Posts Tagged ‘Christopher Dodd’

Republicans May Underfund Dodd-Frank Implementation

Thursday, January 20th, 2011

Republicans May Underfund Dodd-Frank ImplementationPresident Barack Obama’s crackdown on Wall Street excesses could be hampered if the incoming Republican-controlled Congress refuses to fund two crucial regulatory agencies.  The Dodd-Frank financial reform law – passed with heavy Democratic support – promised a generous budget to regulate the $600 trillion over-the-counter derivatives market.  Now, the law’s implementation may be derailed by the incoming 112th Congress.  Randy Neugebauer (R-TX), who will chair the House Financial Services oversight subcommittee, wants to review the regulators’ expansion plans.  “Once you turn the money loose, it’s a little harder to stop that train,” he said.

The two regulatory agencies in question are the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).  The SEC, for example, had expected to receive an 18 percent increase to its 2011 budget, which would have allowed it to hire 800 new regulators to enforce Dodd-Frank.  Roadblocks are on the horizon, however, in the form of Representative Spencer Bachus (R-AL), who will chair the House Financial Services Committee, and Frank Lucas (R-OK), who will chair the agricultural committee that oversees the CFTC.  The two Congressmen wrote to regulators, saying “An overarching concern…is the need to get it done right, not necessarily get it done quickly.”  The Republicans’ attitude to enforcing Dodd-Frank could be a boon to Wall Street firms, whose lobbyists are advocating a go-slow approach.

Mary Schapiro, SEC Chairman, said “We will have to take some more steps to cut back.  At this stage, it will impact our work.”  The chronically underfunded and understaffed CFTC, which had expected a 50 percent budget increase, had planned to hire 240 new regulators this year to enforce its new oversight of the swaps market.  According to CFTC Chairman Gary Gensler, “I do think without sufficient funding next summer (2011) you’d see a significant number of registrants – swap dealers, swap execution facilities and so forth – whose legitimate applications would have to be slowed down.  Michael Greenberger, a University of Maryland law professor and previously the CTFC’s director of trading and markets, says.

House GOP Taking a Second Look at Dodd-Frank Financial Reform Law

Thursday, November 18th, 2010

Congressional Republicans may water down the financial reform law.  The newly empowered Republicans in the House of Representatives will attempt to rein in regulators who are in the process of implementing the comprehensive reform of financial rules and advocate for a smaller government role in the mortgage market.  By taking control of the House in the recent mid-term elections, the GOP will have more influence over the newly created Consumer Financial Protection Bureau and greater sway over any technical fixes that Congress makes to rules that govern derivatives trading.

“We don’t want them to regulate capriciously, arbitrarily, without engaging in a cost-benefit analysis,” said Representative Jeb Hensarling (R-TX), a member of the House Financial Services Committee.  President Barack Obama brought attention to the Republicans’ intent in a recent radio and Internet address, noting that House and Senate members “are now beating the drum to repeal all of these reforms and consumer protections.  I think it would be a terrible mistake,” he said.

With Democrats still in control of the Senate and in the White House, it’s highly unlikely that the Republicans will be able to carry out a fundamental revision or even repeal of the Dodd-Frank law.  There’s also the possibility of a presidential veto if repeal legislation makes it through both houses on Congress.  Because the Republicans now have a majority in the House, the diminished number of Senate Democrats will have to reach across party lines on financial issues for the simple reason that any changes will require support from both parties.  Bipartisan compromise will be used to arrive at consensus in the next Congress, said Senator Tim Johnson (D-SD), who is replacing the retiring Senator Christopher Dodd (D-CT), who headed the Senate Banking Committee.  According to Johnson, “We sometimes differ on how we achieve our goals, but we have to agree more often than not.”

Financial Reform Forces Transformation on Alternative Investments

Thursday, September 16th, 2010

Wall Street reform law places new restrictions on alternative investment companies.  The alternative investment management business will undergo major changes, thanks to passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Although no specific rules have yet been written, the Wall Street reform law could impact investment returns, leverage and risk-taking, innovation and transparency of private equity, real estate and hedge fund managers.

“This will change the way alternative investment businesses are run.  They will have to use more capital and less leverage and less risk-taking,” said Henry Kahn, partner in the law firm Hogan Lovells.  “This fundamentally changes what types of businesses financial services are in.”  The large financial services firms now must choose which lines of alternatives business they will keep and how they will be set up.  Smaller firms might have to deal with Securities and Exchange Commission (SEC) registration for the first time.  This will give the world – and regulators – an inside look at their investment strategies, which they do not welcome.

Investors are concerned that increased transparency and greater oversight by the SEC will make investment managers less willing to be innovative because their proprietary strategies will be open to review by regulators and their competitors.  According to Kahn, “Some large institutional clients are concerned that regulations will put additional costs on medium-size advisers and inhibit beneficial innovation in investing.”

Geithner Gains New Powers With Financial Regulation Overhaul

Monday, August 9th, 2010

Treasury Secretary Geithner gains power with new financial overhaul law. With the passage of historic financial reform legislation, Treasury Secretary Timothy Geithner is being given the authority to reshape bank regulations, oversee financial markets and create a consumer protection agency.  Few Treasury secretaries will wield this much influence once President Obama signs the new financial overhaul legislation passed by Congress.

