed securities (ABS) backed by rental, commercial, and government vehicle fleet leases and ABS backed by small ticket equipment, heavy equipment, and agricultural equipment.” The Treasury and the Fed are also analyzing how to expand the program in future months to include commercial mortgage backed securities and other AAA-rated, newly issued ABS.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

It appears the Federal Reserve will announce this week a substantial round of investments through the Term Asset Backed Securities Loan Facility (TALF) program in securitized credit card, auto loan, student loan, and other consumer debt. These investments will be from the initial TALF program allocation of $200 billion. The Fed is now turning its attention to the commercial real estate sector and they appear to recognize this is the next "shoe about to drop" as mortgage holders are unable to refinance in today's marketplace. We anticipate the next round of TALF investments—made available by increasing the facility up to $1 trillion—will include a focus on the commercial sector.

In addition to its efforts on asset-backed loans, the Fed is also working, in concert with Treasury, to reassure dubious investors and potential investors in the banking sector that no institutions are going to fail and that nationalization of banks is not on the agenda. Reports in today's media that the government is contemplating taking up to a 40 percent stake in Citicorp may not allay these concerns however.

Another development of interest over the weekend was the assessment of the economy that emerged from the nation's governors after they met separately in Washington on Saturday with Federal Reserve Chairman Ben Bernanke and with Mark Zandi of Moody'sEconomy.com. In the hallways of the National Governors Association conference and in pages of newspapers like the New York Times, one could see that the combined effect of the two briefings to the Governors was to intensify their sense that recovery will be a very slow process. The Times article appearing in the paper on Sunday, cited pessimistic assessments from Democratic and Republican governors alike. Public pronouncements by both the Fed and Zandi have been diverging in recent weeks, with the Fed indicating the economy will begin to turn around in the second half of 2009 and with Zandi saying that is not likely until late in 2010. One can infer from the articles that followed the meetings that the Governors gave somewhat more weight to the Zandi assessment.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Today's actions by the Federal Open Markets Committee may have a salutary effect on the credit market. But they do point out that the limits of the benefits of monetary policy are being severely tested in the current crisis. The committee took three major action's today, it:

• dropped the federal funds target rate to a range of zero to 25 basis points;
• announced it is committed to keeping interest rates low "for some time"; and
• announced plans to purchase longer-term Treasury bonds.

In announcing the actions the Fed stated it was using all the tools at its disposal to "support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level."

When interest rates are effectively set at zero, there is little room left to maneuver for the Fed, at least in that area. The Fed continues to add currency to the money supply and appears ready to purchase federal debt over a sustained period. The fact that all these actions are being taken and the economy continues a downward slide would appear to leave the way open for further efforts of a fiscal nature to achieve recovery and restore the credit markets.

New economics text books are being written as we write.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Federal Reserve announced two new programs today, committing an additional $800 billion in order to spur lending. U.S. Treasury Secretary Hank Paulson also announced that $20 billion from the Troubled Asset Relief Program (TARP) would be used to support one of the programs. The first, worth $600 billion, is aimed at helping the housing market; and the second Fed program, worth $200 billion, is directed at thawing the frozen consumer credit markets.

The Fed announced this morning that it will "initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)—Fannie Mae, Freddie Mac, and the Federal Home Loan Banks—and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae." The Fed will work with "primary dealers through a series of competitive auctions" for purchases of up to $100 billion in "GSE direct obligations" beginning next week. For purchases of up to $500 billion in MBS, the Fed will select asset-managers through a competitive process and plans to start these purchases before the end of the year. The Fed said in a release that it will provide operational details after "consultation with market participants," and added that "Purchases of both direct obligations and MBS are expected to take place over several quarters."

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Most people in Washington are carefully tracking political polls today, trying to predict the fates of their presidential and congressional candidates. However, there are others both inside and outside of Washington studying another survey released this afternoon—the Federal Reserve’s quarterly Senior Loan Officer Survey.

The October 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices confirms what many have suspected—credit markets are still struggling. Conducted October 2-16, the survey gathered responses from 55 domestic banks and 21 U.S. branches of foreign banks. The survey focuses on two areas:

1. changes in the amounts of commercial and industrial (C&I) loans and
2. changes in credit limits on existing credit card accounts for prime and non-prime borrowers.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Many unresolved issues continue to surround the financial relief program as evidenced by a flurry of diverse actions today. The nation’s banking regulators—the Federal Reserve, the Federal Deposit Insurance Agency, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision—issued a joint release about tax relief for banking organizations that have suffered losses on their Fannie Mae and Freddie Mac holdings. The regulators will allow banking organizations “to recognize the effect of the tax change enacted in Section 301 of the Emergency Economic Stabilization Act of 2008 (EESA) in their third quarter 2008 regulatory capital calculations.” Without today’s decision, banking institutions would not have seen any tax benefit until the fourth quarter of 2008.

