Financial Crisis News Center

House Legislation Hedging Exemption Subject to Floor Amendments

This story appeared in Jim Hamilton's World of Securities Regulation.

The House reform legislation would require over-the-counter derivatives trading to be conducted through clearinghouses, which are set up to police derivatives trading. Under HR 4173, if a clearing mandate applies to a swap or class of swaps, then the swap dealers and major swap participants not only have to clear such trades but also have to execute them on or through a futures or securities exchange or a swap execution facility. This provision provides greater price transparency and will narrow spreads, all to the benefit of the end user. For the end users, the bill provide an exemption from the clearing mandate and, consequently, from the execution mandate. The House defeated an amendment that would have imposed an execution mandate on end users.

Constitutionality of Plan to Re-Direct TARP Funds Challenged

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

House Committee on Oversight and Government Reform Republicans have sent a letter to President Barack Obama expressing concern over the Administration's intention to redirect taxpayer money from the Troubled Asset Relief Program (TARP) to pay for new programs. "We are deeply troubled by your willingness to ignore the clear intent of Congress, which enacted TARP as a temporary measure designed exclusively to stabilize the financial markets," Committee Republicans wrote. "Spending billions of dollars on additional wasteful attempts at creating jobs through government projects does not reflect TARP's original purpose and ignores the will of the people's representatives in Congress." The letter was signed by the Committee's Ranking Member Darrell Issa, R-Calif., and Reps. Dan Burton, R-Ind., Mark Souder, R-Ind., Brian Bilbray, R-Calif., Lynn Westmoreland, R-Ga., Jason Chaffetz, R-Utah, Blaine Luetkemeyer, R-Mo., Jeff Flake, R-Ariz., Jim Jordan, R-Ohio, and Mark Souder, R-Ind.

Lawmakers Seek Glass-Steagall Reinstatement

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

Lawmakers in the Senate and House of Representatives are seeking to reinstate the firewall between commercial and investment banking, which was removed in 1999 by the Gramm-Leach-Bliley Act.

Senators John McCain, R-Ariz., and Maria Cantwell, D-Wash., have joined forces to introduce legislation that would “return stability, security and confidence to commercial banking for the American public.” The senators stressed that banks need to be lending to small businesses and homeowners, not using deposits to fund risky investments on Wall Street.

CCH Briefing Paper Examines House Legislation

The CCH Editorial Staff of banking and securities law analysts has authored a detailed overview titled, "House Passes Wall Street Reform Act." From the introduction:

On December 11, 2009, the U.S. House of Representatives passed legislation to restructure the financial services regulatory system, the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173), by a vote of 223-202. As discussed below, the sweeping array of reforms includes the Financial Stability Improvement Act, which would create a systemic risk regulator, strengthen regulation of depository institutions and bank holding companies, improve the asset-backed securitization process, and provide for an enhanced dissolution authority. The legislation also would create a Consumer Financial Protection Agency, reform the over-the-counter derivatives market, subject hedge funds to stricter scrutiny, impose new corporate governance mandates, adopt heightened requirements for credit rating agencies and expand regulatory enforcement powers. Among other measures, the legislation features expansive consumer mortgage protections and creates a Federal Insurance Office.

Download the briefing paper

House Approves Regulatory Reform

This story appeared in Bank Digest.

By a vote of 223 to 202, the House of Representatives approved H.R. 4173, “The Wall Street Reform and Consumer Protection Act.” The Act contains a comprehensive set of reforms that will address the myriad causes—from predatory lending to unregulated derivatives—that led to financial crisis in the fall of 2008. Press ReleaseBill HighlightsBrochure on H.R. 4173.

Prior to the vote approving H.R. 4173, a House minority motion to recommit was defeated by a vote of 190-232. The motion to recommit would have amended H.R. 4173 to shut down the Troubled Asset Relief Program (TARP) and require that TARP funds be used to pay down the national debt. Following that vote, House Minority Leader John Boehner, R-Ohio, issued as statement noting that “Today, House Democrats voted to continue TARP and go right on spending taxpayer dollars with reckless abandon.” Boehner added, “The American people are sick and tired of these open-ended bailouts and all this wasteful spending. Taxpayer money paid back to the government should be used for debt reduction. Only Republicans are offering common-sense proposals to get government out of the bailout business and stop piling debt on our kids and grandkids.”

