E-alerts & Newsletter
Stay updated with periodic communications from the Pew Financial Reform Project.
Have You Heard?
“(E)ven if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.”
Source: Special Inspector General, TARP
Pew's FRP News Brief
June 25, 2010
Pew's FRP News Brief
"All Americans have a stake in this bill...It will offer families the protections they deserve, help safeguard their financial security and give the businesses of America access to the credit they need to expand and innovate."
Congress Reaches Deal on Financial Bill
Major news organizations reported early Friday morning that Congressional negotiators have reached a compromise deal on sweeping financial reforms. The final compromise was reached at 5:39am Friday. According to the New York Times, House conferees voted 20 to 11 to approve the bill; the Senate conferees voted 7 to 5 to approve. Click to view coverage from The Wall Street Journal, Bloomberg and The Washington Post.
Lincoln strikes deal on derivatives
Meredith Shiner and Carrie Budoff Brown of Politico report that lawmakers closed in on a final Wall Street reform bill early this morning after Sen. Blanche Lincoln (D-AR) agreed to a compromise with moderate House Democrats on her derivatives regulation bill - clearing the way for the broadest rewrite of the nation's financial regulations since the Great Depression. The final piece of the deal fell into place around 3:30 a.m., as Lincoln agreed to limit the reach of new derivatives rules to only the riskiest investments.
Additionally, the Financial Times reports that the Commodity Futures Trading Commission will emerge from the financial reform bill with a large new remit, authorized to look beyond futures exchanges to the $615 trillion privately traded over-the-counter derivatives markets.
Senate urges tougher Volcker rule, with exception
Kevin Drawbaugh and Andy Sullivan of Reuters report that banks would face stricter limits on risky trading and investing, but could make small investments in private equity and hedge funds under a modified "Volcker rule" backed by senators on Thursday. In a victory for banks that had lobbied for a loophole on small fund investments, Senate Banking Committee Chairman Chris Dodd (D-CT) proposed that up to 3 percent of a bank's Tier 1 capital could be invested in such funds, and that a bank's investment in any one fund could not exceed 3 percent of the fund's total ownership interest.
Frank: $19 billion fee on large financial firms
Michael Crittenden writes in the Wall Street Journal's Washington Wire blog that lawmakers plan to collect roughly $19 billion from the nation's largest financial institutions to pay for the cost of financial overhaul legislation, House Financial Services Committee Chairman Barney Frank (D-MA) said Thursday evening.
Senators reject proposal for banks to bail out Fannie, Freddie
Bloomberg reports that Senate negotiators rejected a proposal from House Republicans on Thursday that would make big banks liable for the costs of winding down Fannie Mae and Freddie Mac.
June 24, 2010
Pew's FRP News Brief
"This is going to be a very strong bill, and stronger than almost everybody predicted it could be and that I frankly thought it would be."
Wall Street reform bill goes into final hours
Major news organizations including the New York Times, Washington Post, Financial Times and Reuters report that with the historic overhaul of U.S. financial rules nearly complete, lawmakers have waited until the final, frantic hours to sort out the most controversial provisions in the bill including proposals to limit banks' lucrative swaps-dealing operations and their investments in private equity and hedge funds.
Blanche Lincoln holds ground as Democrats seek deal
Meredith Shiner and Carrie Budoff Brown of Politico report that with a controversial derivatives ban threatening House Speaker Nancy Pelosi's (D-CA) vote count on Wall Street reform, top congressional Democrats rushed Wednesday to mend divisions within their ranks. But attempts to negotiate with the author of the derivatives language, Senate Agriculture Committee Chairwoman Blanche Lincoln (D-AR), hit an impasse Wednesday, and she had no plans to budge, Lincoln told Politico Wednesday night.
Negotiators ease finance rules
Damian Paletta of the Wall Street Journal reports that Congressional negotiators are poised to ease some proposed new financial regulations, notably those aimed at banks and auto dealers, as they race to secure political support for a final deal. The compromises under discussion wouldn't affect the broader contours of the financial-rules overhaul, but they could limit the bill's financial impact on a range of companies.
House drops demand for bank liquidation fund
David M. Herszenhorn writes in the New York Times' DealBook blog that House negotiators have agreed to drop a proposal for a $150 billion fund that would be used to liquidate failing financial companies. The Senate did not include such a fund in its version of the financial regulation bill.
Additionally, Ben White writes in Politico's Morning Money that bank executives were panicking last night over a proposed fix to Title II of financial reform literally penciled in at the last minute. The fear is that the proposed change to the orderly liquidation authority could leave banks on the hook for a possible wind-down of Fannie Mae and Freddie Mac that could cost as much as $400 billion.
Editorial: The derivatives endgame
An editorial in the New York Times takes the view that the regulation of derivatives "is arguably the most important issue for big banks.... It also is arguably the most important one for the public.... If done well, reform will create transparent and robustly regulated derivatives markets that can fail without taxpayers bearing the losses. Sadly, that is a big if."
June 23, 2010
Pew's FRP News Brief
"There's no good reason to have one set of rules for auto dealers that make car loans and another set of rules for community banks that make the same kind of loans.... The [consumer] agency is strong in both the Senate and House versions, but the final version would be a whole lot stronger without a special interest carve-out for auto dealers."
Auto dealers could be exempt from proposed regulator's oversight
Major news organizations including the New York Times, Washington Post and Bloomberg report that lawmakers were on the brink Tuesday of exempting the nation's 18,000 auto dealers from oversight by a new consumer financial watchdog aimed at protecting borrowers from abusive lenders. Brady Dennis of the Post writes that depending on the final language, the move could mark a major victory for industry lobbyists and a blow to President Obama, Democratic leaders, consumer advocates and Pentagon officials, who have long opposed such a loophole.
Scramble to finish bank rules this week
Damian Paletta of the Wall Street Journal writes that House and Senate Democrats are under pressure to complete their overhaul of financial regulations before President Obama meets with world leaders this weekend, setting up a scramble to iron out differences on a range of complicated provisions. If lawmakers don't complete their work this week...Congress might not be able to pass a law before the July 4 recess.
Additionally, Reuters provides a summary of the key points of contention that have been resolved and the big disagreements that remain as conferees continue to merge the two financial reform bills.
Duncan Currie of the National Review reports that of all the financial reform ideas that have been entertained over the past year, few have aroused as much vigorous opposition on Wall Street as the proposal to outlaw or restrict proprietary trading being championed by former Federal Reserve chief and current Obama economic adviser Paul Volcker.
Additionally, Jia Lynn Yang of the Washington Post reports that Sen. Scott Brown (R-MA) is worried that the "Volcker rule" would hurt banks with major operations in his state. Even though Democrats have fought to include a strong version of the rule, Obama administration officials and Democratic aides on Capitol Hill say Brown is likely to get his way because his vote is critical for approval of the House-Senate draft.
Insurance industry poised to tear loophole in Wall Street reform
Ryan Grim of the Huffington Post writes that the insurance industry is poised to rip a gaping loophole in financial reform's investor protections, working to insert a provision in the conference committee report that was passed by neither the House nor the Senate. The measure, which is being pushed by Sen. Tom Harkin (D-IA), would exempt securities products created by insurance companies from regulation, leaving the job instead to state insurance commissioners.
June 22, 2010
Pew's FRP News Brief
"I'm pleased that we were able to reach an agreement which makes minor changes to strengthen consumer protections and bring competition to a market where there is none."
Tentative deal reached to limit debit card fees
Major news organization including the New York Times and Reuters report that House and Senate Democrats announced a tentative agreement Monday to impose new limits on debit card fees [the Durbin amendment], which would resolve a main difference between the two chambers as they race to complete financial legislation before the Fourth of July.
House agrees to put consumer watchdog in Fed
Kevin Drawbaugh of Reuters reports that the Federal Reserve would be the home of a new financial consumer watchdog under an agreement announced on Monday. House Democrats said they will go along with a plan to put the watchdog inside the Fed as an independent unit operating within the central bank.
House defies President Obama on financial regulation reform
Carrie Budoff Brown of Politico writes that House negotiators on the Wall Street reform bill will push to shield auto dealers from new consumer protection lending rules - a move that bucks President Obama, who has called on lawmakers to reject any carve-outs for special interests. Rep. Barney Frank (D-MA), the lead House negotiator, released a proposal Monday that would not only maintain the exemption for auto dealers, but would also expand it to include dealers that finance the purchase of motorcycles, boats, recreational vehicles and motor homes.
Financial overhaul bill: What's on the agenda?
Damian Paletta writes in the Wall Street Journal's Real Time Economics blog that Democrats are aiming to reconcile all of the differences between separate financial overhaul bills... by the end of the this week, giving President Obama a comprehensive package of financial regulations to present to the G-20 in Canada over the weekend. If it all goes without a hitch, the House and Senate could vote on the package next week and the whole thing could be signed into law by next weekend. Paletta also reports in the Journal that lawmakers neared a deal on a key part of the bill, the Volcker Rule, which would limit the amount of capital a bank can place in risky investments, people familiar with the matter said.
Dodd negotiates Wall Street regulation bill with both eyes on crucial 60 votes
The Associated Press reports that Senate Banking Committee Chairman Chris Dodd's (D-CT) final career test before retiring in January is to protect his and the Senate's version of financial reform legislation from changes being demanded by House members, bankers and the Obama administration. With 60 votes needed in the Senate to overpower GOP opposition to enacting the sweeping measure, Dodd can't risk cracking the fragile coalition of 57 Democrats and only four Republicans that have supported the Senate bill.
June 21, 2010
Pew's FRP News Brief
"The goal must be to clarify once and for all which functions should be governmental, and which are strictly subject to the discipline of the marketplace."
Consumer watchdog fight leads Wall Street reform talks
Kevin Drawbaugh of Reuters writes that a dispute over how much power to give a new financial consumer watchdog will be the first issue dealt with by lawmakers Tuesday as they enter the home stretch on historic Wall Street reforms. A joint Senate-House panel aims to complete final legislation by Thursday, but meeting that goal may be hard with unresolved issues piling up and the most controversial proposals yet to come.
Additionally, Ben White of Politico provides a breakdown of the major areas of contention facing financial reform conferees this week.
Business rallies to shape finance endgame
Damian Paletta and David Wessel of the Wall Street Journal report that Caterpillar, Cargill and the municipal utility of Sacramento were largely bystanders in the financial crisis. As major users of derivatives, they will be affected by the impending derivatives reform legislation. The administration and its congressional allies are determined to rein in the largely unregulated derivatives market to make the financial system safer.
Banking lobbyists make a run at reform measures
Eric Dash and Nelson D. Schwartz of the New York Times write that as Congress rushes this week to complete the most far-reaching financial reform plan in decades, the banking industry is mounting an 11th-hour end run. Industry lobbyists - and sympathetic members of Congress - are pushing for provisions to undercut a central pillar of the legislation, known as the Volcker Rule, which would forbid banks from using their own money to make risky wagers on the market and would force them to sell off hedge funds and private equity units.
Unexpected costs of financial reform
Associated Press national business columnist Rachel Beck writes that "financial reform sounds good, until you try to get a car loan or pay your dentist. That doesn't mean reform isn't warranted, especially after the worst financial crisis in 70 years. But in order to prevent future crises, Americans' own finances might take an unexpected hit along the way."
Bair says GSE overhaul should top agenda after finance bill
Phil Mattingley of Bloomberg reports that an overhaul of the U.S. mortgage-finance system "should rise to the top of the agenda" as soon as Congress finishes its rewrite of financial-industry rules, Federal Deposit Insurance Corp. Chairman Sheila Bair said in a speech on Friday.
June 18, 2010
Pew's FRP News Brief
"Public opinion, when it voices itself, will win over money, and that's what happened here."
House-Senate panel disagree over solution to ‘too big to fail'
Ronald D. Orol of MarketWatch reports that House and Senate lawmakers on the financial reform conference committee on Thursday agreed to disagree on their approaches to managing banks that are "too big to fail," and on how to ensure such failures don't wreak havoc on the markets.
Additionally, Bloomberg and the New York Times report that lawmakers took a procedural step Thursday toward agreeing to require greater disclosure on actions by the Federal Reserve. Conferees also dropped plans to make the president of the New York Fed a political appointee.
New York lobbies against financial bill
Ben White of Politico writes that a flurry of opposition from New York City-area politicians and House moderates is aimed at blunting tough new financial regulations. Three letters - from the New Democrat Coalition, the New York delegation and New York City Mayor Michael Bloomberg - stake out a view that's been politically risky amid the populist anger over Wall Street: don't be too tough on the banks.
White also writes in Politico's Morning Money that most of the fireworks in the financial reform conference will take place starting Tuesday. The panel still must deal with the derivatives issue, the final form of the "Volcker rule," capital requirements and the Durbin amendment on debit card interchange fees.
Additionally, Andy Sullivan and Kevin Drawbaugh of Reuters report that the sweeping overhaul of financial regulations will include a controversial plan to insulate banks from risky swap dealing, aides said on Thursday.
White House, top lawmakers hold late night meeting on financial bill
Victoria McGrane and Damian Paletta of the Wall Street Journal report that top Obama administration officials held a closed-door strategy meeting Thursday night with key Democrats to plot the final stages of the year-long effort to rework financial rules. White House Chief of Staff Rahm Emanuel, Treasury Secretary Timothy Geithner, and several others met for more than an hour with House Financial Services Committee Chairman Barney Frank (D-MA) and Senate Banking Committee Chairman Christopher Dodd (D-CT).
Lawmakers negotiating bank bill hold industry stocks
Jonathan D. Salant of Bloomberg reports that lawmakers writing the biggest overhaul of financial regulations since the Great Depression may have a stake in the outcome. Eight of 11 senators and six of 22 House members on a conference committee writing the final legislation own stocks in financial companies affected by the legislation, disclosure statements released yesterday show.
June 17, 2010
Pew's FRP News Brief
"If we do not take steps to reasonably regulate this system, a dollar won't be worth a dollar anymore - it will be worth whatever Visa and MasterCard want it to be....We will literally cede control of America's currency to the Visa and MasterCard duopoly."
Wall Street bill likely to preserve Fed independence
Andy Sullivan and Rachelle Younglai of Reuters report that the Federal Reserve looked set on Wednesday to emerge from an overhaul of financial regulations with its tightly guarded independence intact. In a big victory for the central bank, lawmakers dropped a provision that would have opened the Fed's interest-rate policy to congressional audits, opting instead to examine less sensitive areas. Members of the House-Senate panel also agreed to abandon a plan to make the president of the New York Fed a political appointee, according to a document obtained by Reuters, but postponed formal action until today.
Durbin fights to keep card provision from being swiped out of Wall Street bill
Silla Brush of The Hill reports that Senate Majority Whip Dick Durbin (D-IL) is going on offense to ensure his crackdown on debit card fees remains in Wall Street overhaul legislation. Durbin isn't one of the 43 House and Senate lawmakers putting the final touches on the Wall Street bill, but he is waging a vocal campaign from the sidelines so his provision isn't swiped at the last minute. The "interchange fee" issue is among the toughest battles remaining for lawmakers.
Two New York lawmakers back Wall Street on derivatives
Cyrus Sanati writes in the New York Times' DealBook blog that two Democratic representatives from New York City, Gary L. Ackerman and Michael E. McMahon, are coming to the defense of Wall Street, urging members of the House-Senate conference committee on the financial regulatory bill to reject provisions that would force banks to spin off their lucrative derivatives trading units.
Fifteen economists issue crisis prevention manual
Sewell Chan of the New York Times reports on the release Wednesday of The Squam Lake Report, a book representing the consensus of 15 economists. About half of the group's eight core recommendations are strongly reflected in the two financial reform bills that are now being merged by a conference committee. In a sign of the seriousness with which the recommendations are being examined, Federal Reserve Chairman Ben S. Bernanke helped introduce the book at a conference at Columbia University.
Fannie, Freddie delisting signals the firms have no value
Dow Jones Newswires reports that the regulator for Fannie Mae and Freddie Mac ordered them to voluntarily delist their shares from U.S. stock exchanges Wednesday, underscoring that the once-mighty mortgage behemoths no longer have value as private firms. The move comes as the Obama administration begins to shift its focus to the future of the companies.
June 16, 2010
Pew's FRP News Brief
"We want banks to continue to be banks and to do what they need to do, but ... not put at risk the depositors of the bank or the taxpayers. I just think that makes a lot of sense, and I think it's very pragmatic, and I think it's certainly possible."
Lawmakers approve changes to reduce credit-rating conflicts
Major news organizations including the New York Times, Wall Street Journal and Bloomberg report that House and Senate negotiators approved a compromise Tuesday aimed at reducing conflicts in the assignment of credit ratings. The negotiators agreed to give the Securities and Exchange Commission the authority to set up a system for assigning credit-rating companies to determine bond ratings, rather than having the issuer select the company.
Michael R. Crittenden writes in the Journal that the nixing of the credit-ratings rule suggests raters such as Standard & Poor's and Moody's could escape the most severe rules proposed to address their role in the financial crisis. Lawmakers also voted to increase permanently deposit insurance for bank customers.
Fed could emerge intact from Wall Street reform debate
Andy Sullivan of Reuters reports that the Federal Reserve is poised to emerge with its powers relatively intact as House and Senate negotiators today are expected to back away from measures for the Fed that would expose the central bank's monetary policy to scrutiny and make the president of the New York Fed a political appointee.
Additionally, House Financial Services Committee Barney Frank (D-MA) on Tuesday announced the House offer on investor protection, executive compensation, and Fed and emergency liquidity provisions in the financial reform bill. The issues will be subject to debate when the House-Senate Conference Committee convenes in room 2128, Rayburn House Office Building at 11 a.m. today. Click here to view the House proposals.
Lincoln stands by derivatives language
Mike Allen of Politico writes that Senate Agriculture Committee Chairwoman Blanche Lincoln (D-AR) says she'll "fight hard" to preserve a passage she authored in the Wall Street reform bill to crack down on derivatives. Lincoln's provision, which would force banks to spin off their derivatives desks, pits her against the White House, financial services heavyweights and key securities regulators. Lincoln was interviewed as part of Politico's Reforming Wall Street video series. Click here to view the interview with Rep. Spencer Baucus (R-AL), the ranking Republican on the House Financial Services Committee.
Additionally, Silla Brush writes in The Hill that the New Democrat Coalition, a group of 69 centrist House Democrats, is preparing a letter that will urge lawmakers to drop the controversial financial reform provision that would require banks to wall off derivatives trading.
June 15, 2010
Pew's FRP News Brief
"I have been a long-time proponent of limiting the derivative activities of commercial banks to only those designed to mitigate the institution's balance sheet risk. Accordingly, I support the reinstatement of Glass-Steagall-type laws to separate higher-risk, often more-leveraged, activities of investment banks from the commercial banking system."
Sen. Blanche Lincoln's derivatives spin-off plan gains support in Congress
Major news organizations including the Wall Street Journal, New York Times and Washington Post report on efforts to force some of the nation's biggest banks to spin off their lucrative derivatives-dealing operations. Damian Paletta writes in the Journal that Sen. Blanche Lincoln (D-AR), who has championed strict rules on derivative trading for banks, has offered a retooled version of her proposal that would allow banks to keep derivatives-trading businesses but could force them to raise billions in capital to do so.
Obama's Treasury Department working to defeat derivatives proposal
Shahien Nasiripour and Ryan Grim of the Huffington Post report that President Obama's Treasury Department, led by Secretary Timothy Geithner, continues to oppose a measure that would effectively force banks to shed their lucrative derivatives units, Senate aides say, adding that Treasury is supporting Wall Street over Main Street by opposing the measure considered of "utmost importance" to financial stability.
House wants Senate to accept stronger protections for insurance regulations
Silla Brush writes in The Hill that House Democrats want the Senate to accept stronger protections for state insurance regulations under the Wall Street overhaul bill. The Senate bill, which is the basis for the negotiations, provides broader powers than the bill approved by the House for a federal office in the Treasury Department to negotiate international insurance matters and override state rules.
Raters could catch a break in Wall Street bill
Kevin Drawbaugh and Andy Sullivan of Reuters report that embattled credit rating agencies like Moody's Corp and Standard & Poor's could catch a break today when lawmakers sit down to craft a final rewrite of financial regulations. The legislation as it stands would effectively upend the entire industry's business model, but lawmakers could strip that provision as they begin resolving differences between their two Wall Street reform bills. The financial reform conference committee reconvenes today at 11 a.m. live on C-SPAN.
Fannie-Freddie fix at $160 billion with $1 trillion worst case
Bloomberg reports that the cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.
June 14, 2010
Pew's FRP News Brief
"The Volcker rule is probably the place to begin... You do not want to have speculative trading in a deposit-taking organization. And I think that's at the heart of Senator Lincoln's proposal."
Sen. Jack Reed, (D-RI) commenting on Volcker Rule proposals, Congress nears deal on bank trading crackdown, Reuters, June 14, 2010
Congress nears deal on bank trading crackdown
Kevin Drawbaugh of Reuters reports that one of the last major agreements needed to approve historic Wall Street reform - a compromise on curbing risky bank trading - was close at hand as U.S. lawmakers moved toward melding three key proposals. By hardening the so-called "Volcker rule" on proprietary trading with proposals from senators Jeff Merkley (D-OR) and Carl Levin (D-MI), and adding some of Senator Blanche Lincoln's (D-AR) swaps-desk plan, lawmakers hope to shape a package that can become law.
Additionally, Tom Braithwaite of the Financial Times reports that banks are likely to lose a key lobbying battle over whether they will be forced to spin off their swaps desk, and that defeat has been made more likely by former Fed Chairman Paul Volcker softening his opposition to the provision.
Regional Fed chiefs lining up to support tough derivatives provision
Shahien Nasiripour of the Huffington Post reports that Dallas Fed President Richard W. Fisher wrote Senate Agriculture Committee Chairman Blanche Lincoln (D-AR) last Thursday in support of her measure that would significantly change the way Wall Street's financial behemoths sell and trade a type of financial derivatives product. Kansas City Fed President Thomas M. Hoenig wrote an identical letter Thursday.
Another Fed official says Senate bill doesn't end ‘too big to fail'
Shahien Nasiripour also writes in the Huffington Post that Philadelphia Fed President Charles I Plosser is the latest regional Fed chief to criticize the Senate financial reform bill for its apparently inadequate attempt to end forever ‘too big to fail,' joining a growing group that includes Dallas Fed President Richard W. Fisher and Kansas City Fed President Thomas M. Hoenig.
Retailers lobbying to keep Durbin's debit card fee amendment in final bill
Ben White reports in Politico's Morning Money that the intense battle over Sen. Dick Durbin's (D-Il) debit card exchange fee amendment continues this week as proponents of the measure, which passed the Senate 64-33, plan to push back against recent efforts by community banks and credit unions to cast the measure as an unwarranted government intrusion into a business-to-business pricing dispute.
An editorial in the Wall Street Journal takes the view that "for 97 years the 12 regional banks of the Federal Reserve system have operated relatively free of political interference from Washington. The looming financial reform bill threatens that independence, not least through an effort to impose new presidential appointees at the regional banks."
June 11, 2010
Pew's FRP News Brief
"This is going to be a very open process. Nothing will be put into this final bill that is not advanced, openly debated, subject to amendment by the conference process and voted on."
House Financial Services Committee Chairman Barney Frank (D-MA), "Richard Shelby: Wall Street bill ‘off to rocky start,'" Politico, June 10, 2010
Tough Wall Street bill seen as lawmakers convene
Major news organizations including the New York Times, Reuters and Washington Post report on the opening day of the Wall Street reform conference committee Thursday. Sewell Chan of the Times writes that House and Senate negotiators gathered to merge two bills representing the most comprehensive changes to financial regulation since the Depression, but the script they acted out was largely being written elsewhere.
Additionally, Silla Brush writes in the The Hill's On the Money blog that Democrats and Republicans launched into sharp attacks minutes into the negotiations, while Tom Braithwaite of the Financial Times reports that Senators who voted for the legislation as recently as last month are warning that they could change their vote depending on changes in the conference, according to aides.
Frank says conferees will use tougher version of ‘Volcker rule'
Ben White of Politico writes that House Financial Services Committee Chairman Barney Frank (D-MA) suggested Thursday that financial reform conferees would use a tougher version of the ‘Volcker rule' similar to one crafted by Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI) as the starting point for negotiations on efforts to ban proprietary trading. Merkley-Levin goes well beyond the Senate version of the ‘Volcker rule' that would leave the matter to future regulators after a period of study.
Democrats spar over derivatives rule
Damian Paletta of the Wall Street Journal writes that Democratic efforts to swiftly steer a financial-overhaul bill into law stumbled as House and Senate leaders clashed over how best to regulate the $600 trillion derivatives market. The question, while highly technical, is a central component of the bill and would have wide-ranging consequences for U.S. businesses that use the complex financial instruments to protect themselves from fluctuations in currencies, interest rates, and commodity prices.
Additionally, Shahien Nasiripour writes in the Huffington Post that Kansas City Fed President Thomas M. Hoenig endorsed a Senate provision Thursday that would force banks to strip their swaps desks from their depository institutions, calling it "of utmost importance to our nation's long-term financial and economic stability."
Fed's Bullard: Senate bill politicizes Fed
Reuters reports that St. Louis Fed President James Bullard warned on Thursday that a Senate proposal to make the New York Federal Reserve Bank president a White House appointee risks injecting a dangerous dose of politics into the deliberations of the central bank.
June 10, 2010
Pew's FRP News Brief
"The New Direction Congress is sending a clear message to Wall Street: the party is over. No longer will big banks be able to gamble with the hard-earned dollars of America's workers, and no longer will recklessness on Wall Street cause joblessness on Main Street."
Wall Street reform conference committee members named
Michael O'Brien writes in The Hill's Blog Briefing Room that House Speaker Nancy Pelosi (D-CA) named 10 members of the House Financial Services Committee on Wednesday to the conference committee on Wall Street reform, along with 10 other members with jurisdiction. House Minority Leader John Boehner (R-OH) meanwhile named 11 GOP members to represent Republicans in the conference, including the ranking members of the committees whose chairmen Pelosi nabbed. The conference begins today at 2:15pm live on C-SPAN. Click here for Pelosi's list of conferees and here for Boehner's.
Some financial reforms missing from U.S. legislation
Kevin Drawbaugh of Reuters reports that with Congress in the final stages of finishing a major financial reform bill, which has slowly narrowed over a year of debate, some ambitious proposals are slipping from view. Mainly due to insurmountable opposition from Republicans, bank lobbyists and regulatory agencies protecting their turf, some changes that looked achievable a year ago are no longer being discussed.
Dodd calls swap desk spin off ‘a strong provision'
Charles Abbott of Reuters reports that Senate Banking Committee Chairman Christopher Dodd (D-CT) said on Wednesday that a proposal to require banks to spin off swaps desks, put forth by Senator Blanche Lincoln (D-AR), is "a strong provision in the bill."
Additionally, Ben White writes in Politico's Morning Money that Senate Democrats including Dick Durbin (IL) and Tom Harkin (IA) rallied behind Lincoln's proposal yesterday and House Speaker Nancy Pelosi also supports it.
House blocks effort to end Fannie, Freddie taxpayer support
Jessica Holzer of Dow Jones Newswires reports that the House of Representatives Wednesday blocked an effort by Republicans to end the taxpayer support of Fannie Mae and Freddie Mac. Rep. Jeb Hensarling (R-TX) tried to force a vote on a measure that closely mirrored an amendment sponsored by Sen. John McCain (R-AZ) that was defeated in the Senate last month during the debate on financial regulatory overhaul.
Volcker: Financial bill would create world model
Ian Austen of the New York Times reports that Paul Volcker, the former Fed chairman and economic adviser to President Obama, said on Wednesday that sweeping financial reform legislation now before Congress would make the United States a model for the world.
June 9, 2010
Pew's FRP News Brief
"It's always been our intention that this conference...that we're going to have it done in as open of a way as possible. We want people to know what we're doing and they have a right to know."
Lawmakers set regulation reform talks
Meredith Shiner of Politico reports that Senate Banking Committee Chairman Chris Dodd (D-CT) and House Financial Services Committee Chairman Barney Frank (D-MA), the top negotiators on Wall Street reform, laid out a timeline Tuesday to complete their conference report, indicating that a final bill could be considered by both chambers in the last week of June. Frank also confirmed that the House will appoint its conferees today, though he said it is up to House Speaker Nancy Pelosi (D-CA) to determine how many Democrats and Republicans will have a seat at the table.
Additionally, Vicki Needham writes in The Hill's On the Money blog that the conference is expected to last six to eight days beginning at 2:15 p.m. Thursday and will run Tuesday through Thursday next week in the House and Tuesday through Thursday the week of June 21 in the Senate, according to Rep. Frank.
Lincoln's win: Support for derivatives plan may firm up
Damian Paletta writes in the Wall Street Journal's Washington Wire blog that it's unclear what Sen. Blanche Lincoln's (D-AR) victory in the Arkansas Democratic primary will mean for the details of the financial overhaul bill, but it certainly means she will remain a powerful lawmaker in the coming weeks. Many bankers had assumed she would lose her primary. That, they hoped, would allow lawmakers negotiating a final bill to ditch a provision she wrote that could force banks to spin off derivatives. The derivatives provision is in the bill that passed the Senate but not the one that passed the House.
‘Volcker Rule' at issue as reform bill nears finale
Kevin Drawbaugh and Andy Sullivan of Reuters report that as Congress got to work crafting a final Wall Street reform bill on Tuesday, new tensions surfaced over the proposed "Volcker Rule" that aims to curb risky trading and investing by banks. White House economic adviser Paul Volcker, in a letter obtained by Reuters, said he firmly opposes exemptions to his rule being sought by banks that say they make only small investments in private equity and hedge funds.
Opinion: Joseph Stiglitz on financial reform
Nobel Laureate, and chairman of President Clinton's Council of Economic Advisers, Joseph Stiglitz takes the view in Politico that "the future of improved financial regulations depends largely on how the differences between the House and Senate bills are resolved. If the strongest provisions of each are preserved, there is the prospect of hallmark regulatory reform.... But if the final bill reflects the lowest common denominator, then we can only pray to be spared another financial crisis in the near future."
June 8, 2010
Pew's FRP News
"There's been a lot of coordination.... I've rarely seen two major pieces of legislation go through both houses in such similar forms."
Final act begins in Congress on financial reform
Kevin Drawbaugh of Reuters reports that negotiators from the Senate and House will begin meeting later this week to craft a final Wall Street reform bill, with banks facing changes that threaten their profits, if not their business models. Some Congressional Democrats want to fashion a bill that forces a basic banking industry restructuring, but leaders will have to balance that agenda against the need to forge compromise legislation that retains some Republican support.
Additionally, Charles Abbott of Reuters reports that Sen. Blanche Lincoln (D-AR) faces possible elimination in a Democratic run-off primary in Arkansas today, putting at risk her tough stance against the big banks in Wall Street reform.
Damian Paletta of the Wall Street Journal writes that three men burnished and tarnished by the financial crisis are expected to wield disproportionate influence over Congress' final push to write a new law for financial regulations. Treasury Secretary Timothy Geithner, House Financial Services Committee Chairman Barney Frank (D-MA) and Senate Banking Committee Chairman Christopher Dodd (D-CT) bring to the negotiations experience from the government's rapid and often ad hoc response to the financial crisis.
Finance lobbyists keep a low profile
Chris Frates of Politico reports that big banks and other financial interests will launch a final push to influence the Wall Street reform bill this week. According to Frates, the approach will be lower profile and ideally carried out by lawmakers who can influence members of the House-Senate conference committee crafting the final bill. The targets will be hot-button issues such as regulations on derivatives trading, debit card fees, and consumer protection.
Additionally, Ben White writes in Politico's Morning Money that it's not just the big card-issuing banks that are launching a full-scale assault on Sen. Dick Durbin's (D-IL) financial reform amendment that would allow the federal government to set limits on debit card "interchange" fees charged to retailers.
Financial panel issues a subpoena to Goldman Sachs
The New York Times and Financial Times report that the Financial Crisis Inquiry Commission said on Monday it had subpoenaed Goldman Sachs and harshly accused the investment bank of trying to delay and disrupt its inquiry.
June 7, 2010
Pew's FRP News Brief
"If we get a strong [consumer protection] agency, the agency will make a real difference for families...by making credit contracts comprehensible again, and by weeding out the tricks and traps that have distorted the true cost of credit and the risks associated with many credit products."
Congress pressed for reform bill deal
Sewell Chan of the New York Times writes that as Congressional negotiators begin this week to merge two bills overhauling the financial system, the White House wants them to reach an agreement before President Obama leaves for a Group of 20 meeting later this month in Toronto. According to Chan, the administration has tried to use the summit meeting to foster a sense of urgency among lawmakers.
Additionally, Ben White of Politico's Morning Money reports that the House-Senate conference officially gets started Thursday but work on final language was well underway this weekend, according to sources.
Consumer advocates call for tough protections in final regulation bill
Brady Dennis of the Washington Post writes that as lawmakers in the House and the Senate iron out differences between their far-reaching new financial regulations, consumer advocates are waging a final, fervent push to safeguard the legislation and bolster key provisions.
Congress moves to reconcile financial system overhaul
Peter A. McKay of the Wall Street Journal writes that auto dealers, attorneys general and derivatives traders are among those sitting anxiously as Congress enters the final stretch of its financial-regulation revamp. Reflecting the all-encompassing nature of the legislation, some of the widest gaps affect people far from Wall Street.
G-20 fails on bank tax, calls for joint ‘principles'
Major news organizations including Bloomberg, Reuters and the Financial Times report on the weekend meetings of the G-20 finance ministers in Korea where officials failed to agree on a proposal to impose a global tax on banks that was aimed at making the financial industry shoulder the cost of bailouts.
Additionally Michael M. Phillips and Alex Frangos of the Wall Street Journal report that the world's leading economic powers have edged toward agreement on new capital and liquidity rules to ensure that major banks keep enough money in reserve to insulate them against future crises.
A dubious way to prevent fiscal crisis
New York Times columnist Joe Nocera considers the House-Senate negotiations on financial reform and poses a number of questions: Will the bill that emerges from the conference do what it is intended to do? Will it prevent another crisis? Will it put an end to government bailouts?
June 4, 2010
Pew's FRP News Brief
"We need to do more than adjust our regulatory system....We really need to redesign the system, but in doing so, to draw on regulatory tools that have developed over the years."
David Enrich and Damian Paletta of the Wall Street Journal report that international regulators are moving closer to an agreement that would require large multinational banks to raise vast sums to cushion any future losses. However, in a concession to the banking industry and some governments, the rules are likely to take effect later than expected, according to people familiar with the matter. The overhaul is expected to be a focal point of this weekend's Group of 20 meetings of finance ministers and central bank governors in Korea.
Senate financial reform bill doesn't end too big to fail, says a major credit rating agency
Shahien Nasiripour writes in the Huffington Post that the financial reform bill championed by the Obama administration and Senate Democrats as permanently ending the idea that large, interconnected financial institutions are too big to fail does no such thing, analysts at Moody's Investors Service cautioned Thursday in a new report.
Additionally, an editorial in the Financial Times takes the view that "fixing the credit rating business requires big changes, but less to the raters directly than to how the financial system uses them."
Group forwards 1.7 million additional names to lawmakers on swipe fee reform
Jay Heflin of The Hill's On the Money blog writes that Speedway Convenience Stores sent an additional 1.7 million signatures to lawmakers on Thursday as part of a petition to reform credit and debit card swipe fees. The action brings the total to 5.4 million signatures, the largest number ever collected for a public policy petition. An amendment by Senate Majority Whip Dick Durbin (D-IL) would require the Fed to ensure that fees are reasonable and was successfully added to the Wall Street reform bill.
Daniel K. Tarullo, a Star Regulator at the Fed
Sewell Chan of the New York Times interviews Federal Reserve Governor Daniel K. Tarullo, who was President Obama's first appointment to the central bank's board of governors, and who believes that re-engineering the regulatory system could soften the blow of a future crisis.
Report: More than 1,400 former lawmakers, Hill staffers are financial lobbyists
Dan Eggen of the Washington Post reports that more than 1,400 former members of Congress, Capitol Hill staffers, or federal employees registered as lobbyists on behalf of the financial services sector since the start of 2009, according to an exhaustive new study issued Thursday. The analysis by two nonpartisan groups, Public Citizen and the Center for Responsive Politics, found that the "small army" of financial lobbyists included at least 73 former lawmakers and 148 ex-staffers connected to the House or Senate banking committees.
June 3, 2010
Pew's FRP News Brief
"I'm not arguing that this is the perfect model.... It's very difficult to think of an alternative where the user pays. I'm not going to pay."
Democrats pressure Pelosi on consumer protection in Wall Street reform bill
Michael O'Brien writes in The Hill's Blog Briefing Room that a group of House Democrats wrote their top two leaders Wednesday to insist they keep intact a strong consumer financial protection agency in Wall Street reform legislation. Four House Democrats, including a key chairman, warned Speaker Nancy Pelosi (D-CA) and Majority Leader Steny Hoyer (D-MD) against weakening a proposed Consumer Financial Protection Agency or housing it within the Federal Reserve, as is called for in the Senate-passed bill.
Additionally, Ben White writes in Politico's Morning Money that according to a senior White House official: "Dr. Lawrence Summers, Director of the NEC, and Diana Farrell, Deputy Director of the NEC, met with leaders from consumer and public interest groups [Wednesday] afternoon to talk about financial reform ...."
Lawmakers move to toughen ‘Volcker Rule' in Wall Street bill
Tom Braithwaite of the Financial Times reports that Congressional negotiators are moving to toughen financial reform legislation, increasing the chances that banks will face a strict ban on proprietary trading and a new conflict of interest rule.
Buffett defends Moody's managers
Major news organizations including the Wall Street Journal, New York Times and Financial Times report on Warren Buffett's testimony before the Financial Crisis Inquiry Commission on Wednesday. Aaron Lucchetti of the Journal writes that Buffett expressed doubts that even radical changes to the credit-ratings industry, such as creating a government-appointed board to select rating firms, would improve the quality and accuracy of ratings.
U.S. to push for bank rules in other large economies
Sewell Chan of the New York Times reports that Treasury Secretary Timothy Geithner said Wednesday the U.S. would urge the world's largest economies to pursue a financial overhaul agenda that would "restore fiscal sustainability...." Geithner, who is currently in Korea meeting with finance ministers and central bank governors from the Group of 20 nations, said he would press for greater transparency, new restrictions on derivatives trading and more stringent capital and liquidity requirements for banks.
Wall Street Journal columnist David Wessel writes that beneath disputes over details of the financial regulatory bill now moving through Congress, each worth billions to someone, lurks a fundamental tension: How much should Congress write strict rules to reduce risks of another global financial crisis? And how much should it leave to regulators who failed to prevent the crisis in the first place?
June 2, 2010
Pew's FRP News Brief
"As we saw during the [financial] crisis, the source of strength doctrine was turned on its head as insured banks often had to come to the aid of their holding companies - holding companies that in too many cases also required substantial federal support."
War over bank capital heating up
Damian Paletta writes in the Wall Street Journal's Real Time Economics blog that the global war over new bank capital requirements is intensifying, with a clash between powerful U.S. regulators drawing widespread international attention. The latest salvo comes from FDIC Chairman Sheila Bair, who penned a sharply worded May 21 letter to the Institute of International Bankers in defense of a controversial amendment to the financial overhaul bill that would limit the Fed's ability to lower capital requirements.
Not all banks spanked by reform
Ben White of Politico reports that the truth behind the financial reform bill is that some firms may wind up getting off pretty light. According to White, Wall Street banks such as Morgan Stanley and Goldman Sachs should avoid a "body blow." That's because the provision potentially most damaging to these firms - the forced spin off of lucrative derivatives trading desks - is almost universally expected to be dropped or dramatically watered down. And limits on trading may not go into effect for years.
Additionally, Chris Frates of Politico reports that foreign banks are flexing newfound muscle in Washington, spreading their money and influence while winning government business that's off-limits to their politically toxic American cousins.
Crunch time for auto dealer lobbying
Silla Brush of The Hill writes that auto dealers are facing the toughest fight yet in their effort to win an exemption from new financial regulations. The dealerships waged a high-stakes battle in the House and won an exemption in December from a new consumer financial protection regulator that is part of much broader financial legislation targeting Wall Street. Auto dealers last week won non-binding support in the Senate for the same carve-out. According to Brush, the auto dealers are now at a critical juncture as a small group of House and Senate lawmakers head into a month-long conference to finalize the legislation.
