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 Nov. 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 Completes Consideration of Reform Proposals

This story appeared in Bank Digest.

The House Financial Services Committee has announced that it has finished its work on the bills that have been offered to reform the regulation of the financial services system. The nine bills approved by the committee have been packaged into a single bill, The Wall Street Reform and Consumer Protection Act (H.R. 4173), which is scheduled for House floor debate during the week of Dec. 7, 2009. Provisions of the bill include:

• a Consumer Financial Protection Agency;
• a systemic risk oversight council;
• the authority to dissolve large, failing financial institutions;
• restrictions on executive compensation;
• enhanced investor protections;
• regulation of derivatives;
• mortgage and predatory lending reforms;
• credit rating agency regulation;
• hedge fund and private equity regulation; and
• an Office of Insurance.

House Members React to Financial Stability Legislation Vote

This story appeared in Bank Digest.

Following a vote of 31 to 27 by the House Financial Services Committee in favor of a legislation that targets systemic risk by allowing a new council of regulators to break up large, failing financial firms that are considered a risk to the economy, the Ranking Member of Financial Services Committee, Rep. Spenser Bachus, R-Ala., expressed his opposition to H.R. 3996, the “Financial Stability Improvement Act of 2009.

In a statement, Bachus noted that “the Committee should be holding hearings at which central and regional bank officials explain to the American people exactly what went wrong, how they failed to see the coming crisis, and why taxpayers had to bail out the ‘too big to fail’ banks and institutions they were charged with regulating.”

Speaker of the House Nancy Pelosi, D-Calif., however, issued her support, opining that the legislation “brings accountability to Wall Street and big banks. When coupled with strong reforms to protect consumers and Main Street that the House will vote on next week, it will end the reckless practices that resulted in the worst financial crisis since the Great Depression.”

House Committee Passes Legislation Regulating Systemic Risk, Reforming Securitization, and Creating a Resolution Process for Failed Financial Firms

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

The House Financial Services Committee has passed legislation creating a systemic risk regulator, providing for a resolution authority to wind down large interconnected failed financial companies in an orderly manner, and reforming asset-backed securitization. The legislation also creates a 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, chaired by the Treasury Secretary, 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.

Treasury Department Issues Cumulative Dividends Report

This story appeared in Bank Digest.

The Treasury Department has released its Cumulative Dividends Report as of Oct. 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.

"Too Big to Fail" Amendment Passes in Financial Services Committee

This story appeared in Bank Digest.

The House Financial Services Committee, by a 38-29 vote, has passed an amendment to the Financial Stability Improvement Act that addresses the "too big to fail" issue. Offered by Paul E. Kanjorski, D-Pa., Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. Acccording to a committee statement, the amendment would empower federal regulators to "rein in and dismantle" financial firms that are so large, inter-connected, or risky that their collapse would put at risk the entire American economic system, even if those firms currently appear to be well-capitalized and healthy. The amendment transfers such mitigatory action from the Federal Reserve to the Financial Services Oversight Council and establishes objective standards for the Council to effectively evaluate companies to determine whether they are systemically risky.

Defeat of “Too Big to Fail” Amendment Puts Taxpayers at Risk

This story appeared in Bank Digest.

Following consideration of the Financial Stability Improvement Act of 2009 by the House Financial Services Committee, the committee's ranking member, Rep. Spencer Bachus, R-Ala., issued a statement regarding the defeat of an amendment offered by Reps. Lynn Jenkins, R-Kan. and Erik Paulsen, R-Minn. regarding the notion that no financial firm is “too big to fail.” The vote on the amendment was 27 to 40. Bachus noted that the defeated amendment would have brought “an end to the era of taxpayer bailouts by prohibiting federal agencies from using taxpayer funds to rescue financial institutions.” Bachus added “Adopting a no bailout message would incentivize creditors and counterparties to properly monitor their credit exposure, promoting greater market discipline.”

Too Big To Fail and Moral Hazard Highlighted in ABA Remarks

This story appeared in Bank Digest.

In remarks to the American Bar Association’s Banking Law Committee in Washington, D.C., Treasury Deputy Secretary Neal S. Wolin discussed the progress of regulatory reform. He noted that the legislation that has passed or that is under consideration in House Financial Services Committee and Senate Banking Committee reflects the core principles of the President’s proposals, but added “[t]here is, of course, still much work to be done.”

Too Big to Fail Discussed at International Banking Conference

This story appeared in Bank Digest.

"It's time we changed the rules of the game,” stated FDIC Chairman Sheila Bair in comments on strengthening the banking system before the Institute of International Bankers Conference in New York, N.Y., on Nov. 10, 2009. According to Bair, “It's time we closed the book on the doctrine of too big to fail. Only by instituting a credible resolution process and removing the existing incentives for size and complexity can we limit systemic risk, and the long-term competitive advantages and public subsidy it confers on the largest institutions.”

At the same conference, Federal Reserve Board Governor Daniel K Tarullo stated, “Resolution mechanisms must be understood not as silver bullets, but as critical pieces of a broader agenda directed at the too-big-to-fail problem.” According to Tarullo, “In light of what has happened over the past 18 months, it is imperative that governments convince markets that they can and will put large financial firms into a resolution process rather than bail out its creditors and shareholders...Measures such as strengthening capital standards and bringing all systemically important firms within the perimeter of regulation are other essential elements of that agenda.”

Dodd Banking Reform Package Would Create Single Federal Regulator and Supplementary Agencies

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

Senate Banking, Housing and Urban Affairs Committee chairman Chris Dodd, D-Conn., unveiled a seven-point discussion draft of financial regulation reform legislation that includes the creation of a single, accountable federal banking regulator, an independent consumer financial protection agency, an independent council of regulators to identify risk and an end to the notion that institutions are too-big-to-fail.

Speaking on Capitol Hill, Dodd said the proposal will create a new architecture to make institutions more transparent, responsible and accountable. “For decades Washington has failed to deliver the substantial reform we need. If we fail again at this hour our economy will be vulnerable to yet another crisis,” Dodd warned.