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.
With the clock ticking on a self-imposed deadline for the completion of House and Senate conference negotiations, House Financial Services Chairman Barney Frank (D-MA) did his best impersonation of (soccer star) Landon Donovan early Friday morning, clearing a conference report that will bring Congress one step closer to passing the most sweeping financial regulatory reform legislation in nearly a century.
Capping off two weeks of publicly-televised conference committee negotiations that included a nearly 24-hour marathon session on the final day, House conferees voted 20-11 and Senators voted 7-5 to approve the measure on party lines; and provided President Obama with a critical victory prior to this weekend’s G-20 Summit in Toronto.
Below are the key issues that were resolved in conference committee on Thursday:
Derivatives
A broad array of industries, both inside and outside the financial sector, anxiously awaited the conferees’ response to controversial Senate language authored by Sen. Blanche Lincoln (D-AR) that would require banks to spin-off or “wall off” their swaps operations. After many weeks of behind-the-scenes negotiations -- including a contentious session yesterday in which House Democrats threatened to pull their support for the overall bill if the Lincoln language was included -- conferees ultimately agreed to a watered-down version that allows banks to continue trading with certain derivatives that are deemed less risky. Under the proposal offered by House Agriculture Committee Chairman Collin C. Peterson (D-MN), derivatives tied to interest rate swaps, foreign exchange swaps, gold and silver, and investment-grade credit default swaps will be exempted from the prohibition, while derivative trading related to agriculture, commodities, energy, equities, metals, and below-investment-grade credit default swaps must be walled off from a bank’s federally insured deposits.
Volcker Rule
Aside from the derivatives title, the debate surrounding the “Volcker Rule” -- or the proposed ban on proprietary trading for banks and bank holding companies -- proved to be the most contentious item on the conferees’ agenda in the final week. In the end, negotiators agreed to strengthen the Volcker Rule provisions by incorporating language offered by Senators Carl Levin (D-MI) and Jeff Merkley (D-OR) that would strip the ability of regulators to halt the Volcker Rule‘s implementation. However, in deference to the wishes of Sen. Scott Brown (R-MA)—who was one of only four Republicans to vote for the financial reform bill in the Senate— the final language would allow banks to engage in proprietary trading activities with up to three percent of their tangible common equity.
Banking Capital Standards
Another major agreement involved language authored by Sen. Susan Collins (R-ME) that would limit the ability of banks to use commonly held securities known as “trust-preferred” to meet capital requirements. Although House Democrats sought a 10-year phase-in for financial institutions with assets between $15 billion and $100 billion, negotiators agreed to a five-year phase-in period for $15-$100 billion institutions and a full exemption for those with less than $15 billion.
Corporate Governance
Conferees decided to retain a Senate provision that requires publicly-trade companies to grant certain shareholders -- those owning five percent of the outstanding shares for at least two years -- to nominate and elect members of the board of directors through a proxy vote.
Levy on Banks and Hedge Funds
In order to defray the legislation’s projected $22 billion cost -- as estimated by the Congressional Budget Office -- conferees approved last-minute language that would allow the Federal Deposit Insurance Corporation (FDIC) to levy fees on financial institutions with assets of $50 billion or more and hedge funds with managed assets of over $10 billion.
The House and Senate are expected to vote on the final conference report next week -- which is not subject to further amendment -- before sending it on to the White House for President Obama's signature and enactment into law .
The House Leaders just released their lists of conferees who will work on reconciling the House and Senate financial regulatory reform bills. See below for the complete list.
Democratic Conferees Appointed by Speaker Pelosi (CA) --
Committee on Financial Services
Barney Frank (MA), Chair, full committee
Paul Kanjorski (PA), Chair, Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises
Maxine Waters (CA), Chair, Subcommittee on Housing and Community Opportunity
Carolyn Maloney (NY), Member of Committee
Luis Gutierrez (IL), Chair, Subcommittee on Financial Institutions and Consumer Credit
Mel Watt (NC), Chair, Subcommittee on Domestic Monetary Policy and Technology
Gregory Meeks (NY), Chair, Subcommittee on International Monetary Policy and Trade
Dennis Moore (KS), Chair, Subcommittee on Oversight and Investigations
Mary Jo Kilroy (OH), Member of Committee
Gary Peters (MI), Member of Committee
Democratic Conferees on specific portions of the legislation on which their committees have jurisdiction:
Committee on Agriculture
Collin Peterson (MN), Chair, full committee
Leonard Boswell (IA), Chair, Subcommittee on General Farm Commodities and Risk Management
Committee on Energy and Commerce
Henry Waxman (CA), Chair, full committee
Bobby Rush (IL), Chair, Subcommittee on Commerce, Trade, and Consumer Protection
Committee on the Judiciary
John Conyers (MI), Chair, full committee
Howard Berman (CA), Member of Committee
Committee on Oversight and Government Reform
Edolphus Towns (NY), Chair, full committee
Elijah Cummings (MD), Member of Committee
Committee on Small Business
Nydia Velazquez (NY), Chair, full committee
Heath Shuler (NC), Chair, Subcommittee on Rural Development, Entrepreneurship and Trade
Republican Conferees Appointed by Minority Leader John Boehner (OH) --
Spencer Bachus (AL), ranking member on the House Financial Services Committee
Joe Barton (TX), ranking member of the House Energy and Commerce Committee
Sam Graves (MO), ranking member of the House Small Business Committee
Darrell Issa (CA), ranking member of the House Oversight and Government Reform Committee
Frank Lucas (OK), ranking member of the House Agriculture Committee
Lamar Smith (TX), ranking member of the House Judiciary Committee
Ed Royce (CA), member of the House Financial Services Committee
Judy Biggert (IL), member of the House Financial Services Committee
Shelley Moore Capito (WV), member of the House Financial Services Committee
Jeb Hensarling (TX), member of the House Financial Services Committee
Scott Garrett (NJ), member of the House Financial Services Committee
The stalemate is over, and the Senate will begin voting on on amendments to the Restoring American Financial Stability Act of 2010 (S. 3217) this afternoon. As of noon today, there were nearly 100 amendments filed and that number is expected to increase. It is unclear yet which amendments will require 60 votes to pass -- since the possibility of a filibuster constantly looms in the Senate -- but Senate Banking Committee Chairman Chris Dodd (D-CT) cleared six amendments for consideration this afternoon.