Opinion: Buffett and the ratings cartel
The Wall Street Journal takes the view that when Warren Buffett, America's most famous investor, testifies today before the Financial Crisis Inquiry Commission, he won't do his reputation any good if he endorses an oligopoly that has done so much economic harm. Mr. Buffett's Berkshire Hathaway owns a large stake in Moody's, one of the Big Three credit ratings agencies.
June 1, 2010
Pew's FRP News Brief
"Arguably, we will not break the cycle of regulation, bypass, crisis and rescue...until we are willing to clarify the limits to government support, and incur the short-term costs of confirming those limits, in the interest of building a stronger and durable foundation for our financial system."
States join the fight against proposed limits to credit card fees
Ylan Q. Mui of the Washington Post reports that state governments have become an unlikely ally of the banking industry in a fight against putting limits on the fees that credit and debit card issuers can charge to retailers. Treasurers from at least eight states are considering sending a letter to lawmakers this week over concerns that proposed limits on the fees card issuers charge for processing purchases could endanger state programs that use prepaid cards to dispense crucial benefits such as unemployment insurance. The limits are included in an amendment to the overhaul of financial regulations that passed the Senate last month.
Answers on credit ratings long overdue
Andrew Ross Sorkin writes in the New York Times' "Dealbook" column that one of the enduring questions of the financial crisis is how the credit ratings establishment got so much so wrong for so very long. Sorkin argues that it is time - in fact, past time - for Washington to get some answers. Because despite talk of a shake-up, the companies that dominate the ratings business hope to avoid the radical overhaul their critics are demanding.
The Financial Crisis Inquiry Commission will hold a hearing Wednesday in New York that will examine the ratings industry, with Warren Buffett, CEO of Berkshire Hathaway, and six current and former Moody's executives scheduled to testify.
3,000 pages of financial reform, but still not enough
Gretchen Morgenson writes in the New York Times' "Fair Game" column that the two financial reform bills the Senate and House are chewing over as part of what may be a momentous financial reordering weigh in at a whopping 3,000 pages, combined. In Morgenson's view, despite all that verbiage, there are flaws in both bills that would let Wall Street continue devising financial black boxes that have the potential to go nuclear. And even if the best of both bills becomes law, investors, taxpayers and the economy will remain vulnerable to banking crises.
Bankers' ‘doomsday scenarios' under fire from Basel study chief
Chris Giles of the Financial Times reports that banks are exaggerating the economic effects of the regulations they are likely to face in coming years, according to the economist running an international impact study. In a pre-emptive blast before the banks launch their own lobbying effort on June 10, Stephen Cecchetti, chief economic adviser to the Bank for International Settlements, said the banks' "doomsday scenarios" were based on them assuming "the maximum impact of the maximum change with the minimum behavioral change."
May 28, 2010
Pew's FRP News Brief
"Financial reform is complex. The details matter. And so, as conferees begin the process of reconciling the remaining differences in the two bills, we will continue to fight for the strongest financial reform bill possible. And we will oppose any attempts by particular interests to use the conference process as an opportunity to weaken the final bill."
Republican senators want ‘fair' process for Wall Street bill
Meredith Shiner of Politico reports that Senate Republicans sent a letter Thursday to the top Democratic Wall Street reform negotiators, Sen. Chris Dodd (D-CT) and Rep. Barney Frank (D-MA), laying out the key principles they believe will lead to a successful merger of the House and Senate bills. The five GOP Senate conferees - Richard Shelby (AL), Saxby Chambliss (GA), Mike Crapo (ID), Bob Corker (TN) and Judd Gregg (NH) - called for increased transparency and accountability as the conference pushes toward getting a bill to the president's desk by July 4.
Treasury's five-point wish list for financial overhaul
David Wessel writes in the Wall Street Journal's Real Time Economics blog that Deputy Treasury Secretary Neal Wolin, in a speech on Thursday, listed five things the administration is pressing for in the House-Senate conference on the sprawling financial-regulatory reform bill - beyond those on which there is substantial agreement. Click here to read Wolin's prepared remarks.
Geithner sees consensus on finance reform
Major news organizations including the New York Times, Wall Street Journal and Washington Post report on Treasury Secretary Timothy Geithner's meetings in Europe. Judy Dempsey writes in the Times that in Berlin on Thursday Geithner said the U.S. and Europe were in "broad agreement" on the need for stricter market regulation but stressed they would take different paths when necessary. Mr. Geithner said he wanted to hear firsthand about Europe's plans for more market regulation and how the U.S. and Europe could agree on a framework for change before next month's Group of 20 summit meeting in Canada.
S&P may not cut Citigroup, BofA ratings on finance revamp bill
Bloomberg reports that Standard & Poor's said it may not need to downgrade four banks, including Citigroup Inc. and Bank of America Corp., should Congress pass legislation that removes the "extraordinary government support" that has propped up their credit ratings. S&P said in February that the removal of implicit federal support would probably lower the creditworthiness of some banks.
‘Obama is from Mars, Wall Street is from Venus'
John Heilemann analyzes the relationship between President Obama and Wall Street in the cover story of the current issue of New York magazine. According to Heilemann, in public - and much more so in private - a decades-long relationship between money and power is crumbling.
May 27, 2010
Pew's FRP News Brief
"The key for us is what are the president's core set of reforms, and are those in the [financial overhaul] bill?"
White House signals it won't fight to keep rule on derivatives
Damian Paletta of the Wall Street Journal reports that Assistant Treasury Secretary Michael Barr on Wednesday said a controversial provision that could force banks to spin off their derivatives portfolio was not part of the "core" changes White House officials wanted in the financial overhaul. But Barr went out of his way not to disparage the amendment or say it should be killed. Rather, he said the provision's wording left it open to various interpretations that could have varying impacts on the financial system.
Additionally, Carrie Budoff Brown of Politico reports that Barr and Diana Farrell, Deputy Director of the National Economic Council, repeatedly deflected questions Wednesday about Sen. Blanche Lincoln's (D-AR) derivatives proposal. According to Brown, the cool reception suggests the provision might be expendable to the White House.
Merkley, Levin push Reid on Volcker Rule
The Huffington Post reports that Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI) wrote a letter to Majority Leader Harry Reid (D-NV) and Banking Committee Chairman Chris Dodd (D-CT) expressing disappointment that the Merkley-Levin amendment was not included in the Senate financial reform vote last week, but hoped its provisions would be supported during conference committee negotiations.
Britain and France reject European Union bank levy plan as threat of ‘moral hazard'
George Parker and Nikki Tait of the Financial Times write that Britain and France were at odds with other European Union countries on Wednesday over plans to insure against future bank failures. Michel Barnier, E.U. internal market commissioner, set out plans for member states to form national funds to help wind down or reorganize failing banks, funded by a levy on the financial sector. Treasury Secretary Timothy Geithner, in London meeting his UK counterpart George Osborne, admitted that different countries were likely to implement it in different ways: "It's not going to be perfectly uniform."
Buffett to testify to crisis panel on Moody's
Aaron Lucchetti of the Wall Street Journal reports that Warren Buffett, CEO of Berkshire Hathaway, is scheduled to testify before the Financial Crisis Inquiry Commission on June 2 during a hearing on the role of ratings agencies in the financial crisis. Buffett, a long-time Moody's investor, will testify along with six current and former Moody's executives.
May 26, 2010
Pew's FRP News Brief
"I don't see the need for a separate rule regarding derivatives because the restriction on banks engaging in proprietary activities would apply to derivatives as well as everything else."
Frank targets requirement to spin off operations
Damian Paletta and Victoria McGrane of the Wall Street Journal report that House Financial Services Committee Chairman Barney Frank (D-MA) signaled Tuesday that a controversial derivatives provision in the Senate's financial-regulation bill could be stripped out during negotiations when the two chambers hammer out compromise legislation that could be signed into law by July 4th. Frank said the Senate bill's requirement that banks spin off their derivatives operations "goes too far."
Frank names Democrats to merge bank bills
Carrie Budoff Brown of Politico writes that House Financial Services Committee Chairman Barney Frank recommended that eight House Democrats sit on the Wall Street conference committee, stating in a memo Tuesday that the group will be "more the agents of collective decision-makers than autonomous deciders." Frank also recommended a schedule to House Speaker Nancy Pelosi (D-CA) that includes at least seven sessions that could be televised on C-SPAN, starting with an organizing meeting June 9th.
Additionally Reuters reports that Senate leaders on Tuesday appointed "a mix of moderates and hard-hitting reformers" to the conference committee that will merge the House-Senate financial reform bills.
Bernanke continues fight against more Fed scrutiny
Luca di Leo of the Wall Street Journal reports that Federal Reserve Chairman Ben Bernanke weighed in against provisions in the proposed financial regulatory legislation that would subject the central bank to more political scrutiny. In a speech at the Bank of Japan, the Fed chairman argued that central banks independent from politics were better at managing the economy. He also detailed the steps the Fed had taken to become more transparent and accountable to the public, two conditions he said were needed in return for greater independence. Click here to read Bernanke's speech.
Financial reform analysis: A wider divide
Tom Braithwaite and Francesco Guerrera write in the Financial Times that as the U.S. prepares to enact new rules governing the financial sector, deteriorating relations between industry and lawmakers could resonate well beyond Wall Street.
U.S., Europe fall out of step on global financial reform
The Washington Post reports that as Treasury Secretary Timothy Geithner lands in Europe today, differences are growing among world leaders over how to keep the promise they made at the height of the financial crisis: that they would work together to reshape how finance is governed.
May 25, 2010
Pew's FRP News Brief
"[Glass-Steagall] was a bright line that is important to have in banking. It's kind of like: why do we have a separation between the judicial and executive branch? There's a reason. You don't want too much concentration of power."
Sen. Maria Cantwell (D-WA), "Dissenting Democrat criticizes Geithner," Financial Times, May 25, 2010
Senators pick financial conferees
Major news organizations including the Wall Street Journal, Reuters and Politico report that the Senate leadership is expected to confirm as early as today the 12 members (seven Democrats and five Republicans) of the conference committee that will reconcile the House and Senate financial reform bills. House conferees aren't likely to be appointed until after the Memorial Day recess. Victoria McGrane and Damian Paletta of the Journal report that the expected lineup suggests banks could face an uphill battle eliminating the more onerous curbs on their business.
Additionally, Brady Dennis of the Washington Post reports that the Senate on Monday voted 60 to 30 on a nonbinding directive to recommend that thousands of the nation's auto dealers be exempted from oversight by a new regulator for consumer financial protection.
Financial reform could turn on Blanche Lincoln's re-election bid in Arkansas
The Los Angeles Times reports that Sen. Blanche Lincoln (D-AR) "is running for her political life in Arkansas. And if she falls, the sweeping reform of Wall Street that Democrats hope will bolster their case for re-election could be one of the casualties." Senate Agriculture Committee Chairman Lincoln has been fighting for language that would require major players in the derivatives market to curtain off swap trades from regular banking and has resisted efforts to soften the rule.
Dissenting Democrat criticizes Geithner
Tom Braithwaite of the Financial Times writes that Maria Cantwell (WA), one of two Democrats to vote against the Senate financial reform bill last week, has accused Treasury Secretary Tim Geithner of neglecting "main street" America, and called on Congress to force the White House to refocus on small business.
Senate Banking Committee member David Vitter (R-LA) argues in an op-ed in USA Today that the financial reform bill approved by the Senate last week "actually makes some problems worse and completely ignores others." Vitter was responding to USA Today's editorial view that the "bank bill doesn't guarantee safety, but it's a good start."
European Union plans upfront levy on lenders
Nikki Tait of the Financial Times writes that European Union countries will be required to impose an upfront levy on banks, with the proceeds to be paid into national funds to insure against future financial failures, under proposals to be unveiled on Wednesday. The proposal will be controversial, especially if it is not accompanied by similar moves in the U.S. and elsewhere.
May 24, 2010
Pew's FRP News Brief
"The Senate has acted. It is now incumbent on Congress to send to the President's desk a strong bill that will renew America's confidence in the economy by providing the real financial reform that taxpayers deserve."
Reconciliation for two financial overhaul bills
Major news organizations including the Wall Street Journal, New York Times and Financial Times report that top Democrats met with President Obama on Friday to plan strategy for pushing a final financial-overhaul package through Congress. The Journal reports that today Senate lawmakers plan to name about 12 members to a conference of House and Senate negotiators aimed at hammering out a combined bill that could be signed into law by July 4. The hurdles include differences between the two versions of the bill on large-bank regulation, derivatives trading and consumer protection.
Additionally, the Financial Times reports that Blanche Lincoln (D-AR) and Collin Peterson (D-MN), who chair the agriculture committees in the Senate and House respectively, are expected to be powerbrokers within the conference, given that their panels oversee derivatives regulation.
Who might win big, or lose big in financial overhaul?
The Washington Post reports that even as the landmark financial bill passed by the Senate last week punishes some of the most famous companies in American finance it may reward little-known firms that operate behind the scenes or overseas. If the nation's biggest banks are forced to stop trading with their own money or spin-off derivatives activities, this business could move to hedge funds, which are far more lightly regulated, or foreign banks that don't face the same restrictions.
Additionally, the New York Times reports that the financial reform legislation making its way through Congress has Wall Street executives privately relieved that the bill does not do more to fundamentally change how the industry does business.
Watchdog fears overwhelming pressure from bill
The Financial Times reports that the sweeping financial reform legislation approved by the Senate last week could place "overwhelming" burdens on the Commodity Futures Trading Commission, the regulator that would have to assume the role as watchdog for the swaps markets, say officials there. The commission would gain broad powers to oversee previously unregulated over-the-counter derivatives.
The New York Times editorial board poses the question: "What will Wall Street look like next year?" and four industry commentators provide their views. The Financial Times welcomes the wide-ranging financial reform bill, but wonders "why it should have taken so much time and discussion to finalize so little...." The Wall Street Journal argues that "the pending reform will not prevent future taxpayer losses but it will impose enormous costs and uncertainty on financial markets."
May 21, 2010
Pew's FRP News Brief
"Simply, the American people are saying, 'you've got to protect us,' and we didn't back down from that....When this bill becomes law, the joyride on Wall Street will come to a screeching halt."
Senate Majority Leader Harry Reid (D-NV), "Senate Passes Finance Bill," Wall Street Journal, May 21, 2010
Senate passes financial regulation bill
Major news organizations including the Wall Street Journal, New York Times and Washington Post report that the Senate on Thursday approved the most extensive overhaul of financial-sector regulation since the 1930s. The legislation passed the Senate 59 to 39, and it must now be reconciled with a similar bill passed by the House of Representatives in December, before it can be sent to President Obama to be signed into law.
Greg Hitt and Damian Paletta of the Wall Street Journal write that the outlines of the two bills are largely the same. But there are more than a dozen notable differences that will need to be reconciled during negotiations that are expected to start within days. Leading the negotiations will be House Financial Services Committee Chairman Barney Frank (D-MA), who has said he would like to have a compromise package by the end of June.
A mixed bag in store for consumers
The Wall Street Journal reports that the financial overhaul will be a mixed blessing for consumers. Based on the current legislation, homeowners will get additional protections from abusive loans, and free credit reports will include numerical credit scores. The bad news for consumers: banks are expected to respond to the regulatory shake-up with more fees on basic services such as checking accounts.
Carrie Budoff Brown and Eamon Javers of Politico write that the financial reform bill isn't done yet, but that isn't stopping the parties from testing their pitches to midterm voters. To Democrats, the bill is a consumer-friendly Wall Street comeuppance; to the GOP, a market-stifling Obama overreach, just like health care. Brown and Javers highlight the key issues where the House and Senate bill diverge and how they could play in the fall campaign.
Geithner to confer with German, U.K. officials on debt crisis
Bloomberg reports that Treasury Secretary Timothy Geithner will visit Germany and the U.K. next week to discuss the European debt crisis after a slide in stocks worldwide posed dangers to the global economic recovery. Bloomberg also reports that Federal Reserve Governor Daniel Tarullo, testifying before House Financial Services subcommittees yesterday, said Europe's debt crisis may pose a threat to the U.S. and world economies as trade shrinks and banks incur losses on European investments.
Additionally, the Financial Times reports that fears of a disorderly regulatory crackdown on banks and financial markets triggered a crisis of confidence among investors on Thursday that sent share prices reeling in a global flight to safety. The Financial Times also reports that a "tsunami of regulation batters banks."
May 20, 2010
Pew's FRP News Brief
"The test for this legislation is a simple one - whether it will prevent another financial crisis....As the bill stands, it fails that test."
Democratic rift stalls financial overhaul
Major news organizations including the New York Times, Wall Street Journal and Financial Times report on the defeat Wednesday of a cloture motion to end debate on the financial reform bill. Democratic Sens. Maria Cantwell (WA) and Russ Feingold (WI) joined all but two Republicans, Maine Sens. Olympia Snowe and Susan Collins, to defeat the motion filed by Senate Majority Leader Harry Reid (NV). The 57-42 roll call fell short of the 60 votes needed to close off debate and hold a vote on the bill itself. Reid is expected to schedule another cloture vote today and Politico's Morning Money reports that "Reid [is] confident he'll get Cantwell, Feingold on board after voting against cloture."
Dodd abandons derivatives amendment in financial regulation bill
Brady Dennis of the Washington Post reports that Senate Banking Committee Chairman Chris Dodd (D-CT) decided to abandon a proposal aimed at fostering compromise over a controversial provision in the far-reaching financial regulatory overhaul bill. The amendment, offered by Dodd on Tuesday, would have altered a measure dealing with oversight of the vast market in financial derivatives advocated by Senate Agriculture Committee Chairman Blanche Lincoln (D-AR).
Senate to vote on measure to ban proprietary trading
Victoria McGrane of the Wall Street Journal writes that Senate Democrats made a procedural end-run Wednesday around Republican obstruction of a plan that would sharply curb a lucrative Wall Street trading business - setting up a vote on the measure for later this week. Sen. Jeff Merkley (D-OR) attached the controversial measure on banning proprietary trading as a second-degree amendment to an already-pending financial-overhaul amendment by Sen. Sam Brownback (R-KS) to exempt auto dealers from a new consumer watchdog.
Senate amendment to financial regulation bill addresses five federal watchdogs
Ed O'Keefe of the Washington Post reports that Senators approved an amendment to the financial regulation bill Tuesday night that keeps federal watchdogs at five financial regulatory agencies from becoming presidential appointments. The five - at the Federal Reserve Board of Governors, the Commodity Futures Trading Commission, the National Credit Union Administration, the Securities and Exchange Commission, and the Pension Benefit Guaranty Corp. - campaigned for the Senate amendment.
Payday loan companies get lift as reform looks less likely
David Benoit of Dow Jones NewsWires reports that the Senate rejected an amendment proposed by Sen. Kay Hagan (D-NC) that would have added increased regulation on the payday loan sector.
May 19, 2010
Pew's FRP News Brief
"As the debate heads into the home stretch and special interests complain vocally about what the new financial system could potentially cost them, we would all do well to remember what the failure of the current system actually cost each one of us. The time for reform is now."
Senate backs role for states in Wall Street reform
Kevin Drawbaugh and Andy Sullivan of Reuters report that the Senate voted 80-18 on Tuesday to give state attorneys general a prominent role in helping a new federal watchdog enforce consumer protection laws, but the measure bars officials from reaching across state lines to bring charges against banks.
Additionally Silla Brush writes in The Hill's On the Money blog that the amendment, offered by Sen. Tom Carper (D-DE), reflected a deal struck with Senate Banking Committee Chairman Chris Dodd (D-CT), who along with Carper and other Democrats agreed to give state officials some new enforcement authorities.
Proposal would rid finance bill of derivatives measure
Major news organizations including the Wall Street Journal, Washington Post and Politico report that Sen. Chris Dodd (D-CT) Tuesday proposed diluting a controversial provision in the Senate's financial reform bill that would ban banks from trading derivatives. Dodd's proposal would suspend any ban for two years and give the Treasury Secretary the ability to kill the ban altogether.
Damian Paletta and Greg Hitt write in the Journal that Dodd's measure puts him at odds with Senate Agriculture Committee Chairman Blanche Lincoln (D-AR), who wants to force banks to spin off their derivatives trading operations into affiliates. Lincoln, who has been forced into a June 8 runoff following the Arkansas primary yesterday, said she would "fight efforts to weaken" her provision.
Harry Reid scrambles to save Wall Street vote
Politico reports that Senate Majority Leader Harry Reid (D-NV) scrambled Tuesday to prevent Democratic defections that could leave him short of the 60 votes needed to cut off debate heading into a major financial reform cloture vote expected today. Senate Democrats and Republicans haggled late into Tuesday evening over the last few amendments to the bill amid infighting on whose provisions should come to the floor.
Measure banning bailouts to states is rejected
Ronald D. Orol of MarketWatch reports that a measure offered by Sen. Judd Gregg (R-NH) that would prohibit taxpayer funds from being used to bailout state or local governments that are at risk of defaulting was rejected by the Senate on Tuesday.
Morgan Stanley CEO pushes for ‘strong' reform
Reuters reports that Morgan Stanley CEO James Gorman said during a meeting with shareholders Tuesday that he supports "strong and effective regulatory reform" and also argued that "no bank is too big to fail."
May 18, 2010
Pew's FRP News Brief
"In most cases, 80 percent or more of survey respondents were in favor of our four component pieces: establishing an early warning system that monitors the financial system for signs of trouble; ending 'Too Big to Fail'; increasing transparency; and protecting consumers from harmful business practices."
Reid pushes quick passage of regulatory reform
Major news organizations including the Washington Post, Politico and Reuters report that Senate Majority Leader Harry Reid (D-NV) moved Monday to close down debate on the sweeping Wall Street reform bill, setting up a key test for Wednesday. Politico reports that Reid will need to round up support from at least 60 senators to break a filibuster, a hurdle that the Senate leadership expects to reach despite threats from some rank-and-file members to withhold support until certain amendments receive votes.
Additionally Reuters reports that with major disputes on regulating over-the-counter derivatives and curbing risky trading by banks, as well as on the power of state bank regulators still unresolved, debate on the financial reform bill might spill into next week. Politico's Morning Money reports that the proposal by Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI) to forbid banks from proprietary trading could come up for a vote as early as today.
Senate Votes for a Clear Credit Score
David M. Herszenhorn of the New York Times reports that the Senate, by a voice vote, approved a proposal by Sen. Mark Udall (D-CO) to require that credit reports include the numerical score. Udall's proposal would require the score to be provided if it was used to deny credit, required a higher interest rate on a loan, or prevented an applicant from being hired for a job.
GE and other manufacturers back exemption in financial regulation bill
The Washington Post reports that a last-minute fight has emerged over a proposed amendment to the Senate's financial regulation bill that would limit the government's power to address high-risk financial practices at companies if their main business is manufacturing. In recent days GE and other manufacturers have ramped up their efforts to draw attention to how the Senate legislation affects industrial companies.
Finance overhaul is being used as re-election tool
David Lightman of McClatchy Newspapers reports that the Senate's debate on overhauling the nation's financial regulatory system is also a fierce fight to woo voters in the 2010 congressional elections, as illustrated by Sen. Blanche Lincoln's Democratic primary fight in Arkansas. As the chair of the Senate Agriculture Committee, Lincoln defied Democratic leaders by pushing through measures to require banks to spin off their lucrative but opaque derivatives practices into free-standing subsidiaries.
Additionally, Politico's Morning Money reports that a Lincoln win today could clear the way for toning down the derivate desk spin-off language.
May 17, 2010
Pew's FRP News Brief
"It is interesting to note that on a number of the questions Utah voters were actually not wholly different from voters in states like Massachusetts and Maine as well as the national survey we fielded in early March."
Endgame on Financial-Overhaul Bill
Damian Paletta writes in the Wall Street Journal's Washington Wire blog that a spokesman for Senate Majority Leader Harry Reid (D-NV) said he was "likely" to file cloture on the financial-overhaul bill today, which means the Senate could vote as soon as Wednesday on its final passage. Lawmakers have already made many key changes to the bill through a variety of amendments, but multiple other high-stakes amendments remain and Paletta sets out some of the key proposals expected to draw scrutiny.
Additionally Ben White writes in Politico that the Wall Street reform bill has defied conventional wisdom and gotten tougher on Wall Street at every turn. Based on this trend, some Republicans want to simply vote for cloture and close the books on the Senate version before things get even worse. According to Politico's Eamon Javers and Meredith Shiner, even top Republicans such as Sen. Judd Gregg (NH) predict the bill will pass as early as this week, but it's not clear yet how many Republicans will be support the legislation.
Obama's terms for financial overhaul remain mostly intact
Brady Dennis of the Washington Post writes that the Senate financial reform bill largely reflects the Obama administration's initial blueprint, despite the fervent efforts of lobbyists and lawmakers of all stripes to alter it. According to Dennis, Democratic leaders and administration officials have been careful not to boast about their success in keeping the legislation mostly intact, with some provisions growing even tougher during the Senate debate.
Democrats open to talks on derivatives
The Financial Times reports that Senate Banking Committee Chairman Chris Dodd (D-CT) and Senate Agriculture Committee Chairman Blanche Lincoln (D-AR) told the paper there was room to negotiate on a proposal that would force banks to spin off their swaps desks. According to the paper, moderate Democrats are trying to cut a deal in private that would change the provision on swaps desks, which the industry and regulators warn is unworkable.
Treasury Secretary Timothy Geithner, interviewed on Bloomberg TV, said he was confident top Senate negotiators will modify language in the financial reform legislation that would separate commercial banks from their swaps trading desks. Geithner also said the Treasury will "move very quickly" after the financial bill passes to build consensus on reforming Fannie Mae and Freddie Mac, and the housing-finance market.
The current issue of American Prospect contains a special report on financial reform and features an article by TARP Oversight Panel Chair Elizabeth Warren entitled "Consumer Protection as Systemic Safety."
May 14, 2010
Pew's FRP News Brief
"We run the risk - I'll say it very blunt, on the record - if we start this [open-ended amendment] process, which I'm fearful will be the case, we run the risk of losing this bill. That's the reality....This is not hyperbole."
Chris Dodd: Amendments could kill Wall Street bill
Meredith Shiner of Politico reports that Senate Banking Committee Chairman Chris Dodd warned Thursday that an open-ended amendment process could threaten final passage of Wall Street reform. But Republicans insisted that they wanted the amendment process to continue through next week, even though Senate Majority Leader Harry Reid (D-NV) is pushing to wrap up the bill as soon as possible.
Major news organizations including the Wall Street Journal, Washington Post and Financial Times report that the Senate approved, by a vote of 64-35, an amendment offered by Sen. Al Franken (D-MN) Thursday that would thrust the government into the process of determining who rates complex bond deals. Under the new provision, the Securities and Exchange Commission would establish and oversee a powerful credit-rating board that would act as a middleman between issuers seeking ratings and the rating agencies.
Senate passes amendment on debit and credit card swipe fees
Major news organizations including the Washington Post, Wall Street Journal and New York Times report that the Senate voted 64-33 on Thursday to curtail the "swipe fees" that financial companies impose on credit and debit card transactions. Under the amendment offered by Sen. Dick Durbin (D-IL), the Federal Reserve would be authorized to regulate the fees charged to businesses by financial firms on debit and credit cards, and empower merchants to offer discounts to customers if they pay with cash, checks or debit cards.
Senate Rejects Bankruptcy for Non-Bank Financial Companies
Victoria McGrane of Dow Jones Newswires writes that Senate lawmakers Thursday defeated a GOP amendment to force failing non-bank financial giants into bankruptcy, preserving a central element of the Obama administration's plan to revamp the nation's financial regulations. The Senate rejected the amendment offered by Sen. Jeff Sessions (R-AL) in a largely party-line vote, 58-42.
Senate vote on Brownback auto dealer carve out postponed
Silla Brush of The Hill's On The Money blog writes that the Senate Thursday postponed until next week voting on a controversial amendment sponsored by Sen. Sam Brownback (R-KS) to financial reform legislation that would carve out auto dealers from a new consumer protection regulator.
Additionally, Michael R. Crittenden of the Wall Street Journal reports that Secretary of the Army John McHugh wrote to Senate Banking Committee Chair Chris Dodd expressing "strong concerns" about an attempt by automobile dealers to exempt themselves from a proposed consumer-protection agency.
May 13, 2010
Pew's FRP News Brief
"The facts speak for themselves. The Chambliss amendment does not meet the test of what our markets require....It is a stark reminder that if we do not act boldly in the face of the near collapse of our economy, tragic Wall Street abuses and abysmal regulatory failures, we will all suffer the consequences."
Senator Blanche Lincoln (D-AR), "Senate rejects GOP derivatives plan," Politico, May 12, 2010
Senate votes to keep small banks under Federal Reserve's oversight
Brady Dennis of the Washington Post reports that the Federal Reserve would continue to oversee thousands of smaller banks around the country under a measure adopted Wednesday in the Senate by a vote of 91 to 8, marking a major victory for the Fed, whose leaders had campaigned vigorously to retain oversight.
Senate rejects GOP derivatives plan
Meredith Shiner of Politico writes that the Senate rejected, by a vote of 59 to 39, a GOP amendment that would have weakened the highly contested derivatives language crafted by Agriculture Committee Chairwoman Blanche Lincoln (D-AR). Carried Budoff Brown also of Politico writes that Lincoln "is in no mood to compromise just days before her May 18th primary."
Additionally, in an interview on Bloomberg TV yesterday, Sen. Evan Bayh (D-IN) said Democrats haven't filed an amendment to strip or change Sen. Lincoln's derivatives measure and movement is unlikely until after the Arkansas Democrat's Senate primary next Tuesday.
Obama Blasts Auto Dealer ‘loophole'
David M. Herszenhorn writes in the New York Times' The Caucus blog that in an unusually forceful foray into Senate floor debate, President Obama issued a statement Wednesday opposing an amendment by Sen. Sam Brownback (R-KS) to protect auto dealers from new consumer protection provisions in the financial reform bill. Herszenhorn later wrote in The Caucus blog that the National Automobile Dealers Association "is going toe-to-toe with President Obama" with spokesman Bailey Wood saying "the Brownback amendment is pro-consumer...."
Senate Democrats Look to Wrap Up Financial Overhaul Debate
Greg Hitt writes in the Wall Street Journal's Washington Wire blog that discussions are under way on a strategy to wrap up debate on the financial regulation overhaul in the Senate and Democrats are expected to meet behind closed doors today to talk about the way forward. Under one scenario being discussed, a final vote could come as soon as Tuesday after a possible vote on Monday to shut off debate on amendments.
Damian Paletta also writes in the Journal's Washington Wire blog that if the Senate approves the financial overhaul bill in the next few weeks, it would have to be reconciled with a bill the House passed in December, and the talks to iron out several big differences between the two measures could be televised.
May 12, 2010
Pew's FRP News Brief
"The Pew Financial Reform Project survey found that likely voters in Maine support key elements of the financial reform measure now before Congress....Respondents also indicated that candidates who did not embrace reform could suffer at the polls in November."
Senate Passes Amendment for One-Time Audit of Fed
Major news organizations including the Wall Street Journal, New York Times, Washington Post and Financial Times report that the Senate unanimously passed an amendment Tuesday to the financial reform bill that would boost transparency of the Federal Reserve's emergency lending actions during the financial crisis. Lawmakers voted 96-0 to incorporate the modified amendment offered by Sen. Bernie Sanders (I-VT), who scaled back his original language last week to overcome White House objections.
Fannie and Freddie: Mortgage giants intact
Brady Dennis of the Washington Post writes that in a mostly party-line vote Tuesday, 56 to 43, Democrats defeated a GOP effort to include a provision in the financial overhaul bill to wind down the government's role in Fannie Mae and Freddie Mac. Republicans had called for the government to end its control of the firms within two years. The Senate later passed an amendment, 63 to 36, offered by Chris Dodd (D-CT) that would require the Treasury Department to study how to end the conservatorship of Fannie and Freddie.
Centrists Senators push for greater federal power in consumer regulations
Silla Brush writes in The Hill that four centrist Senate Democrats are leading an effort to modify the financial reform bill to give the federal government greater power than states on consumer regulations. Democratic Sens. Tom Carper (DE), Mark Warner (VA), Tim Johnson (SD) and Evan Bayh (IN) are supporting an amendment that seeks to limit state attorneys general and state regulators from enforcing consumer regulations on national banks and their subsidiaries. They have been joined by Republican Sens. Bob Corker (TN) and John Ensign (NV).
Proposal Calls for Banks to Draft ‘Living Wills'
Michael R. Crittenden of the Wall Street Journal reports that the Federal Deposit Insurance Corp. has proposed requiring the country's top 40 banks to create a plan for their own liquidation in the case of financial stress. The FDIC's proposal dovetails with similar efforts underway on Capitol Hill and in the Federal Reserve. The plan would require large bank holding companies to show how their bank could be cleanly separated from the parent firm, and then dissolved by regulators.
Big banks hire D.C. heavyweights
Chris Frates writes in Politico that the nation's six largest banks and their trade associations have hired more than 240 former government officials-turned-lobbyists to represent them in the fight over Wall Street reform, according to a new report by several progressive groups.
May 11, 2010
Pew's FRP News Brief
"I think it's a fair claim to make to say we haven't done enough to address
Fannie and Freddie....It is the big elephant in the room."
Senator Mark Warner (D-VA), "Markets in Turmoil," interviewed on CNBC's Squawk Box, May 10, 2010
Senators are set to vote on amendment to audit Federal Reserve
Brady Dennis of the Washington Post reports that lawmakers are likely to vote today on an amendment by Sen. Bernie Sanders (I-VT) to expand oversight of the Federal Reserve. The amendment to the Senate's financial regulation bill would give the Government Accountability Office the power to audit the Fed and compel the central bank to disclose details about the firms that received emergency aid during the financial crisis. The Sanders measure mirrors legislation introduced by Rep. Ron Paul (R-TX) and approved overwhelmingly by the House last year.
Republican senators pressing to end federal control of Fannie, Freddie
Zachary A. Goldfarb and Brady Dennis write in the Washington Post that leading Republican lawmakers are pushing an amendment that would wind down the government-controlled mortgage finance giants Fannie Mae and Freddie Mac. The proposal by Sens. John McCain (R-AZ), Richard Shelby (R-AL) and Judd Gregg (R-NH) calls for the government to end its control of the companies within two years. Under the amendment, Fannie and Freddie would have to reduce the size of their mortgage portfolios and begin paying state and local sales taxes. Congressional aides say the amendment is unlikely to pass.
Additionally, Binyamin Appelbaum of the New York Times writes that Fannie Mae's request on Monday for another $8.4 billion in federal aid comes at a politically inconvenient time for the Obama administration, which is pressing to pass sweeping financial legislation without resolving the company's future.
SEC, US exchanges agree to create market-wide circuit breakers
Sarah N. Lynch and Fawn Johnson of the Wall Street Journal report that the Securities and Exchange Commission and the major trading exchanges agreed on Monday that a market-wide "circuit-breaker" system should be established to handle the type of volatility demonstrated in last Thursday's market plunge, according to people familiar with the matter.
SEC Chairman Mary Schapiro, CFTC Chairman Gary Gensler and officials from the NYSE, Nasdaq and CME are all scheduled to testify about the stock market plunge before the House Financial Services Capital Markets Subcommittee this afternoon. The hearing begins at 3pm in room 2128 of the Rayburn House Office Building.
Jack Reed wants hedge funds to register
Chris Frates writes in Politico that Sen. Jack Reed (D-RI) filed an amendment to the Wall Street reform bill Monday that would require hedge funds, private equity and venture capital firms to register with the SEC. The Senate bill currently requires hedge funds that manage more than $100 million to register and open their books to the SEC. Private equity and venture capital funds are largely exempt from the requirement.
May 10, 2010
Pew's FRP News Brief
"We can take a look at the cost of this recession. The Pew Financial Reform Project estimated that just a slowdown in economic growth will cost every family in America close to $6,000....We have an obligation to make sure our economy and our people are protected from that type of financial meltdown in the future."
Senator Ben Cardin (D-MD), Congressional Record, May 6, 2010
Dodd: Wall Street Detached from "Real Economy"
Senate Banking Committee Chairman Chris Dodd (D-CT) and ranking Republican member Richard Shelby (R-AL) were interviewed on CBS's Face the Nation Sunday in the aftermath of last week's 1,000 point drop in the Dow. Dodd said he was planning to hold hearings right away on the need for market-wide ‘circuit breakers' and promoted the financial reform bill he was working on with Shelby.
Shelby: Fannie Mae and Freddie Mac should be included in financial reform
Reuters and the Huffington Post report that Sen. Richard Shelby used the Republican's weekly address Saturday to call for an overhaul of the government's involvement in U.S. mortgage finance giants Fannie Mae and Freddie Mac. Shelby introduced an amendment last week with Sens. John McCain (R-AZ) and Judd Gregg (R-NH) that, if adopted, would eventually strip the agencies of their mandate to promote affordable housing and reduce the government's role in mortgage finance.
GOP chips away at Wall Street Bill
Chris Frates of Politico writes that after failing to substitute their own version of a consumer financial regulatory agency, Republicans will try to chip away at the version in the Senate bill, which the GOP says would impose the same tough regulations on small businesses as it slaps on multinational banks.
Durbin expects ‘substantial' GOP support for Wall Street reform bill
Majority Whip Dick Durbin (D-IL), interviewed on C-SPAN's Newsmakers Sunday, said he expects a substantial number of Republicans to back the financial reform bill and hopes to stick with a planned vote in the coming week. According to the Washington Post, Senate Majority leader Harry Reid (D-NV) hopes to wrap up the bill by the end of the week, with voting scheduled to resume tomorrow.
Volcker: Derivatives rule goes too far; banks shouldn't have to shed businesses
Brady Dennis of the Washington Post reports that former Fed Chairman Paul Volcker has written to senators of both parties saying that commercial banks providing derivatives to customers "in the usual course of a banking relationship" shouldn't be banned from that practice. Tom Braithwaite writes in the Financial Times that Volcker is casting a long shadow over proposed regulatory changes in the bill.
Editorial: Financial reform is coming to the U.S.
An editorial in the Financial Times views the recent debate on financial reform as encouraging and believes the prospects that a good bill will soon become law have improved.
May 7, 2010
Pew's FRP News Brief
"At a time when our entire financial system almost collapsed, we cannot let the Fed operate in secrecy any longer. The American people have a right to know."
With two Republicans, financial overhaul bill moves toward approval
Brady Dennis of the Washington Post reports that late Thursday Senate Democrats blocked a Republican attempt to rein in the size and scope of a consumer regulator designed to protect borrowers from abuses by lenders. The 61 to 38 vote included support from two key Republicans -- Charles Grassley (R-IA) and Olympia Snowe (R-ME) -- who Democrats hope will support the broader overhaul bill.
Additionally the New York Times reports that the Senate voted 61-33 to reject an amendment proposed by Sens. Ted Kaufman (D-DE) and Sherrod Brown (D-OH) that would break up some of the biggest banks and impose new limits on the size and scope of financial companies.
Meredith Shiner of Politico writes that Sen. Dick Durbin (D-IL), the Senate's second-ranking Democrat, indicated Thursday that Majority Leader Harry Reid's (D-NV) goal of finishing a Wall Street reform bill by next week might be out of reach. Meeting that deadline "would be a tough thing to pull off," Durbin said.
Sanders agrees to modify measure requiring Fed audit
The Wall Street Journal, The Hill's On The Money blog and Politico report that late maneuvering in the Senate Thursday allowed the Federal Reserve to avoid legislation that would have exposed its interest-rate decision-making to congressional auditors.
According to the Journal, pressure from the Obama administration led Senate lawmakers to alter a provision pushed by Sen. Bernie Sanders (I-VT) that was gaining momentum. Both Fed Chairman Ben Bernanke and former Chairman Paul Volcker wrote to Senate Banking Committee Chairman Chris Dodd (D-CT) expressing their opposition to the proposed amendment. The compromise, endorsed by Dodd and the Treasury, would require the Fed to disclose more details about its lending during the financial crisis. It would also require a one-time audit of those loans and a one-time review of Fed governance. A formal vote has been pushed back until next week.
Paulson and Geithner Back Calls for Tighter Regulation
The New York Times, Wall Street Journal and MarketWatch report that Treasury Secretary Timothy Geithner and his predecessor Hank Paulson both endorsed calls for stricter regulation of financial markets during testimony before the Financial Crisis Inquiry Commission on Thursday. Geithner said that regulators "absolutely could have done more" to address the financial crisis.
Financial reform: half of senior execs see potential ‘net positive'
PRNewswire reports that while the vast majority of U.S. senior executives are concerned about the impact regulatory reform will have on their businesses, half say it could eventually be a "net positive" according to a new survey conducted by KPMG LLP.
May 6, 2010
Pew's FRP News Brief
"With this agreement there can be no doubt that this Senate is unified in its
commitment to end taxpayer funded bailouts."
