Warren Interviews AGs for Consumer Protection Agency
Reports this week indicate that Elizabeth Warren, who is interim head of the U.S. Consumer Financial Protection Bureau, has interviewed four Democratic state attorneys general to be her permanent successor. The four AGs reportedly in the running are Tom Miller of Iowa, Lisa Madigan of Illinois, Roy Cooper of North Carolina and Martha Coakley of Massachusetts. The bureau is scheduled to officially start work on July 21. Under the Dodd-Frank Wall Street Reform Act, which President Obama signed in July, the bureau must have a Senate-confirmed director to perform certain functions such as the supervision and regulation of non-bank financial firms.
House Republicans Release Top Line Budget Numbers
With President Obama set to release his FY 2012 budget on February 14, House Republican leaders on Thursday announced they would seek $32 billion in spending cuts from the resolution currently funding the government. Republicans framed their proposal as cutting $74 billion from President Obama’s 2011 budget request. However, because Obama’s budget was never approved by the last Congress, the cuts would actually be made against a continuing resolution now funding the government. That resolution is to expire on March 4, and if lawmakers do not agree on another short-term measure or one funding the government for the rest of the year, they risk a government shutdown. The spending ceiling announced by House Budget Committee Chairman Paul Ryan (R-WI) represents a $58 billion cut in non-security discretionary funding. While details of the specific department cuts were not announced on Thursday, the House Appropriations Committee next week will release its bill detailing the specific department budgets based on the spending ceiling. Reports indicate that the Democratic majority in the Senate is opposed to the House Republican budget cuts.
TARP Program Breaks Even with Fifth Third Bank Repayment
On Thursday, the Treasury Department announced that Fifth Third Bank has now fully repaid its $3.4 billion in TARP loans and that total repayments and other income from programs within TARP (approximately $243 billion) have nearly surpassed total disbursements under those programs (approximately $245 billion). The Treasury Department also announced that current estimates indicate that bank programs within TARP will ultimately provide a profit of nearly $20 billion to taxpayers.
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Immelt Appointed Chairman of Council on Jobs and Competitiveness; Volcker Resigns
On Friday, President Obama announced that General Electric CEO Jeff Immelt will serve as Chairman of the newly created “Council on Jobs and Competitiveness.” The Council will advise the President on job creation policies and on the establishment of a long-term growth strategy. Immelt previously served on the board of the President’s Economic Recovery Advisory Board (PERAB). On Thursday, the President also announced the resignation of PERAB Chairman Paul Volcker and dissolution of the PERAB.
SEC Issues New Rules on Asset Backed Securities
On Thursday, the Securities and Exchange Commission (SEC) approved new regulations regarding asset-backed securities. Among a series of new rules which will take effect in 2012, one requires that financial firms that issue asset-backed securities assess and disclose the quality of the underlying assets, including mortgages, credit card debt and student loans. The rule, which the SEC first proposed in October, passed in a 3-2 vote. The agency’s two Republican commissioners, Kathleen Casey and Troy Paredes, opposed the changes. Another new rule requires that banks and other issuers disclose the number of requests they have received to buy back troubled assets. Starting in February 2012, the issuers will have to report how many loans they have repurchased, dating back three years.
Geithner Declines First House Republican TARP Hearing
On Wednesday, House Oversight and Government Reform Committee Chairman Darrell Issa invited Treasury Secretary Timothy Geithner to testify next week before the Committee regarding the Troubled Asset Relief Program (TARP). Geithner declined Issa’s invitation but offered to send in his place Tim Massad, an acting Assistant Treasury Secretary. While Issa could have issued Geithner a subpoena, he instead accepted the offer of Massad’s testimony for next week’s hearing.
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One of the ideas incorporated into the Regulatory Reform Act has been the so-called Volcker Rule, named after former Federal Reserve Chairman, Paul Volcker. Volcker’s proposal was that banks should not be engaged in speculative trading for their own accounts. For example, holdings in mortgage backed securities caused huge losses for the nation’s largest banks.
The rule has now made it into the conference committee’s version of the bill although in a somewhat watered down version of what Volcker had originally proposed. The bill in its current version would prohibit a bank from investing more than 3% of its tier 1 capital in a private equity hedge fund and would also prohibit a bank from owning more than 3% of the equity in such a fund.
As a practical matter, these limits probably work to the advantage of large banks. The limit still allows large financial institutions to invest billions of dollars of their own money in speculative trades. It may also have the unintended consequence of causing some institutions to move money that they currently have invested with hedge funds and managing the investments themselves.
January Unemployment Numbers Released
On Friday, the U.S. Department of Labor released its monthly report showing that the unemployment rate unexpectedly declined in January to 9.7% from an unrevised 10% in December. However, nonfarm payrolls fell by 20,000 compared with a revised 150,000 decline in December. The two statistics are generated by different surveys, which explains how the unemployment rate improved despite a net loss of jobs. Jobs numbers are generated by surveying employers, while the unemployment rate is derived from a household survey.
Senate Financial Regulatory Bill
Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) have reached an impasse during their negotiations over the Senate’s financial regulatory reform bill. Dodd and Shelby conducted a meeting Thursday that they had hoped could result in progress toward releasing a bipartisan bill. The primary point of contention between Dodd and Shelby continues to be over a possible new consumer regulatory agency. Dodd announced on Friday that he is forging ahead without Shelby and will release a draft bill later this month with the hope of gaining Republican support later in the process.
Volcker Testifies Before Senate Banking Committee
On Tuesday, White House Economic Advisor Paul Volcker testified before the Senate Banking Committee regarding his plan to decouple what he calls “proprietary and speculative activities” from traditional banking activities. During his testimony, Volcker stated “hedge funds, private equity funds, and trading activities unrelated to customer needs and continuing banking relationships should stand on their own.” During the hearing Chairman Dodd expressed frustration about the timeliness of Volcker’s proposal in relation to the Committee’s work on the legislation. Following the hearing, sources indicated that Dodd is likely to drop or change many of the recommendations in the proposed Volcker rule.