Financial Crisis News Center

COP Report: Asset Guarantees Had Calming Effect, But Other Concerns Remain

In its November 2009 monthly report, the Congressional Oversight Panel (COP) studied government-backed guarantees under the Troubled Asset Relief Program.  The COP stated in the report that the asset guarantees from the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation helped calm panic in financial markets, with minimal cost to taxpayers to date. The report raised concerns about moral hazard created by the guarantees and recommended greater disclosure by the Treasury Department with regard to government-guaranteed assets of Citigroup Inc. COP Chair Elizabeth Warren commented on these issues in an interview on CNBC.

Fed Governor Tarullo Addresses Conference on Executive Compensation

This story appeared in Bank Digest.

The Federal Reserve Board’s concern with compensation matters rests on its statutory responsibility to ensure the safety and soundness of the banking organizations it regulates, according to Fed Governor Daniel K. Tarullo in a speech at the University of Maryland’s Robert H. Smith School of Business Roundtable: Executive Compensation: Practices and Reforms, in Washington, D.C., on Nov. 2, 2009. Tarullo noted that the Fed’s recent proposed executive compensation guidance is based on three fundamental principles.

CIT Bankruptcy Highlights “Folly” of Making Fed Systemic Risk Regulator

This story appeared in Bank Digest.

Following the Chapter 11 bankruptcy filing by CIT Group, House Financial Service Committee Ranking Member Spencer Bachus, R-Ala., issued a statement highlighting “the folly of a legislative proposal that makes the Federal Reserve the unchallenged arbiter of systemic risk, capital adequacy, and financial stability.”

http://republicans.financialservices.house.gov/index.php?option=com_content&task=view&id=878&Itemid=43

ICE Trust Not Subject to Management Interlocks

This story appeared in Bank Digest.

The Federal Reserve Board has issued an interpretation determining that management interlocks between ICE US Trust LLC and unaffiliated depository organizations would not be prohibited by the Depository Institution Management Interlocks Act (12 U.S.C. 3201) or Regulation L (12 CFR 212).

Treasury Releases Asset Guarantee Program—Bank of America Termination Agreement

This story appeared in Bank Digest.

The Treasury Department has published a copy of the Asset Guarantee Program—Bank of America Termination Agreement, signed on Sept. 21, 2009. The Agreement, entered into between Bank of America, and the Treasury, the Federal Reserve Board, and the Federal Deposit Insurance Corp., provided protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other similar assets. The majority of these assets were assumed by Bank of America as a result of its acquisition of Merrill Lynch.

http://www.financialstability.gov/docs/AGP/BofA%20-%20Termination%20Agreement%20-%20executed.pdf

Fed Officials Discuss Responses to Financial Crisis

This story appeared in Bank Digest.

In Oct. 23, 2009, remarks before the Federal Reserve Bank of Boston 54th Economic Conference in Chatham, Mass., Fed Chairman Ben S. Bernanke discussed the Federal Reserve Board’s role regard regarding financial regulation and supervision following the financial crisis. Bernanke noted that “Although the crisis was an extraordinarily complex event with multiple causes, … all financial regulators, including of course the Federal Reserve, must take a hard look at the experience of the past two years, correct identified shortcomings, and improve future performance.” He added that regulators can do a great deal on their own to improve financial regulation and oversight, but Congress also must act since many of the weaknesses and gaps in the regulatory structure can only be addressed by statutory change.

http://www.federalreserve.gov/newsevents/speech/bernanke20091023a.htm

Bernanke Sees “Critical” Need for Congress to Close Regulatory Gaps

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Federal Reserve Board Chairman Ben Bernanke said it remains “critical” for Congress to close regulatory gaps and provide supervisors with additional tools for anticipating and managing systemic risks.

Speaking October 23 at a Federal Reserve Bank of Boston conference Bernanke said Congress must ensure that all systemically important firms, including those that do not own a bank, are subject to a robust regime for consolidated prudential supervision. Tougher capital, liquidity and risk-management requirements for such firms are also needed not only to protect the stability of the financial system, but to reduce their incentive to grow large in order to be perceived as too big to fail, Bernanke said.

Fed Proposes Executive Compensation Guidance

This story appeared in Bank Digest.

The Fed has issued proposed guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of their organizations. The proposal offers three principles, calling for incentive compensation not to encourage excessive risk-taking beyond the organization’s ability to effectively identify and manage risk, to be compatible with effective controls and risk management and to be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. The guidance would apply to senior executives and to others who could expose the firm to material amounts of risk. It discusses various ways that compensation plans can be made more sensitive to risk but does not provide specific caps or outlaw any specific practices.

Credit Card Acceleration Bill Passes House Panel

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Legislation that would bring forward the implementation date of credit card legislation to Dec. 1, 2009, from the original date of February 2010, cleared the House Financial Services Committee October 22. Proponents of the bill argue that some credit card companies have raised rates and fees in anticipation of the new rules.

H.R. 3639, the Expedited CARD Reform for Consumers Act of 2009, would maintain the original implementation date for issuers with fewer than 2 million cards in circulation, which accounts for about 10 percent of the market. The bill also would eliminate the accelerated date for gift card issuers.

Tarullo Discusses Systemic Risk

By Serena Lynn, Editor, the CCH Federal Banking Law Reporter and Bank Digest.

Fed Governor Daniel K. Tarullo, speaking at the Exchequer Club, in Washington, D.C., said “the reform process cannot be judged a success unless it substantially reduces systemic risk generally and, in particular, the too-big-to-fail problem.” Tarullo noted that, as shown by government intervention when Bear Stearns, AIG, Fannie Mae and Freddie Mac were failing and by the repercussions from the bankruptcy of Lehman Brothers, “the universe of financial firms that appeared too big to fail by 2008 included more than the insured depository institutions subject to prudential regulatory requirements.”