The breakthrough occurred earlier today, when Sen. Dodd announced that he and Ranking Member Richard Shelby (R-AL) reached a formal agreement on modifications aimed at ending "Too Big To Fail" – an issue on which Republicans have focused their opposition. GOP Senators have repeatedly argued that the proposed $50 billion "Orderly Liquidation Fund" to help finance the resolution of failing financial institutions would only serve to perpetuate taxpayer-funded bailouts.
According to Dodd, the latest agreement would remove the $50 billion fund and would instead require both creditors and the financial industry to reimburse the government, but only after an FDIC-led resolution occurs. In addition, the agreement includes 1. A "clawback" provision that requires creditors to pay back amounts received under an orderly resolution that exceed the amount the creditors would have received through liquidation or bankruptcy; 2. An authorization for federal regulators to break up institutions that pose a "grave threat to the financial stability of the United States"; and 3. Further limitations on the Federal Reserve’s ability to invoke its emergency 13(3) authority, which allows any individual, partnership or corporation in "unusual and exigent circumstances" to access the Fed's discount window.
Along with the Dodd-Shelby amendment and a Republican proposal that is expected to deal with consumer protection, the Senate will also consider the following amendments this afternoon:
With "Too Big to Fail" apparently resolved, the only other speed bumps ahead are derivatives and the consumer financial protection regulator -- both complex and controversial. Financial reform is expected to continue dominating Senate floor time for the remainder of this week, all of next week, and into most of the following week.
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."
Treasury Secretary Timothy Geithner notified Congress today that the $700 billion Troubled Asset Relief Program (TARP) would be extended until October 3, 2010 – a move that, although expected, adds fuel to an ongoing debate on Capitol Hill whether to wind down the politically unpopular program or utilize its excess funds for broader economic recovery efforts.
In a letter sent to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, Geithner sought to quell political concerns by outlining a TARP “exit strategy” and narrowing the program’s focus to three specific areas in 2010: home foreclosure mitigation; small-business lending; and the Term Asset-Backed Securities Loan Facility (TALF) in order to facilitate lending through securitization markets. According to Geithner, no TARP funds will be spent beyond these specific areas “unless necessary to respond to an immediate and substantial threat to the economy.” In addition, the Capital Purchase Program – aimed at boosting bank lending through nearly $250 billion in direct capital injections – will cease.
Key to the administration’s TARP extension is the assumption that only $550 billion of the $700 billion program will be necessary for deployment, a figure buoyed by Treasury estimates that TARP-recipient banks could repay as much as $175 billion by the end of 2010. Sanguine figures such as these have opened the floodgates to recent congressional proposals that would use TARP proceeds to create or expand economic recovery initiatives -- including a job-creation proposal outlined yesterday by President Obama – and, at the same time, remain budget-neutral.
Continue Reading...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.
House Financial Services Committee Chairman Barney Frank (D-MA) changed the game yesterday with his announcement that the House would tackle financial reform by considering a series of smaller, targeted bills rather than a more comprehensive reform bill. Frank said he anticipates his committee will move four to six separate bills between July and the end of the year. First out of the gate will be legislation to create a new "Consumer Financial Protection Agency" proposed by the Obama administration.
With Frank’s Senate counterpart, Banking Committee Chairman Chris Dodd (D-CT), fully occupied managing health care legislation, the timeline continues to slip in the upper chamber. Frank remains committed, however, to working the major issues through his committee this summer, and has already scheduled thirteen hearings and markups for July.
There is little doubt Congress will impose new consumer protections on the financial service industry. Whether it will create a new agency to police them remains to be seen. Given budget concerns and other competing priorities, Congress may ultimately determine to enhance the consumer protection requirements, including simplified disclosure, within the existing regulatory framework of the SEC, FDIC, Federal Reserve, and the potentially combined Offices of the Comptroller of the Currency and Thrift Supervision.
