Financial Services Update Issue 13

April 14, 2010

Authored by: Matt Jessee

Geithner Trip to India and China

Treasury Secretary Timothy Geithner met with top Hong Kong, Beijing, and Indian finance officials during his week long trip through Asia which focused on trade and monetary matters. Meanwhile, the New York Times reported Friday that the Chinese government was preparing to announce that it will allow its currency to rise with increased volatility. China’s currency, known as the renminbi or yuan, has been pegged at a nearly fixed rate to the dollar for many years. While an official announcement on China’s currency policy may be delayed, the Times reported that China’s central bank appears to have prevailed within the Chinese governmental leadership for a stronger but more flexible currency. Geithner has refrained from publicly commenting about the currency issue in advance of his meetings in Beijing.

 Senate Financial Regulatory Reform Bill

Senate Banking Committee Ranking Member Richard Shelby (R-AL) offered to Chairman Chris Dodd a new draft compromise on the consumer protection title of the financial reform bill this week, reflecting a possible shift in the Republican position on the issue. According to sources close to Shelby, the new draft is much closer to the language Dodd and other Democrats have sought, which gives much stronger consumer protection authority to the new agency. However, the new Shelby language is said to also give a new council of regulators the power to veto rules from the agency. Shelby’s proposed compromise may reflect Republicans’ increasing willingness to appear amenable to financial reform.

 Greenspan and Citi Executives Testify Before Federal Crisis Inquiry Commission

Former Federal Reserve Chairman Alan Greenspan, Former Citigroup CEO Chuck Prince, and former senior executive Robert Rubin were among the witnesses who testified before the FCIC this week. A majority of the commissioners’ questions focused on why the witnesses did not foresee the housing market collapse. Panel co-chair Bill Thomas was particularly focused on whether the executives felt any remorse for what he believes was Citi’s role in the collapse. For his part, Greenspan said that regulators were helpless to stop the economic meltdown. In his statement, he suggested that the solution to preventing future economic meltdowns is to ensure banks have more capital and that financial traders have more collateral. Greenspan also blamed Congress for its role in pressuring banks to liberalize their lending practices.

Private Investment Pools Face Increased Scrutiny

Sen. Jack Reed (D-RI) announced that he is working to require hedge funds, private equity funds, and other private investment funds to register and disclose more of their activity to the Securities and Exchange Commission (SEC). Reed, who played a major role in the Senate Banking Committee’s financial reform bill that was recently marked up, indicated that he will offer a floor amendment that would require private funds with more than $30 million in assets to register and disclose whether the funds pose a risk to the financial system.

Such a move could complicate Dodd’s plans to move the bill quickly to the floor before Memorial Day recess. 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. Reed’s amendment is expected to eliminate the exemption for venture capital and private equity by lowering the threshold for registration to $30 million.