Senate Strikes Deal on Failing Financial Firms
Major news organizations including the Wall Street Journal, Washington Post, New York Times and MarketWatch report that the Senate on Wednesday overwhelmingly approved two amendments to the financial regulatory bill that would end the prospect of taxpayer-financed bailouts for companies deemed "too big to fail."
The Wall Street Journal reports that the 93-5 vote on an amendment written by Senate Banking Committee Chairman Chris Dodd (D-CT) and ranking Republican member Richard Shelby (R-AL) would create new government tools to break up faltering companies. According to the Washington Post, at the heart of the Dodd-Shelby agreement was Dodd's willingness to drop a proposed $50 billion fund which would be filled upfront by the financial industry to cover the cost of closing down failing firms. The New York Times reports that the Senate also approved, by a vote of 96 to 1, an amendment by Sen. Barbara Boxer (D-CA) which specifically said that a failing firm's assets must be sold to pay for the cost of its liquidation, with taxpayers sharing no part of the loss.
White House pushes back against Shelby amendment
Ben White writes in Politico's Morning Money blog that White House Communications Director Dan Pfeiffer will post an item this morning hitting Sen. Richard Shelby's proposed amendment on consumer financial protection.
Barney Frank to White House: Fight GOP
Eamon Javers of Politico writes that House Financial Services Committee Chairman Barney Frank (D-MA) is worried that the GOP is scoring points with its attacks on housing giants Fannie Mae and Freddie Mac, and is urging the White House to fight back. According to Javers, Frank sent a two-page memo Tuesday evening to Obama administration officials, a copy of which was obtained by Politico.
Additionally, an opinion piece in the Wall Street Journal takes the view that one sign the White House financial reform is less potent than its advertising claims is that it doesn't even attempt to reform the two companies at the heart of the housing mania and panic, Fannie Mae and Freddie Mac.
Bear Stearns chief blames market rumors for collapse
Tom Braithwaite of the Financial Times reports that Jimmy Cayne, the former Bear Stearns chief executive, blamed market rumors and short sellers for precipitating the bank's demise in 2008, in testimony before the Financial Crisis Inquiry Commission on Wednesday. Treasury Secretary Timothy Geithner is scheduled to testify before the Committee today at 9am in room 538 of the Dirksen Senate Office Building.
May 5, 2010
Pew's FRP News Brief
"The Pew Financial Reform Project recently summarized what we have been through in this recession. It is a painful reminder, but it is worth noting as we start this debate...."
Senator Dick Durbin (D-IL), Congressional Record, May 3, 2010
Reid hammers Republicans on Wall Street reform delay
Meredith Shiner of Politico reports that Senate Majority Leader Harry Reid (D-NV) took to the floor late Tuesday evening to accuse Republicans of not allowing the Senate to move forward with the amendment process on its financial regulatory reform bill. Reid expressed his dismay that no amendments have been voted on despite the fact that official debate on the bill opened nearly a week ago.
Additionally, Michael R. Crittenden and Corey Boles of the Wall Street Journal report that Sen. Reid said he would prefer to set a 50-vote threshold for passing amendments to the sweeping financial reform legislation, but acknowledged that some proposals may face a 60-vote requirement.
Divided Democrats fight over Wall Street reform
Alexander Bolton writes in The Hill that divisions among Democrats emerged Tuesday on the details of Wall Street reform legislation. Sen. Bernie Sanders (I-VT) said White House opposition to his amendment allowing for an audit of the Fed was inconsistent with the President's campaign promises on transparency, while Democrats also squared off on language putting restrictions on the trading of derivatives.
Key Senators in partial agreement on ‘too big to fail'
Kevin Drawbaugh and Andy Sullivan of Reuters report that Senate Banking Committee Chairman Chris Dodd (D-CT) and ranking committee member Sen. Richard Shelby (R-AL), the key negotiators on financial reform legislation, have agreed on a new government protocol for dismantling financial giants in distress. Aides said Senate voting would be delayed at least until today while details were ironed out on the new agreement on dealing with 'too big to fail' firms in trouble.
Geithner: Bank Tax Should Accompany Wall Street Bill
The Washington Post and Dow Jones Newswires report that Treasury Secretary Timothy Geithner urged Congress Tuesday to enact a tax on banks to help the government recoup financial crisis bailout funds, alongside the financial reform bill now pending in the Senate.
Additionally, Jay Heflin writes in The Hill's On The Money blog that Senate Finance Committee Chairman Max Baucus (D-MT) told The Hill that he did not believe his chamber had the 60 votes needed to include a bank tax in the financial reform bill currently being debated on the floor.
Editorial: The Hard Work on Financial Reform
An editorial in the New York Times today takes the view that the procedural vote in the Senate last week sets up the real test of the Democrats' resolve to enact the kind of change that the nation's financial system so badly needs.
May 4, 2010
Pew's FRP News Brief
"I think the anger is hot, it's visceral and it's absolutely clear that Americans want something done [on financial reform]."
Voting begins in Senate on Wall Street reform
Kevin Drawbaugh of Reuters reports that the Senate will cast its first votes today on a sweeping Wall Street reform bill, with passage of a handful of uncontroversial amendments expected and a key procedural question still unsettled. According to Drawbaugh, as of late Monday Democratic leaders had not yet determined whether amendments will need 50 or 60 votes to pass. A 60-vote rule would make winning passage for any amendment -- and there are more than 100 circulating -- more difficult, while a 50-vote rule would open the way to all sorts of proposals from both Democrats and Republicans.
Additionally, Carrie Budoff Brown of Politico reports that Sen. Byron Dorgan (D-ND) will introduce an amendment today giving broader authority to the new Financial Stability Oversight Council to break up banks deemed too big to fail, according to an outline of the proposal provided to Politico.
Sanders' Fed audit amendment stirs trouble
Glenn Thrush writes in his Politico blog that the Senate and Obama administration are on a collision course over one of the most-anticipated amendments of the financial regulatory reform debate -- a proposal to audit the Federal Reserve. Sen. Bernie Sanders (I-VT) said he hopes to raise his amendment requiring an audit of the Fed when the debate begins today. According to Thrush, Sanders' proposal has broad bipartisan support, and may well pass the Senate - unless the administration succeeds in urging senators to oppose it.
Derivatives-spin off proposal opposed as part of overhaul bill
Brady Dennis of the Washington Post writes that a proposal that could force banks to spin off their derivatives businesses has run into opposition on multiple fronts. Obama administration officials, industry groups, banking regulators and lawmakers from both sides of the aisle have taken aim at the measure proposed by Senate Agriculture Committee Chairman Blanche Lincoln (D-AR).
Additionally, Dow Jones Newswires reports that Americans for Financial Reform, a coalition of groups from the AARP and the AFL-CIO to the National Council of La Raza, wrote to senators on Monday urging them to retain a provision in the Senate financial overhaul bill that would force banks to spin off their swaps desks if they wish to remain eligible for federal financial assistance.
A busy week for Geithner on Capitol Hill
Treasury Secretary Timothy Geithner is scheduled to testify today at a hearing of the Senate Finance Committee on "The President's Proposed Fee on Financial Institutions Regarding TARP: Part 2." The hearing starts at 10am in room 215 of the Dirksen Senate Office Building. On Thursday Geithner will testify before the Financial Crisis Inquiry Commission during the second day of its hearings on "The Shadow Banking System." That hearing starts at 9am in room 538 of the Dirksen Senate Office Building.
May 3, 2010
Pew's FRP News Brief
"If all derivatives market-making activities were moved outside of bank holding companies, most of the activity would no doubt continue, but in less regulated and more highly leveraged venues."
Bair Warns Against New Curbs on Bank Trading
Damian Paletta of the Wall Street Journal reports that FDIC Chairman Sheila Bair has written to Senate Banking Committee Chairman Chris Dodd (D-CT) and Senate Agriculture Committee Chairman Blanche Lincoln (D-AR) urging them to scrap a controversial Senate plan that would force banks to spin off their derivatives businesses, saying it could destabilize banks and drive risk into unregulated parts of the financial sector.
Additionally, the Financial Times reports that Berkshire Hathaway CEO Warren Buffett has stepped up his warnings over the impact of any move by Congress to bring in retroactive rules on the use of derivatives contracts.
Senator Brown Says His Push to Limit Bank Size Gaining Support
Senate Banking Committee member Sherrod Brown (D-OH), interviewed on Bloomberg TV, said support is growing for his proposal to reduce the size of U.S. banks as part of broader financial reform legislation. Brown said his amendment, introduced last week with fellow Democratic Sen. Ted Kaufman (D-DE), would probably force five banks to divest some regional branches or exit a line of business.
Additionally, Silla Brush of The Hill's On the Money blog provides a list of initial amendments which are headed to the Senate floor.
Senate Financial Bill Misguided, Some Academics Say
Binyamin Appelbaum and Sewell Chan of the New York Times report that several prominent academic experts say that the proposed financial reform legislation does not even address the right problems, leaving the financial system vulnerable to another major crisis. Some point to specific issues left largely untouched; others simply argue that it is premature to pass sweeping legislation while so much about the crisis remains unclear and so many inquiries are in progress.
Fed official hits out at ‘political meddling' in reform bill
St. Louis Fed President James Bullard, in an interview with Tom Braithwaite in the Financial Times, said the financial reform bill being considered in the Senate would result in "blatant politicization" of the central bank. Bullard also questioned the credibility of a proposed system to wind up the biggest banks and hit out at plans for a full-scale audit of the Fed.
Additionally, Sewell Chan, in a news analysis in the New York Times, writes that in naming two economists and a lawyer to serve as governors of the Federal Reserve, President Obama and his top economic advisers are preparing the central bank for a new emphasis on the supervision of financial institutions.
April 30, 2010
Pew's FRP News Brief
"The status quo is unacceptable. We cannot leave the American people vulnerable to the present construct of our financial regulatory system."
Senate debates finance reform bill
Major news organizations including the Washington Post and Financial Times report that the Senate began debating the far-reaching financial reform bill Thursday, with Sen. Barbara Boxer (D-CA) proposing the first amendment. Boxer's amendment would prohibit using any more taxpayer money to bail out troubled financial companies. Reuters reports that Senate party leaders Harry Reid (D-NV) and Mitch McConnell (R-KY) will be major figures in determining the outcome of the legislation, and highlights other key players in the debate. Gillian Tett's Insight column in the Financial Times takes the view that the ‘banking regulation bill is too big to succeed."
Bank Bill Attracts Populists Amendments
Damian Paletta and Greg Hitt of the Wall Street Journal write that Senate lawmakers in both parties are planning populist attacks on Wall Street by proposing a flurry of amendments which, if adopted, would change the banking industry far more than the current version of the bill.
Sherrod Brown op-ed: ‘Too big to fail is simply too big'
Sen. Sherrod Brown (D-OH) pens an op-ed in the Washington Post arguing for "a tough authority measure to ensure the orderly liquidation of big banks if they become insolvent."
Geithner: Fannie and Freddie reform plan coming in six months
The Hill's On The Money blog reports on the appearance of Treasury Secretary Timothy Geithner before a Senate Appropriations subcommittee hearing Thursday during which he said that the Obama administration will likely take another six months before releasing its plan to reform the Freddie Mac and Fannie Mae mortgage firms.
Criminal Probe Looks Into Goldman Trading
Major news organizations including the Wall Street Journal, New York Times and Washington Post report that Federal prosecutors have opened an investigation into trading at Goldman Sachs, raising the possibility of criminal charges against the Wall Street giant, according to people familiar with the matter.
Elizabeth Warren on the financial crisis
Congressional Oversight Panel Chairman Elizabeth Warren, interviewed on Bloomberg TV, said that "a consumer agency might have averted the financial crisis and that the ‘banking regulators' caused the meltdown."
April 29, 2010
Pew's FRP News Brief
"'You want to avoid these crises,' [Georgetown University Professor Phillip Swagel] said in an interview. ‘Once you get into it, even if you do everything right, it's still tremendously costly.'"
Senate Ends Financial-Bill Standoff
Major news organizations including the Wall Street Journal, New York Times, Washington Post and Reuters report that the Republicans ended their three-day filibuster Wednesday and reached agreement with Democrats to begin debate today on financial reform legislation. Greg Hitt and Damian Paletta write in the Wall Street Journal that Democrats, in a concession, agreed to kill a proposed $50 billion fund to break up large, failing financial companies. But in other areas, notably derivatives regulation-which will be debated today-and consumer protection, the sides remain divided. Bill Swindell writes in the National Journal's CongressDaily that Senate Banking Committee Chairman Chris Dodd (D-CT) "will be holding the legislative equivalent of a full house when he kicks off debate today on his legislation...."
Financial crisis cost taxpayers at least $11,000 each per household
Bloomberg and The Hill's On The Money blog report on the new study released by the Pew Economic Policy Group's Financial Reform Project. The study, by Phillip Swagel, director of Georgetown University's Center for Financial Institutions, Policy and Governance, and a former Assistant Treasury Secretary for Economic Policy, found that the combined costs of lost income and wages, and federal government spending to mitigate the financial crisis, totaled more than $11,000, on average per U.S. household, during the acute stage of the financial crisis - from September 2008 through the end of 2009.
Levin targets ‘conflicts of interest'
The Financial Times reports that Sen. Carl Levin (D-MI), chairman of the Senate Permanent Subcommittee on Investigations, plans to introduce legislation to address conflicts of interest at credit ratings agencies, end the issuance of negatively amortizing mortgage loans and patch holes in regulatory enforcement. Any legislation sponsored by Sen. Levin would be added to the financial reform bill currently before the Senate.
Obama to nominate three for Federal Reserve
The Los Angeles Times reports that President Obama is expected to nominate Janet Yellen to serve as vice chairwoman of the Federal Reserve. Yellen is currently president of the San Francisco Federal Reserve Bank. Obama is also expected to nominate MIT economics professor Peter Diamond and Maryland commissioner of financial regulation Sarah Bloom Raskin to serve as board members, according to the paper's source.
Op-ed: Geithner, Duncan and Jarrett on using education to cope with a complex economy
Treasury Secretary Timothy Geithner, Education Secretary Arne Duncan and White House Senior Advisor Valerie Jarrett pen an op-ed in the Huffington Post arguing that while Americans focus on much-needed financial reforms "we also need to recognize that most Americans don't have the knowledge and skills they need to make the right financial decisions for themselves and their families."
April 28, 2010
Pew's FRP News Brief
"I hope the executives before us today, and their colleagues on Wall Street, will recognize the harm that their actions have caused.... But whether or not they take responsibility for their role, I hope this Congress will follow the example of another Congress, eight decades ago, and enact the reforms that will put a cop back on the Wall Street beat."
Major news organizations including the Wall Street Journal, Washington Post, Financial Times and Politico report that for the second day in succession Republicans yesterday blocked a Democratic bid to debate financial reform legislation on the Senate floor. The vote was again 57-41 with Sen. Ben Nelson (D-NE) once more siding with Republicans. Further votes are expected today and possibly tomorrow. MarketWatch reports that Senate Banking Committee Chairman Chris Dodd (D-CT) is again working on reaching a compromise with Republicans over how much taxpayer funds could be put at risk in the event of a financial crisis.
Republican Alternative to Democrats' Financial Overhaul Takes Shape
Damian Paletta writes in the Wall Street Journal's Real Time Economics blog that Senate Republicans are circulating their own financial overhaul plan as they continue to block the effort by Democrats to bring a White House-backed bill to the Senate floor for a vote. Paletta provides highlights of the plan, contained in a 20-page summary obtained by the Wall Street Journal.
Goldman's woes mount in Senate grilling
Major news organizations including the Financial Times, Wall Street Journal and New York Times report on the appearance of Goldman Sachs CEO Lloyd Blankfein and other current and former executives before the Senate Permanent Subcommittee on Investigations yesterday. According to the Financial Times, the Subcommittee attacked the bank for profiting from the financial crisis at the expense of its clients and accused it of "intolerable" conflicts of interest.
Schapiro and Bair voice caution on swaps proposal
Reuters reports that SEC Chairman Mary Schapiro and FDIC Chairman Sheila Bair, speaking at its Global Regulation Summit in Washington yesterday, both voiced caution regarding a financial reform proposal that would force banks to spin off their swaps desks. Speaking at the same conference, Sen. Judd Gregg (R-NH) said that the chairman of the Commodity Futures Trading Commission played too great a role in crafting Democratic reforms proposed by Senate Agriculture Committee Chairman Blanche Lincoln (D-AR).
Fed Presidents Asked to Meet Lawmakers on Financial Overhaul
Bloomberg reports that the presidents of four Federal Reserve banks have been invited to meet with members of Congress this week to discuss legislation to overhaul regulation of the financial system. Sen. Sam Brownback (R-KS) the ranking Republican on the Joint Economic Committee, sent invitations to Kansas City Fed President Thomas Hoenig, Philadelphia's Charles Plosser, Richmond's Jeffrey Lacker and the Minneapolis Fed's Narayana Kocherlakota.
April 27, 2010
Pew's FRP News Brief
"A lack of consumer protections and a lack of accountability on Wall Street nearly brought our economy to its knees.... The reform that both parties have been working on for a year would prevent a crisis like this from happening again, and I urge the Senate to get back to work and put the interests of the country ahead of party."
President Barack Obama, "The President's Statement on Financial Reform," April 26, 2010
Republicans delay financial reform bill
Major news organizations including the Financial Times, New York Times, Wall Street Journal and Washington Post report that the Democratic motion to open debate on the proposed financial reform bill was voted down Monday, 57-41, with all Republicans present and Sen. Ben Nelson (D-NE) voting no. Democrats needed 60 votes to proceed, and Senate Majority Leader Harry Reid (D-NV) is expected to bring the bill up again today and tomorrow. Negotiations between Senate Banking Committee Chairman Chris Dodd (D-CT) and ranking member Sen. Richard Shelby (R-AL) are also expected to continue. According to the New York Times, Sen. Nelson sided with Republicans, apparently over a provision related to tightening the rules on derivatives trading that was of particular concern to Warren Buffett.
Poll shows most Americans back financial reform
The Washington Post reports that about two-thirds of Americans support stricter regulations on the way banks and other financial institutions conduct their business, according to a new Washington Post-ABC News poll. Majorities also back two main components of legislation Democrats plan to bring to a vote in the Senate this week: greater federal oversight of consumer loans and a company-paid fund that would cover the costs of dismantling failed firms that put the broader economy at risk. The results are similar to those of a recent poll conducted for the Pew Financial Reform Project which showed that 59% of Americans want Congress and the President to reform the financial system now.
Levin: Goldman has been ‘misleading'
Eamon Javers of Politico writes that Sen. Carl Levin (D-MI), who chairs the Senate Permanent Subcommittee on Investigations unveiled hundreds of new emails on Monday and charged that top executives at Goldman Sachs have been "misleading" the country and had profited from bets against the U.S. housing market in 2007 and 2008. Goldman Sachs CEO Lloyd Blankfein and other senior Goldman executives will testify before the Subcommittee today beginning at 10am in the Dirksen Senate Office Building, room 106.
Ben White of Politico writes that the Goldman hearing is almost certain to overshadow the first meeting of President Obama's National Commission on Fiscal Responsibility and Reform, which takes place this morning. Federal Reserve Chairman Ben Bernanke will speak at the meeting along with OMB Director Peter Orszag.
Senator Kaufman tests the big-bank theory
The Washington Post reports that the debate on financial regulatory reform has turned Sen. Ted Kaufman (D-DE), an appointed senator, into a liberal hero as he seeks to break up the largest banks in the country.
April 26, 2010
Pew's FRP News Brief
"Like Senator Dodd said, we're working closely together. I think we're conceptually very, very close....And will we get a bill by tomorrow? I doubt it....But I think we will get a bill."
Senator Richard Shelby (R-AL), interviewed on NBC's Meet the Press, April 25, 2010
Wall Street ‘showdown' on the Senate floor
Carrie Budoff Brown of Politico writes that a last-minute deal between Senate Banking Committee Chairman Chris Dodd (D-CT) and ranking Republican Sen. Richard Shelby (R-AL) could avert a Democratic defeat on the first key test vote of Dodd's proposed financial reform bill, expected late Monday. Both men were interviewed on NBC's Meet the Press on Sunday.
Senate Minority Leader Mitch McConnell (R-KY), interviewed on Fox News Sunday said he didn't expect the financial reform bill to go forward on Monday, while Sen. Bob Corker (R-TN), interviewed on ABC's This Week, said Republicans would "very likely" vote to block the procedural vote.
Treasury Secretary Timothy Geithner, interviewed on CNN's Fareed Zakaria GPS, said "I'm very confident. I think we're going to have very strong support from Republicans for a strong financial reform bill."
Damian Paletta and Scott Patterson of the Wall Street Journal report that Senate Banking Committee Chairman Chris Dodd and Senate Agriculture Chair Blanche Lincoln (D-AR) reached a tentative agreement on Sunday night to set restrictions on trading in exotic financial instruments known as derivatives. According to the article, among the considerations still in the balance is a big provision being sought by Warren Buffett and pushed by Senator Ben Nelson (D-NE) in the Agriculture Committee.
Op-ed: Fight On Goldman Sachs!
New York Times op-ed columnist Frank Rich writes on Sunday that changing Wall Street's culture will require more than just passing regulatory reforms.
Goldman Sachs Chairman and CEO Lloyd Blankfein is one of several current and former Goldman Sachs executives scheduled to testify before the Senate Permanent Subcommittee on Investigations on Tuesday. The hearing starts at 10am in the Dirksen Senate Office Building, room 106.
Op-ed: Bailing out of bailouts
A Washington Post editorial on Sunday takes the view that no issue looms larger in the Senate debate on financial regulation than ‘too big to fail' and asks: "What's the best solution to this intractable problem?"
US prepares to push for global capital rules
Tom Braithwaite of the Financial Times reports that the U.S. is preparing to pivot from domestic regulatory reform to a push for a tough new international capital regime after the weekend's G20 and International Monetary Fund meetings glossed over differences between leading economies.
April 23, 2010
Pew's FRP News Brief
"And I read a report recently... from Time Magazine. I'm going to quote: ‘Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed... would rivet upon their institutions what they considered a monstrous system... such a system, they felt, would not only rob them of their pride of profession but would reduce all U.S. banking to its lowest level.' That appeared in Time Magazine in June of 1933."
President Urges Wall Street Support for Reform
Major news organizations including the New York Times, Wall Street Journal, and Financial Times report on President Obama's speech at Cooper Union Thursday. According to the New York Times, the President chided Wall Street bankers for their "reckless practices" and pressed for tighter regulations. The Financial Times reports that Obama told his Wall Street audience to stop opposing financial reform, arguing it would only hurt banks "bilking people" out of money.
Op-eds: The New Master of Wall Street
New York Times op-ed columnist Paul Krugman argues that "Mr. Obama should be trying to do what's right for the country - full stop. If doing so hurts the bankers, that's O.K." Washington Post op-ed columnist Eugene Robinson takes the view that "the president is on the offensive now; his opponents are scrambling to decide how to react." In the view of the Financial Times: "financial regulation is, and always will be, a work in progress." The Wall Street Journal opines: "Obama surveys the financial kingdom that soon may be his."
Republicans Block Start of Debate on Financial Bill
The New York Times reports that Senate Republicans blocked an effort by Democrats on Thursday to start debate on financial reform legislation, and the two sides traded bitter accusations about who was standing in the way of a bipartisan agreement. Majority leader Sen. Harry Reid (D-NV) asked Republicans to agree to begin debating the measure, but Republican minority leader Sen. Mitch McConnell (R-KY) objected, saying Democrats were pre-empting negotiations to reach a deal. Politico reports that Sen. Reid set the first key vote for Monday.
Derivatives traders search for way to appease regulators
The Financial Times reports on the annual meeting of the International Swaps and Derivatives Association in San Francisco and says that the industry's focus has shifted from growth to finding ways to meet regulators' demands to shrink. Addressing the conference, Deputy Treasury Secretary Neal Wolin highlighted the need "to bring transparency and oversight to key markets, including the over-the-counter derivatives market." Wolin said that Treasury Secretary Geithner would be pressing the need for urgent reform when he meets with his G-20 counterparts this weekend. Click here to read Wolin's remarks.
In an op-ed in the Wall Street Journal Niall Ferguson and Ted Forstmann argue that "the case for limiting leverage and regulating derivatives is overwhelming, but that doesn't require a new 1,300-page law."
April 22, 2010
Pew's FRP News Brief
"If banks want to be banks, they can remain banks, but they're going to need to spin off that [derivatives] activity."
Senate Agriculture Committee passes derivatives bill
Major news organizations including Reuters, New York Times, Washington Post and Politico report on the vote by the Senate Agriculture Committee on Wednesday to approve a bill that would establish oversight of the vast financial derivatives market. The committee voted 13 to 8, with all 12 Democrats and Sen. Chuck Grassley (R-IA) voting in favor of the bill.
Damian Paletta and Greg Hitt of the Wall Street Journal write that the backing from Sen. Grassley is the first sign of what Democrats hope will be an eventual wave of Republican support for financial reform legislation. Sen. Grassley was the first Senate Republican to support any part of the financial overhaul.
Senator Dodd: Financial reform to Senate in "hours"
Kevin Drawbaugh of Reuters reports that Senate Democratic leaders plan to seek a key procedural vote today on financial reform legislation and are targeting a final vote next Monday, a senior Democratic aide said on Wednesday. At the same time, Democratic leaders are awaiting the outcome of continued negotiations over the bill toward a possible bipartisan compromise, said the senior aide and other Senate staffers involved in the closed-door talks. Brady Dennis and Paul Kane of the Washington Post quote the lead Republican negotiator Sen. Richard Shelby (R-AL) as saying: "I'm more optimistic than I've ever been."
Obama to urge tougher rules for Wall Street
Caren Bohan of Reuters writes that President Obama will urge sweeping new rules for Wall Street during a speech in New York today that will seek to build on growing momentum for legislation to overhaul the U.S. regulatory structure. Sam Youngman of The Hill's On The Money blog reports that White House spokesman Robert Gibbs said Wall Street could be subject to more tough talk for its past abuses and excessive bonuses when the President speaks at Cooper Union.
Mayor Bloomberg sticks up for Wall Street
Sara Kugler of the Associated Press reports that New York Mayor Michael Bloomberg has become Wall Street's spokesman and defender as President Obama heads to New York. At the same time, Glenn Thrush and Manu Raju write in Politico that Bloomberg has criticized Senator Chuck Schumer (D-NY) for turning against the industry that fueled both their careers, causing a rift between the two most powerful politicians in New York.
April 21, 2010
Pew's FRP News Brief
"It is incredibly important for the country, for West Virginia, for people on the street, for this to get done and soon, and restore confidence in the financial system and in the economy."
Dodd-Shelby talks: A deal reportedly close
Eamon Javers of Politico reports that a senior administration [official] says that Senate Banking Committee Chairman Chris Dodd (D-CT) and ranking Republican Sen. Richard Shelby (R-AL) are getting very close to a deal on financial reform. "They're getting more realistic," the official said. Closed-door negotiations continued into Tuesday evening.
McConnell changes tone on financial bill
Brady Dennis and Shailagh Murray of the Washington Post report that after a week of attacking the pending legislation as a ticket to new taxpayer "bailouts," Senate Minority Leader Mitch McConnell (R-KY) has softened his tone. Speaking on the Senate floor on Tuesday McConnell said: "I'm heartened to hear that bipartisan talks have resumed in earnest."
Financial Debate Renews Scrutiny on Banks' Size
Sewell Chan of the New York Times reports that in the sweeping legislation before the Senate, there is no attempt to break up big banks as a means of creating a less risky financial system. According to Chan, as the debate over the regulatory overhaul heated up this week, a populist minority in both Congress and the Fed requested a revisit to the size issue.
Gensler: Clearinghouses Are the Answer
Gary Gensler, Chairman of the Commodity Futures Trading Commission, writes in the Wall Street Journal that complex derivatives should be regulated like commodity futures. Gensler takes the view that "it is essential that financial reform does not allow loopholes that leave interconnectedness in the system."
IMF calls for taxes on bank balance sheets
The New York Times, Wall Street Journal and Financial Times all report on the International Monetary Fund proposal to charge a levy on the largest banks for the cost of any future government-led rescues, as well as a tax based on bank profits and compensation.
April 20, 2010
Pew's FRP News Brief
"...we urge Senators to enact real reform to protect Americans and our financial system. Financial reform must significantly reduce the likelihood of future crises and ensure that, should a crisis occur, the American taxpayer is not left covering the tab."
John E. Morton, Managing Director,
Pew Economic Policy Group, April 19, 2010
Obama heading to New York to push financial reform
The White House announced that President Obama will travel to New York on Thursday to make the case for regulatory reform. Obama will speak at historic Cooper Union on the same day that Senate Democrats could bring the financial reform bill to the floor.
Democrats seek to close partisan divide on Wall Street reform
Shailagh Murray and Brady Dennis of the Washington Post report that Democrats are targeting three Republicans: Sens. Olympia J. Snowe (R-ME), Susan Collins (R-ME) and Bob Corker (R-TN) in their attempt to garner bipartisan support for financial reform. The three have said they oppose the bill in its current form, but Snowe and Corker said Monday that their concerns could be resolved in a matter of days.
However, The Hill reports that Sen. Susan Collins emerged from a meeting with Treasury Secretary Tim Geithner on Monday to announce she would join a GOP filibuster of Wall Street reform.
Finance Overhaul Remains in Flux
Damian Paletta and Jonathan Weisman of the Wall Street Journal report that the White House and Senate Democrats appear increasingly willing to jettison a proposed $50 billion fund to pay for the orderly break-up of failing financial companies, a contentious provision of their financial-markets overhaul bill. However, Carrie Budoff Brown of Politico reports that Senate Democratic leaders plan to stand behind the $50 billion fund agreeing at a leadership meeting Monday that they wouldn't give it up without gaining GOP votes in return, according to a Democratic aide familiar with the discussions.
Goldman's impact on financial reform
House Financial Services Committee Chairman Barney Frank (D-MA) and Senate Banking Committee member Judd Gregg (R-NH) were interviewed on CNBC's Squawk Box on Monday to discuss the impact of the SEC fraud case against Goldman Sachs and financial reform.
Additionally, Edward Luce writes in the Financial Times that the SEC decision to charge Goldman could not have come at a better time and gives further ammunition to Senate Banking Committee Chairman Chris Dodd (D-CT) and the White House in their quest to enact a financial regulatory bill in the next few weeks.
Derivatives: Overhaul Draws a ‘Swarm of Lobbyists'
Edward Wyatt and Eric Lichtblau of the New York Times report that more than 1,500 lobbyists, executives, bankers and others have made their way to the Senate Agriculture Committee, which on Wednesday will take up legislation to rein in derivatives trading. The article adds that according to the Center for Responsive Politics, Agriculture Committee members have received $22.8 million in this election cycle.
April 19, 2010
Pew's FRP News Brief
"We will hold Wall Street accountable. We will protect and empower consumers in our financial system. That's what reform is all about. That's what we're fighting for. And that's exactly what we're going to achieve."
Democrats Seize on Financial Oversight After Goldman Suit
Jackie Calmes writes in the New York Times that with the Senate scheduled to begin debate on the financial overhaul bill this week, the fraud suit against Goldman Sachs has emboldened Democrats to ratchet up pressure on Republicans who oppose the Obama administration's proposal. According to Calmes, White House officials have indicated that President Obama would take his campaign for a regulatory overhaul on the road in coming weeks.
Treasury Secretary Timothy Geithner, interviewed on NBC's Meet the Press on Sunday, said: "I am very confident that we're going to have the votes for a strong package of financial reforms that will bring derivative markets out of the dark...." At the same time, former President Bill Clinton acknowledged on ABC's This Week that he was wrong to take the advice of those [former Treasury Secretaries Robert Rubin and Larry Summers] advising him against regulating derivatives.
Additionally, Politico's Morning Money reports that Treasury Secretary Geithner will meet this afternoon with Sen. Susan Collins (R-ME), the last Republican to sign Senate Minority Leader Mitch McConnell's (R-KY) letter promising to oppose Sen. Chris Dodd's (D-CT) bill in its current form.
GOP Senators United in Opposition to Financial Reform Bill
CNN reports that Republicans say they have enough votes to block the proposed financial reform bill unless changes are made. During an interview on CNN's State of the Union on Sunday Senate Minority Leader Mitch McConnell (R-KY) said his party wants financial regulatory reform: "I don't know anybody in the Senate who thinks we ought not to pass a bill. The question is: What's it going to look like?" Sen. Scott Brown (R-MA) interviewed on CBS's Face the Nation said that he is opposed to the Democrats' proposed legislation to overhaul America's banking system and would filibuster if it came to a vote.
Goldman Sachs Plans Strong Defense before Congress
Ben White and Mike Allen write in Politico's Morning Money that Goldman Sachs executives believe they are "a prop in a campaign" for Wall Street reform and plan a confident, resolute approach to fighting the SEC fraud suit. New York Times op-ed columnist Paul Krugman takes the view that the main moral to be drawn from the charges against Goldman doesn't involve the fine print of reform; it involves the urgent need to change Wall Street.
The House Financial Services Committee will hold a hearing Tuesday on the report by the Lehman bankruptcy examiner. Witness scheduled to appear include Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, SEC Chairman Mary Schapiro and former Lehman Chairman and CEO Richard Fuld. The hearing starts at 11am in room 2128 of the Rayburn House Office Building.
April 16, 2010
Pew's FRP News Brief
"We're doing our best to get it on the floor as quickly as possible; we hope to get it on the floor next week."
Senate Democrats Pave the Way for Financial Reform Vote
Several news organizations including Politico, Reuters and The Hill's On The Money blog report that Senate Majority Leader Harry Reid (D-NV) plans to bring financial reform legislation to the Senate floor next week, accelerating a major partisan fight. Eamon Javers writes in Politico's Morning Money that behind their tough talking there is "a realization within Republican ranks that several of their own may find themselves voting with Obama when the final Wall Street reform deal comes together." Morning Money also reports that President Obama is meeting today with his Economic Recovery Advisory Board, chaired by former Fed Chairman Paul Volcker, and financial reform legislation will be on the agenda.
The Derivatives Debate: Secretary Geithner Writes to Senator Lincoln
Damian Paletta writes in the Wall Street Journal that Treasury Secretary Timothy Geithner sent a letter to Senate Agriculture Committee Chairman Blanche Lincoln (D-AR) on Thursday in which he said that tight restrictions on derivatives are "at the core" of a sweeping overhaul of financial rules, but didn't call for the outright ban on trading by banks that some Democrats are pushing. According to Paletta, the letter notably stopped short of endorsing a proposal from Ms. Lincoln to force large banks to spin off derivatives trading businesses entirely.
Additionally, Cyrus Sanati writes in the New York Times DealBook blog that Senator Lincoln is expected to introduce derivatives legislation today that is far stricter for banks than Wall Street had anticipated.
Fight over resolution authority brewing
Bill Swindell and Dan Friedman of the National Journal's Congress Daily write that despite partisan sniping over a proposed $50 billion fund to take over at-risk firms, an even greater fight could stymie the Senate's financial regulatory overhaul: How much flexibility should regulators have to unwind failing firms and place them into receivership? According to the article, beneath the debate Republicans, Democrats and the Obama administration agree that if a large firm were to undergo a resolution process instead of bankruptcy, the financial community would have to cover its costs, not the taxpayers. Sewell Chan shares a similar view in his report in the New York Times.
Simon Johnson and Edmund Andrews examine Senator Mitch McConnell's (R-KY) assertion that the Senate Democrats' bill to reform financial regulation would lead to "endless bailouts for Wall Street."
SEC heavyweights call for self-funding powers
Tom Braithwaite of the Financial Times reports that Mary Schapiro, chairman of the Securities and Exchange Commission, and five of her predecessors exhorted Congress on Thursday to grant self-funding powers to strengthen the agency. Click here to read Schapiro's statement.
April 15, 2010
Pew's FRP News Brief
"I am actually confident that we can work out an effective bipartisan package that assures that we never have ‘too big to fail' again; that consumers are adequately protected when it comes to financial instruments...that we have a strong mechanism to regulate derivatives."
Obama Calls Together Congressional Leaders in Push for New Financial Regulation
Major news organizations including the New York Times, Wall Street Journal, Financial Times and Washington Post report on the meeting Wednesday between President Obama and congressional leaders from both parties to discuss financial reforms. According to the New York Times, after the contentious meeting at the White House the Senate Majority Leader, Harry Reid (D-NV), accused Republicans of once again obstructing every effort by Democrats to govern, and expressed confidence that he could win the 60 votes needed to advance the bill. The Wall Street Journal reports that Republican leaders are struggling to maintain a unified opposition to the White House's financial-regulation revamp. According to the Financial Times, Senate Republican leader Mitch McConnell (R-KY), and John Boehner (R-OH), the top Republican in the House of Representatives, attacked the proposed legislation as they emerged from the meeting.
Geithner: ‘Time to Move' On Financial Regulatory Overhaul
Dow Jones Newswires reports that Treasury Secretary Timothy Geithner said the Obama administration won't support legislation that creates the risk of endless bailouts, the prospect of which Republicans have repeatedly raised in recent days. "It's time to decide....I think we're very, very close," Geithner said. Damian Paletta and Victoria McGrane write in the Wall Street Journal that Secretary Geithner plans to meet today with the newly-elected Sen. Scott Brown (R-MA). According to the Journal, Democrats think Mr. Brown might be willing to support their legislation because he has already broken with Republican leadership on other issues.
Corker: GOP Regulatory Bill Talk is ‘Overheated'
Dan Friedman with Bill Swindell write in the National Journal's Congress Daily that Sen. Bob Corker (R-TN) on Wednesday pushed back against rhetoric from fellow Republicans about Democrats' financial regulatory reform bill, calling a recent focus on the bill's potential to increase bailouts legitimate but "blown out of proportion."
Additionally, Ezra Klein writes in the Washington Post that when Sen. Mitch McConnell (R-KY) said that the Senate financial-regulation bill meant "endless taxpayer-funded bailouts for big Wall Street banks," he was, knowingly or not, taking aim at a policy that had been jointly developed by Sen. Mark Warner (D-VA) and his Republican colleague Sen. Bob Corker.
Democrats give Dodd a week to negotiate with Shelby
Carrie Budoff Brown writes in Politico that Senate leaders plan to give Banking Committee Chairman Chris Dodd (D-CT) through next week to continue his negotiations with Ranking Member Richard Shelby (R-AL), but if a deal fails to materialize, Majority Leader Harry Reid will begin taking procedural steps to bring the bill to the floor for a vote as early as the week of April 26, according to senior Democratic aides.
April 14, 2010
Pew's FRP News Brief
"We cannot allow endless taxpayer-funded bailouts for big Wall Street banks. And that's why we must not pass the financial reform bill that's about to hit the floor. The fact is, this bill wouldn't solve the problems that led to the financial crisis. It would make them worse."
Senate Republicans Blast Regulatory-Overhaul bill
Major news organizations including the Wall Street Journal, New York Times and Washington Post report that Senate Republicans on Tuesday insisted that financial reform legislation proposed by Democrats and the White House would perpetuate bailouts of big banks, a criticism the Obama administration rejected. According to the Journal, Senate Minority Leader Mitch McConnell (R-KY) said that his party couldn't support the Democratic bill because it "institutionalizes" future taxpayer bailouts of Wall Street firms. The New York Times describes the GOP strategy as "a political high-wire act as Republicans seek to oppose the Democrats' bill while not appearing to side with the banks at a time when popular anger at Wall Street is high."
Senator Shelby on Financial Reform Bill
Market News International reports that Sen. Richard Shelby (R-AL), the ranking Republican on the Senate Banking Committee, said Tuesday that he continues to work with Banking Committee Chairman Chris Dodd (D-CT) on a "consensus" regulatory reform bill, adding that it should be clear "in the next couple of weeks" if a bipartisan agreement is possible.
Blanche Lincoln Wall Street bill ‘tacks left'
Politico reports that the new proposal by Senate Agriculture Committee Chairwoman Blanche Lincoln (D-AR) would require sweeping changes to the $450 trillion derivatives market, including forcing big banks to spin off "swaps desks" that handle the complex financial instruments - a more aggressive approach than either the White House or other congressional committees have advocated so far, according to the Arkansas Democrat and her aides.
Gensler takes aim at derivatives exemptions in bank bill
Ronald D. Orol of MarketWatch reports that Commodity Futures Trading Commission Chairman Gary Gensler opposes efforts on Capitol Hill to exempt end-users, such as hedge funds, insurance companies or leasing companies, from proposed derivatives-trading rules included in bank-reform legislation. Orol quotes Gensler as saying "every transaction" between Wall Street banks and their customers should be traded through clearinghouses.