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.
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.
Continue Reading...
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.
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.
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:
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)
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.
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)
On both sides of the Atlantic, the looming deadline for the G20 Summit in London on 2 April is driving policymakers to come up with recommendations for global financial reform. The presentation of the de Larosiere “high level group,” which the EU commissioned and is headed by former French central banker Jacques de Larosiere, is now only a couple of days away from presenting its proposals for financial reform legislation. Expectations are that the proposals will be far-reaching. Observers regard the G20 meeting in Berlin over the weekend as part of the build-up of support for the proposals that many still may regard as controversial. The EU’s objective remains to create support for the proposals ahead of the G20 meeting.
At the meeting in Berlin, participants focused on the importance of transparency and accountability on the part of all financial market participants by affirming their conviction that all financial markets, products, and participants must be subject to appropriate oversight or regulation, without exception and regardless of their country of domicile. They agreed this is especially true for those private pools of capital, including hedge funds, that may present a systemic risk. The meeting therefore called for appropriate oversight or regulation of these sectors in order to prevent excessive risk-taking and also agreed that credit rating agencies should be subject to mandatory registration and oversight.
Continue Reading...Who appointed the G7 (+1) to its perch? The finance ministers for the main protagonists in World War II (1939-1945) met in Rome over the weekend to discuss the world economic crisis. Does a meeting of this nature that excludes India and China truly have a hope of wrapping its collective mind around the problems and their possible solutions?
Is ideology standing in the way of the most elegant solution to the U.S. banking crisis? Give former President George W. Bush his due: when the dimensions of the banking crisis became apparent to him, he scrapped a "market guy" ideology and poured taxpayer money into the banks. Is the Obama Administration willing to take what for them would be a similar ideological leap? Is their unwillingness to do so behind the complex public-private partnership at the center of the Geithner proposal to deal with troubled assets? Is there a similar reason behind the relatively light-handed approach Geithner would take to pushing the banks to resume lending?
Continue Reading...If the World Economic Forum in Davos was supposed to be an indicator of the progress that politicians, regulators, and corporations can make in coalescing around a common, global, and coherent response to the crisis, then observers may be forgiven for being low on optimism at present.
The annual Davos events have become perhaps the most important gathering of world leaders and decision-makers that take place outside the sphere of traditional diplomacy and international organizations. Non-private gatherings, like the G20, normally lend themselves to more carefully coordinated and rehearsed declarations and conclusions for the governments involved. The Washington G20 meeting in November was widely regarded as a success in terms of the involved governments being able to agree on a common roadmap to address the financial crisis and also managing to communicate their agreement successfully. The value of such displays of unity cannot be underestimated when the deterioration in the economy continues to accelerate.
Davos, on the other hand, created an impression that the weakening economic outlook is putting a strain on states’ commitment to the Washington accords, putting in doubt the viability of the whole process. It will therefore be important for leaders to carefully manage the road to the G20 summit in London on 3 April, at which a large number of concrete and global measures normally should be adopted to tackle the crisis.
Continue Reading...The G20 summit on November 15 produced some worthwhile results and set the table for ongoing work in a number of areas.
Perhaps the most interesting outcomes were two that do not necessarily bear directly on the financial crisis, but which speak to underlying issues that need to be addressed going forward. First, to address mounting fears that protectionism may start to creep in to the policies of some countries, the G20 agreed that none of its members would take protectionist steps in the next 12 months. Second, the summiteers agreed to look for ways to re-capitalize the International Monetary Fund (IMF) and to give developing countries more of a role in its governance, thereby reducing the role of Europe.
The leaders agreed that transparency in the markets is important and that monetary and fiscal policy should be used "as appropriate" to stimulate economies while the governments continue to work on re-establishing financial stability.
Continue Reading...Events of yesterday continued to demonstrate how major elements of the current financial crisis are interrelated. First, with the world waiting to see how a new administration in Washington will approach the financial crisis, President Bush's announcement of a November 15 summit of international leaders puts the discussion of a new regulatory regime for the financial sector squarely in the middle of the U.S. presidential transition. While both Sens. John McCain and Barack Obama praised the summit, it will present the winner of the November 4 election with an interesting quandary—how to participate in and/or react to the event. It may also force the hand of the President-Elect to name his economic team before the summit takes place. Doing so will allow the administration-in-waiting to have a more organized response to the events of the summit.
Second, the impacts of the financial crisis on the U.S. auto industry may be putting additional pressure on the $700 billion rescue package enacted on October 3. As potential car buyers continue to face a credit crunch, bipartisan leaders of the Michigan congressional delegation yesterday urged the Treasury to make a portion of the funds available to back auto loans. The request came from House Energy and Commerce Committee Chair John Dingell (D-MI) and Rep. Fred Upton (R-MI). If Treasury takes up that suggestion, funds available to supply capital to community banks or purchased troubled mortgages would be reduced.
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