Also today, leaders of the Independent Community Bankers Association (ICBA) met with President Bush and Secretary Paulson to discuss the Treasury’s capital purchase program. The FDIC will be the main overseer of that program; however, institutions’ primary regulators (e.g., OCC or OTS) will assist the FDIC. The Treasury has released some details of the program, but according to an ICBA press release, more details are needed. Association leaders urged Treasury to provide “details on how mutual, Subchapter S corporation, privately held and non-publicly traded community banks can participate.”

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Treasury Department officials confirmed overnight their plan to allocate the first $250 billion of the $700 billion financial rescue package not for the purchase of troubled assets, as originally contemplated, but to inject capital into nine of the nation's largest banks in exchange for preferred shares. Calling it the TARP Capital Purchase Program, President Bush is expected to certify today that the next $100 million of the plan is required for release per the provisions of the Emergency Economic Stabilization Act of 2008.

Here is how the funds will be distributed:

Citigroup $25 billion
JP Morgan Chase $25 billion
Bank of America $25 billion (including $5 billion for its Merrill Lynch acquisition)
Wells Fargo $25 billion (including $5 billion for its Wachovia acquisition)
Goldman Sachs $10 billion
Morgan Stanley $10 billion
Bank of New York $2-3 billion
Mellon Bank $2-3 billion
State Street Bank $2-3 billion
TOTAL $126 - 129 billion.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

World stock markets responded well this morning to the emerging consensus among European and U.S. officials to focus on capitalizing banks with government funds in exchange for an ownership stake in them. Wednesday's announcement from U.K. Prime Minister Gordon Brown that he plans to inject capital directly into banks and to guarantee interbank lending accelerated momentum for similar moves by the United States and European central bankers. Meetings on Friday and over the weekend among the G7 finance ministers and at the International Monetary Fund in Washington helped to bring these key players into alignment.

Meanwhile, the Treasury Department took further steps to implement the Troubled Asset Relief Program (TARP). In a speech this morning before the Institute of International Bankers, acting assistant secretary of the Office of Financial Stability (OFS) Neel Kashkari outlined progress and the seven internal policy teams established to execute the TARP: 

1. Mortgage-backed Securities Purchase Program—will examine which assets to purchase, from whom, and how
2. Whole Loan Purchase Program—will work with bank regulators to determine which loans to purchase first, how to value them, and how to purchase them
3. Insurance Program—on Friday, Treasury solicited public comments on how to insure troubled assets; comments are due within 14 days, at which point OFS will develop the program
4. Equity Purchase Program—will establish a standardized program to buy equity in a broad array of financial institutions; program will be voluntary with attractive terms so healthy institutions will participate and also raise private capital to complement public capital
5. Homeownership Preservation—will work with the Department of Housing and Urban Development to help homeowners when the Treasury purchases mortgages and mortgage-backed securities
6. Executive Compensation Program—will define firms’ participation requirements for three scenarios: auction purchase of troubled assets, broad equity or direct purchase program, and an intervention to prevent the failure of a systemically significant firm
7. Compliance Program—will set up the Oversight Board, the on-site participation of the General Accounting Office, the selection of a special inspector general, and all the reporting mechanisms

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

While congressional leaders and the Administration continue to make progress in developing a compromise $700 billion package to shore up the financial markets, this morning’s news is that skeptics in both parties are making their voices heard very strongly. This skepticism is not likely to derail the plan altogether, but it may slow its path to enactment.

Events in public and in private this morning have brought out the opponents of Secretary Paulson’s plan. A public hearing at the Senate Banking Committee began at 10 a.m. this morning and continues as this is written. At the hearing, Fed Chairman Ben Bernanke emphasized the importance of quick action on the plan. He said financial institutions continue to be at risk and the pending plan will be important to staving off further failures. Secretary Paulson pressed again for a “clean” piece of legislation (meaning with minimal add-ons) but also telegraphed some flexibility on issues like oversight and mortgage assistance for homeowners. Members of the committee from both sides of the aisle hit the Administration hard for pushing a plan that appears to be a “blank check” for the Treasury Secretary.

• Email This
• Print
• Comments
• Trackbacks
• Share Link