Senator Chambliss Defends Possible Deal on Derivatives Trading
Damian Paletta writes in the Wall Street Journal's Washington Wire blog that Sen. Saxby Chambliss (R-GA) blasted the White House, Treasury Secretary Timothy Geithner, and Commodity Futures Trading Commission Chairman Gary Gensler, saying they are trying to scuttle a bipartisan bill to oversee derivatives trading that Chambliss is working on with Senate Agriculture Committee Chair Blanche Lincoln (D-AR).
April 13, 2010
Pew's FRP News Brief
"This is a defining moment for financial reform. We have to get it right. We cannot build a system that depends on the wisdom and judgment of future regulators....As the bill moves to the floor, we will fight any attempt to weaken it."
Treasury Secretary Geithner op-ed on financial reform
Treasury Secretary Timothy Geithner writes in today's Washington Post that "a clear lesson of this [financial] crisis is that any strategy that relies on market discipline to compensate for weak regulation and then leaves it to the government to clean up the mess is a strategy for disaster...Instead the best strategy for stability is to force the financial system to operate with clear rules that set unambiguous limits on leverage and risk."
White House will not back down from financial reforms
Rachelle Younglai of Reuters writes that the Obama administration vowed on Monday to push for even tougher U.S. financial regulation reform, as legislation heads for the Senate floor as soon as next week. Addressing the Council of Institutional Investors Spring Meeting, both Deputy Treasury Secretary Neal Wolin and Federal Deposit Insurance Corporation Chairman Shelia Bair stressed the need to act now on financial reform. Click here to read Deputy Secretary Wolin's remarks and here for Chairman Bair's statement.
Senator warns of ‘populist fervor' against Wall Street
Senate Banking Committee member Judd Gregg (R-NH), interviewed on CNBC's Squawk Box on Monday, warned of a "populist fervor... that says all banks are bad and that the financial system is evil and as a result we must do things which will basically end up reducing our competitiveness as a nation." Sen. Gregg, who is working with Sen. Jack Reed (D-RI) on drafting the derivatives portion of the financial reform bill, said he was in favor of getting "as many derivatives as you can onto a clearing platform." Click here to view the full interview.
Additionally Cyrus Sanati writes in the New York Times DealBook blog that the Senate Agriculture Committee, led by Blanche Lincoln, (D-AR), is expected to put forth an amendment to the financial regulatory bill concerning derivatives this week that could break the stalemate over clearing and exchange trading.
Senate probe finds Washington Mutual ignored warnings
Major news organizations including the Wall Street Journal, New York Times and Financial Times report on the congressional investigation into the failure of Washington Mutual. John D. McKinnon of the Journal writes that officials at the bank securitized substantial volumes of risky, fraudulent loans in the run-up to the financial meltdown despite repeated internal warning signs, according to a probe by the Senate Permanent Subcommittee on Investigations. The subcommittee is launching a series of four hearings on Wall Street and the financial crisis which begin today at 9:30 in the Dirksen Senate Office Building, room 106, with several former WaMu executives scheduled to testify.
April 12, 2010
Pew's FRP News Brief
"Given that [large financial firms] steered this country into the ditch, it's going to be very hard to stand up on the floor and say don't do financial reform or do it without teeth....There are a number of people in our caucus who feel like there are things that can be done to strengthen it."
White House to meet on financial overhaul
Damian Paletta of the Wall Street Journal reports that the White House has called a meeting of top lawmakers on Wednesday to discuss its effort to overhaul financial regulations as part of an aggressive effort to push legislation through by the Memorial Day recess. According to Paletta the meeting is expected to include Senate Majority Leader Harry Reid (D-NV), Senate Minority Leader Mitch McConnell (R-KY), Speaker of the House Nancy Pelosi (D-CA) and House Minority Leader John Boehner (R-OH). Other members could also be invited.
Democrats eager to take on Wall Street
Lisa Lerer of Politico reports that liberal Democrats see an opportunity to reassert their power in the Senate this spring on the Wall Street reform bill. According to Lerer, "a group of Democrats, joined by Senate Majority Whip Dick Durbin (D-IL), are planning an aggressive spring offensive to strengthen key provisions of the financial reform bill.... While Senate Minority Leader Mitch McConnell (R-KY) is expected to oppose the legislation, it remains an open question how much pressure he will put on his members to join him in voting against the bill."
Spencer Bachus: Financial reform Republicans could support
Rep. Spencer Bachus (R-AL), the ranking Republican on the House Financial Services Committee, writes a letter to the Washington Post on Monday arguing that "contrary to recent claims made by Democratic Party leaders and in the April 7 editorial ‘Say no to no,' Republicans continue to be strong advocates for financial regulatory reform and were, in fact, the first to introduce comprehensive legislation."
Fannie faced 'horrible alternatives'
Eamon Javers writes in Politico that the former CEO of Fannie Mae Daniel Mudd told the Financial Crisis Inquiry Commission on Friday that the demands on Fannie Mae and its sister company Freddie Mac were sometimes in unworkable conflict with each other. According to Javers, the administration is gearing up for an effort to reform Freddie and Fannie, and Treasury Secretary Timothy Geithner has said he thinks the public-private hybrid model is unworkable. But Freddie and Fannie are not addressed in detail in the pending Wall Street reform legislation - something that Republicans have said is a failure of the bill.
Frank Rich: "No One Is to Blame for Anything"
New York Times op-ed columnist Frank Rich on Sunday highlights a quote from Alan Greenspan's testimony before the Financial Crisis Inquiry Commission last week: "I was right 70 percent of the time, but I was wrong 30 percent of the time." Rich writes that Greenspan "could not have more vividly illustrated how and why geniuses of his stature were out to lunch while Wall Street imploded."
April 9, 2010
Pew's FRP News Brief
"Almost all of us involved in the financial system... missed the powerful combination of forces at work and the serious possibility of a massive crisis. "We all bear responsibility for not recognizing this, and I deeply regret that."
Ex-Citigroup executives Prince and Rubin come in for criticism
Major news organizations including the Financial Times, Wall Street Journal, MarketWatch and Politico report on the testimony of former Citigroup leaders Chuck Prince and Robert Rubin during the second day of hearings of the Financial Crisis Inquiry Commission. Randall Smith writes in the Wall Street Journal that "former Citigroup Inc. Chief Executive Charles Prince expressed shame and contrition....But Robert Rubin, the former U.S. Treasury secretary who led Citigroup's executive committee, defiantly defended his role in decisions that led to gigantic losses at the bank."
Sen. Reed targets private investment pools
Chris Frates of Politico reports that Senate Banking Committee member Jack Reed (D-RI) plans on offering an amendment to the financial regulatory reform bill when it comes to the Senate floor that would require private funds with more than $30 million in assets to register with the SEC and disclose information that would help regulators determine whether the funds pose any risk to the financial system.
Polls: Voters support financial reform, but details mixed
Silla Brush writes in The Hill's On The Money blog that voters strongly support an overhaul of financial regulations, but they are concerned by or have not focused on the details of new regulations, according to three recent polls. Brush cites the Pew Financial Reform Project, Zogby Interactive and Hamilton Place Strategies/YouGovPolimetrix who have all released wide-ranging polls on financial reform as the Senate heads toward a vote before Memorial Day.
Bernanke: Policymakers prevented 'cataclysm' worse than Great Depression
Neil Irwin of the Washington Post writes that Federal Reserve Chairman Ben Bernanke sought to give some historical perspective to efforts by the Fed and other policymakers to combat the 21st century economic downturn. According to Irwin, Bernanke's speech on Thursday drew on his academic specialty -- the economic history of the 1930s. His historical argument was mounted as a defense of the forceful -- and frequently controversial -- actions that the Fed took under his leadership to combat the crisis. Click here to read the speech.
Big banks must be challenged on derivatives
John Maggs of the National Journal cites a new report by the Brookings Institution which warns that the five largest banks have a stranglehold on trading in credit default swaps, a type of security that was at the center of the financial crisis, and those banks will be able to foil congressional reform plans unless the government takes antitrust action.
April 8, 2010
Pew's FRP News Brief
"My view is...you could have, you should have, and you didn't."
Greenspan mauled over role in meltdown
Major news organizations including the Wall Street Journal, New York Times, Washington Post, Financial Times and MarketWatch report that former Federal Reserve Chairman Alan Greenspan faced some of the toughest questioning yet about his role in the financial crisis during his appearance before the Financial Crisis Inquiry Commission on Wednesday, at the start of three days of hearings on the financial crisis. Ronald D. Orol of MarketWatch writes that Greenspan was criticized for holding the central bank's interest rates too low for too long, contributing to the crisis, and failing to use the Fed's responsibility to protect consumers from subprime and other problem mortgages. Click here to read Greenspan's testimony.
Fed reviews find errors in oversight of Citigroup
Sewell Chan and Eric Dash of the New York Times report that Citigroup ran into trouble under the noses of federal regulators. But even after taxpayers rescued the financial giant, regulators failed to monitor the company adequately, according to reviews by the Federal Reserve, excerpts of which were released on Wednesday. The most recent documents from 2009 portray examiners from the Federal Reserve Bank of New York, then headed by Timothy Geithner, now the Treasury Secretary, as overly optimistic about Citigroup's prospects, according to a person briefed on their contents. William Dudley, who succeeded Mr. Geithner as President of the New York Fed, acknowledged Wednesday that the Fed could have done a better job. "I think there's no question that the Federal Reserve and a lot of the other regulators could have done much better," Dudley said during a presentation at the Economic Club of New York.
Treasury opposed to Congress setting ratios
The National Journal's Congress Daily reports that Obama administration officials said on Wednesday they were opposed to Congress setting capital ratios for large financial institutions, arguing that it would not provide regulators with enough flexibility to ensure that a firm does not become too big to fail. Deputy Treasury Secretary Neal Wolin said the administration was against a strict limit for setting a firm's debt-to-equity ratio because it would make it harder to adjust to market conditions that could change in the future.
Additionally, Damian Paletta writes in the Wall Street Journal's Real Time Economics blog that Deputy Treasury Secretary Wolin said the administration would move to block any effort to exempt auto dealers from having to comply with new consumer protection rules.
Editorial: Financial reform is in the GOP's interest, too
A Washington Post editorial on Wednesday takes the view that as a matter of policy, the [financial reform] project is both necessary and complex. As a matter of politics, it would be difficult under the best of circumstances to achieve a bipartisan solution before memories of the financial crisis begin to fade -- much less by Memorial Day, as the White House wishes. Whatever the politics, contributions from both sides would produce the best -- and most politically sustainable -- financial regulatory reform for the country.
April 7, 2010
Pew's FRP News Brief
"There is a lot of pressure on lawmakers to get something done..."
Sen. Reed critical of lobbyists attempt to kill credit rating reform
Jesse Westbrook of Bloomberg writes that Sen. Jack Reed (D-RI) criticized Standard & Poor's for a "cynical" attempt to halt reform by asking Sen. Bob Corker (R-TN) and Sen. Judd Gregg (R-NH) to fight legislation that would make it easier to sue credit-rating firms. Reed and other Democrats on the banking panel approved legislation last month that includes the liability measure as part of a broader plan to tighten regulation of Wall Street. Click here to read Senator Reed's statement.
Sen. Brownback to offer bill exempting auto dealers from consumer protection office
Silla Brush writes in The Hill's On The Money blog that Sen. Sam Brownback (R-KS) is planning to introduce legislation exempting auto dealers from a new consumer protection office. According to Brush, the office is at the heart of the financial overhaul effort, and Brownback's amendment will set off a fight with the Obama administration and consumer advocates who have pushed to keep auto dealers under the new office.
Additionally Damian Paletta of the Wall Street Journal writes that aides to Sen. Richard Shelby (R-AL) floated a proposal last week to Democratic staffers on the Senate Banking Committee that would create an independent consumer-protection agency, two people familiar with the matter said, reversing course from a previous Republican position.
White House steps up efforts on financial reform
Politico's Morning Money reports that the White House will step up efforts on the financial reform front with an on-the-record press briefing session this afternoon. Administration officials taking part will include Neal Wolin, Deputy Secretary of the Treasury; Michael Barr, Assistant Secretary of the Treasury for Financial Institutions; and Diana Farrell, Deputy Director of the National Economic Council.
Robin Sidel and Damian Paletta of the Wall Street Journal report that James Dimon, chairman and chief executive of J.P. Morgan Chase & Co., has spent the past year launching his own campaign to stave off government proposals that would rein in profits, boost consumer protections and impose new fees. According to the article, Mr. Dimon's bank spent $6.2 million on lobbying efforts last year, more than any of its peers. His stance represents a turnaround from the early days of the financial crisis, when he emerged as one of Washington's biggest boosters.
April 6, 2010
Pew's FRP News Brief
"What we want to do is end the idea that there will be financial institutions in the United States and the rest of the world... that can bring the entire system down."
‘Too big to fail' in cross hairs of reform debate
Reuters reports that Rep. Paul Kanjorski (D-PA), a leading Democrat on the House Financial Services Committee, said on Monday the House [financial reform] bill would ensure no firm poses too much risk by giving regulators the power to proactively limit products or break up large financial firms, even before they get into trouble. He predicted the Senate version would soon have a similar provision. In an interview with CNBC, Kanjorski said that he believes reform can get passed by the end of May. Click here to view the full interview.
Financial crisis inquiry wrestles with setbacks
Sewell Chan and Eric Dash write in the New York Times that the panel established by Congress to investigate the causes of the financial crisis has been hobbled by delays and internal disagreements and a lack of focus, according to interviews with a majority of its members and government officials briefed on its work. The people appointed to the Financial Crisis Inquiry Commission (FCIC) last July say they hope to publish, by the Dec. 15 deadline, a volume much like the 9/11 Commission report. However, according to Chan and Dash that goal seems increasingly out of reach, given what the commissioners themselves acknowledge has been a haphazard approach and a lack of time and resources.
Additionally, Politico's Eamon Javers writes: "Will Alan Greenspan offer a mea culpa when he testifies before the Financial Crisis Inquiry Commission Wednesday? Not likely." The former Federal Reserve Chairman is the first witness at the FCIC hearings which start April 7 at 9am in the Rayburn House Office Building, Room 2123. Click here to view the hearing schedule.
Robert Reich on financial reform
Robert Reich writes in his blog that "if any three people are most responsible for the failure of financial regulation, they are [Alan] Greenspan, Larry Summers, and my former colleague, Bob Rubin." Reich adds that "the direction financial reform is taking is not encouraging. Both the bill that emerged from the House and the one emerging from the Senate are filled with loopholes...."
Paul Krugman: Making financial reform fool-resistant
New York Times op-ed columnist Paul Krugman writes that "it's impossible to devise a truly foolproof regulatory regime - anyone who believes otherwise is underestimating the power of foolishness. But you can try to create a system that's relatively fool-resistant. Unfortunately, the Dodd bill doesn't do that."
Additionally, Michael J. Burry pens an op-ed in the New York Times, "I Saw the Crisis Coming. Why Didn't the Fed?" Burry, who ran the hedge fund Scion Capital from 2000 until 2008, takes the view that "Mr. Greenspan should use his substantial intellect and unsurpassed knowledge of government to ascertain and explain exactly how he and other officials missed the boat."
April 5, 2010
Pew's FRP News Brief
"Meaningful reform of our financial regulatory system is finally within reach. The opportunity to pass such a comprehensive overhaul may not come again in our lifetimes."
Federal Deposit Insurance Corporation Chairman Sheila Bair,
"Beyond Bankruptcy and Bailouts," Wall Street Journal, April 5, 2010
FDIC Chairman Sheila Bair on financial reform
In an op-ed in today's Wall Street Journal, FDIC Chairman Sheila Bair writes: "We support any constructive improvements to the [financial reform] legislation that will reinforce market discipline and preclude future bailouts, while providing the FDIC with the necessary tools to market and sell a failed institution in a way that maximizes recoveries and protects the government against loss. Any legislation must remove all doubt that bailouts are an option.... We must embrace sensible regulatory changes and send a strong signal to large institutions and those who invest in them that from now on, they must sink or swim on their own."
Larry Summers "confident" financial reform will pass
National Economic Council Director Larry Summers said in an interview on ABC's This Week on Sunday that the case for financial reform "is so compelling that we are confident that a sufficient majority will see that case and will vote to support financial reform. We've come...a long way on this issue. We're now in the final stages. Our expectation is that we will get there...." Click here to view the video or here to read the transcript."
Alan Greenspan on the ‘Volcker Rule'
Former Federal Reserve Chairman Alan Greenspan was also interviewed on ABC's This Week on Sunday during which he said "the problem basically with the Volcker Rule is it's very difficult to apply in a general way, and I think that's why there's been considerable resistance to it; not the principle, but the issue of being able to segregate the types of transactions which are helping customers and those which are strictly proprietary. Until they do that, I think it's very difficult to implement." Click here to view the video or here to read the transcript.
Democrats bristle at reform deadline
Politico's Manu Raju and Eamon Javers report on Monday that some Democrats on Capitol Hill "are bristling at the suggestion from the White House that a massive financial reform bill should be on the President's desk by Memorial Day." One senior Democratic leadership aide told Politico: "Setting deadlines in an arbitrary manner did not help us get health care done and it will not help us get financial reform done either." According to Politico: "There's no clear agreement between the White House and top Democrats on Capitol Hill over whether to push an aggressive, sweeping Wall Street reform bill and effectively dare the Republicans to filibuster it, or whether to push for a more modest bipartisan compromise."
April 2, 2010
Pew's FRP News Brief
"I think it will be passed in the Senate in April....I believe the president will be signing a financial reform bill before Memorial Day."
Frank optimistic on financial reform
Jordan Fabian writes in The Hill's Blog Briefing Room that House Financial Services Committee Chairman Barney Frank's (D-MA) goal of passing financial reform is more optimistic than those of the White House and Senate Banking Committee Chairman Chris Dodd (D-CT). The White House has said that it would like to sign a bill by August and Dodd has called for its passage by the end of the year. Frank said that the bill will likely pass with Republican support because the post-healthcare politics will be more conducive to cooperation between the parties. Sen. John McCain (R-AZ) and other Republicans have indicated that such support is unlikely on big issues for the rest of the year.
Lawmakers revisit derivatives legislation
Brady Dennis of the Washington Post reports that Senate Agriculture Committee Chair Blanche Lincoln (D-AR) and ranking Republican Saxby Chambliss (R-GA), are crafting new rules to oversee the vast, unregulated derivatives market - legislation that could become a central element of the larger regulatory overhaul effort currently headed to the Senate floor. According to Dennis, the Lincoln-Chambliss effort is significant because the two senators on the banking committee whom Sen. Chris Dodd had assigned to tackle derivatives oversight, Jack Reed (D-RI) and Judd Gregg (R-NH), spent months working through the details but reached an impasse in their negotiations.
Krugman op-ed: "Financial Reform 101"
Paul Krugman pens an op-ed in the New York Times on Friday in which he provides a brief guide to the debate on financial reform and explains his own position. Taking the view that financial reform is a hard issue to follow, Krugman writes that "reasonable people can and do disagree about exactly what we should do to avert another banking crisis.... Does the reform legislation currently on the table do what's needed? Well, it's a step in the right direction - but it's not a big enough step."
Extreme Makeover: Wall Street Edition
Andrew Ross Sorkin writes in the New York Times DealBook blog that the entire financial industry is grappling with how to remake itself. According to Sorkin: "The real question is whether Wall Street faces a public relations crisis - or something much deeper.... And is all this bad press really hurting its business? The answer ultimately lies less in what the Average Joe thinks of Wall Street than in how his view affects those of clients, and perhaps more importantly, regulators."
April 1, 2010
Pew's FRP News Brief
"I don't want an overzealous consumer protection agency.... We need balance. Right now in the bill, there's too much independence and too little coordination between the regulators and the consumer protection side."
The OCC and consumer protection
The Huffington Post writes that "after months of criticizing the Obama administration's proposal to create a consumer-focused agency dedicated to protecting borrowers from abusive lenders, the nation's top big-bank regulator has reversed course. The regulator, the Office of the Comptroller of the Currency, now supports an independent consumer agency -- finding itself on the opposite side of the issue from an industry it polices and powerful lawmakers it answers to...."
Dodd jabs GOP leaders over financial bill
The Hill's Blog Briefing Room reports that Sen. Chris Dodd (D-CT) appeared frustrated with GOP leaders on Wednesday when speaking about his financial reform legislation. "You heard some in the Republican leadership, not [Sen.] Bob Corker (R-TN), saying let's delay this forever, let's kill it. I mean, frankly, many of them are on the side of Wall Street," he said on Fox Business Network. Dodd's words come as Corker, who had been the GOP chief negotiator on the bill, indicated Wednesday morning that he could not support it in its current form, dealing a serious blow to efforts to attract Republican backing for the legislation.
Blinder weighs in on debate over Fed powers
David Wessel of the Wall Street Journal's Real Time Economics blog poses the question: What exactly should Congress ask the Federal Reserve [to] do and what should be done by other arms of the government? Wessel cites Financial Reform Task Force member Alan Blinder writing in the March 2010 issue of the American Economic Association's Journal of Economic Literature.
Greenspan to testify on subprime mess
John D. McKinnon of the Wall Street Journal's Washington Wire blog writes that the congressional panel investigating the financial crisis announced the witness list for next week's much-anticipated three-day hearing focusing on who's to blame for the subprime lending fiasco. Former Federal Reserve Chairman Alan Greenspan highlights the list of witnesses, as expected. He'll be the first to face the Financial Crisis Inquiry Commission on Wednesday - and the only witness from the Fed.
Financial reform: Will final law meet the test?
Darrell Delamaide writes in his MarketWatch column that it looks like financial reform may actually see its way into law before the midterm elections. "As with healthcare the legislation that emerges from this process will fall short of what many proponents feel is necessary. Opponents will argue to the last minute that the reforms are not needed or being rushed through too fast."
March 31, 2010
Pew's FRP News Brief
"We all have a mutual responsibility to deliver on all our commitments to address the weaknesses that led to the financial crisis. This will require that we maintain our vigilance to address the required reforms and guard against complacency as our economies recover."
Click here to go to the White House website and read the joint letter from the G20 steering group.
White House seeks Senate action on financial overhaul by end of May
Sam Youngman writes in The Hill's On The Money blog that White House Press Secretary Robert Gibbs said on Tuesday that President Obama expects the Senate to approve a financial overhaul by the end of May and that he expects to sign the legislation before the two-year anniversary of the financial collapse. According to Youngman, Senate Majority Leader Harry Reid (D-NV) has set the end of May as a goal for passage and Senate Banking Committee Chairman Chris Dodd (D-CT) is also pushing for the Senate to conclude its work soon.
IMF and G20 sound warning note over new bank rules
Reuters reports that a key group of G20 leaders, including President Obama, and the International Monetary Fund (IMF) urged governments on Tuesday to redouble efforts in tightening up financial rules. "One of the lessons of the crisis is that facing global challenges we need to have global answers.... This lesson is about to be lost," IMF Managing Director Dominique Strauss-Kahn told the Romanian parliament. The IMF chief said that individual countries were working on new regulations and creating new supervisory bodies. "The only problem is, they don't fit together," he added.
Volcker Optimistic Financial Overhaul Will Include His Rule
Major news organizations including the Wall Street Journal, New York Times and Reuters report on the speech by Paul Volcker at the Peterson Institute for International Economics on Tuesday. Luca Di Leo writes in the Wall Street Journal's Real Time Economics blog that the former Federal Reserve chairman and top adviser to President Obama expressed optimism that a financial overhaul containing a version of his proposal to limit bank risk would pass in Congress. "We have a promising possibility of getting agreement here" for a "reasonably good bill," Volcker said, adding he was more optimistic than a month ago. Watch Volcker's speech on Bloomberg.com.
Additionally Reuters reports that Volcker, who crafted a proposed ban on proprietary trading by banks - dubbed the "Volcker rule" when President Obama unveiled it in January - said the practice was not central to the financial crisis.
Bill would limit banks in derivatives
Silla Brush writes in The Hill on Tuesday that Sen. Sherrod Brown (D-OH) wants to limit big banks from dominating the multitrillion-dollar derivatives market. Brown is supporting legislation targeting conflicts of interest in the clearinghouses that stand between buyers and sellers of derivatives. Senate Banking Committee Chairman Chris Dodd did not include Brown's legislation in his financial overhaul bill and, according to Brush, "Brown's push could face an uphill battle to win support as the bill heads to the full Senate.... Lobbyists watching the issue closely say they expect Brown's amendment to arise again after the recess."
March 30, 2010
Pew's FRP News Brief
"[Sen. Chris Dodd's bill] makes the key point-which is that if big banks ever again manage themselves to the edge where they can't survive without government assistance, the government should have the ability to come in and dismember them."
Treasury Secretary Timothy Geithner, interviewed on CNBC's Closing Bell, March 29, 2010
Click here to view Secretary Geithner's full interview with CNBC on Monday. Click here to view Sheila Bair's interview with CNBC.
Bank-Tax Concept Gains Momentum
Bob Davis of the Wall Street Journal writes that the U.S. and European governments are moving toward a consensus on taxing large banks to cover the cost of any future bailouts rather than asking taxpayers to foot the bill, as has happened regularly in past banking crises. According to Davis, the tax proposals vary. Germany and Sweden would use the money to fund a "resolution authority" to shut troubled banks whose failure would put the broader economy at risk. Others, such as France, would assess the fee after a crisis passed. Davis adds that the U.S. is split. Congress is moving toward imposing a levy to build a fund before a crisis. The Obama Administration favors the post-crisis option, a difference that will be worked out as financial-regulation legislation moves through Congress.
Additionally, Bloomberg reports that Citigroup, Inc.'s largest shareholder, the U.S. Treasury Department, is planning to sell its 27 percent stake this year in what could become the biggest profit for the bank-bailout program. The Treasury will dispose of its 7.7 billion common shares over the course of 2010 using a "pre-arranged written trading plan," the agency said yesterday in a statement.
New York Fed Official Says Incentive Pay Fueled Credit Crisis
Naureen S. Malik of the Wall Street Journal reports that Thomas Baxter, general counsel of the Federal Reserve Bank of New York, said Saturday that incentive compensation fueled the global credit crisis and there is a need for greater loan discipline. Baxter, speaking at the ninth Harvard University Forum on Islamic Finance held at the university's law school noted that U.S. lenders were given incentives to put consumers in more costly, riskier mortgages that they didn't require. Securitizing those loans and selling them off also contributed to the financial crisis. "Incentive compensation can and has led us into temptation," and is one of the causes of the financial crisis, Mr. Baxter said.
David Leonhardt, New York Times economics columnist and staff writer for the magazine, writes on Sunday that the obvious reason to re-regulate finance is to prevent the next crisis or at least to make it less damaging. Leonhardt argues that by reducing financial firms' profits, improved regulation could reduce the industry to a smaller and arguably more natural size. According to Leonhardt, re-regulation could remove some of the subsidies that Wall Street now receives. Higher capital requirements and a bank tax could force financial firms to experience the bad times as well as the good. Above all, re-regulation could acknowledge that modern finance brings both benefits and risks.
March 29, 2010
Pew's FRP News Brief
"But now the Dodd bill has restored the momentum for significant financial regulation reform this year. It provides a serious framework for improved financial regulation. The bill could be greatly improved, of course. But even as is, it would be far better than our system now."
Financial Reform Task Force Co-Chair Martin Baily pens an op-ed in Monday's Politico, writing that Senator Chris Dodd's (D-CT) financial reform bill will strengthen the financial system, yet could be improved. Baily cites four main points where the Dodd bill would reduce the odds of a crisis in the future: by dealing with large financial institutions; strengthening market discipline; offering consumer protection; and providing an early warning of impending crises. Baily writes: "...if the Senate works constructively to improve the Dodd bill, then its passage would sharply lower the risk of another crisis. It could also reduce the severity of any that might occur."
President Obama plans strong hand with Congress
Mike Allen of Politico reports on Sunday that an emboldened President Barack Obama will take a stronger hand with Congress in coming weeks, planning to push lawmakers to pass new regulations for Wall Street by September, the second anniversary of the meltdown, according to White House aides. Allen says that some Democratic leaders hope to have financial-regulatory reform on the president's desk even sooner - by Memorial Day, a timeline the White House considers doable.
Hard pressed, Senator Dodd Gives Ground
Simon Johnson writes in The Baseline Scenario blog that Senator Chris Dodd has good political antennae. He knows that his financial reform bill will come under severe pressure because it has a weak heart - the provisions that deal with "too big to fail" are simply "too weak to make any sense." According to Johnson, "[Sen.] Ted Kaufman [D-DE] is turning into a relentless critic, [TARP Oversight Panel Chair] Elizabeth Warren is fast becoming a folk hero, and Paul Volcker is poised to make a major speech in Washington on Tuesday. Is Volcker likely to toe the party line and defer to Senator Dodd - or will he lay out in forceful terms what reforms would really mean, i.e., what are the true Volcker principles, who has them, and how would you know?"
Additionally, Michael Corkery in the Wall Street Journal's Deal Journal blog reviews "13 Bankers," the new book by Simon Johnson, a former chief economist at the International Monetary Fund and James Kwak, a former McKinsey & Co. consultant. According to Corkery, the book argues that the only way to truly prevent another financial crisis is for Congress and the White House to reduce the size of the nation's largest financial institutions such as JP Morgan and Bank of America.
Paul Krugman pens an op-ed in the New York Times on Sunday that questions whether financial reform will happen. "The White House is optimistic, because it believes that Republicans won't want to be cast as allies of Wall Street. I'm not so sure. The key question is how many senators believe that they can get away with claiming that war is peace, slavery is freedom, and regulating big banks is doing those big banks a favor." Krugman adds: "So it's the punks versus the plutocrats - those who want to rein in runaway banks, and bankers who want the freedom to put the economy at risk, freedom enhanced by the knowledge that taxpayers will bail them out in a crisis."
Also, Bob Herbert, columnist for the New York Times, writes on Saturday on the proposed Consumer Financial Protection Agency. The Times also profiles John Dugan and the Office of the Comptroller of the Currency on Sunday.
March 26, 2010
Pew's FRP News Brief
"Voters are concerned and angry, and want to see action now...
and if they don't see it there will be a price to be paid in November."
Most Americans want financial reform now -US poll
Reuters reports late Thursday on the results of a poll conducted for the Pew Financial Reform Project which found that 59 percent of Americans want Congress and the president to reform the financial system now. Kevin Drawbaugh of Reuters writes that half of the 1,000 people surveyed said they would feel more favorable toward their member of Congress if he or she voted in favor of tighter oversight of financial firms. The Pew Financial Reform Project said the March 4-8 national poll was conducted by a bipartisan team questioning people who were highly likely to vote in 2010. "These results send a message that Congress should take action now to fix the current system and to prevent another crisis down the road," said John Morton, managing director of Pew's economic policy group. Click here to read the full report.
Richard Shelby: Timothy Geithner distorting my view
Victoria McGrane writes in Politico that Richard Shelby (R-AL) the top Republican on the Senate Banking Committee said that Treasury Secretary Timothy Geithner mischaracterized his position in a speech at the American Enterprise Institute on Monday. According to McGrane, Geithner quoted several excerpts from Shelby's remarks to the Oxford Union last fall in discussing how the Senate bill would end the existence of too big to fail financial firms. Specifically, Shelby objected to Geithner's conclusion that the Senate bill meets the objectives he set out in the quoted speech. While Sen. Chris Dodd's (D-CT) "most recent financial reform bill represents an improvement over the bill you sent to Congress last year, it does not end the problem of ‘too big to fail' and will not end the associated moral hazard..." Shelby said in a letter to Geithner Thursday.
Military Families Deserve a Strong Consumer Agency to Protect Them from Unfair Financial Practices
Treasury Secretary Timothy Geithner hosted a roundtable discussion at the Treasury Department on Thursday to hear from military advocacy groups and Department of Defense personnel about the core consumer protection issues facing service members and their families. To view remarks from the Secretary and David Julian, Director, Office of Personal Finance, Department of Defense following the meeting, click here.
Rodgin Cohen: We Desperately Need Financial Reform Legislation
Financial Reform Task Force member Rodgin Cohen was interviewed on Bloomberg TV on Thursday, asserting his belief that financial reform is necessary, and that "institutions are willing to come to terms with it if it works."
Financial crisis tale to make the blood boil
William Cohan reviews the new book by Michael Lewis, "The Big Short Inside the Doomsday Machine," in the Financial Times on Thursday. Cohan writes: "As only he can do, and do well, Lewis gives us a compact, elegant narrative of the financial crisis, designed to make your blood boil. He uncovers and glorifies a merry band of financial iconoclasts and misfits...."
March 25, 2010
Pew's FRP News Brief
"I'm confident we can get a bill.... I've very hopeful in light of our conversations over the last couple of days that we can have a good, strong bill on the floor of the United States Senate within the next month."
Senate Banking Committee Chairman Chris Dodd (D-CT), "US Sen. Dodd: To Harmonize Senate, House Reg Reform Bills Soon," Dow Jones Newswires, March 24, 2010
Obama urges Democrats to make hard push on financial regulation
Major news organizations including the Washington Post, New York Times, Wall Street Journal, Reuters, and The Hill report on the strategy session President Obama held at the White House on Wednesday with Senate Banking Committee Chairman Chris Dodd (D-CT) and House Financial Services Committee Chairman Barney Frank (D-MA). David Cho and Brady Dennis of the Washington Post write that President Obama and the Democratic lawmakers moved to accelerate their efforts at overhauling the nation's financial regulation, seeking to exploit divisions among Republicans over how much to compromise on a landmark bill now awaiting Senate action.
Bob Corker: GOP erred on financial reform
Victoria McGrane writes in Politico that Sen. Bob Corker (R-TN) effectively conceded that Republicans had squandered their leverage over the sweeping legislation by failing to rally around bipartisan talks last month and that Democrats are right in thinking the politics of the issue are firmly on their side. "I find it very difficult to see a scenario where financial regulation doesn't pass the Senate," Corker told reporters after a speech at the U.S. Chamber of Commerce.
Obama official slams U.S. Chamber over opposition to financial overhaul
Major news outlets including the Los Angeles Times, New York Times, Financial Times and The Hill report on the speech by Deputy Treasury Secretary Neal Wolin to the Chamber of Commerce on Wednesday. According to Jim Puzzanghera of the Los Angeles Times, Mr. Wolin charged that the business organization's $3 million campaign against the administration's proposals was designed to delay action "until the memory of the crisis fades and the political will for change dies out....The chamber has every right to oppose those policies with which its members disagree. But as a leading, respected institution, the chamber also has an obligation to be honest with you, its members, and with the American people," Wolin said. Click here to read Mr Wolin's prepared remarks.
Additionally, Sewell Chan writes in the New York Times that Bruce Josten, executive vice president of the chamber, later issued a statement accusing Mr. Wolin of "political grandstanding and distortion of facts." Click here to read Mr Josten's statement.
Big Banks Begin Effort to Improve Image, Set `Record Straight'
Julianna Goldman and Robert Schmidt of Bloomberg report on Wednesday that one of Wall Street's main lobbying groups is starting an image-improvement campaign aimed at showing the financial industry as trustworthy and a positive force after more than a year of being chastised in Washington. The board of the Financial Services Roundtable, which represents the 150 largest banks and insurance companies in the U.S., discussed the effort last week at a meeting in New York. The public relations campaign will come to fruition as the mid-term election season heats up.
March 24, 2010
Pew's FRP News Brief
"An important step was taken yesterday, as Chairman Chris Dodd's (D-CT) financial reform legislation moved from committee to the Senate floor. We applaud the collective efforts of the Senators and their staffs to move the ball downfield toward real financial reform during this Congress."
John E. Morton, Managing Director, Pew Economic Policy Group, March 23, 2010
White House Looking Towards End Game on Financial Rules?
Damian Paletta writes in the Wall Street Journal's Real Time Economics blog that just two days after Senate Banking Committee Chairman Christopher Dodd (D-CT) advanced a financial regulation overhaul bill through his panel along party lines, Mr. Dodd will huddle with President Obama and House Financial Services Committee Chairman Barney Frank (D-MA) in the White House's Oval Office. According to Paletta, Mr. Obama has regularly met with lawmakers on the financial rules, but this meeting comes as the White House is pushing much more aggressively to get the rules moved through Congress. A Senate vote could come before the Memorial Day recess.
A First Step on Fannie and Freddie
Sewell Chan of the New York Times reports that despite growing pressure from Congress to act quickly, the Obama administration is moving tentatively to develop a plan to reshape Fannie Mae and Freddie Mac, the mortgage-finance companies taken over by the government 18 months ago. Appearing before the House Financial Services Committee on Tuesday, Treasury Secretary, Timothy F. Geithner, said the administration would "take a fresh, cold, hard look at the core problems" in housing finance and deliver a "comprehensive set of reforms" to Congress, but declined to specify a timetable. According to Chan, the lack of specifics frustrated several lawmakers, one of whom, Rep. Bill Posey (R- FL), lashed out at Mr. Geithner, saying, "We can't wait forever to find out." Click here to read Mr. Geithner's written testimony.
Additionally, Silla Brush writes in The Hill's On The Money blog that the Obama administration will seek public comment starting April 15 on how to remake the nation's housing finance system and mortgage-giants Fannie Mae and Freddie Mac. Brush says that "the future of housing finance is the next contentious debate after Congress weighs financial regulatory reforms, now under consideration in the Senate."
Schumer Threatens Retaliation in EU Hedge-Fund Dispute
Stephen Fidler writes in the Wall Street Journal on Wednesday that Sen. Charles Schumer (D-NY) threatened retaliation if European Union proposals curbing access of American fund managers to the European market become law. According to Fidler, Sen. Schumer described the European proposals as "protectionist rules that discriminate against U.S. firms and activities."
Additionally, Neal Wolin, Deputy Treasury Secretary will deliver the keynote address at 12:15pm today to the U.S. Chamber of Commerce's Fourth Annual Capital Markets Summit on the need for financial reform. Click here to view his op-ed which appears in The Hill on Wednesday.
Sen. David Vitter (R-LA), Sen. Jeff Merkley (D-OR), Rep. Melissa Bean (D-IL), Rep. Spencer Bachus (R-AL), Rep. Ed Royce (R-CA) and Rep. Maxine Waters (D-CA) have opinion pieces on financial regulator reform in the Wednesday edition of The Hill as well.
March 23, 2010
Pew's FRP News Brief
"We are now one step closer to passing real financial reform that will bring oversight and accountability to our financial system and help ensure that the American taxpayer never again pays the price for the irresponsibility of our largest banks and financial institutions."
Bank Panel Clears Bill on Overhaul
Major news organizations such as the New York Times, Washington Post, Wall Street Journal, Bloomberg and Politico report that the Senate Banking Committee voted on Monday to send Senator's Dodd's proposed legislation to overhaul the nation's financial system to the full Senate. Sewell Chan of the New York Times writes that although the vote was along party lines, with all 13 Democrats voting for and all 10 Republicans voting against, senators said the decision would give both sides more time to shape a compromise that could attract broad support on the Senate floor. According to Chan, Richard Shelby (R-AL), the Ranking Member on the Committee said, that so far a deal "continues to elude us... However, that does not mean that an agreement is out of reach."
Geithner kicks off reform push
Damian Paletta writes in the Wall Street Journal that Treasury Secretary Timothy Geithner, in some of his most forceful comments to date, warned policymakers and the public to "be careful whose voice you listen to" in the debate over new financial rules. According to Paletta, Geithner's comments, in a speech before the American Enterprise Institute on Monday, appear squarely aimed at Wall Street executives and other business leaders who have warned about the unintended consequences of the bill. Click here to read the entire speech. Paletta also writes in the Wall Street Journal's Real Time Economics blog that President Obama and multiple lawmakers weighed in almost immediately on the 13-10 vote in the Senate Banking Committee to advance a plan by Democrats to rewrite financial market rules.
Additionally, Tom Braithwaite writes in the Financial Times that Treasury Secretary Geithner warned lawmakers on Monday that "America will lose this opportunity to set the global agenda" on financial regulation if Congress fails to complete passage of legislation to reform oversight of the financial system.
Real Reform in an Election Year
An op-ed in the New York Times on Tuesday takes the view that "a year and a half after the country's banking system nearly imploded, it is still operating under the same inadequate rules and regulations... A watered-down bill could be easier to move through the Senate, and certainly would be welcomed by bank lobbyists. But weak reform would be worse than no reform, because it would entrench the status quo under the guise of change."