House Passes Historic Financial Overhaul Legislation

This story appeared in Jim Hamilton's World of Securities Regulation.

The House of Representatives passed historic legislation today overhauling the US financial regulatory system. The legislation creates a systemic risk regulator, the Federal Stability Oversight Council, whose members include the Fed, the SEC and the CFTC, to monitor the marketplace to identify potential threats to the stability of the financial system. 
 
The Council will be chaired by the Treasury Secretary. The Council will subject financial companies and financial activities posing a threat to financial stability to much stricter standards and regulation, including higher capital requirements, leverage limits, and limits on concentrations of risk. (Section 1106) The Senate draft legislation would establish an Agency for Financial Stability composed of the SEC, Fed and CFTC, with an independent Chair appointed by the President.

House Passes Financial Regulatory Reform Act - ABA Opposes CFPA

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

The House of Representatives, by a vote of 223 to 202, passed a broad financial regulatory reform package December 11 which includes the creation of a Consumer Financial Protection Agency (CFPA), while giving the government new powers over large financial institutions that pose a systemic risk to the economy.

House Speaker Nancy Pelosi, D-Calif., said the House bill “says to Wall Street very clearly, ‘the party is over’.”  Treasury Secretary Tim Geithner said the administration looks forward to working with Congress to strengthen key provisions of the bill as it moves toward final passage. Senate consideration of financial reform legislation is expected to extend into next year.

House Maneuvers Before Financial Regulatory Reform Passage

This story appeared in Bank Digest.

Prior to the House of Representative’s passage of H.R. 4173, the “Wall Street Reform and Consumer Protection Act of 2009” by a vote of 223 to 202, the House concentrated on a number of amendments to the bill and parliamentary maneuvers.

The over-the-counter derivatives provisions of H.R. 4173 were amended to establish a central clearing requirement for swaps transactions between dealers and large market participants that are accepted by a clearinghouse. The amendment exempts some risk-hedging activities of commercial end users such as airlines, manufacturers, and other small- to medium-sized businesses from the clearing requirement.

Boehner Calls for End to TARP

This story appeared in Bank Digest.

House Republican Leader John Boehner, R-Ohio, has called for the Troubled Asset Releif Program to be shut down by the end of 2009. “It's time to get the government out of the bailout business and stop the reckless spending here in Washington, and our plan will help accomplish that goal,” Boehner stated in response to Treasury Secretary Tim Geithner's announcement that he would extend the TARP program. On Dec. 7, 2009, Boehner joined Rep. Randy Neugebauer (R-Texas) and more than a hundred House Republicans in sending a letter to Treasury Secretary Timothy Geithner urging him to end TARP, as well as ensure all TARP repayments, dividends, and other income go toward debt reduction rather than more federal spending.

Matz Calls for Consumer-Focused Capital Reform

This story appeared in Bank Digest.

NCUA Chairman Debbie Matz has called for changes in the credit union capital regime that would enable credit unions to promote consumer savings while maintaining rigorous safety and soundness standards. In a Dec. 7, 2009, letter to House Financial Services Committee Chairman Barney Frank, D-Mass, Chairman Matz noted a trend in the credit union industry where well-capitalized credit unions were discouraging consumer deposits because of a potentially negative impact on established regulatory capital levels. “Some financially healthy, well-capitalized credit unions that offer desirable products and services are discouraged from marketing them too vigorously out of concern that attracting share deposits from new and existing members will inflate the credit union's asset base, thus diluting its net worth for purposes of prompt corrective action (“PCA”),” stated Matz. “Surely it was never the objective of PCA to discourage manageable asset growth by financially healthy credit unions in times of economic distress. To the extent PCA does so now, it does not contribute to the statutory objective of resolving problems in insured credit unions; it unintentionally creates a problem for them, which redounds to the detriment of consumers.”