Financial Crisis News Center

Treasury Department Issues Cumulative Dividends Report

This story appeared in Bank Digest.

The Treasury Department has released its Cumulative Dividends Report as of Sept. 30, 2009. The report covers the dividends paid by financial institutions that have received assistance from the federal government pursuant to such programs as the Capital Purchase Program, Systemically Significant Failing Institution Program or Automotive Industry Financing Program.

House Committee, Treasury Propose Systemic Risk Bill

By Richard Roth, J.D., Editor, the CCH Federal Banking Law Reporter, CCH Bank Compliance Guide and Bank Digest.

The Treasury Department and the House Financial Services Committee leadership have jointly drafted a bill that is intended to address both systemic risk in the financial system and the problem of institutions that are seen as “too big to fail.” The proposal, designated as a “discussion draft,” is intended to create a way to monitor and reduce the threats posed by systemically risky firms and establish a process for resolving large, financially-troubled non-bank financial institutions in an orderly manner.

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.

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.”

Treasury Department Issues Cumulative Dividends Report

This story appeared in Bank Digest.

The Treasury Department has released its Cumulative Dividends Report as of Aug. 31, 2009. The report covers the dividends paid by financial institutions that have received assistance from the federal government pursuant to such programs as the Capital Purchase Program, Systemically Significant Failing Institution Program or Automotive Industry Financing Program.

EU Central Banker Details Key Elements for Successful Systemic Risk Regulation

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

With the US moving towards the creation of a systemic risk regulator, be it the Fed or a Council of Regulators, and the EU creating a Systemic Risk Board, a member of the executive board of the European Central Bank detailed the elements of successful systemic risk regulation. In remarks at the European Banking Center, Lorenzo Bini Smaghi said that the four components of a successful systemic risk regulator are: 1) creating a clear legislative framework to underpin the Board’s work; 2) preparing risk assessments and potential risk warnings based on pervasive analysis; 3) backing up risk warnings with granular information about hedge funds and other non-regulated entities; 4) translating risk warnings and related policy recommendations made by the systemic risk regulator into concrete action by regulators.

G-20 Calls for Broad Financial Regulatory Reform; Exec Comp Overhaul and Regulation of OTC Derivatives

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

In the final communiqué from their Pittsburgh summit, the G-20 leaders called for the sweeping reform of global financial regulation, including strengthening prudential oversight, improving risk management, enhancing transparency, promoting market integrity, establishing supervisory colleges, and reinforcing international cooperation. The G-20 endorsed tougher regulation of over-the-counter derivatives, securitization markets, credit rating agencies, and hedge funds. The G-20 also endorsed the institutional strengthening of the Financial Stability Board as it assumes its role of coordinating the international consistency of financial regulation. The G-20 said that the FSB’s ongoing efforts to monitor progress will be essential to the full and consistent implementation of needed reforms.

Volcker Warns That Too-Big-To-Fail Approach Will Continue Under Obama Plan

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

White House economic advisor and former Federal Reserve Board Chairman Paul Volcker warned that the administration’s financial reform proposals would result in a continuation of the too-big-to-fail policy, which could lead to even greater financial crises in future.

Appearing before the House Financial Services Committee on September 24, Volcker, who heads the Economic Recovery Advisory Board, told members that “the obvious danger is that with the passage of time, risk-taking will be encouraged and efforts at prudential restraint will be resisted. Ultimately, the possibility of further crises, even greater crises, will increase.”

Levitt, Volcker Stress Need for Resolution Authority for Large Financial Institutions; Basel Urges Cross-Border Framework

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

With the US contemplating legislation establishing the orderly resolution of cross-border financial institutions, and the issue of global coordination of national resolution regimes looming, former SEC Chair Arthur Levitt and former Fed Chair Paul Volcker told Congress that the creation of such a resolution authority is the key to eliminating the moral hazard of too big to fail. In testimony before the House Financial Services Committee, Mr. Levitt said that, in order to address the too big to fail challenge, Congress must provide a legislative process to manage the failure of systemically important financial institutions. The problem is not that financial institutions are too big, he reasoned, but that there is no uniform orderly process to let then fail without causing a market meltdown.

Obama Predicts Passage of Financial Regulatory Reform

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

In a speech at Federal Hall in New York City on the one-year anniversary of the collapse of Lehman Brothers, President Obama predicted that his administration’s efforts to overhaul financial regulation will pass Congress and become law. He also urged the financial industry not to shirk its obligation to the goal of a wider recovery and more stable system.

Obama reiterated the need to pass reform legislation this year. He called again for the creation of a Consumer Financial Protection Agency, and enhanced authority for the Federal Reserve as regulator of the largest, most interconnected firms. Other elements of Obama’s plan include a regulatory oversight council and ‘resolution authority’ to wind down firms once considered too-big-to-fail.