Pressure grows to overhaul Fannie Mae, Freddie Mac
The Los Angeles Times reports that in a hearing on Tuesday lawmakers plan to push the Obama Administration to come up with an exit strategy for the troubled housing finance agencies, which have been propped up by bailout money. "It's clear that Fannie and Freddie, as they currently exist, should be put out of existence, which means the important question is what combination of entities public and private will replace them," said Rep. Barney Frank (D-MA), Chairman of the House Financial Services Committee. Frank has called on Secretary Geithner to testify. Click here for details on the Committee hearing.
Volcker And Bernanke: So Close And Yet So Far
Simon Johnson writes in The Baseline Scenario blog on Monday that "in case you were wondering, Paul Volcker is still pressing hard for the Senate (and Congress, at the end of the day) to adopt some version of both ‘Volcker Rules'. It's an uphill struggle - the proposed ban on proprietary trading (i.e., excessive risk-taking by government-backed banks) is holding on by its fingernails in the Dodd bill and the prospective cap on bank size is completely missing. But Mr. Volcker does not give up so easily - expect a firm yet polite diplomatic offensive from his side (although the extent of White House support remains unclear), including some hallmark tough public statements. It's all or nothing now for both Volcker and the rest of us."
March 22, 2010
Pew's FRP News Brief
What will happen tonight is probably they'll be no mark up. They'll be some opening statements and the bill will pass out...the bill will pass out of the committee along a party vote."
Obama: Dodd's Financial Overall ‘Essential'
The New York Times, Wall Street Journal and MarketWatch report on President Obama's weekly address that called for an overhaul of the U.S. financial system. Ronald D. Orol of MarketWatch reports that as the Senate Banking Committee prepares to rewrite banking rules this week, the President urged lawmakers to create a powerful consumer financial protection advocate as part of the broader bank-reform effort that would include mortgages and credit cards. Click here to read President Obama's weekly address.
Additionally, Financial Times columnist Clive Crook writes that "with the U.S. in convulsions over healthcare, Barack Obama devoted his regular weekend broadcast to a different subject: financial reform. It was a surprising choice, but give the president credit for recognizing the importance of the issue."
Fed Chief Takes Aim at Banks as Obama Pushes Overhaul
Sewell Chan of the New York Times reports that Federal Reserve Chairman Ben S. Bernanke said giant banks that are perceived as "too big to fail" are among the "most insidious barriers to competition in financial services." In a speech to the convention of the Independent Community Bankers of America on Saturday, Mr. Bernanke also argued that the Fed should retain its powers to oversee small and medium-size community banks.
Neil Irwin of the Washington Post reported Sunday that top Federal Reserve officials are waging a public campaign to convince lawmakers that their long-standing authority to regulate banks around the country -- including small and midsize ones -- is integral to keeping the central bank attuned to what is going on across the U.S. economy.
Hundreds of amendments filed on Dodd financial overhaul
Silla Brush reported in The Hill's On The Money blog that Senate Banking Committee members have submitted hundreds of amendments to a sweeping financial overhaul measure scheduled for markup beginning today. The amendments were due Friday afternoon, and according to some tallies, there are several hundred on issues across the 1,336-page bill. Click here to view the amendments submitted as of Friday.
The Financial Times and New York Times DealBook blog report that Senate Banking Committee Chairman Chris Dodd (D-CT) has called on the Department of Justice to investigate alleged accounting wrongdoing at Lehman Brothers and prosecute any employees at the bank - or "other companies" - who might have broken the law. In a letter to Eric Holder, attorney-general, on Friday Mr. Dodd asked that the DoJ form a task force to investigate Lehman.
Deck chairs secure aboard USS Financial Regulation
Kevin Drawbaugh writes in a Reuters analysis piece on Sunday that "the big government agencies in charge of policing banks and markets, despite being excoriated over the severe 2008-2009 financial crisis, have successfully dodged a major structural shake-up. While Congress may yet clamp down on the financial industry... a top-to-bottom overhaul of the nation's regulatory apparatus -- which seemed like a certainty a year and a half ago -- is not going to happen."
March 19, 2010
Pew's FRP News Brief
"The goal is to get a bill out of committee and then make arrangements to come up with a bipartisan bill once it's voted on the Senate floor," Corker said at an event hosted by the Pew Financial Reform Project on Thursday.
Corker: Dodd Financial Markup will be Partisan
Major news organizations including the Washington Post, Reuters, CNBC and The Hill report that the financial reform bill introduced this week by Senate Banking Committee Chairman Chris Dodd (D-CT) is headed for a strict party-line vote in the Committee unless the measure undergoes significant amendments during debate next week. Speaking at an event hosted by the Pew Financial Reform Project, Sen. Bob Corker (R-TN) said: "This is going to be a partisan markup.... He [Dodd] was losing Democrats on the left....One of the benefits is that I sort of know where he was willing to go, and hopefully we'll get back to that."
Additionally, Brady Dennis of the Washington Post reports that Sen. Richard Shelby (R-AL), the ranking Republican on the Banking Committee, also expressed little confidence Thursday that Dodd would win over Republicans but said a bipartisan agreement could materialize. According to Dennis, Shelby told bankers at an American Bankers Association summit Thursday that he still had significant concerns about Dodd's bill. In an interview with CNBC before his speech, Shelby said he wouldn't rule out chances for a deal with Democrats. "I always leave the door open a little bit, because there's always a chance once this bill hits the floor that we can work something out, and we should if we can get a good bill," Shelby said. "If we can't get a good bill, we won't support it. We shouldn't support it."
The Dodd Status Quo: Too big to fail is alive and well in the Senate's financial reform
A Wall Street Journal editorial on Friday pens that once ObamaCare becomes law, the next big legislative rush is going to be for financial reform, but as we look at Senate Banking Chairman Chris Dodd's latest draft we can't help but wonder: Why the hurry? On the crucial issues of regulation and too big to fail, his bill is largely the current system, only more so. Mr. Dodd deserves credit for trying to create a path to failure for the largest banks, but in its entirety his bill is a step toward more and larger bailouts. A genuine reform would make clear that unsuccessful companies will go out of business and their creditors won't be saved.
Guidelines agreed on bank rescues
The Financial Times reports that global banking regulators agreed on Thursday on the broad outlines of what governments should do to head off another round of taxpayer-funded rescues of financial institutions considered "too big to fail". Governments need to make contingency plans for the failure of specific banks and insurance companies, to strengthen regulators' authority to intervene early in a looming crisis and to take steps to minimize system-wide contagion, said the Basel committee on banking supervision.
March 18, 2010
Pew's FRP News Brief
"All of us in government are grateful for projects like the one you are engaged in...
Efforts like this one are over time very, very important."
Bernanke Says Dodd Plan Would Harm Fed's Ability to Spot Risks
Major news organization such as the Financial Times, Wall Street Journal, New York Times and Bloomberg report on the testimony of Federal Reserve Chairman Ben Bernanke and former Fed Chairman Paul Volcker to the House Financial Services Committee on Wednesday. Tom Braithwaite of the Financial Times writes that Mr. Bernanke appealed to Congress to preserve the central bank's supervision of the financial system as lawmakers consider removing some of the Fed's powers. The Fed would lose oversight of banks with less than $50 billion in assets in the financial reform bill introduced by Senate Banking Committee Chairman Chris Dodd (D-CT) on Monday. Paul Volcker, the former Fed chairman, appeared alongside Mr. Bernanke to describe the idea of hiving off all of the bank's oversight as a "grievous mistake" that would harm the conduct of monetary policy and financial stability by limiting the Fed's understanding of the financial system.
Volcker Wants Second Vice Chair at Fed
Sudeep Reddy of the Wall Street Journal's Real Time Economics blog reports on Wednesday that the Senate proposal to overhaul financial regulation includes a provision to create a second vice chairman of the Federal Reserve Board who would be directly responsible for bank supervision. According to Reddy, "it's an unusual proposal that received little attention before the draft legislation was unveiled Monday. But it has a strong proponent: former Federal Reserve Chairman Paul Volcker, who is an economic adviser to President Barack Obama." Testifying before the House Financial Services Committee, Mr. Volcker said: "I think you need that continuing focus and clear sense of responsibility so that the attention that the Federal Reserve pays is less subject to maybe ups and downs over time.... Let's build it into the organization in a way that maybe it hasn't been built in as conclusively as it should have been in the past."
Lobbyists fight over financial reform overhaul legislation
Silla Brush of The Hill writes on Tuesday that lobbyists are scurrying to make major changes to the 1,336-page financial overhaul legislation Sen. Chris Dodd (D-CT) released on Monday. According to Brush, everyone from consumer advocates to executives at big banks want changes to the long-awaited bill. On Tuesday, the U.S. Chamber of Commerce, which has been one of the loudest voices on financial legislation, said it would spend another $3 million on its efforts against the Dodd bill, bringing the Chamber's campaign to $6 million. "We will intensify our grassroots efforts," said David Hirschmann, president of the Chamber's Center for Capital Markets Competitiveness.
March 17, 2010
Pew's FRP News Brief
No one, regardless of party, is going to want to face the electorate without having passed financial reform.... No matter how weak it is, in terms of its real structure, the cosmetic ritual is something these guys will want to pass."
A Financial Times editorial on Wednesday writes that "structured chaos" is what [Senate Banking Committee Chairman] Chris Dodd (D-CT) quips he almost called the liquidation scheme in his new financial regulation bill. According to the paper, "it could also describe the political process that forced him to have a second stab after his November draft ran afoul of Republican opposition. The result is, however, welcome: solid reform in the near future is now a realistic prospect....Regulators must still be willing to use the tools the law provides. But getting the law right is a necessary step. The Senate must now take it."
Sen. Dodd urges quick action on financial reform
Reuters reports that Sen. Dodd on Tuesday said Congress needs to fast track financial reform despite Republican pleas to slow down the process to rewrite sweeping new rules. A day after unveiling his long-awaited reform legislation, Dodd told MSNBC that Congress should not adjourn for its two-week Easter recess on March 26th without addressing financial reform. "We really can't allow this Congress to adjourn without addressing these basic issues," Dodd said in an interview. Sen. Dodd has scheduled mark-up of the bill to begin on March 22nd. Click here for details. Also, Treasury Secretary Timothy Geithner appeared on the Rachel Maddow Show on Tuesday; click here to view a clip of the interview.
Additionally, Victoria McGrane of Politico writes on Tuesday that "Republicans on the banking committee are not pleased with Chairman Dodd's decision to start formal committee consideration of his 1,336-page financial reform bill on Monday, a mere week after he unveiled the latest draft of the complex legislation." According to McGrane, most of the unhappy GOP senators are expressing their displeasure in temperate terms, leaving alive hope that they may still come on board at some point in the legislative process.
Dodd Bill: Progress But Not Perfect
In a Wall Street Journal column on Tuesday Peter Eavis asks the question: ‘Does it pass the AIG test?' That is the challenge facing any financial-sector overhaul legislation, including Monday's long-awaited Senate bill. According to Eavis, "The Senate bill has its strengths, including its push to strengthen the banking system through higher, as yet undefined, capital levels. But it still flunks the AIG test."
Geithner to step up public lobbying for reform
Eamon Javers of Politico writes on Tuesday that Treasury Secretary Timothy Geithner will be much more visible on the financial regulatory reform debate now that Dodd has dropped his bill. A senior administration official told Javers: "We had to be more behind the scenes while they were working on it. Now we'll be out there making the case." The official said there's still a long way to go, though, and he doesn't see a final bill passing until Memorial Day at the earliest.
Financial reform would shift Fed's authority away from regional banks
The Washington Post reports on Wednesday that in the details of the financial reform legislation introduced this week are fundamental changes to the Federal Reserve that would shift power from the regional Fed banks around the country and concentrate it in Washington and New York. According to the Post, by "altering the traditional balance of power the bill would recast the workings of the Federal Reserve System....That is why the Senate bill is provoking dismay among many officials at the regional Fed banks even as the Fed, on the surface, appears to be a big winner."
Additionally Reuters reports that Federal Reserve Chairman Ben Bernanke will defend the central bank's supervision of smaller banks in a hearing before the House Financial Services Committee on Wednesday. Click here for details.
March 16, 2010
Pew's FRP News Brief
"Americans deserve action now and are looking to Congress for the leadership that can deliver solutions to protect their financial future. Congress should rise above partisan politics and pass much needed financial reform to ensure that Americans have a safe, competitive and stable financial system for the 21st Century."
John E. Morton, Managing Director, Pew Economic Policy Group, March 15, 2010
Reform Bill Adds Layers of Oversight
Major news organizations such as the New York Times, Reuters, Washington Post, Bloomberg, Financial Times and the Wall Street Journal report on the financial reform bill introduced by Senate Banking Committee Chairman Chris Dodd (D-CT) on Monday. Sewell Chan of the New York Times writes that the 1,336-page bill put forward with the backing of the Obama Administration calls for Washington to play a more active role in policing Wall Street. The plan would create a nine-member council, led by the Treasury Secretary, to watch for systemic risks and direct the Federal Reserve to supervise the nation's largest and most interconnected financial institutions, not just banks.
President Obama welcomes financial reform proposal
Reuters reports on Monday that President Obama welcomed the Dodd legislation and promised to fight any efforts to "water it down." According to the President, "This proposal provides a strong foundation to build a safer financial system." Click here to read President Obama's statement.
Six key points of financial regulation legislation
Binyamin Appelbaum of the Washington Post reports Tuesday on the six key points of the proposed bill. According to Appelbaum, "Sen. Dodd's second draft of financial reform legislation tracks closer to the bill that passed the House in December, eliminating several of the bold reforms he proposed last fall. But Republicans remain opposed, despite Dodd's decision to incorporate their ideas on some issues."
Additionally, Tom Braithwaite of the Financial Times writes on Tuesday that the proposed bill places a tougher-than-expected curb on proprietary trading. According to Braithwaite the bill instructs regulators to study and then enforce the "Volcker rule." However, the financial industry is still betting that the rule will be softened amid skepticism from Republicans and Democrats. Mark Warner (D-VA) yesterday told the Financial Times: "I don't necessarily think it needs to be a mandate." Bob Corker (R-TN) said he would work to "hopefully make it a bill that can receive broad bipartisan support".
Warren backs Consumer Financial Protection Bureau
The Huffington Post reports on Monday that bailout watchdog Elizabeth Warren, the foremost advocate for a strong independent agency, endorsed Sen. Dodd's proposal in a statement. "Despite the banks' ferocious lobbying for business as usual, Chairman Dodd took an important step today by advancing new laws to prevent the next crisis," she said. "We're now heading toward a series of votes in which the choice will be clear: families or banks."
March 15, 2010
Pew's FRP News Brief
"I'm not interested in setting up a regulatory structure that strangles anyone....The idea we can somehow delay this to some later date is just totally unrealistic and wrong...."
**Sen. Dodd plans a 2pm press conference today to unveil his financial reform bill.
Dodd to Unveil a Broad Financial Overhaul Bill
Major news organizations such as the Wall Street Journal, New York Times, Politico, Reuters and the Financial Times report that Senate Banking Committee Chairman Chris Dodd (D-CT) plans to introduce legislation on Monday to rewrite financial market regulations. In an interview with Damian Paletta of the Wall Street Journal, Sen. Dodd said the bill had been "well vetted, well thought out, and thoroughly explored."
Chris Dodd: Wall St. reform 'cannot wait'
Victoria McGrane of Politico reports that Sen. Dodd will unveil a revised financial reform bill Monday that seeks to find a middle ground between the skeptical Republicans he left at the negotiating table last week and the unhappy left-wing of the Democratic caucus. In an interview with Politico Sen. Dodd said: "I've got to produce a product. And this is a hard product to produce."
Additionally, Sewell Chan of the New York Times reports on Sunday that the bill Sen. Dodd plans to introduce would create a consumer financial protection agency under the umbrella of the Federal Reserve. As Senate aides worked through the weekend on drafting the legislation, key elements became clear, according to the people briefed on the negotiations, who spoke on the condition of anonymity because the situation was still fluid. According to Chan, the consumer financial protection agency would have a director appointed by the president and the ability to write rules governing mortgages, credit cards, payday loans and a wide range of other financial products. The Federal Reserve would see its bank supervision powers significantly diminished. It would continue to oversee bank holding companies with $50 billion or more in assets, and would be entrusted to regulate systemically important non-bank financial institutions.
Senate Republicans Protest Timing of Dodd Bill
The New York Times DealBook blog reports that the Republican members of the Senate Banking Committee on Friday wrote a letter expressing their displeasure with the proposed timetable of Chairman Christopher J. Dodd, for his bill overhauling financial regulation. In the letter, obtained by DealBook, the senators write that by unveiling the bill on Monday and sending it to markup by the full committee next week, they will not have time to fully digest the proposal's new details. To read the letter click here.
Additionally, the Financial Times reports on Sunday that Bob Corker (R-TN), who has led negotiations for the Republicans, said he would not be able to support Sen. Dodd's bill immediately but was hopeful that changes could be agreed to secure Republican support. "I don't think there's any question the bill that's going to be offered tomorrow is a far, far better product than he started with," he added.
March 12, 2010
Pew's FRP News Brief
"The idea of putting something on the table is not a reflection of something breaking down. Quite the opposite."
Democrats Push Ahead on Finance Bill
Major news organizations such as the Washington Post, Wall Street Journal, New York Times, Financial Times, Reuters and MarketWatch report on Thursday that Senate Banking Committee Chairman Chris Dodd (D-CT) plans to move forward next week with sweeping legislation to revamp the nation's financial regulatory system. According to the Post, although Sen. Dodd said he will continue bipartisan talks, unveiling the measure on Monday puts pressure on GOP senators by creating a sense of urgency and forcing the debate into the open.
Sen. Corker Offers Details of Deal That Almost Was
Damian Paletta writes in the Wall Street Journal's Real Time Economics blog that Sen. Bob Corker (R-TN) on Thursday talked openly of the bipartisan compromise he nearly reached with Senate Banking Committee Chairman Chris Dodd (D-CT) over new financial regulations. On consumer protection Sen. Corker said: "I think the consumer title that Chairman Dodd puts forth will be very much shaped by our discussions. My guess is he'll probably veer it to a hair left to be candid ... but hopefully not."
How U.S. financial regulation fight might play out
Kevin Drawbaugh of Reuters reports on Thursday that the debate over financial regulation overhaul has a long way to go in the U.S. Congress, with the action now centered in a Senate committee, where analysts, aides and lawmakers see several possible scenarios ahead. Drawbaugh highlights "what could be coming for Democrats and Republicans as they thrash out possibly the biggest regulatory changes for banks and capital markets since the 1930s."
Administration Said to Settle on No. 2 at Fed
Sewell Chan of the New York Times reports on Friday that the Obama administration has settled on Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, to serve as vice chairwoman of the Federal Reserve, a senior administration official said on Thursday night. Ms. Yellen, 63, who was chairwoman of the White House Council of Economic Advisers and a member of the Fed's Board of Governors in the Clinton administration, was widely considered to be the front-runner for the position. Chan writes that top officials, including Treasury Secretary Timothy F. Geithner, were still in conversations with Ms. Yellen about the position, according to the administration official, who spoke on the condition of anonymity because the search was to be conducted in confidence.
EU Advances Draft Rules for Hedge Funds, Amid U.S. Objections
Stephen Fidler of the Wall Street Journal reports on Friday that European officials rebuffed criticism from Treasury Secretary Timothy Geithner suggesting a draft law aimed at regulating hedge funds and other alternative investment vehicles would discriminate against U.S. fund managers and banks. As they did so, the proposed law to which Secretary Geithner objected took a step further in the European law-making machine.
Dean Baker, Co-Director of the Center for Economic and Policy Research will discuss financial regulatory reform on Tuesday, March 16th, from 6-8pm at Busboys and Poets, 1025 5th Street NW. Click here for more information and to RSVP. Additionally, the Foreign Policy Association, BritishAmerican Business, and Chatham House for a Global Financial Forum titled "Building a New Financial Order," on April 26th, 2010, at Citicorp Conferencing Center in lower Manhattan. Click here for more information.
March 11, 2010
Pew's FRP News Brief
"There are no carve-outs for anybody....The issue is whether payday lenders will be regulated in different ways."
Sen. Bob Corker (R-TN), "Corker: Reg Reform Deal Is ‘Imminent,'"
National Journal, March 10, 2010
Latest developments on financial reform plan
John Maggs and Ashlie Rodriguez of the National Journal report on Wednesday that Sen. Bob Corker (R-TN) said lawmakers should "chill" while negotiators work on a financial reform deal in the Senate Banking Committee so that speculation on the bill will not complicate the process. Sen. Corker, said a deal is "imminent," adding that critics "are going to have the opportunity to rip this apart very soon." He made his comments at a National Journal panel that included Sen. Mark Warner, (D-VA), another key Banking panel member. Senators Corker and Warner said the effort would be comprehensive and strong, despite consumer groups' claims that the protracted process will lead to a watered-down final measure.
Additionally, Reuters reports that Senators Corker and Warner have been working on legislation to ensure that no financial firm is too big to fail. Speaking at the same conference, Sen. Warner said that bankruptcy would be the preferred option for a troubled financial firm. "We will be reiterating that no rational management team will want to think about resolution," he said. According to MarketWatch, Sen. Warner said the resolution process would be a matter of last resort and used rarely.
Systemic Risk Agency to be in Senate Bill
The New York Times reports on Thursday that Senate Banking Committee have reached an agreement to create a new Office of Research and Analysis that would "provide early warnings of possible systemic collapses." The proposed agency, which has also been referred to as the National Institute of Finance, would give regulators a broader view of the of the financial system by providing daily updates of the stability of the individual firms, standardizing data between firms and in reporting. The agency would be housed in the Treasury Department and its director, presidentially appointed and Senate confirmed, would be an ex-officio member of the proposed systemic risk council. The agency would be funded by assessments on the largest financial firms, according to the article.
Senators Unveil Bill to Ban Banks' High-Risk Trades
The Wall Street Journal writes that Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI), introduced legislation Wednesday echoing calls from the Obama administration to bar taxpayer-insured banks and their affiliates and subsidiaries from engaging in proprietary trading. The bill is designed to "make banking boring again," according to a summary.
Click here to view the one page summary of the bill issued by Sens. Merkley and Levin and click here to view the full language.
Geithner warns of rift over regulation
The Financial Times reports on Thursday that Treasury Secretary Timothy Geithner has delivered a blunt warning to the European Commission that its plans to regulate the hedge fund and private equity industries could cause a transatlantic rift by discriminating against U.S. groups. According to the paper, a letter sent by Mr. Geithner this month to Michel Barnier, the internal market commissioner, makes it clear that the European Union is heading for a clash with Washington if it pushes ahead with what the US - and Britain - fear could be a protectionist law.
Secretary Geithner is also the focus of two new in-depth pieces, one by The New Yorker, and another profile in The Atlantic. Also, economist Paul Krugman's journey into politics is chronicled in this article in The New Yorker.
March 10, 2010
Pew's FRP News Brief
"We're going to thrash this out in conference. And I think, frankly, these issues fully debated in public may have a somewhat different outcome."
Frank calls for "old fashioned" conference on financial reform bill
Victoria McGrane of Politico writes on Tuesday that House Financial Services Committee Chairman Barney Frank (D-MA) will demand an old-school conference on financial reform. According to McGrane, "the move is a clear signal that Frank will not let Senate Republicans water-down key elements of the legislation without a public brawl. There would still be plenty of behind-the-scenes arm-twisting and deal-cutting for votes, but Frank's plan would force Senate lawmakers to go on the record as choosing weaker proposals on the consumer protection piece and others."
Reuters and other major news outlets report that Senate Banking Committee Chairman Chris Dodd (D-CT) hopes to have revised legislation "in the coming few days." Dodd told reporters at the Capitol on Tuesday: "We're not there yet. There's no agreement ... I'm still hopeful, but I can tell you very candidly that it's also delicate. This thing could trip easily." Additionally, Reuters reports on Tuesday that key U.S. senators are expected to hammer out a bipartisan agreement on financial regulation by the end of the week, according to Sen. Robert Menendez (D-NJ) who was also speaking to reporters on Capitol Hill.
Corker: Fannie and Freddie left out of financial reform bill
Michael O'Brien writes in The Hill's Blog Briefing Room Tuesday that Senator Bob Corker (R-TN) said home lending giants Fannie Mae and Freddie Mac will be left untouched for now by financial reform legislation. Sen. Corker, a lead Republican negotiator on the financial reform bill, said that the legislation under consideration wouldn't deal with the two government-administered companies, but that lawmakers hope to revisit regulation of the companies soon. During an appearance on CNBC Corker said "I would have liked to have seen the Fannie and Freddie reforms in this bill....They're not going to be in this bill."
Corker presses to exempt payday loans
Sewell Chan of the New York Times reports on Wednesday that Sen. Corker is also pressing to remove a provision from the draft [financial reform] legislation that would have empowered federal authorities to crack down on payday lenders, people involved in the talks said. Sen. Corker said in an interview that he had played a role in shaping that section of the legislation, but that people should withhold judgment about the treatment of payday lenders and other companies until the bill was made public. Chan adds that "on Tuesday, while Mr. Dodd and Mr. Corker continued negotiating other provisions of the regulatory overhaul - notably, the extent to which state attorneys general would be able to enforce consumer protection rules against banks - the Federal Reserve's Chairman, Ben Bernanke, met with National People's Action, an activist group that wants the Fed to restrict the banks it oversees from financing payday lenders."
HFSC Hearing scheduled for Wednesday March 10
On Wednesday, the House Financial Services Committee will hold a hearing entitled, "Regulation of Money Service Businesses" to be held at 10:00am in 2128 Rayburn House Office Building. Click here for more information.
March 9, 2010
Pew's FRP News Brief
"Rules and regulations can help constrain our 'animal spirits,' but unless economic incentives are also appropriately aligned, regulation alone will fail."
Wind-Down Plans as an Alternative to Bailouts
The Pew Financial Reform Project released a paper on Monday by Richard Herring, a member of the Financial Reform Task Force and Professor of Finance at the University of Pennsylvania's Wharton School of Business, titled: "Wind-Down Plans as an Alternative to Bailouts," in which he outlines what "wind-down plans" for systemically significant institutions should look like, and describes the benefits that the market would likely see from their use. These plans would assist regulators by providing them with information on a firm's structure and risk-taking in a way that will help them resolve it without resorting to a government bailout in case of a crisis. Click to view the entire paper.
FDIC weighs in on proposed financial reform
The Financial Times reports on Tuesday that FDIC Chairman Sheila Bair has called for an upfront levy on large financial institutions to pay for the costs of their failure - but she signaled willingness to compromise. Bair said that she was still pushing for a pre-funded "resolution authority" to wind down the next Lehman Brothers even though the biggest banks will face an additional $90 billion in taxes per the president's proposed policy. Bair said she also wanted an independent consumer protection agency to fight for the users of financial products, adding "I think it's important to get [regulatory] reform done and I understand that that might not be an option at this point, but I guess I would still like to reiterate that that is the ideal situation here. " Click here to read Bair's speech to the National Association for Business Economics on Monday.
Battle Inside Fed Rages Over Bank Regulation
The Wall Street Journal reports on Monday that the worst of the banking crisis may be long over, but the political contest over the Federal Reserve is entering a crucial phase in which its personality and role will almost certainly be redefined. According to the Journal, "the Fed has tried to fend off very public efforts in Congress to strip it of responsibility for regulating America's banks, but a less-visible battle has been playing out inside the central bank. The Fed has undertaken a wrenching reorganization of its army of 3,000 bank supervisors, which has centralized more power in Washington and sometimes pitted officials at the 12 regional Fed banks against those in the capital."
So Where's Consumer Protection?
Andrew Ross Sorkin of the New York Times writes in his DealBook column Tuesday that the fate of the proposed consumer protection agency remains the biggest question mark in the proposed overhaul of the finance industry. According to Sorkin, "Congress needs to decide if the consumer protection agency should have true independence - in effect, its own street address - as many Democrats believe it should, so that it has real power to act on its own? Or should it be given the equivalent of a room in the basement of the Fed....as the bankers themselves and many Republicans would prefer?"
Additionally, Columbia University professor and former World Bank Chief economist Joseph Stiglitz appeared on CNBC's Closing Bell Monday. Click here to view the interview. Also, click here to view the interview transcript of House Financial Services Committee Chairman Barney Frank (D-MA), who appeared on CNBC's Closing Bell on Friday, March 5.
March 8, 2010
Pew's FRP News Brief
"It happens to be the single most important provision in the legislation to enhance protection for average investors....It's not done until the bill is finally written...and with everything to be negotiated, it could easily become a trading chip."
Big bank oversight to stay with Fed
The Financial Times writes on Monday that banks with more than $100 billion of assets will be overseen by the U.S. Federal Reserve under a regulatory reform plan that represents a partial victory for the central bank after months of attacks in Congress, Senate Banking Committee Chairman Chris Dodd had proposed siphoning off all bank supervision to a single regulator but is set to propose this week that the 23 largest institutions stay under the Fed's oversight, according to people familiar with the plans. At issue over the weekend was the regulation of several hundred state chartered institutions that also want to remain under the Fed's supervision.
Protection for Main Street investors at risk
The Washington Post reports on Sunday that a provision of the financial reform bill that advocates call the single most important item for Main Street investors will probably be "banished from the ponderous bill." The provision - a requirement for stock brokers and insurance agents to act in the best interest of their clients - was part of the draft bill unveiled by Senate Banking Committee Chairman Chris Dodd (D-CT) in November. Citing industry officials and legislative aides, the Post's Tomoeh Murakami Tse, writes that the provision is widely expected to be replaced with legislative language directing the Securities and Exchange Commission to study the varying rules that govern brokers and registered investment advisers today. Investor advocacy organizations worry that such a move - backed by Sen. Tim Johnson (D-SD) and Sen. Mike Crapo (R-ID) - would diminish chances of meaningful reform and vowed to keep fighting.
Dodd Aiming for Balance between Consumer Protection, Safety and Soundness
Damian Paletta of the Wall Street Journal's Real Time Economics blog writes that Chairman Dodd went to the Senate floor Friday to try and give a status report on the bill he's working on to overhaul financial market rules. He painted a mixed picture of the status, saying he was "optimistic" but also using the word "fragile." He described in slightly more detail than usual one of the central issues they are struggling with - how do you protect consumers in a way that doesn't threaten the safety and soundness of banks? "Obviously you want to do this in a way that does not in any way jeopardize the safety and soundness of institutions, and I don't believe that necessarily there is any conflict here, although some suggest there may be. So we are trying to provide as well a mechanism to resolve when in fact you may have some conflict between safety and soundness and consumer protection. I understand that concern, we are trying to accommodate that, while simultaneously maintaining the independence and autonomy of this agency."
Frank Challenges Senate to Vote on Consumer Agency
House Financial Services Committee Chairman Barney Frank (D-MA), speaking in an interview on Bloomberg Television's "Political Capital With Al Hunt" on Friday, warned the Senate that he might scrap regulatory overhaul legislation and start over if senators fail to approve a strong consumer protection authority. Click here to read the transcript of the Frank interview.
March 5, 2010
Pew's FRP News Brief
"I will tell you, if nothing else happens in this bill [the resolution authority is] going to be in this bill...And the resolution vehicle will be so painful, you' rather go to hell and live there for a lifetime than go through resolution."
Dodd to stress other key aspects of financial reform bill
Victoria McGrane of Politico reports on Thursday that Senate Banking Committee Chairman Chris Dodd (D-CT) attempted to draw attention back to key other aspects of the bill that need resolving, but have been overshadowed by the intense debate over consumer protection. Dodd said the legislation would ensure taxpayers would never again be on the hook to save "too-big-too-fail" financial firms, because it will create a resolution mechanism by which the federal government can wind down the future AIG's of the financial world.
The Financial Times on Dodd and Negotiations
In a Financial Times editorial on Thursday the paper takes the view that despite the political attention it receives, consumer protection is not the main event. "The primary aim of the bill is to fix the financial system....The crucial reform is to ensure that systemic responsibility lies either with the Fed or with a body where the Fed has pride of place. If an unappealing compromise on consumer protection is the price for achieving that, then it is a price that should - albeit reluctantly - be paid."
‘No bill rather than a weak bill'
In a Politico exclusive, Mike Allen reports on Thursday that the White House is considering a pull-out-the-stops push for financial regulatory reform after health care is resolved. According to Allen, "officials are considering drawing a ‘line in the sand' on a Consumer Financial Protection Agency. Under this scenario (not settled on), the president would insist that he would rather have no bill than a weak bill." Allen continues: "We're told the bright line would be on independence, not necessarily a standalone agency, which would probably be a deal killer. It could be based at Treasury, or be something creative like a board made up [of] the heads of other regulatory agencies."
Fed Developments
The Economist reports on Friday that the Federal Reserve, "accused by critics of monetary and regulatory malpractice, has seen its standing plummet....It appears, however, that its rehabilitation has begun." As part of negotiations on a financial reform bill, Chairman Dodd is considering a proposal that would let the Fed retain most of its regulatory duties, including oversight of banks' holding companies. The Obama Administration and the Fed consider holding-company supervision essential to the latter's expanded mission of safeguarding financial stability.
The article added that "the Fed's shot at redemption comes at a time when its governance is in transition." Don Kohn, its vice-chairman, announced that he would retire in June. His departure will leave Barack Obama with a chance to reshape the Fed, since there will then be three vacancies on its seven-strong board of governors.
St. Louis Federal Reserve Bank President James Bullard is making the case that the Fed needs the authority to determine the condition of the entire financial system to avert another crisis, according to Bloomberg.
While being considered to monitor the most systemically significant financial institutions, Sen. Jack Reed (D-RI) indicated that the Fed might lose oversight of small state banks to the FDIC, commenting on the negotiations in the committee, writes Bloomberg.
Additionally, Maurice Greenberg, former chairman of AIG, writes in the op-ed pages of the Wall Street Journal on Friday, "Six Steps to Reform the Financial System."
The Congressional Budget Office, responding in a formal letter to questions by Ranking Member Chuck Grassley (R-IA) regarding President Obama's proposed bank tax, answers that the cost "of the proposed fee would ultimately be borne to varying degrees by an institution's customers, employees, and investors, but the precise incidence among those groups is uncertain."
The National Journal's John Maggs writes a series of articles for a special "Financial Services Week" edition, from March 5-12, "Two Visions of Banking," "If it Works," "If it Fails," and "Corker: ‘Too Big to Fail No Longer."
March 4, 2010
Pew's FRP News Brief
"We're real close. It's going back and forth. I think we're getting to a place where Democrats and
Republicans both can get comfortable with this. March 3rd has been the best day yet...."
Bipartisan compromise on consumer protection getting closer
Victoria McGrane of Politico reports on Wednesday that Ranking Member Sen. Richard Shelby (R-AL) and fellow banking committee members Sen. Bob Corker (R-TN) and Sen. Judd Gregg (R-NH) made an offer to Senate Banking Committee Chairman Chris Dodd (D-CT). Dodd delivered a counter-offer to the Republicans a few hours later. Corker described the Republican offer as a handful of "tweaks," but said the "big picture" of housing a consumer division in the Fed remains the same.
According to McGrane, the four-to-five day timeline Corker described would mean expectations of a bill this week are wrong. Industry sources say they've been told to expect a bill Monday, with a committee vote the week of March 16, but no one's holding their breath after two weeks of missed deadlines. Corker specifically said the proposal would meet the four essential elements Dodd said any consumer division must have: a Senate-approved director appointed by the President, a dedicated funding source to shield it from congressional budget making, the authority to make rules, and the authority to enforce them.
The Wall Street Journal also has information on the politics surrounding the negotiations on consumer protection.
Click here to view Treasury's standards for consumer protection rules.
Obama lays out Volcker rule specifics for Congress
Reuters and other major news outlets report Thursday that the Obama Administration reasserted its commitment to banning proprietary trading by banks with draft legislative language on Wednesday, despite signs that Congress is unlikely to adopt such a rule. In a five page document from the Treasury Department, the Administration put a two-year phase-in on its "Volcker rule" to curb "prop trading." The rule would apply to banks, with limits placed on large, non-bank financial firms, as well. In addition, banks would be barred from sponsoring or investing in hedge funds and private equity funds. While key details were left up to regulators, the language showed the White House is determined to push ahead with a rule it first proposed in January.
The New York Times and Reuters have additional information on the proposals. Click here to view the five-page "Volcker Rule" proposal.
The Financial Times reports that the UK Business Secretary, Lord Mandelson, said President Obama's plan is "too difficult" and called on the President to refocus on G20 financial reforms. In a speech in New York, Lord Mandelson argued that the Volcker rule was over-ambitious. "It's the principle and practice of regulation you have to focus on, not the size of banks," he said. In comments that echo Lord Mandelson's, Charles Dallara, Managing Director of the Institute of International Finance, called on countries to work together to avoid "fragmenting" a reform process.
Additionally, Elizabeth Warren, the Chair of the Congressional Oversight Panel on TARP and a leading proponent of strong consumer financial protections is interviewed and profiled by the Wall Street Journal's David Weidner.
Six financial services associations, the American Bankers Association, the Consumer Bankers Association, the Financial Services Forum, the Financial Services Roundtable, the Independent Community Bankers of America, and the Securities Industry and Financial Markets Association wrote a letter dated March 3rd to Senate Banking Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) urging the lawmakers to keep the Federal Reserve's role in financial supervision. Click here to read the letter.
March 3, 2010
Pew's FRP News Brief
Concern over Latest CFPA Proposal
Senators and advocacy groups expressed concern on Tuesday over a current proposal to house a consumer protection unit within the Federal Reserve. Politico reports that House Financial Services Committee Chairman Barney Frank (D-MA) was "disappointed by the proposal." Commenting on negotiations with Republicans, "[t]here are minimum levels of public policy below which you cannot go to get something you call bipartisan," and that he "wouldn't ask the House to pass that." Sen. Charles Schumer (D-NY) said that he was "leery of any consumer regulator being placed inside the Fed." Sen. Jeff Merkley (D-OR) issued a press release on the issue, other lawmakers commented as well; find their comments here and here. Sen. Reed said he would formally introduce an amendment to require that the consumer financial protection is housed in an independent agency, according to Reuters.
However, the Wall Street Journal reports that House Majority Leader Steny Hoyer (D-MD) believes that consumer protection needs to be strengthened, but that it "doesn't need to be accomplished through the creation of a new independent entity."
Bloomberg writes that for consumer advocates, housing a consumer protection within the Fed would "represent a victory" for banks.
Advocacy groups such as Consumer Watchdog, Public Citizen and the U.S. Chamber of Commerce expressed their opinions on the shape of current shape of consumer protection negotiations.
Bipartisan Financial Reform Bill to be Introduced Soon
Reuters reports late Tuesday that Senate Banking Chairman Chris Dodd (D-CT) and Sen. Bob Corker (R-TN) are nearing completion on comprehensive financial reform negotiations. According to a source cited by Reuters, the two lawmakers may "announce an agreement on Friday and release a summary of the details of their deal next week." Besides a compromise on consumer protection, a deal between the two has been reached on creating a "hybrid resolution fund" which would provide "financing the dismantling of large financial firms that get into trouble."
Sen. Mark Warner (D-VA) and Sen. Corker have worked together to create a hybrid resolution authority to effectively unwind systemically significant financial institutions. National Journal's Congress Daily writes on Tuesday that the plan is thought to be similar to the one put forth by a task force assembled by the Pew Charitable Trusts that would allow for a "backstop" administrative resolution process in exceptional circumstances
Larry Summers, Director of the National Economic Council, urged businesses at a Citizens Budget Commission's fundraiser in New York on Tuesday "to embrace financial regulatory reform to prevent another severe economic crisis and ensure long-term health of their companies," reported Reuters.
Additionally, Peter Eavis of the Wall Street Journal writes on current financial reform negotiations on Wednesday. Harold Meyerson of the Washington Post pens an op-ed regarding Wall Street and the current politics surrounding financial reform.
March 2, 2010
Pew's FRP News Brief
"To restore faith in our markets and the economic security of the American middle class - and to avert a potential future catastrophe - Congress must pass comprehensive reform of our financial system... And make no mistake: We will have reform this year."
Senator Dodd - "And Make No Mistake: We Will Have Reform this Year"
Senator Chris Dodd, the retiring Senate Banking Chairman pens an op-ed in Tuesday's Politico, making a strong case for the need to reform the financial system. By citing the need to restore trust in the market and that the current financial system is outdated and the regulatory architecture is ill-equipped for the modern world and the problems of the future, Sen. Dodd writes that financial reform must be completed. "The stakes are too high - and the American people have suffered too greatly - for us to fail in this effort. As I continue to work with my colleagues to form a strong bipartisan consensus, I am encouraged by their willingness to work toward a solution."
Additionally, Politico features a special section on financial reform, "Regulating Risk," featuring articles on financial reform as well as op-eds, including an op-ed by Senate Banking Committee member Evan Bayh (D-IN), "Time to Prevent Future Collapse is Now."
Negotiations on Consumer Protection Center on Central Role for Fed
Major news organizations such as the Wall Street Journal, New York Times, Washington Post, Bloomberg, Reuters and MarketWatch report on Tuesday that Sens. Chris Dodd and Bob Corker (R-TN) were near a breakthrough agreement to create a new consumer-protection division with the Federal Reserve. The Washington Post reports that the plan to house consumer protection was offered by Sen. Corker. The proposal he offered would house consumer protection in the Federal Reserve, led by a presidential appointee with an independent budget and rule-writing authority, enforced by existing regulators, according to the Post. Dodd has reportedly accepted this compromise which marks a departure from his earlier stance on the issue. Sens. Dodd and Corker were busily courting other members of their parties on Monday night in order to gain their support, Senate aides said.
Ranking Member Richard Shelby (R-AL) earlier on Monday had offered two counterproposals on consumer protection, one proposed housing consumer protection within the FDIC, the other proposed creating a "Financial Products Consumer Protection Council."
Yves Smith of the blog Naked Capitalism comments on the proposed compromise to put consumer protection in the Fed here.
Compromise Reached on Resolution Authority
Damien Paletta of the Wall Street Journal reports on Tuesday that while negotiations continue on consumer protection Sens. Dodd and Corker have reached an agreement on resolution authority, which would allow the government to break up large, systemically significant financial institutions. This proposal would "create a type of bankruptcy process for failing financial companies that aren't banks, such as bank-holding companies or bank subsidiaries that don't have insured deposits. Regulators would have the option to force any financial company into an FDIC-controlled dissolution if they believed market chaos required such an extreme step. Under the proposal, this step could take place only after the agreement of the Fed's board, a council of regulators, and the Treasury secretary, in consultation with the president." The proposal would wipe out shareholders and allow the FDIC the power to remove management. Creditors would be guaranteed only the liquidation value of their claims in bankruptcy, although they may receive more under certain circumstances, according to Paletta.
Additionally, the Financial Services Forum pens an op-ed in Politico's "Regulating Risk" section, "Supervisory Power Is Critical to Fed," and the American Insurance Association writes a letter to the Senate Banking Committee supporting "proposals that provide greater oversight of financial institutions and emphasizing that the property-casualty insurance industry does not pose a systemic risk to the broader financial system."
March 1, 2010
Pew's FRP News Brief
"Partisan gridlock is not the reason. The administration's plans are flawed, and they're
encountering resistance from both sides of the aisle in Congress."
Peter Wallison on Financial Reform Efforts
Financial Reform Task Force Co-Chair Peter Wallison writes in a Monday Wall Street Journal op-ed that the media's narrative about partisan warfare being the cause for the failure of financial reform passage, is an easy excuse that does not require much thought to generate or accept. Wallison suggests there is a better reason: "The proposals are not grounded in a valid explanation of what caused the financial crisis, reflect the same impulse to control a sector of the economy that underlies its health-care and cap-and-trade proposals, and more than anything else reflect Rahm Emanuel's iconic motto for all statists that a good crisis should never go to waste."
Paul Krugman: No Reform is better than Cosmetic Financial Reform
Paul Krugman, New York Times op-ed columnist writes on Sunday that all momentum for serious banking reform has been lost. According to Krugman, "The question now seems to be whether we'll get a watered-down bill or no bill at all. And I hate to say this, but the second option is starting to look preferable." In addition Krugman said, "I suspect that even Republicans, in their hearts, understand the need for real reform. But their strategy of opposing anything the Obama Administration proposes, coupled with the lure of financial-industry dollars - back in December top Republican leaders huddled with bank lobbyists to coordinate their campaigns against reform - has trumped all other considerations."
Senate Committee May Drop Independent Consumer Protection Agency
Major news organizations such as Bloomberg, Politico and Reuters report that Senate Banking Committee negotiators, working through the weekend, agreed to drop the stand-alone consumer agency sought by the Obama Administration and opposed by the banking industry, removing an obstacle that has stalled new U.S. financial rules. Senate Banking Committee Chair Chris Dodd (D-CT) joined committee Republicans in seeking an alternative to the Obama proposal. Democrats and Republicans are still seeking a deal to place consumer powers within another regulator, said people with knowledge of the discussions who declined to be identified because the talks are private.
Click here to view the compromise proposal Sen. Dodd has offered on a Consumer Financial Protection Agency.
Senator Corker Profiled in Politico
Victoria McGrane writes in a Politico special section, ‘Regulating Risk' on Monday that Senate Banking Committee chair Chris Dodd and Sen. Bob Corker (R-TN) are widely expected to unveil a financial reform bill any day now, although the situation remains in flux. With the fate of health care still uncertain, passage of a sweeping bill to fix oversight of the financial system could be the only major agenda victory Obama achieves before the midterm elections. In an interview, Corker shrugged off those who were surprised he had agreed to work with Dodd. A freshman Republican, and a conservative to boot, , Corker isn't the most likely figure to emerge as a big-deal bipartisan negotiator - especially when playing deal maker involves breaking the sacred Senate seniority system, writes McGrane.
Global Coordination on Financial Regulatory Reform May be Slipping Says Regulatory Group
The Financial Times reported on Friday that a group of 15 private sector regulatory experts from 11 countries said they had formed a new advisory body on global regulatory issues, warning that there had been signs in recent months that countries were going their own way on how to reform the global financial system. The new group, known as the Council on Global Financial Regulation, will be co-chaired by Michel Prada, former president of the Autorité des Marchés Financiers, the French markets regulator, and Hal Scott, director of the Program on International Financial Systems at Harvard Law School.
In addition, Donald L. Kohn, the vice chairman of the Federal Reserve, will retire when his four-year term expires on June 23rd.
The New America Foundation is hosting an event on consumer protection, featuring Congressional Oversight Panel Chair Elizabeth Warren on Thursday, March 11. Click here for more information and to RSVP.
February 26, 2010
Pew's FRP News Brief
"In a meeting on Thursday at the Treasury, the secretary, Timothy F. Geithner, warned officials from eight industry associations that failure to enact the overhaul would destabilize markets and hamper the ability of the United States to contribute to international discussions over regulatory modernization, according to several participants."
"Traction for Banking Regulation, Sewell Chan,
New York Times, February 26, 2010
Financial Reform Efforts Progress
The New York Times and Politico report on Friday that actors are coalescing towards a Senate deal on financial reform. Treasury Secretary Timothy Geithner met with industry associations on Thursday, to make the case to work for financial reform this year. According to the New York Times, Secretary Geithner opened up the meeting by saying that the administration was going to push hard to really get this bill done and get it done in the near term," said Edward L. Yingling, president of the American Bankers Association. Yingling also said that private sector participants in the meeting "indicated that their wish would be to get a bill done this year - and that they were in fact working to that end."
Additionally, the Washington Post reports on Friday about the ongoing negotiations for a consumer financial protection agency and the positions that various Senators, the administration, consumer advocates and private sector groups have taken on the issue as negotiations are being hammered out. Politico features an article on the dynamics between Sen. Dodd (D-CT), Sen. Corker (R-TN) and Sen. Richard Shelby (R-AL) in "Christopher Dodd's Wall Street Dance with Richard Shelby and Bob Corker."
Federal Reserve Bank Oversight Negotiations
The Wall Street Journal and Bloomberg report on Friday that the Senate Banking Committee is still working out the details regarding the role of the Federal Reserve in bank supervision as it crafts a comprehensive financial reform bill. While the Senate Banking Committee has taken a close look at the Fed's role in bank supervision, recent lobbying efforts by Fed officials and Treasury Secretary Timothy Geithner have improved the U.S. central bank's standing among some Senators on the Banking Committee: "The Federal Reserve is gaining support in the Senate and could emerge from the overhaul of financial-market rules as the primary regulator of the country's largest financial firms, according to people involved in the negotiations."
A possible compromise between the Senate and the administration, which has been pushing for the Fed to keep its supervisory role, could be one in which "the Fed would lose supervisory authority over thousands of smaller banks and bank-holding companies, and be directed instead to focus on a handful of the largest financial companies whose collapse could threaten the broader economy." Sen. Jack Reed (D-RI) speaking to reporters on Thursday on the Fed, said that, "I don't think it's going to maintain its current role completely."
Menendez to Introduce Financial Reform Bill on Corporate Governance
Senate Banking Committee member Robert Menendez (D-NJ) is introducing legislation that would strengthen corporate governance by giving shareholders a say in corporate executive pay and allow regulators to "claw back" or take back bonuses paid to executives who mismanaged their companies, according to an article by the Daily Record of Morris County, New Jersey. A summary of the Menendez bill, provided to Gannett Washington Bureau, would also 1. Bar executives from earning big severance packages if they're fired for doing a poor job; and 2. Reveal how much the CEO is getting paid in relation to the average worker.
Additionally, Public Citizen has joined with Americans for Financial Reform and other consumer advocacy groups and over 45,000 Americans to support a strong independent Consumer Financial Protection Agency, according to a press release issued on Thursday. Also, Treasury Secretary Timothy Geithner told "Congress this week that the administration will "hold off on proposing reform of Fannie Mae and Freddie Mac until next year," according to the National Association of Federal Credit Unions.
February 25, 2010
Pew's FRP News Brief
"I think that stripping the Federal Reserve of supervisory authorities in the light of the
recent crisis would be a grave mistake for several reasons."
Obama Administration May Compromise to Pass Financial Reform
The Washington Post reported on Thursday that the Obama Administration may be willing to compromise on its proposed consumer protection provisions in order to pass a comprehensive financial reform bill. The administration is no longer insisting "on the creation of a stand-alone consumer protection agency" as a main tenet of a financial reform deal. The White House originally fought hard for an independent consumer financial protection agency, a sort of Consumer Product Safety Commission for financial products. The article reports that the Administration may also compromise on the president's recent proposal to bar banks from engaging in proprietary trading. The New York Times also reported on the recent negotiations and compromises that may take place in order to introduce a bill.
Additionally, Reuters reports that a Senate Banking Chairman Chris Dodd (D-CT) expects a bipartisan agreement on comprehensive financial reform legislation to be reached ‘soon.' Reuters also reports that Treasury Secretary Timothy Geithner, in prepared testimony on Wednesday to the House Budget Committee, reaffirmed the need to reform the financial regulatory system, in order to make the financial system safer: "...Financial firms, especially large ones, have more capital to absorb their own losses and cannot take risks that threaten the whole economy. Consumers need to be given the information they require to make the decisions that are right for them and they need to be protected from unfair and fraudulent practices."
Bernanke Battles to Keep Fed as Bank Supervisor
Federal Reserve Chairman Ben Bernanke, during testimony to the Senate Banking Committee on Thursday defended the Federal Reserve as a bank supervisor of the largest financial institutions to Senate Banking Committee Richard Shelby (R-AL): "It's hard for me to understand why in the face of a crisis that was so complex and covered so many markets and institutions, you would want to take out of the regulatory system the one institution that has the full breadth and range of those skills to address those issues."
Gensler Op-ed in the Financial Times
Gary Gensler, head of the Commodity Futures Trading Commission, pens an op-ed in the Financial Times on Thursday, "How to Stop Another Derivatives Inferno," in which he likens the need for stronger derivatives regulation to the Great Chicago Fire of 1871. He argues that in the aftermath of that great blaze, new rules protected the city from the spread of future fires. Now he contends, new regulations need to be put in place for the financial sector: "Chicago rebuilt itself with new rules to limit the risk of fire. We, too, should establish rules to protect the public from OTC derivatives. If we do nothing, we risk another financial fire that will cost even more jobs."
Additionally, Bloomberg reports that the House Ways and Means Committee is considering different approaches to the $90 billion fee to the 50 biggest financial institutions, first proposed by the Obama Administration. The White House originally proposed that fees to financial firms be based on balance sheet calculations. One idea coming from the House committee is to base those fees on income. Scott Talbott of the Financial Services Forum said it is "less disproportionate" to assess these fees based on income.
February 24, 2010
Pew's FRP News Brief
"Former Federal Reserve Chairman Alan Greenspan said the financial crisis was ‘by far' the worst in history and called the recovery from the global recession "extremely unbalanced."
Sen. Corker Optimistic About Financial Reform Prospects
The National Journal reports on Wednesday that Sen. Bob Corker (R-TN) is optimistic about financial regulatory reform efforts. While it is uncertain when exactly Senate Banking Chairman Chris Dodd (D-CT) will unveil the new financial reform bill, Sen. Corker insists that he and Dodd are very close in their thinking on the issue and that negotiations are moving along "in a very productive way." Corker does not believe he will be the only Republican that will vote for a financial reform package sponsored by Sen. Dodd: "I've never thought that was a possibility, because the fact is, that if a bill passes muster with me, I know it's gonna pass muster with a number of Republicans."
Steven Pearlstein, columnist for the Washington Post, writes on Wednesday about recent developments and the politics behind regulatory reform. Victoria McGrane of Politico offers other analyses of financial reform developments here and here.
Greenspan Characterizes Current Recession as ‘By Far' Worst
Bloomberg reports on Tuesday that former Federal Reserve Chair Alan Greenspan, during a speech to the Credit Union National Association's Governmental Affairs Conference (CUNA) in Washington yesterday, said the "financial crisis was ‘by far' the worst in history and called the recovery from the global recession ‘extremely unbalanced.' " He said that even in the 1930's, "never had short-term credit literally withdrawn," as was the case with the recent economic calamity. The "extremely unbalanced recovery" he characterized is being led by high-income consumers and large corporations, according to the article.
Additionally, Bloomberg reported on Tuesday that U.S. "problem" banks have climbed to the highest level in 17 years and that bank lending has had its biggest drop in more than six years. Also, bank bonuses on Wall Street have risen 17% in 2009 as compared with 2008, according to New York State Comptroller Thomas DiNapoli.
White House Renews Push for Financial Reform Legislation
Sewell Chan of the New York Times reports on Wednesday that the White House has "redoubled" its efforts to strengthen the financial system through regulatory reform. Treasury Secretary Timothy Geithner is expected to meet with industry associations on Thursday and the White House has recommitted to the "Volcker Rule" which prohibits banks from proprietary trading. Michael Barr, Assistant Treasury Secretary for Financial Institutions, in a speech to CUNA on Tuesday, argued that the proposed Consumer Financial Protection Agency would strengthen the banking system. He reminded listeners that President George W. Bush's administration, in its 2008 financial regulatory reform plan, proposed to separate consumer protection from safety and soundness, as does the Obama administration. Click here to read his speech.
In other news, St. Louis Federal Reserve President James Bullard presented the case that the Federal Reserve is the nation's "best chance" for avoiding future financial crises during a speech to the CFA Virginia Society in Richmond, VA. Bullard summarized various financial reform proposals being considered, including a Financial Services Oversight Council, expanded resolution authority, limiting Fed 13(3) authority, strengthening consumer protection, and creditor haircuts. Click here to view the press release.
Also, Fed Chairman Ben Bernanke testified to the House Financial Services Committee today; click here to read his testimony. On Thursday, Mr. Bernanke will testify to the Senate Banking Committee. Additionally, Treasury Secretary Timothy Geithner testified to the House Budget Committee on President Obama's Fiscal Year 2011 budget.
February 23, 2010
Pew's FRP News Brief
"I feel we will have a good chance to produce a bipartisan bill soon, and I know you all want to know dates and times exactly, and obviously I don't know that...We're not running out of time. Eventually you have to put something together and go forward. I want people to be comfortable with the product to the extent they can be, but I'm very optimistic we can get a bill."
Senator Chris Dodd (D-CT), "Geithner Calls Meeting on Banking Rules as Action Heats Up," Damian Paletta, Wall Street Journal Real Time Economics Blog
Senator Richard Shelby (R-AL), Ranking Member of the Senate Banking Committee, has decided to rejoin bipartisan talks on comprehensive financial reform, reports CNBC this morning. According to the report: "A sweeping regulatory overhaul of the financial industry gained momentum Tuesday as Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee, rejoined bi-partisan negotiations on the bill, CNBC has learned."
Geithner to Meet with Financial Services Industry on Financial Reform
Damian Paletta of the Wall Street Journal writes a blog entry from yesterday regarding the political action this week on financial reform, both in the Senate and with the Obama administration. Treasury Secretary Timothy Geithner is expected to meet on Thursday with the U.S. Chamber of Commerce, the American Bankers Association, the Independent Community Bankers of America, the Financial Services Roundtable, and the Securities Industry and Financial Markets Association among other groups. The focus of the meeting is reported to be financial reform.
The entry also includes quotes from Senate Banking Committee members on financial reform and steps moving forward.
AARP Releases Poll on Financial Reform Issues
The American Association for Retired Persons (AARP) has recently released a nationwide survey on consumer financial protection issues for people over 50 years old. The survey, conducted by Social Science Research Solutions (SSRS), shows nearly unanimous support for numerous consumer financial protections.
Among the findings -
Almost all respondents (96%) favor requiring banks to explain the terms and conditions of loans, including mortgages and credit card debt, in plain language people can understand. Support is consistent across all political parties, with over 9 in 10 members of all parties backing this requirement: Republicans (98%), Democrats (95%), and Independents (96%).
Also, 92% favor requiring investment companies to disclose the costs, risks, and benefits of all the financial products they market and sell using plain language and a user-friendly format. Again, results show support of more than 9 in 10 respondents across parties: Republicans (91%), Democrats (91%), and Independents (95%).
Click here to view the full report.
Fed Presidents Push to Allow Fed to Keep Bank Supervision
Bloomberg reports on Tuesday that some Federal Reserve regional presidents are making their case to Congress that the Fed keep bank oversight authority. The Senate Banking Committee is currently in negotiation over bank supervision issues in a comprehensive overhaul of financial regulations and is considering stripping bank supervision from the Fed. Thomas Hoenig, President of the Kansas City Fed, sent a letter on February 14 to Senators arguing that the "proposed laws in the Senate wouldn't improve financial regulation." Hoenig is scheduled to appear on CSPAN's morning call-in show February 26 before a national audience to discuss the issues. Narayana Kocherlakota, President of the Minneapolis Fed, gave his first speech in that role on February 16, "The Economy and Why the Federal Reserve Needs to Supervise Banks," arguing that stripping the Fed of its bank supervision authority "is a step in the wrong direction."
In other news, Rolling Stone reporter Matt Taibbi has another investigative article on Goldman Sachs and the federal bailout of the banking sector, "Wall Street's Bailout Hustle."Also, Simon Johnson writes in his blog on the "Prospects for Financial Reform."
February 22, 2010
Pew's FRP News Brief
"What Pew did do was helpful,' [Senator Bob] Corker said. ‘They put together a pretty broad swath of philosophical backgrounds and smart people to try and hash out many of these issues. They went about it in a very serious way. We sort of stayed in touch with them all the way through.'"
Pew Financial Reform Project ‘Helpful' to Senate Banking Committee Deliberations
Bill Swindell of the National Journal magazine writes that the Pew Charitable Trusts' Financial Reform Project has been a prominent component of the financial reform deliberations going on in the Senate Banking Committee, especially the bipartisan negotiations between Sens. Mark Warner (D-VA) and Bob Corker (R-TN). The article details the formation of the bipartisan financial reform task force and the support Warner and Corker received from the task force. Sen. Warner believed the project helped "because it has brought people from different ends of the ideological spectrum." The article follows the task force's negotiations in various financial reform issues, including the resolution of non-bank financial institutions. Warner and Corker are expected to call for a resolution regime similar to the Financial Reform Project Task Force recommendations.
Robert Litan, Financial Reform Task Force Member on Financial Innovation
The Washington Post reports on Sunday about two recent works that delve into the financial crisis and financial innovation, a new book by Scott Patterson, "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It," and a new, 47-page study by Financial Reform Task Force member Robert Litan, titled, "In Defense of Much, But Not All, Financial Innovation," and published by the Brookings Institution. Litan argues that unlike pharmaceuticals or nuclear power, financial products are best regulated after the fact; once the market has had a chance to test them. "If a skeptical view of financial innovation takes hold' among policymakers, he warns, the result could ‘chill the development of innovations that would benefit consumers, homeowners and investors.'"
CFPA Gets a Push from Frank, Geithner, Others
Barney Frank (D-MA), Chair of the House Financial Services Committee, reiterated his view that an independent Consumer Financial Protection Agency (CFPA) is "very important" to Democrats during an interview with Bloomberg Television last Thursday. On Monday, Treasury Secretary Timothy Geithner also expressed his support in a prepared statement: "As we work with Congress on broader reform to make our financial system safer and more stable, we are also working to consolidate the fragmented authority of seven separate agencies into a single, independent and accountable Consumer Financial Protection Agency."
Rep. Niki Tsongas (D-MA), issued a press release last Thursday, in which Rep. Tsongas sent a letter signed by 32 members of the House of Representatives to Senate Banking Chair Chris Dodd (D-CT), asking the Senate not to weaken or remove the CFPA in its version of financial reform legislation. An independent CFPA was proposed in the House comprehensive financial reform bill, HR 4173. Click here to view the letter.
Geithner Interview in Vogue Magazine
Treasury Secretary Timothy Geithner is interviewed in the March edition of Vogue magazine. Regarding financial reform legislation, the Secretary is focused on achievable goals. "In the end, it's not about what you believe. It's about what you can achieve." Additionally, he says: "I don't think we can change Wall Street by exhorting and shaming. There is an inherent conflict in the financial system between its basic interests and what is necessary for the stability of the economy and protection of the public. That is why we have rules, but the rules were not well designed. They lagged dramatically and tragically. So we have to fix the rules. That's what we're doing with reform."
February 18, 2010
Pew's FRP News Brief
"The consensus is that the bill will get out of the Senate, and then the House mostly goes along with the Senate language. The final bill is likely on the president's desk by early June."
New York Times Reports Agreement Near on Systemic Risk Monitor
Sewell Chan of the New York Times reports on Thursday that the Senate and the Obama Administration are close to an agreement on forming a council of regulators to monitor the financial system for systemic risk. This proposed council of regulators will be led by the Treasury Secretary and would be tasked with ensuring the stability of the financial system as a whole. While the details are still being worked out, Senate Banking Committee Chair Chris Dodd (D-CT) said the proposal would provide the U.S. financial sector with an "early-warning system." Questions remain over the role of the Federal Reserve in this council as well as the Fed's role on supervising the largest, most interconnected firms in the economy.
Reuters Political Analysis on Financial Reform
Reuters reporter Kevin Drawbaugh writes on Thursday regarding the political calculus involved as financial reform negotiations continue. The article states that Democrats are betting heavily that Republicans cannot afford politically to block financial reform. Speculating on the timeline for financial reform, an analyst said early June would be a likely date for a final bill to reach the President's desk. Support for a bipartisan bill exists for five major principles, according to Banking Committee aides: "creating a ‘resolution authority' for unwinding large financial firms in distress; monitoring ‘systemic risk' to financial stability; raising bank capital standards; regulating derivatives; and streamlining bank supervision."
IMF Chief Writes in Financial Times on Regulatory Reform
Dominique Strauss-Kahn, the managing director of the International Monetary Fund (IMF) pens an op-ed in Thursday's Financial Times, "Reject Ad hoc, National Financial Reforms," in which he argues that nations should avoid hastily setting up their own financial regulatory reform regulations without coordinating globally. He urges readers to remember that "coordination works better than unilateralism." The IMF will work to draw out the systemic and macroeconomic implications of financial sector reforms and if necessary, to highlight the implications of financial sector reforms, Strauss-Kahn writes. "The global process of reaching agreement on prudential policies under the Basel Committee and the Financial Stability Board is thus an extremely important undertaking that deserves the full backing of the international community," stresses Strauss-Kahn.
February 17, 2010
Pew's FRP News Brief
"Put aside for a moment the populist pressure to regulate banking and trading. Ask the elder statesmen of these industries - giants like George Soros, Nicholas F. Brady, John S. Reed, William H. Donaldson and John C. Bogle - where they stand on regulation, and they will bowl you over with their populism."
"Elders of Wall Street Favor More Regulation,"
Louis Uchitelle, New York Times, February 17, 2010
Older Generation of Bankers Support More Financial Regulation
The New York Times features an article on Wednesday surveying the views of elder statesmen of the financial services industry and their views on financial regulation. The article traces the views of Mr. Bogle, as well as former Treasury Secretary Nicholas Brady, former Citigroup co-chairman John S. Reed, billionaire investor George Soros and William H. Donaldson, former chairman of the Securities and Exchange Commission under the George W. Bush administration. Unlike the younger generation, the older financiers have a more populist attitude about reform, favoring stricter regulations on the financial services industry and strong financial regulatory reform. Former Federal Reserve Chairman Paul Volcker recruited almost a dozen peers who see the "Volcker Rule" as being "a starting point in a broader return to regulation." John C. Bogle, former founder and chief executive of the Vanguard Group, one of the elders of Wall Street: "'I am a believer that the system has gone badly awry and needs massive reform.'"
Politico on how Bayh's Retirement might affect financial reform
Evan Bayh, the Indiana Democrat and member of the Senate Banking Committee announced over the weekend that he will retire from the Senate after this current term expires. Political pundits are now postulating about how his retirement could impact the prospects for financial services reform. The Banking Committee will have a few open seats after the November elections, as current Banking Chair Chris Dodd (D-CT) also will not seek reelection. Committee member Jim Bunning (R-KY) will retire, and Kay Baily Hutchison (R-TX) is currently running for governor in her home state. New and active members Bob Corker (R-TN) and Mark Warner (D-VA) could benefit from the shakeup on the committee.
Time Magazine on the CFPA
Michael Grunwald writes for Time magazine on Wednesday, making the case for a Consumer Financial Protection Agency (CFPA). The CFPA is currently one of the most contentious issues facing the Senate Banking Committee as it works to create a comprehensive financial reform bill. Grunwald argues that the proposed CFPA would be the financial version of the Consumer Products Safety Commission, the Food and Drug Administration, or even the Environmental Protection Agency.
In other news, Politico features an article on hedge fund lobbying. Paul Krugman writes on his blog regarding financial reform, and Robert Reich blogs about financial reform in a guest blog post in the Christian Science Monitor.
FCIC Upcoming Hearings
The Financial Crisis Inquiry Commission (FCIC) has announced a two-day forum to explore the causes of the financial crisis. The forum, which is open to the public, will be held February 26-27, 2010 at the American University, Washington College of Law. in conducting its research and analysis, the Commission has met with Financial Reform Task Force Co-Chair, Martin Baily, to discuss views related to the crisis. Peter Wallison, also a Financial Reform Task Force Co-Chair, is a member of the FCIC.
February 16, 2010
Pew's FRP News Brief
"Doing nothing to safeguard the financial system after what we've been through would be a disgrace. So what can be salvaged from the wreckage? Let me start with the two most pressing issues: systemic risk and resolution authority."
Financial Reform Task Force Member Alan Blinder on Financial Reform Efforts
Alan Blinder, former vice chair of the Federal Reserve and Financial Reform Task Force member pens an op-ed in Tuesday's Wall Street Journal, "It's Time for Financial Reform Plan C," advocating for the completion of financial reform legislation. He argues that systemic risk and resolution authority are the two most important issues surrounding comprehensive financial reform. He urges Congress and the administration: "[l]adies and gentlemen, could you possibly stop bickering long enough to give us a tightly focused bill that accomplishes this one objective? Mr. Obama, could you please shame Congress into doing so?" He then turns to the proposed Consumer Financial Protection Agency and the proposed "Volcker Rule," limiting the size and scope of financial institutions. His overriding message: "Plan A died long ago, and Plan B is gasping for breath. It's time to prepare Plan C."
Former Treasury Secretary Henry Paulson on Financial Reform
Henry Paulson, former Treasury Secretary, writes an op-ed on financial reform in Tuesday's New York Times, "How to Watch the Banks." Paulson argues that Congress must pass regulatory reform, delays are creating uncertainty, and that the overriding goal should be that "taxpayers never again have to save a failing financial institution." Just like Blinder, Paulson advocates for two major proposals for effective financial reform: a systemic risk regulator and government resolution authority. He argues that the Federal Reserve should be the systemic risk regulator, yet says that while Congress is working to create a council of regulators as systemic risk regulator rather than the Fed, it could work if it is led by the Treasury secretary or the Fed chairman and structured in a way to allow for strong decisions to be made quickly in a time of crisis. In regards to resolution authority, Paulson argues that the government needs "broad-based authority to liquidate any failing financial institution without going through the bankruptcy process, which is not well-suited for such complex firms in the midst of a financial crisis." Market participants, he says, must know that whenever this process is put into motion, the outcome is liquidation.
Tennessee Papers Opine on Corker's New Role in Financial Reform Negotiations
As reported last week, Senator Bob Corker (R-TN) will work with Senate Banking Chairman Chris Dodd (D-CT) in crafting a bipartisan regulatory reform bill. Tennessee newspapers over the weekend commented on their Senator's new role in the process. The Jackson Sun, based in Jackson, Tennessee, wrote an editorial on Sunday praising Corker for stepping into this role: "[h]e is a strong choice to get this important legislation written and passed," and lists its reasons for why it believes Corker is a good choice. The Chattanooga Times Free Press' David McGee writes that Corker is working to find the middle ground with legislation that Republicans and Democrats might support and that he is just the man for the job.
The Los Angeles Times on Wall Street Lobbying
Nathaniel Popper of the Los Angeles Times writes Tuesday about the increase in lobbying expenditures by the financial services industry. According to the article, lobbying expenditures jumped 12% from 2008 to $29.8 million last year among the eight banks and private equity firms that spent the most to influence legislation. While large banks have avoided publically resisting a push to reform the industry, "increased spending by other firms - as well as by industry groups - suggest financial firms are making their voices heard now more than ever."
February 12, 2010
Pew's FRP News Brief
"GOP Sen. Bob Corker said he ‘absolutely' would be willing to buck his party to pass a bill cracking down on financial market abuses and creating new rules to prevent firms from becoming ‘too big to fail.'"
Corker Joins Dodd in Bipartisan Effort - News Analyses
Leading the news today is yesterday's announcement that Senate Banking Chairman Chris Dodd (D-CT) and Sen. Bob Corker (R-TN) have formed a partnership to continue bipartisan negotiations over financial regulatory reform. Initially, Dodd was working with Ranking Member Richard Shelby (R-AL) on negotiations, but recently the talks have broken down. According to reports, Dodd felt like the negotiations with Shelby were not going anywhere.
The Wall Street Journal interviewed both Dodd and Corker on Thursday. Regarding the response from fellow Republicans, Corker told the Journal: "Ι think that members of the committee know that I'm sound philosophically. I think they know that...I don't know what the response is going to be. We'll see how that plays out." In another Wall Street Journal report, Sen. Corker said he would "absolutely" be willing to go against his party and vote for a comprehensive financial reform bill, yet, "it's got to be a good bill."
Various outlets including the New York Times have reported that the two senators have agreed to set aside the issue of a consumer financial protection agency for now, perhaps the most contentious issue in a comprehensive financial reform package. A Bloomberg article from Friday analyzes the consumer financial protection agency positions in more detail. White House Press Secretary Robert Gibbs on Friday reaffirmed the President's commitment to a consumer financial protection agency: " I think the President still believes it is a great priority to have the independent authority to ensure that consumers in this reform are protected, protected from the type of loans that we've seen happen that have led to massive foreclosure, the type of tricks with credit cards that we had seen in the past in legislation that Congress approved and the president signed is intended to deal with."
Sen. Judd Gregg (R-NH), interviewed by Reuters, commented that the bipartisan negotiations are moving forward. "My guess is that at the end of the day the Senate will have a fairly substantive, basically bipartisan product. But how we get there is not absolutely clear."
Dow Jones Newswires reports that Sen. Corker hopes to reach a deal in the Senate Banking Committee by mid-March.
Sens. Tim Johnson (D-SD), as well as Corker and Dodd issued press releases on the revived process. Sen. Gregg was interviewed on developments by CNBC on Friday.
In other news, the New York Times features a post in its Economix blog by Simon Johnson and James Kwak speculating on Larry Summers, Director of the National Economic Council, and his views on regulating large, interconnected banks.
Friday's Washington Post features an op-ed by Stephen A. Schwarzman, chairman and chief executive and co-founder of the Blackstone Group, "Lawmakers' Rush to Punish Banks Threatens Recovery."
Also, the Financial Times interviews Paul Volcker, the chairman of President Obama's Economic Recovery Advisory Board.
February 11, 2010
Pew's FRP News Brief
"I'm just one senator and I would certainly never say I could replace Sen. Shelby, someone I respect and like a lot. But I am stepping forward as a Republican senator saying this is a piece of legislation that needs to be passed."
Sen. Bob Corker (R-TN), interviewed by CNBC, February 11, 2010
Dodd and Corker to Work for Bipartisan Senate Bill
Senate Banking Committee Chairman Sen. Chris Dodd (D-CT) will move forward on a bipartisan financial regulatory reform bill with Tennessee Senator Bob Corker, the Wall Street Journal reported on Thursday. "I am more optimistic than I have been in several weeks that we can develop a consensus bill to bring about the reforms the financial sector so desperately needs to prevent another economic crisis," said Sen. Dodd in a statement.
Sen. Corker has been tasked to work with Sen. Mark Warner (D-VA) on crafting a compromise regarding effectively unwinding failing, systemically significant financial services firms. As Dodd works with Corker on a bipartisan bill, Corker will be involved with broader financial reform negotiations with Democrats. The New York Times, Reuters, The Hill, and other major news outlets also reported on this development on Thursday.
Click here to view Sen. Corker's CNBC interview on financial reform, which aired on Thursday.
S&P on Citi, Bank of America
The Financial Times reports on Wednesday that Standard & Poor's (S&P), the rating agency, has warned Citigroup and Bank of America that it might downgrade the credit ratings of these agencies in the near future on concerns that if these institutions fell into trouble, the U.S. government would not come to their rescue. S&P said, "[t]he outlook revision reflects our increased uncertainty about the US government's willingness to provide additional extraordinary support to highly systemically important financial institutions in a way that will benefit debt holders," according to the article.
In response, Sen. Bob Corker issued a press release on Wednesday in which he characterized the reports by S&P as the "best financial news I've seen in months." Corker continued, "[w]hen considering the credit ratings of large financial entities, credit agencies and investors are beginning to believe that we will pass legislation ensuring that if a company fails, it fails and there will be no taxpayer support to save it. They are adjusting their ratings to reflect this change which is a very important development when you consider all the government intervention that has occurred over the past year and a half," according to the press release.
The Economist on U.S. Financial Reform Developments
The Economist reports in its February 11th print edition on the recent developments regarding financial reform in the U.S., in "Another Fine Mess." The magazine writes that the window for bipartisan consensus is "closing fast." Once spring comes, senators will focus on November elections rather than on legislation. There is "little more than a month to get a deal before attention turns elsewhere," according to the article. "Even if relations between Mr. Dodd and Mr. Shelby thaw, there would be still a long way to go."
February 10, 2010
Pew's FRP News Brief
We're down to a couple of issues here that we need to work on, and I'm determined to continue to work on those over the next few days to see if we can put something together. If not, then we'll go forward with a bill ... But we're working on it. ... I have really kept this door open, and been reaching out to people. There's been none of this idea of trying to write a bill on our own. I've made a concerted effort by involving any member interested in crafting major parts of this bill."
Sen. Chris Dodd (D-CT), as reported by Victoria McGrane,
Politico, Morning Money, February 10, 2010
CFPA Gets Renewed Push
As the Senate Banking Committee works to move forward following an impasse in negotiations over a proposed Consumer Financial Protection Agency (CFPA), various supporters have renewed their determination to see a CFPA in a final Senate financial regulatory reform bill. As reported yesterday, Elizabeth Warren, head of the Congressional Oversight Panel on TARP, published an op-ed in the Wall Street Journal on Tuesday, expressing her support for a CFPA: "The CFPA will consolidate seven separate bureaucracies, cut down on paperwork, and promote understandable consumer products." Rep. Barney Frank (D-MA), Chairman of the House Financial Services Committee, issued a press release on Tuesday, welcoming Warren's op-ed and supporting Sen. Dodd's "intention to fight to preserve an independent consumer agency.
Additionally, Connecticut's Attorney General, Richard Blumenthal, in a conference call with Iowa Attorney General Tom Miller, Illinois Attorney General Lisa Madigan and Ohio Attorney General Richard Cordray, expressed support for an independent CFPA, according to Bloomberg.
Corker on Senate Financial Reform Bill
According to The Hill's Blog Briefing Room, Sen. Bob Corker (R-TN) expressed his view that the Senate Banking Committee will be able to craft a bipartisan financial reform bill. "My guess is that at the end of the day, we're going to end up with a solid bill. And if we end up with a solid bill, I'm planning on supporting it." Regarding the proposed timeline for the mark-up for a reform bill, Corker said that it will "not occur until late February, maybe early March, because of the snow."
SEC Self-Funding Proposed
Dow Jones Newswires reports on Tuesday that the current negotiations in the Senate Banking Committee over a financial regulatory reform bill may include a provision to allow the Securities and Exchange Commission (SEC) to fund itself based on fees it collects. The self-funding provision is a key priority for the regulatory agency. Sen. Mike Crapo (R-ID), a key member of the Senate Banking Committee working on SEC issues, is opposed to SEC self-funding. Sen. Dodd's original draft reform bill included the SEC self-funding provision. Currently the SEC relies on appropriations from Congress.
The Wall Street Journal's Prabha Natarajan writes on Wednesday regarding the emergence of covered bonds in the U.S. mortgage market. Also, Joseph Stiglitz, Nobel prize winner and economics professor at Columbia University, writes an op-ed in Wednesday's Financial Times, "Watchdogs Need Not Bark Together," in which he argues, regarding global harmonization of the financial regulatory architecture, "[i]t is far better to have strong action now and then harmonize the regulatory structures later."
February 9, 2010
Pew's FRP News Brief
"Now, a year later, President Obama's proposals for reform are bottled up in the Senate. The same Wall Street CEOs who brought the economy to its knees have spent more than a year and hundreds of millions of dollars furiously lobbying Washington to kill the president's proposal for a Consumer Financial Protection Agency (CFPA)."
Elizabeth Warren, "Wall Street's Race to the Bottom,"
Wall Street Journal, February 9, 2010
Elizabeth Warren in Wall Street Journal on Consumer Protection
Elizabeth Warren, Harvard professor and Chair of the Congressional Oversight Panel on TARP, writes an op-ed in Tuesday's Wall Street Journal, in which she makes the case for a consumer protection agency, which is the "only proposal that would help families directly." She continues that a consumer agency would be "a a watchdog that would root out gimmicks and traps and slim down paperwork, giving families a fighting chance to hang on to some of their money. So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation." Warren writes that Wall Street CEOs have lost the trust of the American public, and by working to not resist a consumer financial protection agency, they can "take the first steps to earn it back."
Consumer Watchdog Sends Letter to Sen. Dodd
Consumer Watchdog, an advocacy organization, issued a press release on Monday, reporting that it sent a letter to Senate Banking Chairman Chris Dodd (D-CT) to "re-affirm his commitment to an independent consumer financial protection financial regulator," citing that former Citigroup Chairman John Reed, during his testimony to the Senate Banking Committee last week, supported a consumer regulator. Consumer Watchdog argues that a "an independent Consumer Financial Protection Agency, with full rulemaking, examination and enforcement authority, is critical to both address the problems that caused the last financial crisis and create a new regulatory structure to prevent crises in the future." Click here to view the letter sent to Sen. Dodd.
Sen. Reed Supports a National Institute of Finance
Sen. Jack Reed (D-RI), a member of the Senate Banking Committee, has unveiled legislation to create a National Institute of Finance, which could mitigate economic risk by collecting and standardizing financial and market data used by the government. According to a press release issued by Reed's office, the Senator had already asked the National Academy of Sciences to study the data and tools needed for systemic risk regulation. The Academy determined that the U.S. currently does not have the ability to monitory systemic risk in an effective way. The National Institute of Finance would address current weaknesses in monitoring and managing systemic risks by establishing a data center to collect, validate and maintain a central database to map the interconnections between financial institutions, creating a research and analysis center to develop the needed metrics to monitor and measure systemic risks and to provide Congress with independent periodic reports on the state of the financial system, according to the press release.
Fannie and Freddie Problems Highlighted in Wall Street Journal
Nick Timiraos and James R. Hagerty write in Tuesday's Wall Street Journal about the continued problems facing Fannie Mae and Freddie Mac, the government-sponsored enterprises. The article characterizes the two institutions as "troubled wards of the state, with no blueprints for the future and no clear exit strategy for the government." On December 24, 2009, the Treasury Department said there would be no limit to government support of the institutions for the next three years. The previous limit was $200 billion per company, and the government has poured about $111 into the ailing institutions already. Policymakers are currently debating how to reform the housing finance system - one idea would be to transform Fannie and Freddie into two or more companies with capped profits, much like those of public utilities, with certain federal guarantees and public policy goals.
Also, Peter Lattman and Kate Kelly write in the Journal about Obama's recent plan to limit the size and scope of financial institutions, and the ramifications of those policy proposals on Goldman Sach's operations.
February 8, 2010
Pew's FRP News Brief
"There are two bedrock principles on which I will not compromise: the safety and soundness of the financial system and taxpayer protection against bailouts. I fully support enhancing both consumer protection and safety and soundness regulation. I will not support a bill that enhances one at the expense of the other, however. In order to strike the appropriate balance they must be integrated with each other, not separated from each other."
Senator Richard Shelby (R-AL), Statement on Status of
Financial Regulatory Reform, February 5, 2010
Senate Banking Committee at Impasse
As reported on Friday, the Senate Banking Committee is at an impasse regarding the progress of bipartisan negotiations over financial regulatory reform. Major news outlets such as the Wall Street Journal, Washington Post and the New York Times reported that Sen. Chris Dodd (D-CT), Chairman of the Senate Banking Committee, broke off talks with Ranking Member Sen. Shelby over differences they were encountering in negotiating a Consumer Financial Protection Agency (CFPA). Stacy Kaper of the American Banker reported that according to sources, Dodd was the one who pulled out of the talks, which centered on CFPA concerns as well as details over proposed resolution powers, and speculated on the political climate surrounding the move.
Sens. Mark Warner (D-VA) and Bob Corker (R-TN) in the committee expressed their commitment to keep a bipartisan process together. Sen. Warner's office released a statement on Friday: "I have every confidence that our proposed solutions to address systemic risk and "too big to fail" will be bipartisan, and Chairman Dodd has assured me that our progress will be reflected in any legislation that moves forward. Sen. Corker's office said that despite a breakdown between Dodd and Shelby, "Senator Warner and I continue to make significant progress in negotiating the resolution authority and systemic risk pieces of the legislation, and Chairman Dodd has assured us that our work will be included in the bill."
Bernanke to Testify to House Committee Wednesday
Ben Bernanke, Federal Reserve Chairman, is scheduled to testify on Wednesday to the House Financial Services Committee regarding the Federal Reserve's extraordinary efforts and interventions into the markets during the financial crisis. The hearing, titled, "Unwinding Emergency Federal Reserve Liquidity Programs and Implications for Economic Recovery" will also include testimony by Financial Reform Task Force member John Taylor.
The Wall Street Journal reported that Bernanke's testimony will focus on the Federal Reserve's plans for credit tightening, and when and how to do it effectively.
Wall Street Looks to Influence GOP
The New York Times reports on Monday that Wall Street is looking to send more political contributions this year to Republicans - a shift which "reflects the hard political edge to the industry's campaign to thwart Mr. Obama's proposal for tighter financial regulations." The article follows the opinions of certain politically-engaged financiers, executives, government officials and lobbyists. "If the president wanted to turn every Democrat on Wall Street into a Republican, he is doing everything right," said one industry lobbyist. As previously reported by the Wall Street Journal on Thursday, Wall Street, which had heavily donated to Democrats in 2008, is reducing certain political contributions to the Democratic Party and increasing contributions to Republicans.
Excerpt of Paulson Book in Wall Street Journal - Former Treasury Secretary Henry Paulson's new book on the financial crisis, "On the Brink: Inside the Race to Stop the Collapse of the Global Financial System," has an excerpt featured in the Wall Street Journal, recalling a critical meeting in the White House over the TARP legislation and the politics surrounding it.
Corker on Financial Reform with CNBC - Sen. Corker was interviewed by CNBC on the "Volcker Rule" on Wednesday.
The New America Foundation has scheduled an event on Consumer Financial Protection, set for Tuesday, February 16 from 12:15pm until 2:15pm. Click here for more information and to RSVP for the event.
February 5, 2010
Pew's FRP News Brief
"But the refusal of large financial firms to work constructively with Congress on this effort borders on insulting to the American people who have lost so much in this crisis. And, from where I'm sitting, it looks like instead of investing in improvements that would secure their financial strength, too many people in the industry have decided to invest in an army of lobbyists whose only mission is to kill the common sense financial reforms we have been working so hard to achieve."
Senate Banking Committee Financial Reform Bipartisan Progress Uncertain
Bipartisan agreement of the regulation of the financial industry may be off the table as "Washington analysts say time is running out [over a financial reform bill], with the White House no doubt anxious for progress on the bill" CNBC reports. Democrats and Republicans both continue exhibit signs of unwillingness to compromise on key issues and Senator Chris Dodd (D-Conn), Banking Chairman, "acknowledged that it might not be possible to get GOP support on the bill" according to the National Journal's CongressDaily. Dodd also indicated in an official statement that "we are getting to the point where we need to pull the trigger" on pushing financial reform legislation through Congress. A consensus package seems unlikely to surface soon and many, including Sen. Dodd, "expressed dismay at how long the process was taking" as reported by the New York Times.
In addition, the Wall Street Journal is reporting that the bipartisan negotiations in the Senate Banking Committee have reached an "impasse" and that Sen. Dodd has directed aides to begin drafting their own version of financial reform legislation.
SIFMA President Writes in the Washington Post
Timothy Ryan, president and chief executive of the Securities Industry and Financial Markets Association (SIFMA), pens an op-ed in Friday's Washington Post, "Out of the Crash, A Better Financial Services Industry," in which he argues that the financial services industry is doing its part to help Americans by "providing capital and credit to the U.S. economy." Ryan writes that the industry is grateful for American taxpayer assistance through the TARP funds and believes it is the industry's responsibility to pay taxpayers back. Regarding financial reform moving forward, SIFMA has been a strong advocate of creating a resolution authority, ending "too big to fail" and protecting against systemic risk, adopted in the House legislation. Ryan writes that SIFMA does not support setting arbitrary limits on institutions' sizes and activities.
Robert Reich on Financial Reform Progress
Robert Reich, professor and former secretary of labor under President Bill Clinton, writes a piece on his blog on financial reform, "Who's Killing Financial Reform?"He writes that Sen. Dodd, who directed his frustration of the progress of financial reform legislation towards financial services lobbyists, should perhaps direct his attention towards Congress: "Call me old fashioned, but I thought Congress was in charge of passing legislation, not Wall Street." Reich writes that Wall Street, through its huge political campaign contributions to both parties, has rendered Congress ineffectual with regards to financial reform. "Congress isn't doing a thing about Wall Street because it's in the pocket of Wall Street." He concludes: "Dodd is right about one thing. The American people are frustrated, and the failure of Congress to pass real financial reform is insulting. But in trying to place responsibility for this appalling failure on Wall Street, Dodd insults us even more."
On Wall Street campaign donations, the Wall Street Journal carried an article in its Thursday edition, reporting that Republicans are stepping up their campaign to win donations from Wall Street by making the case that Democrats are not serving their interests - and that Republicans are "banks' best hope of preventing President Barack Obama and congressional Democrats from cracking down on Wall Street."
February 4, 2010
Pew's FRP News Brief
"There is a good reason to create a Consumer Protection Agency with a clear and separate mandate."
Commentary on Volcker Testimony to Senate Banking Committee
Former Federal Reserve Chair and economic adviser to President Obama Paul Volcker appeared before the Senate Banking Committee on Tuesday to defend his "Volcker Rule," which would limit commercial banks from engaging in proprietary trading. Various political pundits commented on Tuesday's hearing, the reception of the Banking Committee and Chair Chris Dodd (D-CT) to the various proposals on the table, as well as the general state of financial reform on Capitol Hill.
Simon Johnson, former IMF chief economist, writes in the New York Times Economix blog, characterized the reception by the Banking Committee as "mixed and generally not positive. Both Republicans and Democrats seem to object to the administration's introducing what they see (correctly) as a substantially new proposal at this point in negotiations over a potential Senate financial reform bill." Johnson however believes that Volcker has "single-handedly opened the door to serious financial reform. We should make sure that, as his proposals are discussed, they become clearer, stronger and more likely to rein in overly powerful and dangerously big banks."
David Weidner of the Wall Street Journal writes on Thursday in "Volcker and Reform Defeated," that [w]all street reform died this week." While tracing Volcker's hearing and Senate Banking Committee Ranking Member Richard Shelby's (R-AL) stance on reform issues, Weidner argues that financial reform died on Tuesday in the Senate Banking Committee because of "the finance lobby, obstruction, fear-mongering and plain ignorance."
Senate Banking Hears Testimony Today from Goldman Sachs, Former Citigroup Chairman
The Senate Banking Committee today is hearing testimony on the implications of the "Volcker Rule" by Gerald Corrigan, Managing Director at Gold man Sachs, Simon Johnson, former IMF chief economist, John Reed, former Citigroup Chairman, Hal Scott, professor at Harvard Law School, and Barry Zubrow, Executive Vice President and Chief Risk Officer of JPMorgan Chase.
Based on early reports of their testimony, John Reed supports a Consumer Financial Protection Agency with a clear and separate mandate. Gerald Corrigan backs the creation of a systemic regulator and more stringent capital and liquidity requirements for banks.
The Wall Street Journal's Real Time Economics blog reports that during the hearing, Sen. Dodd expressed frustration aimed at lobbyists of financial institutions: "He said the effort by the banking industry to kill the legislation ‘borders on insulting to the American people," and that he is "determined as ever to get this strong bill to the [Senate] floor."
Fed Governor Speech on Financial Reform
Kevin Warsh, a member of the Board of Governors of the Federal Reserve, gave a speech to the New York Association for Business Economics on Wednesday titled "Regulation and Its Discontents." As reported yesterday, Warsh penned an op-ed in the Financial Times outlining the crux of his views on financial reform. He emphasized the need for cooperation in the international arena, to cooperate with G-20 colleagues on reform and pointed out that big is not necessarily bad and that competition in financial services is important, according to the Wall Street Journal.
Sen. Cantwell Wants Tougher Derivative Reforms
Sen. Maria Cantwell (D-WA) issued a press release on Wednesday advocating for stronger regulation of the derivatives market. According to the press release, Cantwell said that the House bill in financial reform, (H.R. 4173) has major loopholes for certain users and pressed that she will work in the Senate to pass strong financial reform legislation and to close all loopholes "to prevent any return of risky business." According to Reuters, Cantwell held a press conference on the issue alongside Americans for Financial Reform and the Commodities Markets Oversight Coalition.
In other news, the Wall Street Journal published a letter to the editor on Thursday by Richard H. Neiman, a member of the Congressional Oversight Panel on TARP, responding to Financial Reform Task Force Co-Chair Peter Wallison's op-ed in the Wall Street Journal which appeared on January 25.
The House Financial Services Committee has scheduled a hearing on housing finance for March 2nd. The Senate Banking Committee has also scheduled a hearing for February 10th on financial regulation and systemic risk.
February 3, 2010
Pew's FRP News Brief
"It's not a moveable feast. It's adding to the problems of trying to get a bill done."
Volcker Testifies before Senate Banking Committee
Former Federal Reserve Chair and economic adviser to President Obama Paul Volcker appeared before the Senate Banking Committee on Tuesday to defend his "Volcker Rule," which would limit commercial banks from engaging in proprietary trading. He testified alongside Deputy Treasury Secretary Neal Wolin. Major news outlets such as the Wall Street Journal, the Washington Post, and the New York Times covered the hearing, in which they reported some Senators on the Banking Committee were somewhat cool to Volcker's proposal. Volcker responded to doubters: "I tell you, sure as I am sitting here, that if banking institutions are protected by the taxpayer and they are given free rein to speculate, I may not live long enough to see the crisis, but my soul is going to come back and haunt you."
Ranking Republican Richard Shelby (R-AL) was "quite disturbed" that the proposal was introduced while the committee is in the midst of bipartisan negotiations for comprehensive financial reform legislation.
Banking Chairman Chris Dodd issued a press release on Tuesday in that verbalized his support of Volcker's proposals, saying the idea "has great merit." According to reports however, Dodd said the timing of the release of the proposals "seemed by many to be transparently political" and that the proposals were "adding to the problems of trying to get a bill done," and did not want to be "in a position where we end up doing nothing because we tried to do too much at a critical moment."Politico also reported on Dodd's concerns with the White House handling of the proposal's roll-out.
Volcker supported a government resolution authority to unwind troubled major financial institutions in times of stress, characterizing it as "euthanasia, not a rescue."
Kevin Warsh Op-ed on Financial Regulatory Reform
Kevin Warsh, a member of the Board of Governors of the Federal Reserve, writes an op-ed in the Financial Times, "Focus on Ways for Banks to Fail Safely," in which he argues that to confront moral hazard and the too-big-to-fail problem, "[w]e must resurrect market discipline as a complement to prudential supervision. Otherwise, the specter of government support threatens to confuse price signals and create a class of institutions that operate under different rules of the game." He proposes: 1. Stakeholders need better information; 2. Reforms must encourage robust competition; 3. It is up to financial institutions to demonstrate that they can fail without a need for extraordinary government support.
Barney Frank was interviewed on Monday's Rachel Maddow Show, during which he spoke about financial reform and the politics surrounding the TARP passage and the House bill that addresses financial reform.
February 2, 2010
Pew's FRP News Brief
"I think this is too important to allow it to become a partisan fight, and I'm still hopeful that we will see a bipartisan solution."
The Volcker Rule
Former Federal Reserve Chair Paul Volcker appeared before the Senate Banking Committee today, to testify on President Obama's new banking proposals which would limit the size and scope of U.S. financial institutions. Volcker appears alongside Deputy Treasury Secretary Neal Wolin. The Wall Street Journal reports that Volcker will use this opportunity to more clearly lay out his proposals for financial institutions that the president named "the Volcker rule." Financial institutions on Wall Street have been clamoring for more specific information on the proposals which would limit proprietary trading. Volcker's prepared testimony can be viewed here. According to Damian Paletta of the Wall Street Journal, Volcker directly addresses the definition of proprietary trading: "Every banker I speak with knows very well what ‘proprietary trading' means and implies." The testimony does not go into details about the proposal to limit the size of certain financial institutions.
Reuters reports that Comptroller of the Currency John Dugan said that proprietary trading was "not a big source of the problems that led to the crisis" and that the definition of proprietary trading is essential, because some version of such trading is critical to the needs of financial firms' clients.
David Weiner of MarketWatch writes a column on the Volcker rule and offers suggestions on how Volcker's proposal could be strengthened.
The Times reports that Members of the U.K. House of Parliament's Treasury Select Committee are in the U.S. to meet with various politicians, bankers and officials. The MPs are scheduled to visit with Paul Volcker and is hoping to visit Federal Reserve Chair Ben Bernanke, Treasury Secretary Timothy Geithner, representatives from the Securities and Exchange Commission and House Financial Services Chairman Barney Frank (D-MA).
Senate Negotiations on Financial Reform and the Recent Obama Proposals
The New York Times reports on Tuesday that President Obama's proposals to limit the activities of large financial firms has added a new element of uncertainty regarding the Senate Banking Committee's negotiations for a comprehensive financial reform package. Senators on the committee offered their thoughts on the timing and goals of the proposal. Sen. Bob Corker (R-TN) said the proposals were presented to "stoke and jump in front of a lot of populist furor. I think everyone understands that this was a political undertaking and not necessarily a substance undertaking." Sen. John Tester (D-MT) on the other hand, didn't see the president's proposals as negative. "...I see them as more ideas to the pot that we need to consider." The proposals have also set off a new round of intense lobbying by financial institutions. The article writes that lobbyists have said that the big banks have become increasingly alarmed that the legislative process may move in unexpected directions outside their control."
The Future of Fannie and Freddie?
Charles Duhigg writes in Tuesday's New York Times about Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) which have faced massive losses since the economic recession began in 2008. The President's budget for fiscal year 2011 contains only one sentence on the two GSEs: "The Administration continues to monitor the situation of the G.S.E.'s closely and will continue to provide updates on considerations for longer-term reform of Fannie Mae and Freddie Mac as appropriate." The article examines the competing interests and ideas regarding Fannie and Freddie and how to deal with them in the future, as well as the future of housing finance.
February 1, 2010
Pew's FRP News Brief
"The implication is clear. We need to face up to needed structural changes, and place them into law. To do less will simply mean ultimate failure - failure to accept responsibility for learning from the lessons of the past and anticipating the needs of the future."
Paul Volcker, "How to Reform Our Financial System,"
New York Times, January 31, 2010
Volcker Pens Op-ed in New York Times on Financial Reform
Paul Volcker, former Federal Reserve Chairman under President Reagan and current chair of President Obama's Economic Recovery Advisory Board, published an op-ed in Sunday's New York Times titled: "How to Reform Our Financial System." Volcker asserts that there has been plenty of discussion of financial reform, but that central structural issues have yet to be properly addressed. He proposes limits on capital and leverage for the small number of financial institutions which could pose systemic risk, a government resolution authority, "living wills," or pre-planned dissolution schemes to be enacted if a financial institution becomes insolvent, where stockholders, management and creditors would be at risk, as ways to limit "too big to fail" financial entities. He emphasizes that clear structural change in the financial system is needed: "...there is no substitute for structural change, the point the president himself has set out so strongly."
The Atlantic's blog the AtlanticWire offers a collection of reactions to Volcker's op-ed by financial market commentators.
Davos Meeting over the Weekend
The World Economic Forum, an annual gathering of central bankers, economists, politicians and financiers concluded their annual meeting in Davos, Switzerland over the weekend. Bloomberg and other major news outlets reported a general mood of impatience and frustration towards those in the financial sector over the slow progress toward consensus on financial reform. Politicians such as U.K. Chancellor of the Exchequer Alistair Darling, French Finance Minister Christine Lagarde, White House economic adviser Larry Summers, and House Financial Services Committee Chairman Barney Frank (D-MA), all expressed a sense of urgency in implementing meaningful financial reform. Others, such as Robert Diamond, President of Barclays, and Josef Ackermann, Deutsche Bank CEO highlighted the importance of international cooperation and harmonization of reform.
Washington Post Story on CFPA
The Washington Post's Robert Kaiser writes an in-depth piece on Sunday about the Consumer Financial Protection Agency (CFPA), and its journey from aspiration to proposed legislation. Kaiser reports that the CFPA, which has been trumpeted by the Obama Administration and consumer advocates, has lost steam over the past year. Harvard Professor Elizabeth Warren, the CFPA visionary, first formulated the concept in a 2007 piece in the journal Democracy. Current negotiations between Senate Banking Chair Chris Dodd (D-CT) and Ranking Republican Richard Shelby (R-AL) hold the key to creating a deal that would strengthen consumer financial protection, either in a new agency or under some other proposal.
According to the article, Dodd is willing to consider a consumer protection office under a presidential appointee within an existing agency. He also wants consumer protection to have a dedicated source of funding to better insulate it from budget pressures, with regulators empowered to write and enforce new rules on non-bank institutions such as mortgage brokers."
Paulson Book on the Economic Crisis
Former Treasury Secretary Henry Paulson, who managed the department at the onset of the financial crisis in 2008, has written a new book on the crisis, his thinking during those times, as well as his opinions of the key players involved. In "On the Brink: Inside the Race to Stop the Collapse of the Global Financial System," Paulson gives his opinions about President Barack Obama, Vice President Joe Biden, Federal Reserve Chair Ben Bernanke, current Treasury Secretary Timothy Geithner, Rep. Barney Frank, Senator Chris Dodd, FDIC head Sheila Bair, among others, whom all worked with Paulson to contain the crisis. Click here for an excerpt from the book from the Washington Post.
Paulson was interviewed by CNBC regarding the book and reflected on bank bonuses, saying that "[b]anker compensation is out of tune with the public sentiment towards banks and their role in the financial crisis."
January 29, 2010
Pew's FRP News Brief
"I am gratified by the Senate's broad bipartisan vote to confirm Ben Bernanke for another term as Chairman of the Federal Reserve... I congratulate him on his confirmation and look forward to working with him in the days ahead."
Bernanke Confirmed for Second Term
Although he garnered 70 Senate votes during Thursday's vote, newly-reconfirmed Chairman of the Federal Reserve Ben Bernanke received the "weakest endorsement ever extended to a chairman in the Fed's 96-year history", according to the New York Times. With such relatively low support, a Washington Post article opines that "Ben Bernanke has, or ought to have, a very simple agenda: improve confidence." The confirmation came after a the Senate voted to end the filibuster, though, as the Politico points out, "seven lawmakers voted to end the filibuster then pivoted to vote against the confirmation itself, which required a simple majority."
World Economic Forum in Davos
As the world's leaders continue discussion at the World Economic Forum in Davos, Switerzeland, the conspicuous absence of White House officials has for some called into question the commitment of the Administration to cooperate on the international stage. According to a Reuters article, "the Obama Administration's financial-reform proposals are [possibly] being driven much more by domestic political calculus than by a coordinated international attempt to create a global financial system that is less leveraged and more stable."
State of the Union analysis
President Obama addressed what has been on the mind of many Americans when he discussed the ongoing reform of the financial industry in his recent State of the Union Address. In the speech, President Obama vowed that he would not sign a bill "does not meet the test of real reform." In a Politics Daily article, Peter Wallison, Financial Reform Task Fork Co-chair, suggests that Obama might employ his first veto if a Consumer Financial Protection Agency is not included in the bill. "This is the first time that the president said that he might veto a bill that doesn't have what he has proposed."
The Consumer Financial Protection Agency, an independent agency that would write and enforce regulation rules for banks, originated with Elizabeth Warren and continues to be part of the financial reform debate. "It's not that we need some specific new rule, it's that we need an independent agency," Warren states in an interview with AlterNet "To write and enforce the rules that cares about consumers, not just bank profits."
In his State of the Union Address President Obama alluded to his own regulatory policy called the Volcker Rule. The rule, if passed through Congress, "could put an end to the huge Wall Street profit machines that emerged in the last decade since financial deregulation" and has some on Wall Street already analyzing the potential cost, according to the New York Times Dealbook.
January 28, 2010
Pew's FRP News Brief
Now, one place to start is serious financial reform. Look, I am not interested in punishing banks. I'm interested in protecting our economy. A strong, healthy financial market makes it possible for businesses to access credit and create new jobs. It channels the savings of families into investments that raise incomes. But that can only happen if we guard against the same recklessness that nearly brought down our entire economy.
President Barack Obama, State of the Union address, January 27, 2010
President Obama's State of the Union Address and Financial Reform
President Obama delivered his first State of the Union address in the Capitol building on Wednesday, speaking on a wide range of policy issues, from jobs and the economy to foreign affairs and health care. The president specifically mentioned financial reform as an important part of his agenda and stressed the importance of creating strong, lasting financial reform legislation to protect consumers, middle-class families and to limit risk-taking by deposit-taking institutions. Regarding a bill that lands on his desk that "does not meet the test of real reform, I will send it back until we get it right. We've got to get it right."
Barney Frank (D-MA), Chairman of the House Financial Services Committee, speaking in Davos, Switzerland, where the World Economic Forum meetings are being held, said on Thursday that "international regulators agree they need to work together on tough new rules for global banks," and that there is an international concensus that "we need tough regulation and we can't afford to have a situation where they can play us off against each other," during a interview with Reuters.
Bloomberg reports that President Obama's proposal to limit the size and scope of banks "dominated" talks on the first day of the WEF. Deutsche Bank head Josef Ackerman was concerned that different regulatory frameworks could arise and could be counterproductive. French President Nicholas Sarkozy "supported Obama's effort to dissuade speculation and wanted to take the debate to the Group of 20 nations."
Also in Davos, Guillermo Ortiz, formerly of the Central Bank of Mexico, and now a professor at the ITAM technology institute, said he was worried that "there is a perceived effort by the banks to go back to business as usual. The banks have misjudged the mood of the public." Jamie Caruana of the Bank for International Settlements, the Basel-based body that oversees global regulation, noted that while "the issue of the level playing field is important ... I am not convinced that countries which have more stringent regulations will be at a disadvantage ... the message from the U.S. now is that reform of the financial sector is being taken seriously." Unconvinced, Bob Diamond, president of Barclay's and head of Barclay's Capital, the group's investment banking arm, "has lashed out at U.S. moves to cut banks down in size, or split them up, arguing it would do nothing to make the financial world a safer place."
Bernanke Confirmation Vote Nears
Politico writes on Thursday that Democrats and Republicans are coming together in a show of cooperation as the confirmation of Fed Chairman Ben Bernanke approaches. After days of uncertainty, "Thursday's scheduled vote to end debate on Ben Bernanke's nomination to a second term marks a notable moment of bipartisan communication and cooperation. "
Financial Reform Task Force member and former vice-chair of the Federal Reserve Alan Blinder pens an op-ed in the New York Times in support of Chairman Bernanke's confirmation, noting his performance in the height of the financial crisis, as well as the potential threat to the Fed's independence. "Rejecting him would be a big mistake, for it would both flog a distinguished public servant who helped avert catastrophe and turn the Fed chairmanship into yet another political football. Washington has plenty of political footballs already."
Financial Reform Task Force member John Taylor discussed the "Taylor Rule" in a discussion of interest rates and the Federal Reserve's strategy on the PBS NewsHour.
January 27, 2010
Pew's FRP News Brief
"I admire Mr. Volcker and strongly support his desire to develop a financial sector that supports the
wider economy, rather than makes vast profits out of activities so likely to destabilize it. Equally, I
agree that part of the solution is indeed structural. But these proposals are, in important respects,
unworkable, undesirable and irrelevant to the task at hand."
Martin Wolf, "Volcker's Axe is Not Enough to Cut Banks to Size,"
Financial Times, January 27, 2010
More Views on the Obama Bank Proposal
More economists, financiers, pundits and politicians have weighed in on President Obama's proposal for limiting the size and scope of banks, unveiled last week.
In the lead up to the State of the Union speech, President Obama's proposal to limit the size and scope of banks continues to evoke a wide range of reactions from Main Street to Wall Street. The Christian Science Monitor states that "Obama's reform ideas deserve a serious look", yet there is much work to be done in analyzing what went wrong, and the increased level of training and expertise that would be required for regulators to spot future problems. "Before Congress takes up Obama's reform ideas - or overreacts to public anger - it needs to ask the hard questions about the real origins of the financial crisis. And it also must look at the feasibility of regulators defining risk."
In Davos, House Financial Services Committee Chair Barney Frank (D-MA) opines to the Financial Times that the proposed changes "could be incorporated into legislation already planned by his committee, and thus could be enacted into law within months... Mr. Frank argues that Volcker's plan could be incorporated within this enhanced definition of a supervisory authority - and said he was sure that a bill would be in place well before the mid-term elections in November, if not signed off by Chris Dodd, his counterpart in the Senate, within weeks."
Noam Scheiber, in The New Republic, while noting "presidential feistiness" wonders "Is Obama Really Breaking up the Banks?" Although a great deal of attention has fixed on the Administration's recent proposals as a policy pivot, Scheiber argues that "while the policy changes are hardly trivial, what's more striking is the basic continuity in the Administration's approach... when you talk to administration officials, it soon becomes clear that their underlying theory of reform hasn't changed. Which is to say, they still believe that the most practical way to prevent big banks from taking destructive risks is by regulating them aggressively--and arming regulators with more powers--not breaking them up. ..Ironically, the practical upshot of the Volcker rule may be to advance the administration's original reform agenda."
Columnist Martin Wolf, writing in the Financial Times, is unsure that the Obama bank proposal is good policy. He is concerned that the new proposals inject a high degree of uncertainty into the markets and that they may be unworkable internationally. He does believe that the ideas of Volcker are desirable, but is doubtful that they are workable and questions their relevance today, pointing to the importance of the "shadow banking system" to the market. He ends, "[t]he president may indeed be desperate. But much more work is needed."
Mervyn King, the governor of the Bank of England, at a hearing before a parliamentary treasury committee on Tuesday, "used some of his strongest language yet to support such a separation" [of proprietary trading activities from core deposit-taking functions of banks], according to the New York Times. In comparing bank regulatory policies in the U.S. and U.K, he said that the U.S. "has been more open in moving to a safer banking system than we are. After you ring-fence retail deposits, the statement that no one else gets bailed out becomes credible."
Volcker to Testify Before the Senate Banking Committee Next Tuesday
Former Federal Reserve Chair and Obama economic adviser Paul Volcker will be testifying before the Senate Banking Committee on Tuesday, February 2, on his proposal for limiting the size and scope of financial institutions, endorsed by President Obama. The hearing is titled, "Prohibiting Certain High-Risk Investment Activities by Banks and Bank Holding Companies. According to Reuters, Banking Committee Ranking Member Richard Shelby (R-AL) and other Republicans wrote a letter to Banking Chair Chris Dodd (D-CT) requesting hearings on the Obama proposal.
January 26, 2010
Pew's FRP News Brief
"My major goal this week is to further our efforts at cooperation and work to prevent any national regulatory approaches that allows companies to dodge the kind of accountability and responsibility that is needed"
More Views on the Obama Bank Proposal
President Obama's proposal for limiting the size and scope of banks, unveiled last Thursday, has been scrutinized by economists, politicians and market participants in the U.S. and around the world. Neal Wolin, Deputy Secretary of the Treasury, spoke with reporters on Monday, commenting that the Administration's new proposal is not a return to Glass-Steagall, the Depression-era regulation that separated commercial and investment banks. "Firms will have to make a judgment whether they want to be banks, or whether they want to do hedge fund, private equity and prop trading activity," Wolin said. "Whichever judgment they make, our proposals will ensure that major financial firms are subject to consolidated, tough prudential supervision."
Various op-eds have appeared recently in the Financial Times, examining the president's proposal. Viral Acharya and Matthew Richardson, professors of finance at the NYU Stern School of Business who examined the bank reform plans in the VOXEU website, wrote "Obama's Bank Plan is a Start," over the weekend. The two professors argue that while there are some concerns with the proposal, there is an economic rationale for narrow banking and that the proposal deserves serious consideration and that much needs to be done to manage the risk presented by too-big-to-fail institutions. Arthur Levitt, former chairman of the Securities and Exchange Commission (SEC), writes that confidence in the markets will come through greater transparency and that financial regulatory reform must advance that goal. He believes that the ban on proprietary trading would have "virtually no impact on the risk-taking that caused most bank losses during the crisis."
In another Financial Times op-ed, Raghuram Rajan, a professor at the University of Chicago's Booth School of Business asks if the Administration's proposals help reduce financial systemic risk. Instead of limiting the size of institutions, he advocates for "more subtle mechanisms such as prohibiting mergers of large banks or encouraging the break-up of large banks that seem to have a propensity for getting into trouble." He proposes the gradual elimination of deposit insurance as domestic deposits grow beyond a certain size, as it would be "far more effective in reducing risk than size or activity limits, and far easier to implement."
World Economic Forum Meetings This Week
Davos will host the world's financiers, economists and regulators during this week's World Economic Forum, to be held from January 27-31. The forum is an opportunity for high-level officials and thinkers to discuss the state of the world's economy, and to pursue avenues of cooperation in regards to the regulation of financial markets and institutions. Attendees include White House economic adviser Larry Summers, U.K. Chancellor of the Exchequer Alistair Darling, French President Nicholas Sarkozy and European Central Bank President Jean-Claude Trichet. Congressman Barney Frank plans to attend the forum and to "talk with financial services regulators from other countries to coordinate our efforts to update and modernize financial regulations."
The Toronto Globe and Mail reports on the upcoming summit and includes commentary by Financial Reform Task Force member Robert Litan, speaking on the ramifications of Obama's bank proposal for other countries. "I just don't see other countries going down the same road."
Bernanke Gains More Senate Support
Ben Bernanke, Federal Reserve Chair, faces a confirmation vote by the Senate to be appointed to a second term. While there has been serious opposition to his re-appointment, he has gained more support from Senators, including Claire McCaskill (D-MO), Barbara Mikulski (D-MD) and Robert Bennett (R-UT) according to Bloomberg. The number of likely supporters rose to 42 from 31 on Tuesday. The Wall Street Journal's Real Time Economics blog features a collection of journalists, economists and bloggers commenting on Bernanke's term and prospects for his re-confirmation. In an op-ed in Tuesday's Journal, Richard W. Fisher, president of the Federal Reserve Bank of Dallas, writes that the pressure Bernanke has received from both Democrats and Republicans is part of a larger risk: the politicization of the Federal Reserve and the undermining of its independence. Fisher writes: "if Congress tampers with the independence of the Federal Reserve, it will move us toward the politicization of the central bank of the world's greatest economy, putting the U.S. on a road that leads directly to economic ruin."
January 25, 2010
Pew's FRP News Brief
"Apparently, Mr. Obama is arguing that bank holding companies should be prohibited from proprietary trading because it's too risky. The trouble is that proprietary trading is a profitable business for many bank holding companies, and there is no evidence that it caused serious losses for either banks or bank holding companies in the recent financial crisis."
Financial Reform Task Force Co-Chair Peter Wallison,
"The President's Bank Reforms Don't Add Up," Wall Street Journal, January 25, 2010
Views and News on the Obama Bank Proposal
President Obama's proposal for limiting the size and scope of banks, unveiled last Thursday, has been scrutinized by financial institutions and market participants. Bloomberg reports last Friday that Obama's proposal depends on the definition of "client trades." According to the article, the White House defines proprietary trades as "those not done for the benefit of customers." The proposal would apply to U.S. subsidiaries of foreign banks, according to White House economic adviser Austan Goolsbee.
Reuters reported on Friday that while major European countries expressed support for President Obama's bank plan, there were no plans to endorse the same proposal in Europe. According to a source, the European Union "will not imitate Obama's plan, because it aims to reduce risk in the sector through other means." The international community is coordinating policy through the Basel Committee, the G20 and the Financial Stability Board, but as Reuters reports, "different centers are increasingly pursuing different plans."
Simon Johnson, former chief economist of the International Monetary Fund and current professor at MIT, writes about the Obama plan on his blog and questions whether the proposal is a significant and serious initiative or is political theater.
Financial Reform Task Force Co-Chair Peter Wallison gives his opinion to the Obama proposal in the op-ed pages of the Wall Street Journal; "The President's Bank Reforms Don't Add Up". He writes that the Obama proposal has many flaws, namely that no one knows the optimal size of banks and that bank holding companies, because they are not banks and are not government-backed, should not be limited in their financial activities when they are using their own funds. Wallison argues that, "[r]equiring banks to continue to lend to real estate, because they have few other alternatives, virtually guarantees another banking crisis in the future." He recommends that the scope of activites allowed for bank holding companies should be broadened, not narrowed.
NYU Stern School of Business professors Viral Acharya and Matthew Richardson also offer an analysis of Obama's bank reform plans.
Bernanke Confirmation Gains Support
Ben Bernanke, chair of the Federal Reserve, needs Senate confirmation to continue for a second term. While the end of last week there were doubts over his reconfirmation, it seems Bernanke received support for a second term over the weekend. Senate Banking Committee member Judd Gregg (R-NH) and Senate Banking Chair Chris Dodd (D-CT) issued a press release over the weekend expressing confidence that Bernanke will win the confirmation vote needed for a second term. Sen. Mark Warner (D-VA) and Sen. Tim Johnson, (D-SD) issued releases expressing their support for Ben Bernanke. The Wall Street Journal reports on Monday that the White House over the weekend increased pressure to gather support for Bernanke and that Republican Senate leader Mitch McConnell (R-KY) and Dick Durbin (D-IL), the number two Senate Democrat, predicted that Bernanke would get the support needed to be reconfirmed. According to the Journal, Bernanke currently has 31 Senators supporting his reconfirmation, and 17 against.
In related news, columnist and economist Paul Krugman has mentioned Financial Reform Task Force Member Alan Blinder as a possible replacement for Ben Bernanke as Federal Reserve Chair.
Financial Reform Proposals After Scott Brown Win and Obama Bank Proposal
The Wall Street Journal, Washington Post and Dow Jones Newswires offered analyses of financial reform prospects after Scott Brown's Senate win in Massachusetts and President Obama's recent bank proposals. The Wall Street Journal writes on Monday that Senate Banking Committee member Bob Bennett (R-UT) said that he and his colleagues are "working on something I think is a more intelligent alternative" to the president's initiative. Republican leader Mitch McConnell met with Senate Banking Republicans last Thursday to discuss views.
The Washington Post reported that after the president's announcement on bank reforms, the Senate Banking Republicans wrote to Sen. Dodd, asking him to schedule hearings to study the president's proposals.
The New York Times ran an editorial on Monday, "Restarting Regulatory Reform," arguing that the president's recent proposals restricting bank size and scope is a rational starting point for enacting serious financial regulatory reform and would "reassert the principle - lost through the bailouts - that the government does not support or stand behind Wall Street-style trading."
January 22, 2010
Pew's FRP News Brief
"So if these folks want a fight, it's a fight I'm ready to have. And my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see soaring profits and obscene bonuses at some of the very firms claiming that they can't lend more to small business, they can't keep credit card rates low, they can't pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers -- that's the claims they're making. It's exactly this kind of irresponsibility that makes clear reform is necessary."
President Barack Obama, Remarks by the President
on Financial Reform, January 21, 2010
Obama Unveils Bank Limit Proposal
President Barack Obama unveiled a new proposal to rein in the size and actions of certain financial institutions on Thursday. The new proposal has been dubbed the "Volcker Rule" as it derives from former Federal Reserve Chair and Obama advisor Paul Volcker's views on reformation of the banking system. According to a White House fact sheet, the proposal would limit the size and scope of financial institutions and banks, end proprietary trading operations, and limit the activities of bank holding companies as well as limit the market share of liabilities of the largest financial firms. Read the entire transcript here and watch the video of the president's remarks here.
The New York Times reports that this proposal is a "victory" for Paul Volcker, who in the past was seen as not having as much influence on the White House as other advisors such as Treasury Secretary Timothy Geithner and National Economic Council Director Larry Summers.
Secretary Geithner has shown some reservation to the proposals, according to Reuters. He has expressed concerns about the effect the proposals may have on U.S. bank global competitiveness and questioned whether the limits really address the root of the recent financial crisis.
Barney Frank (D-MA), Chairman of the House Financial Services Committee, appeared at the podium with President Obama as he delivered his remarks, and following Obama's speech, Frank issued a press release welcoming the president's proposals. House Speaker Nancy Pelosi (D-CA) vowed that "Congress will continue to work with the President to enact common-sense reforms to our financial system, so that taxpayers will never again have to bail out Wall Street." Sen. Chris Dodd (D-CT), Senate Banking Committee Chair, also responded to the President's speech with a press release: "I look forward to studying the President's proposal and will give it careful consideration as the Committee moves forward on financial reform."
In the UK, according to the Guardian, Prime Minister Gordon Brown is reportedly "very comfortable" with the proposals the president has laid out. In contrast, Alistair Darling, Chancellor of the Exchequer, is reportedly against "copying Obama's moves to split commercial and investment banks."
Martin Baily, co-chair of the Financial Reform Task Force, and Robert Litan, member of the Task Force, were interviewed by Bloomberg about the president's proposal. Baily expressed concern that banks, barred from proprietary trading, might lend more to risky borrowers, which could destabilize the federal safety net. Litan cautioned to be careful of "unintended consequences" and possible "perverse effects on risk-taking."
Click here, here and here for additional commentary on the proposal.
Financial Industry Lobbying to Senate Banking Committee
A recent Consumer Watchdog study reports that financial industry lobbyists "gave $41 million to [Senate Banking] Committee members since 2005 and spent $336 million lobbying Congress in the first three quarters of 2009." The three Senators who received the most amount of money from the financial industry from 2005-2009 are Sen. Chris Dodd (D-CT) with over $9 million, Sen. Mark Warner (D-VA) with over $5 million, and Sen. Charles Schumer (D-NY) with over $3 million.
In related news, the Supreme Court ruled on Thursday to remove limits on spending by corporations in elections, turning back significant portions of the 2002 McCain-Feingold campaign finance reform legislation. The New York Times opined that without such limits "a lobbyist can now tell any elected official: if you vote wrong, my company, labor union or interest group will spend unlimited sums explicitly advertising against your re-election." Carmen Balber, Washington director for Consumer Watchdog asserts: "To ordinary voters, this flood of dollars looks like Wall Street buying votes. The fate of an independent consumer regulator is a test of whether politicians will rise above financial industry influence to enact meaningful regulatory reform."
Bernanke Confirmation Vote Delayed
The Senate has yet to vote on the reconfirmation of Ben Bernanke as Chairman of the Federal Reserve. Senate leaders had originally hoped to vote on Bernanke's confirmation today, yet a confirmation vote has been delayed until next week at the earliest. Bernanke needs 60 votes in the Senate to be confirmed for another term, and there are Senators on both sides of the aisle who have expressed concern about the Fed Chair. According to the Wall Street Journal, Sen. Byron Dorgan (D-ND) and Sen. Jeff Merkley (D-OR) have said they plan to vote against Bernanke's nomination. Sen. Bernie Sanders (I-VT) has placed a hold on Bernanke.
January 21, 2010
Pew's FRP News Brief
"We've had long conversations about a bill that includes many pieces and parts," [Senator Chris] Dodd said. "Nothing has been agreed to except a lot of conversations about various aspects about a very complicated set of issues so the idea that something has already been decided about any aspect of this bill is completely false."
"Dodd: Broad Bank Reform Bill is Moving Forward,"
Ronald D. Orol, MarketWatch, January 20, 2010
Obama to Propose Bank Limits
Reporting in the New York Times and other major outlets such as Bloomberg, Reuters and the Wall Street Journal, President Obama is scheduled to speak on Thursday at the White House after meeting with former Federal Reserve Chair Paul Volcker and propose limiting the size and trading activities of financial institutions as a means of reducing risk-taking. Volcker has promoted limiting the risk-taking of financial institutions and the president is supporting Volcker's view by taking this initiative. This proposal would affect only a group of some of the largest banks, including Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and JPMorgan Chase. According to the New York Times, under the new proposal, commercial banks would no longer be allowed to engage in proprietary trading, using customers' deposits and borrowed money to carry out these trades. The Wall Street Journal characterized the proposal as a return, at least in spirit, to some of the financial regulatory restrictions applied to banks after the Great Depression.
Shelby and Dodd Continue Work on Financial Reform after Brown Victory
After Scott Brown captured the Massachusetts Senate seat on Tuesday for the Republicans, political pundits wondered what that meant for financial reform and other legislative objectives of the Obama Administration. Reuters speculated that the financial regulatory proposals under discussion in the Senate would be "less than the wholesale revolution that Democrats hoped for a year ago but still meaningful."
Senate Banking Committee Ranking Member Richard Shelby (R-AL) on Wednesday said that he "doesn't believe the changed balance in the Senate will impact the likelihood of an overhaul of the financial industry's regulatory framework being completed in 2010." According to Dow Jones Newswires, Shelby said that he and Dodd were near agreement on broad concepts, but there was no specific legislative language yet created.
Sen. Shelby has opposed an independent consumer financial protection agency--which has been a hallmark of the Obama Administration's reform plan. Currently, however, conversations are underway to put consumer protection within the bank supervisor in charge of safety and soundness of the institution. Shelby has said that the committee is looking to have a bill ready by the Spring, according to MarketWatch.
Views on the Proposed Bank Tax
Warren Buffet, the billionaire investor and chief executive officer of Berkshire Hathaway, has come out against the Obama Administration's proposal to tax the largest financial institutions to recover the TARP funds. Buffet reasoned in an interview with Bloomberg television that supporters of the plan to tax the banks "are trying to punish people," and that he didn't see any rationale for it.
Newsweek columnist Daniel Gross writes about the bank tax on Wednesday and the consideration by some banks to challenge the tax as unconstitutional. He contends that the bank tax, when looking at specific figures banks would have to pay, do not amount to large sums when considering the broader context. Gross writes that there are many ways the banks can come up with the money other than passing it on to consumers in the form of higher fees and that if the banks didn't want to be taxed, they should have made themselves too big to fail and then failed, and they shouldn't have asked to be bailed out."
In other news, Financial Reform Task Force member John Taylor interviews with blogger and economist Mark Thoma.
January 20, 2010
Pew's FRP News Brief
"Now that Scott Brown has won the Massachusetts special election to become the U.S. Senate's 41st Republican, Democrats are under increasing pressure to offer Republicans major concessions on legislation to overhaul bank supervision."
What Brown's Win May Mean for Financial Reform
In Tuesday's special election, Republican Scott Brown secured the Massachusetts Senate seat previously occupied by the late Ted Kennedy, shifting the balance in the Senate and relieving Democrats of their a filibuster-proof 60-vote majority. This development could affect legislative efforts to pass comprehensive financial regulation; President Obama and Senate Banking Chairman Chris Dodd (D-CT) met on Tuesday to discuss potential outcomes. Reuters reports, "Democrats might decide after Massachusetts that they need to show quickly that they can produce results ahead of the November elections. That could lead to a new willingness to give ground on controversial issues, such as Obama's proposal to create a financial consumer watchdog agency or Dodd' initiative to create a new super-cop for the banking industry." The Wall Street Journal's Damien Paletta writes that with health care legislation in jeopardy, "more attention will be focused on new banking rules before the November elections." Gerald Hanweck, a professor of finance at George Mason University, said Democrats might wait to take up the issue of financial reform after congressional elections in November.
CFPA Future Uncertain
The New York Times reports that President Barack Obama met with Sen. Dodd on Tuesday afternoon and personally advocated for an independent agency tasked with consumer financial protection. Banking Committee members are involved in deep negotiations over financial reform and consumer protection is a key and divisive issue. As previously reported, Sen. Dodd is reported to be considering dropping the proposal for an independent consumer agency to gain Republican and centrist Democrat support for a comprehensive bill. The administration believes that a consumer protection agency is the element most likely to be popular with the public in a complicated bill.
As debate on consumer protection continues, Elizabeth Warren, chair of the Congressional Oversight Panel on TARP who first developed the idea for a consumer agency for financial products, penned a guest post on Tuesday, "It's Not Too Late: Don't Let the Consumer Financial Protection Agency Die," in which she argues that consumer products in the lead-up to the current crisis were quite abusive, and the "CFPA has real muscle to stop those abuses."
Alain Sherter writes in BNET on Tuesday that the Obama Administration and Sen. Dodd should fight for the proposed Consumer Financial Protection Agency: "Establishing an independent agency charged expressly with protecting consumers from financial abuse (think U.S. Food and Drug Administration) is central to reform." He writes that if Sen. Dodd wants to ensure his legacy before he retires, he will stand up for the CFPA and for consumers.
Opinions on the Proposed Bank Tax
Paul Kanjorski (D-PA), the number two Democrat on the House Financial Services Committee, has supported the Obama Administration's proposal to levy a tax on financial institutions to recoup the costs of the TARP funds, saying that the public deserves to recover all the money they spent bailing out the financial system as soon as possible.
The New York Times features two op-eds on Wednesday on the tax. Douglas W. Diamond and Anil K. Kashyap, both professors at the University of Chicago Booth School of Business, propose a tax which would "allow the government to effectively collect insurance premiums now that should have been charged ahead of time." David Stockman, a director of the Office of Management and Budget under President Ronald Reagan, in "Taxing Wall Street Down to Size," writes that the proposed bank tax is welcome: "its underlying policy message is that big banking must get smaller because it does too little that is useful, productive or efficient."
On the other side, the Wall Street Journal includes an op-ed by Holman W. Jenkins on the tax: "This may be politically expedient given populist blowback over bank bonuses, but it's not a step toward a competitive, responsible banking sector that takes appropriate risks without looking for government handouts or bailouts. On the contrary, it's a formula for turning the banks into what Fannie and Freddie have become: profitless channelers of taxpayer-guaranteed money into whatever loss-making loans politicians happen to want made. Compared to that, give us Goldman every time."
January 19, 2010
Pew's FRP News Brief
"...at this point, there is no reason to take it on faith that cleverness in the financial industry is a net social good. Unless you can provide some clear evidence of productive innovations since regulation began to unravel - and ATMs don't count - the balance of the evidence suggests that smart people have been devising ingenious ways to concentrate risk and direct capital to the wrong uses."
Paul Krugman, "Destructive Creativity,"
"The Conscience of a Liberal" Blog, January 18, 2010
Banks May Contest Proposed Fee
The Obama administration's proposed fee on banks, first reported last week, is facing opposition from the financial industry. SIFMA, the Securities Industry and Financial Markets Association, has hired a top Supreme Court litigator, Carter G. Phillips of Sidley Austin, to study possible legal avenues to take against the proposed bank fee, according to the New York Times. SIFMA is exploring whether such a fee would be considered arbitrary and punitive, providing the basis for a constitutional challenge. A legal challenge to the bank fee would compound current financial industry efforts to resist regulatory proposals and could escalate public rage against banks as well as splinter the financial industry, since smaller banks would be exempt from the proposal.
Writing about the financial system in the Financial Times, Peter Boone and Simon Johnson believe the financial system is running on a "doomsday cycle." When the financial system fails, "we rely on lax money and fiscal policies to bail it out." Commenting on the Obama bank fee proposal: "This logic [behind the administration proposal] is deeply flawed. Why would higher funding costs mean you gamble less? If you know Tim Geithner is waiting to bail you out, you may gamble more heavily in order to pay the tax." Boone and Johnson call for definitive, dramatic reforms to end the doomsday cycle and prevent even greater damage to the real economy.
Senate Committee Negotiates Consumer Protection
As the Senate Banking Committee continues intense negotiation on financial regulatory proposals, consumer protection has been one of the most divisive issues to face the committee. As reported last week, Banking Committee head Chris Dodd (D-CT) may drop plans for an independent consumer financial protection agency to gain Republican support and pave the way for a comprehensive, bipartisan deal. One possibility towards compromise could be assigning consumer protection duties to another agency, since Republicans have been against putting consumer protection in an independent agency. No resolution has currently been reached, according to the Washington Post. Both the White House and the Treasury Department have continued to push for an independent consumer protection agency.
Faith in Financial Markets
The Wall Street Journal carries an op-ed on Tuesday, "Restoring Faith in Financial Markets," in which the author, John C. Bogle, founder and former chief executive of the Vanguard Group, argues that the faith of investors has been betrayed: "...[F]ar too many of our corporate and financial agents have failed to honor the interests of their principals - the mutual fund investors and pension beneficiaries to whom they owed a fiduciary duty. The ramifications were widespread-for the failure of money managers to observe the principles of fiduciary duty played a major role in allowing our corporate managers to place their own interests ahead of the interests of their shareholders."
In that context, a recent national Opinion Research Corporation survey assessed public attitudes towards financial fraud and investor protection. The study found that 62 percent of Americans believe Wall Street executives were not honest with the public during the recent financial meltdown and 59 percent of Americans do not believe corporate CEOs and financial officers provide accurate information in financial statements. In addition, most Americans favor additional legal rights for investors that would allow them to seek compensation for loss from any deceptive conduct by Wall Street or corporate officers -- even if it did not involve a public misstatement.
January 15, 2010
Pew's FRP News Brief
"We want our money back, and we're going to get it. And that's why I'm proposing a Financial Crisis
Responsibility Fee to be imposed on major financial firms until the American people are fully compensated
for the extraordinary assistance they provided to Wall Street."
President Announces Fee on Banks
President Barack Obama unveiled on Thursday a White House Proposal to tax the 50 largest US banks in assets, dubbed the "Financial Crisis Responsibility Fee," to recoup costs incurred during the federal bailout of the financial industry. The fee would go into effect on June 30, 2010, and would last at least 10 years. The administration estimates that the fee will raise over $90 billion over 10 years. The Wall Street Journal's Real Tim Economics blog has a post that allowed economists, analysts and others to express their opinion about the tax. Speaker of the House Nancy Pelosi's (D-CA) office issued a press release: "Taxpayers must get their money back and the President's bank fee proposal helps ensure that they will." Barney Frank (D-MA), Chairman of the House Financial Services Committee, expressed strong support for the proposal, noting that the fee "complies fully with the taxpayer protection language of the original TARP bill."
Unclear if Senate Negotiations on Consumer Protection will call for Independent Agency
Sen. Chris Dodd (D-CT), Chairman of the Senate Banking Committee, is considering dropping the proposal to create an independent Consumer Financial Protection Agency, a key component of the administration's financial reform plan, in order to secure bipartisan support for a larger bill to overhaul the financial system. The concession is contingent upon creating "a beefed-up consumer-protection division within another federal agency," the Wall Street Journal reports, yet no agreement has been reached on the matter. The leading Republican on the banking committee, Sen. Richard Shelby (R -Ala) "said he opposes creating a standalone consumer agency and would back including it as part of a national bank regulator" according to Bloomberg.
Bernanke Defends Bank Supervision Role for Fed
Ben Bernanke, Chairman of the Federal Reserve, sent a letter to the Senate Banking Committee defending the Fed's role as a bank supervisor and that "stripping the Fed of its powers would leave the financial system more vulnerable to collapse," reported the New York Times. Current negotiations in the Senate Banking Committee have included discussions about the role of the Fed as bank supervisor, previously reported by Reuters. Paul Volcker, former chair of the Fed, in a speech to the Economic Club of New York on Thursday, supported the effort to preserve Fed authority. He said that the Fed "needs both the ability to identify" problems in the financial sector "and the instruments to deal with them."
The Wall Street Journal featured a piece on Paul Volcker in its Friday edition, "Volcker Voices His Views in a Vacuum."
Analysis of Financial Crisis Inquiry Commission Hearings
Various news outlets provided analysis of the initial hearings of the Financial Crisis Inquiry Commission (FCIC), which took place on Wednesday and Thursday. Paul Krugman of the New York Times wrote in a column on Friday highlighting what he believes is a failure to understand the nature and extent of the current crisis by bankers and emphasized the fragility of a deregulated financial system: "Sooner or later, this runaway system was bound to crash. And if we don't make fundamental changes, it will happen all over again.
Newsweek carried a column by Michael Hirsh, who doesn't believe the FCIC got off to a promising start, and questioned why FCIC Commissioner Brooksley Born, who had warned derivatives in the late ‘90's, was the last of the 10 commissioners to ask questions to the banking panel on the first day of hearings on Wednesday. Hirsh compared it to "batting A-Rod ninth in the opening game of the World Series."
The Wall Street Journal carried an editorial on Friday on the Commission and noted that the first week of hearings "focused on repeating the Beltway's pet theory of what caused the credit mania and subsequent panic. To wit, the greedy bankers did it, abetted by Bush Administration deregulators and perhaps, a little, by the Clinton Treasury when it agreed to repeal the Glass-Steagall Act. If the commission is merely going to reinforce this laughably narrow and politicized view, this is going to be a waste of money and time." The editorial urges the commission to focus on other causes of the crisis, including the Federal Reserve's interest rate policy leading up to the crisis, as well as Fannie Mae and Freddie Mac's large investments in troubled mortgage loans.
January 14, 2010
Pew's FRP News Brief
"But the big American banks aren't nearly so independent as they would have us believe. JPMorgan Chase, Goldman Sachs, and their peers are still benefitting hugely from significant post-crisis subsidy programs that boost their profits."
Daniel Gross, "The Subsidy That Won't Die," Newsweek, January 13, 2010
Financial Crisis Inquiry Commission Initial Hearing Continues with Government Officials
The Financial Crisis Inquiry Commission (FCIC), charged with investigating the origins of the recent financial crisis, began its second day of public hearings on Thursday, with scheduled testimony from FDIC head Sheila Bair, SEC head Mary Shapiro, as well as Attorney General Eric Holder and Assistant Attorney General for the Criminal Division Lanny Breuer. Ms. Bair pointed to the excesses of the financial industry in the last decade: "While these services are essential to our modern economy, the excesses of the last decade represented a costly diversion of resources from other sectors of the economy." Attorney General Holder is expected to tell the commission that law enforcement officials are investigating almost 3,000 cases of mortgage fraud, another facet of the crisis, according to the Wall Street Journal.
Reuters provided an analysis regarding the commission on Wednesday, writing that some fear the commission is too little too late. Some argue that the results of the commission should have been produced before reform efforts began in earnest. Douglas Elliot, a former JPMorgan investment banker and now a fellow at the Brookings Institution, believes the commission may stir public outrage against Wall Street: "These various hearings are going to refocus people's attention on the crisis. It is going to be tough on Wall Street in many ways because Wall Street was very much part of the problem and the public doesn't much like bankers these days."
Click here to view the prepared testimonies of the government officials scheduled to speak on Thursday.
Financial Reform Timetable in Senate
As the debate about financial reform legislation continues, the timetable for reform remains an unknown. Sen. Chris Dodd (D-CT), chairman of the Senate Banking Committee, has said that he doesn't believe in setting arbitrary timetables for the legislation. Dodd explains, "I'm more interested in the product we're producing than meeting some arbitrary timeline." As Politico points out, "There is a lot of wiggle room in the statement, though. Lobbyists say that significant differences between key senators have yet to be bridged," which could result in further delay. One of the key issues of contention is the proposed consumer financial protection agency and whether "Senate Democrats could give in to Republican demands that the legislation not create a separate agency for consumer protection," which would conflict with the Administration's proposal for a stand-alone consumer watchdog.
Daniel Gross on Hidden Bank Subsidy
Daniel Gross, a columnist for Newsweek and Slate, writes a column on Wednesday about some of the largest financial institutions in the nation and their relationship with the government. He argues that the bankers say they have paid back their TARP funds and are looking to move out without government intervention. Gross points out that a different lending facility, the Temporary Liquidity Guarantee Program (TLGP), allows banks to continue to benefit from government support, as well as other programs that provide a government subsidy to the banking industry. In conclusion, he writes that the FCIC should examine the amount of subsidies the government is providing to the financial industry and asks: "How much worse would their profits be if taxpayers weren't insuring huge chunks of their debt-and if they had to borrow on their own credit instead of on the public's? And would they care to quantify the amount of the subsidies they're getting?"
January 13, 2010
Pew's FRP News Brief
"After the shocks of recent months and the associated economic pain, there is a natural and appropriate desire for wholesale reform. We should resist a response, however, that is solely designed around protecting us from the 100-year storm. Taking risk completely out of the system will be at the cost of economic growth. We know from economic history that innovation - and the new industries and new jobs that result from it -- require risk taking."
Lloyd C. Blankfein, Chairman and CEO, Goldman Sachs Group, Inc., Written Testimony to the Financial Crisis Inquiry Commission, January 13, 2010
Financial Crisis Inquiry Commission Holds First Public Hearing
The Financial Crisis Inquiry Commission (FCIC), charged with investigating the origins of the recent financial crisis, commenced its public hearings on Wednesday with testimony from chairmen and CEOs of major banking institutions, including Goldman Sachs, JPMorgan Chase, Morgan Stanley and Bank of America. The hearings continue tomorrow with scheduled testimony from FDIC head Sheila Bair, SEC head Mary Shapiro, as well as Attorney General Eric Holder and Assistant Attorney General for the Criminal Division Lanny Breuer. House Speaker Nancy Pelosi (D-CA) issued a press release regarding the commission's initial public hearing: "Now is the time for answers. Today's hearing will begin to shed light on some of the worst abuses of Wall Street. Under the bipartisan leadership of Chairman Phil Angelides and Vice Chairman Bill Thomas, the Commission will provide the American people with answers about how we descended into the worst economic crisis since the Great Depression and how we can prevent such a crisis in the future."
The Wall Street Journal offers live blogging of the hearing on Deal Journal. The New York Times as well as other major outlets including USA Today, Reuters, and Bloomberg covered the hearing. The Wall Street Journal carried a piece about the members of the commission itself, reporting that "business interests complaining that some panel members' ties to a major plaintiffs law firm could aid litigants seeking to sue financial firms."
The Detroit Free Press editorialized that the FCIC's mission will only be complete "only when Americans understand what happened to their financial security and are satisfied the government is taking sensible steps to restore it."
Eliot Spitzer and William Black wrote in the Business Insider the "10 Questions A Financial Inquiry Commission MUST Ask."The New York Times collected questions for the commission from eight financial experts, including Simon Johnson, William D. Cohan and David M. Walker.
The Wall Street Journal includes an editorial, "Bashing Bankers Is a Political Duty," and another on executive compensation, a key issue in Wednesday's hearing, "Obama and the Fat Cat Bankers."
Negotiations Regarding Consumer Protection Continue in Senate
Reuters reported on Tuesday that the Senate Banking Committee is continuing negotiations on financial reform and consumer financial protection. The article reported that the Consumer Financial Protection Agency, proposed by the Obama Administration, is losing support in the committee: "...[M]embers were said to be talking about reducing the proposed agency's status, possibly making it instead a division of a new systemic risk regulator or a new super-cop for banks." The Obama Administration originally proposed that the agency be independent; recent discussions may weaken the proposal considerably. Republicans and industry representatives are opposed to an independent consumer financial protection agency, arguing that it would stifle financial innovation and increase costs.
Wall Street Journal Op-ed Calls for Return to Glass-Steagall
Thomas Frank, a columnist for the Wall Street Journal, writes on Wednesday about the Glass-Steagall Act, a Depression-era law that separated commercial and investment banks, which was repealed in 1999. Some economists, such as Joseph Stiglitz and Paul Volcker, have called for a return to that separation, and recently Senators John McCain (R-AZ) and Maria Cantwell (D-WA) have proposed legislation that would reinstate certain provisions of the Glass-Steagall Act. Frank details some of the economic thinking during the ‘90's that assisted in the repeal of Glass-Steagall and the tendency to describe Glass-Steagall as "backward" in certain circles, and cautions readers that when thinking about how to seriously re-regulate the financial sector, "we may find that the answer involves some version of the idea behind Glass-Steagall" in order to safeguard the system in the future.
January 12, 2010
Pew's FRP News Brief
"...we stand here in January 2010 with virtually the same legal and regulatory system we had when the crisis struck in the summer of 2007, with only minor changes in Wall Street business practices, and with greed returning big time. That's both amazing and scary. Without major financial reform, ‘it' can happen again."
Alan Blinder "When Greed is Not Good," Wall Street Journal, January 12, 2010
Financial Reform Task Force Member Alan Blinder Op-ed in the Wall Street Journal
Alan Blinder, professor of economics at Princeton and a member of the Task Force on Financial Reform, writes an op-ed in Tuesday's Wall Street Journal, urging Congress to move forward on financial regulatory reform. He expresses concern about the rapidly receding opportunity to enact strong financial, and compares the current push for regulatory reform with the extremely contentious health care reform debate in the Senate: "If financial reform receives the same treatment, we are in deep trouble, both politically and substantively." He also writes that unlike health care, every major element in financial reform is contentious, and that it will take bipartisanship and moderation to create and implement an effective strategy.
Bankruptcy Court Proposed for Failing Non-Bank Financial Institutions
Reuters reports on Monday that the Senate is working on proposing a special bankruptcy court for large, failing financial institutions. Senate Banking Committee members are working on a two-part process that would create a "preferential option for bankruptcy followed by a regulator-managed resolution authority if the bankruptcy fails." Senator Chris Dodd (D-CT), chairman of the Senate Banking Committee, told CNBC on Monday that the committee is "looking at a bankruptcy concept, a receivership. We're going to make resolution a very painful process if we go that route and that's going to be a major step forward with this bill."
Banks May be Taxed to Recoup Bailout Funds
The Wall Street Journal reported on Tuesday that the Obama Administration is considering a fee on banks to recover losses incurred during the bailout of the financial crisis. The administration is considering the fee to quell public fury over financial institutions, and is planning on inserting the measure in their fiscal year 2011 budget, due in February. The details are pending and questions remain, such as how to avoid having banks pass these fees on to consumers. Barney Frank (D-MA), Chairman of the House Financial Services Committee, is in favor of such a tax. Groups representing bankers, such as the American Bankers Association, are against such a proposal, claiming it would lead to less lending by banks. Politico broke the story, and major news outlets such as the New York Times and the Financial Times covered the story as well.
January 11, 2010
Pew's FRP News Brief
To see how far American capitalism has fallen, contrast Weill with the giant who built Carnegie Hall. Not only is Andrew Carnegie remembered for far more epic and generous philanthropy than [Former Citigroup Chief Executive Sanford] Weill's - some 1,600 public libraries, just for starters - but also for creating a steel empire that actually helped build America's industrial infrastructure in the late 19th century.
Frank Rich, "The Other Plot to Wreck America," New York Times, January 10, 2010
New York Times' Frank Rich on Financial Reform
Frank Rich, a weekly columnist for the New York Times, wrote an article in Sunday's edition, "The Other Plot to Wreck America," in which he contends that while Americans are well versed in matters of terrorism, many are still in the dark about financial issues and financial reform. "What we don't know will hurt us, and quite possibly on a more devastating scale than any Qaeda attack. Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin." Rich points to the Financial Crisis Inquiry Commission (FCIC), which makes its public introduction on Wednesday, tasked with uncovering the origins of the recent crisis. He believes that it will be difficult for the FCIC's chair, Phil Angelides, to make the type of impact Ferdinand Pecora's Depression-era commission did: "Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesn't even match the lobbying expenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009."
Financial Reform Task Force Member Rebuttal to Chairman Bernanke
John Taylor, Stanford professor and member of the Financial Reform Task Force, writes an op-ed in Monday's Wall Street Journal that raises questions regarding Fed Chairman Ben Bernanke's recent speech to the American Economists Association. Bernanke's remarks included commentary on Professor Taylor's own Taylor rule, which allows central bankers insight into setting interest rates by examining certain economic indicators. While dismissing specific points in the speech, Taylor sums up the main thrust: "You do not have to rely on the Taylor rule to see that monetary policy was too loose. The real interest rate during this period was persistently less than zero, thereby subsidizing borrowers." In conclusion, he writes that "[w]hile I disagree with Mr. Bernanke's analysis, it is good news that the Federal Reserve Board has begun to examine its policies and publish its findings."
MarketWatch ran an article on Friday which examines leverage - the ability of banks to borrow - and proposals for its limit. Under the House plan, leverage is capped at 15-to-1. According to the article, the Obama Administration does not back the leverage cap, and current Senate negotiations do not include a statutory limit on leverage. The Financial Services Roundtable does not support a statutory limit on leverage. Others, including Heather McGhee, director at public policy advocacy organization DEMOS, believe leverage limits should be congressionally mandated. These leverage limits may be just one part of a larger package of "too-big-to-fail" reforms expected.
Barney Frank and Credit Unions
Barney Frank, Chairman of the House Financial Services Committee, concerned about the lack of loans being made to small businesses, is considering giving credit unions increased lending powers, the Boston Herald reported on Sunday. Credit unions are looking to "increase the current cap how much each institution can loan to commercial interests. The cap is now 12.5 percent, but credit unions want to increase it to 25 percent," in order to boost lending to small businesses.
Events:
In other news Financial Reform Task Force Co-Chair Peter Wallison will be a presenter in a roundtable discussion on the reformation of the GSEs to take place on Tuesday, January 12, "What to do with Fannie and Freddie Roundtable Discussion," to be held at the Center for Study of Responsive Law. Mr. Wallison is also a member of the recently-appointed Financial Crisis Inquiry Commission, which will examine the roots of the financial crisis by hearing testimony on the causes and current state of the crisis.
January 8, 2010
Pew's FRP News Brief
"This is a proxy for the American people, giving them the chance to ask what led this country to the economic precipice."
Financial Crisis Inquiry Commission to Hold First Public Hearings Next Week
The Financial Crisis Inquiry Commission (FCIC), created in 2009 under the Fraud Enforcement and Recovery Act of 2009 plans to hold its first public hearings on Capitol Hill on January 13 and 14. The purpose of the Commission is to examine the causes of the recent financial crisis through holding public hearings and conducting interviews. The Commission also has the power to request or subpoena information from companies and government agencies. The FCIC must submit to Congress a report detailing its findings by December 15, 2010. The Economist, among others, have likened the Commission to the Pecora Commission of the 1930's, led by the Senate Banking Committee's chief lawyer at the time, Ferdinand Pecora, which investigated the causes of the Wall Street crash of 1929.
Senator Dodd's Retirement and Consumer Protection
Since Sen. Chris Dodd's (D-CT) announced retirement, speculation continues as to what effect his decision will have on the financial regulatory reform process. The Boston Globe carries an article on Friday that considers whether Dodd's retirement could mean difficultly in creating an independent consumer financial protection agency. Dodd has supported the proposed agency, yet is looking for a "'construct' of the agency that will satisfy all sides." Some Republicans are adamantly against an independent agency, contending that consumer protection should be the responsibility of safety and soundness regulators.
BusinessWeek Cover Story on Financial Reform
BusinessWeek features a cover story for its January 11, 2010 cover story, "Not So Radical Reform: How New Democrats and Wall Street are Watering Down Financial Regulation in Congress." The story analyzes the New Democrat Coalition, a group of fiscally conservative pro-business Democrats who have 15 of the Democrat's 42 seats on the House Financial Services Committee, and its ties to Wall Street. The article documents the negotiation of various parts of the House bill on financial reform, including derivative legislation and consumer protection, and the major players involved.
Krugman on Bubbles and Banks
Paul Krugman, economist and columnist for the New York Times, writes an op-ed in Friday's paper, "Bubbles and the Banks." He suggests that while reform probably cannot prevent bad loans or bubbles, reform can do "a great deal to ensure that bubbles don't collapse the financial system when they burst." The test for successful financial reform is "whether it reduces bankers' incentives and ability to concentrate risk going forward." He proposes more transparency, the limitation of bank leverage, reform of the financial industry's compensation practices and reminds readers that if the nation doesn't get financial reform right now, it risks leaving the country vulnerable to crisis in the future.
January 7, 2010
Pew's FRP News Brief
"Dodd was already going to have to compromise...if he wanted to enact the bill. His decision to
retire after the election does not alter this equation."
Jared Seiberg, "Senator Dodd's Exit Roils Financial Reform, Reuters, January 6, 2010
Senator Dodd's Retirement - What it Means for Financial Reform
Sen. Chris Dodd (D-CT) announcement that he will not seek another term after his current term expires next year, has left many wondering what effect his decision will have on pending financial reform legislation. As the chairman of the Banking Committee, Dodd has spearheaded Senate efforts to pass financial reform legislation. Various news outlets provided analysis, including the Washington Post, the New York Times, the Associated Press, Reuters, Bloomberg, the Atlantic, and Bnet.com, among others. The Washington Post report included a quote from Sen. Mark Warner (D-VA), who believes Dodd's retirement will "probably improv[e] the chances for a financial rewrite." Daniel Indiviglio of the Atlantic writes, "Dodd's decision to announce his retirement today should make the Senate a bloodier battleground in the legislative fight that's sure to ensue." Peter Wallison, Co-Chair of the Financial Reform Task Force, said to Bloomberg via a phone interview that Dodd's retirement would "substantially reduce the prospects for compromise legislation," and that "Dodd as a lame duck has substantially less power to get compromises done."
The New York Times editorial board wrote about Dodd's decision on Thursday, stating that his retirement allows him to pursue his own views rather than be captured by any special interests and moving forward, he should "loudly resist attempts to defang the proposed consumer protection legislation" and to insist that "dangerous gaps in proposed derivatives' regulation be closed." The Wall Street Journal's Peter Eavis writes in a post entitled, "Even Dodd Isn't Too Big to Fail" that he doesn't need to raise campaign money on Wall Street anymore and still could do something bold on financial reform.
Senate Banking Leadership to go to Johnson
Sen. Dodd's retirement from the Senate creates a change in leadership in the Senate Banking Committee. Reuters reports on Wednesday that Sen. Tim Johnson (D-SD) is likely to become the new chairman of the committee in 2011. Sen. Johnson, according to Reuters, is a "champion of community banks and credit card companies" and that "financial services industry lobbyists and analysts said that the banking committee under Johnson would likely be more favorable to some business sectors than it has been under Dodd." Johnson's chairmanship would also give Sen. Jack Reed (D-RI) more clout in the committee and allow him to take an expanded leadership role. The Providence Business Journal wrote about how Dodd's retirement would affect Reed's role in the committee, and notes Reed's close relationship with House Financial Services Chair Barney Frank (D-MA).
Simon Johnson on Independent Financial Expertise
Simon Johnson writes a blog post in Thursday's New York Times' Economix blog considering ways to create independent financial expertise-those who would be free from the influence of major financial institutions. He writes that the defense industry faced similar problems. He cites Larry Candell's article in the latest issue of the Harvard Business Review in which he proposes that the "government should set up its own arms-length labs (or sponsor nonprofit research organizations to do the same) that would concentrate on testing financial derivative products in test-bed-type settings." The proposed Natioanal Institute of Finance broadly shares these goals. Whatever the proposal, Johnson writes that independent derivatives experts are essential.
January 6, 2010
Pew's FRP News Brief
"The evidence is overwhelming that those low interest rates were not only unusually low but they logically were a factor in the housing boom and therefore ultimately the bust."
Senate Banking Committee Head Dodd to Retire
Senator Chris Dodd (D-CT), Chairman of the Senate Banking Committee, will not seek re-election in 2011 after his current term is up, according to major news outlets. Dodd's departure could lead to uncertainty in the push for financial regulatory reform, as he has been leading reform efforts on the Senate side. According to Dow Jones Newswires, his departure could "free him to push meaningful changes to oversight of financial markets without the distraction of a major re-election fight. He might desire to put his imprimatur on a landmark piece of legislation before leaving the Senate." Republicans might try to draw out the process in order to wait for Tim Johnson (D-SD) to take over leadership, viewed to be more receptive to industry concerns.
Industry Provides Input on Senate Financial Reform Debate
The National Journal reported on Tuesday that while Senate Banking members and staffers are hard at work negotiating legislation for financial reform, industry representatives are making their views known. Senator Chris Dodd's draft proposal calls for the consolidation of banking regulators to one single entity. Many industry representatives oppose consolidation efforts, which will make the idea difficult to preserve moving forward. In particular, the Independent Community Bankers of America (ICBA) is pushing to allow the FDIC to maintain oversight. The Financial Services Forum argues that the Federal Reserve should retain its supervisory role. John Dearie, Executive Vice President of the forum, believes that the Fed's supervisory role "is essential."
Senate Committee Nears Deal on Role of Fed
Reuters reports on Wednesday that the Senate Banking Committee is making clear progress in its negotiations over the role of the Federal Reserve in its financial reform proposals. According to the article, there is broad agreement among committee members to strip the regulatory powers of the Fed - and that it should be confined to monetary policy and being a lender of last resort. The article also states that policy analysts have said that reconciliation of the respective House and Senate plans could take place in April or May.
Financial Reform Task Force Member John Taylor Voices Opinion on Fed and Bubbles
John Taylor, a member of the Financial Reform Task Force, took exception to Federal Reserve Chairman Ben Bernanke's claim that low interest rates did not cause the housing bubble, stating in an interview in Atlanta on Tuesday that low interest rates were unusually low and had an effect on the housing boom and increased risk taking.
In other news, Rep. Barney Frank (D-MA), Chairman of the House Financial Services Committee, said on Tuesday during an interview with CNBC that Fannie Mae and Freddie Mac are now like public utilities and are now basically a "public policy instrument" of the government, according to The Hill.
Thomas Hoenig, President of the Federal Reserve Bank of Kansas City, speaking at the American Economic Association's annual conference on Tuesday, suggested stripping banks of risky operations and not allowing them to sponsor hedge or equity funds. He advocated the importance of safeguarding the commercial banking sector from the riskier practices once the sole domain of investment banks. This view has also been voiced by Paul Volcker.
Reuters also featured an article on key players involved in the financial reform debate.
January 5, 2010
Pew's FRP News Brief
"What I do suggest is a philosophy: do not allow the banking industry to create a combustible mix that will contaminate America's central banking system. We will bitterly regret it if we fail to divide deposit-based banks from the shadow banking system."
Nicholas F. Brady, "Refocus the Regulatory Debate on Essentials,"
Financial Times, January 5, 2010
Senate Banking Committee Continues Financial Reform Deliberations
Ronald D. Oral reports on Monday in MarketWatch that the Senate Banking Committee continues deliberation on financial reform legislation behind closed doors. While Senator Chris Dodd (D-CT) and Senator Richard Shelby (R-AL) have pledged to work together on bipartisan legislation and agree on many provisions, according to Dodd's spokeswoman, serious divisions remain. One large disagreement involves consumer protection. Some Republican Senators in the committee have reservations about an independent Consumer Financial Protection Agency. However, both Dodd and Shelby agree that the Fed's power should be reduced, and are currently discussing to what degree its authority should be limited. The article writes that voting on the legislation within the committee will likely wait until after January 20th and that there are major differences to work out between the House and Senate proposals.
Glass-Steagall Debate Continues
Politico reports on Monday that the reinstatement of the Depression-era legislation known as Glass-Steagall has gained some steam. Senators John McCain (R-AZ) and Maria Cantwell (D-WA) proposed legislation in December that would reinstate the law, which separated investment and commercial banks. While there is a debate amongst experts regarding the effectiveness of such policy - and financial services lobbyists are clearly against it, Congress remains concerned about banks that are deemed "too big to fail." Congressman Maurice Hinchey (D-NY) did propose an amendment that would reenact Glass-Steagall. Both Senator Bernie Sanders (I-VT) and Congressman Paul Kanjorski (D-PA) have introduced legislation that would allow the government to preemptively break-up large financial institutions that could potentially pose serious risks to the economy. As financial reform legislation is hammered out, dealing with large financial institutions will be a central issue.
Former Treasury Secretary Writes on Financial Reform in the Financial Times
Nicholas F. Brady, former Secretary of the Treasury, pens an op-ed in Tuesday's Financial Times urging policymakers to resist maintaining a status quo that allows the financial services industry to engage in risky activities. He characterizes the recent House bill, H.R. 4173, the Wall Street Reform and Consumer Protection Act as failing to "consider the distinction between things that are critical and things that are merely important." He contends that what is critical is not the size of a bank, but the combination of activities of the bank. While not supporting a reinstatement of Glass-Steagall, since underwriting standards today are more sophisticated than during the Depression, Brady insists that deposit-based banks must be divided from the shadow banking system.
IMF paper on Lobbying and the Financial Crisis
The Guardian reports on Monday about a recent International Monetary Fund paper by Deniz Igan, Prachi Mishra, and Thierry Tressel, "A Fistful of Dollars: Lobbying and the Financial Crisis," that studies the link between bank lobbying and risk taking by banks. According to the abstract, the scholars contend that "lobbying may be linked to lenders expecting special treatments from policymakers, allowing them to engage in riskier lending behavior." In addition, this lobbying can be a source of systemic risk, and the scholars write that the research "provides some support to the view that the prevention of future crises might require weakening political influence of the financial industry or closer monitoring of lobbying activities to understand better the incentives behind it."
January 4, 2010
Pew's FRP News Brief
"'We must be especially vigilant in ensuring that the recent experiences are not repeated....if adequate [regulatory] reforms are not made, or if they are made but prove insufficient to prevent dangerous buildups of financial risks, we must remain open to using monetary policy as a supplementary tool for addressing those risks."
Ben Bernanke, "Monetary Policy and the Housing Bubble,"
Speech Delivered at the American Economic Association Annual Meeting, January 3, 2010
The Federal Reserve and Bubble Fighting
Federal Reserve Chair Ben Bernanke delivered a speech at the American Economic Association's Annual meeting on Sunday, January 3rd, "Monetary Policy and the Housing Bubble," in which he argues that monetary policy may be used to prevent or mitigate asset price bubbles, allowing the Fed to have a central role in systemic risk monitoring and response. The Wall Street Journal reports on Monday that the Fed's view on asset prices is slowly changing, and offers a comparison of Mr. Bernanke's views on the issue in 2002 and today. In the speech, Mr. Bernanke defended the Fed's role during the recent housing bubble and said that it was lax regulation, not Fed policy, that fueled the housing bubble. Bloomberg also reports on the speech.
Economist and New York Times columnist Paul Krugman offers a short analysis of the speech here, as does economist and blogger Mark Thoma.
Bloomberg on Bank Profit
Bloomberg reports on Monday that major U.S. banks are profiting by using the Treasury Department's Public Private Investment Program. "Only months after it was started, the U.S. program designed to purge debts of no immediate discernable value from the balance sheets of troubled banks has helped transform the frozen debt into a money-maker as the bonds have rallied." According to the article, currently, "funds participating in the program have raised about $6 billion of equity capital from private investors, which the government has matched. The Treasury also provided $12 billion of debt capital, bringing the funds' purchasing power to $24 billion. Neither the Treasury nor the funds have disclosed how much and what debt has been bought."
Clive Crook on Financial Reform
Writing in the Financial Times on Monday, columnist Clive Crook warns readers that the need for better rules is greater now than before the financial crisis. He argues that a return to Glass-Steagall is not necessary nor helpful; the financial collapse "did not show that universal banks are more hazardous than separated commercial and investment banks. If anything, it showed the opposite." What he does recommend is to tackle "too big to fail" and minimize moral hazard. Most important, he argues, is that capital and liquidity requirements should be time-varying and strongly anti-cyclical, which he characterizes as a tax on bank growth that will be strongly contested, but must be implemented moving forward.