Geithner’s fingerprints are all over the effort to expand financial regulation.  The bill is extremely close to the initial draft he released last summer but also names him — as long as he remains Treasury secretary — as the head of a council of senior regulators.  The legislation also puts him at the head of the new consumer bureau until the Senate confirms a permanent director.  In other words, Geithner will mold the regulator over the next several months.  It also will be his responsibility to work out several issues left unresolved by the bill — for instance, which financial derivatives will be subject to the strict new trading rules and which risky activities big banks will have to spin off.

The legislation “will help restore the great strength of the American financial system, which — at its best — develops innovative ways to provide credit and capital, not just for our great global companies, but for the individual with an idea and a plan,” according to Geithner.  Efforts to win passage of the financial regulatory bill were driven primarily by the Treasury, proof that Geithner has significant autonomy within the administration.

Sen. Christopher J. Dodd (D-CT), who moved the financial overhaul package through the Senate, said it wasn’t his preference to put the Treasury secretary in charge of the new council.  He would prefer that a member of the Federal Reserve board fill that role.  At the same time, he said, having a member of the president’s Cabinet in charge could make the council “more politically responsive.  It gives you some accountability,” Dodd said.

Geithner Gains New Powers With Financial Regulation Overhaul

Tuesday, August 3rd, 2010

Treasury Secretary Geithner gains power with new financial overhaul law.  With the passage of historic financial reform legislation, Treasury Secretary Timothy Geithner is being given the authority to reshape bank regulations, oversee financial markets and create a consumer protection agency.  Few Treasury secretaries will wield this much influence once President Obama signs the new financial overhaul legislation passed by Congress.

Geithner’s fingerprints are all over the effort to expand financial regulation.  The bill is extremely close to the initial draft he released last summer but also names him — as long as he remains Treasury secretary — as the head of a council of senior regulators.  The legislation also puts him at the head of the new consumer bureau until the Senate confirms a permanent director.  In other words, Geithner will mold the regulator over the next several months.  It also will be his responsibility to work out several issues left unresolved by the bill — for instance, which financial derivatives will be subject to the strict new trading rules and which risky activities big banks will have to spin off.

The legislation “will help restore the great strength of the American financial system, which — at its best — develops innovative ways to provide credit and capital, not just for our great global companies, but for the individual with an idea and a plan,” according to Geithner.  Efforts to win passage of the financial regulatory bill were driven primarily by the Treasury, proof that Geithner has significant autonomy within the administration.

Sen. Christopher J. Dodd (D-CT), who moved the financial overhaul package through the Senate, said it wasn’t his preference to put the Treasury secretary in charge of the new council.  He would prefer that a member of the Federal Reserve board fill that role.  At the same time, he said, having a member of the president’s Cabinet in charge could make the council “more politically responsive.  It gives you some accountability,” Dodd said.

Senate, House Versions of Financial Reform Bill Headed to Reconciliation

Monday, June 7th, 2010

Senate passes financial reform legislation; the bill now must be reconciled with the House version.  Senator Christopher Dodd (D-CT) is enjoying a big victory in his last days in the Senate following passage of broad financial reform legislation designed to rein in the excesses that caused the financial meltdown.  First, the Senate and House versions of the bill must undergo reconciliation.  Under the new law, for example, homebuyers will have to provide proof of income when applying for a mortgage.  Additionally, a new consumer protection apparatus will monitor lenders who offer subprime loans and then raise interest rates to sky-high levels.

The legislation – which will bring openness to complex financial instruments such as derivatives – passed 59 – 31 and provides a way to liquidate financial institutions once viewed as too big to fail.  It also establishes a council of regulators who will monitor threats to the economy and specific restraints on the derivatives trading, which set off the toxic debts that froze the credit markets and prompted the Federal Reserve to make trillions of dollars of loans to banks on the brink of collapse.

The vote hands President Obama his second landmark legislative victory this year, following the March passage of his historic health-care bill. “Our goal is not to punish the banks,” he said hours before the final vote, “but to protect the larger economy and the American people from the kind of upheavals that we’ve seen in the past few years.”

Senate Majority Leader Harry Reid (D-NV) summed up the legislation: “When this bill becomes law, the joyride on Wall Street will come to a screeching halt.”  The reconciled bill is expected to hit President Obama’s desk for his promised signature this summer.

Fed Governor: U.S. Faces “Significant Economic Challenges”

Thursday, April 29th, 2010

With unemployment “stubbornly” high and government deficits rising, Fed warns of upcoming dangers.  The United States still faces “significant economic challenges”, with unemployment at “stubbornly” high levels and businesses that are reluctant to spend as government deficits rise.  This is the opinion of Federal Reserve Governor Kevin Warsh, who said “Taking account of the broad range of economic and financial conditions, there is no wonder that the electorate in the United States and abroad is unnerved.”  Nevertheless, Warsh feels “much better about the state of the real economy” than he did at this time last year.

Speaking at a symposium hosted by the Shadow Open Market Committee, Warsh, a former Morgan Stanley banker, noted that “Unemployment remains high and stubbornly so.”  Fed policymakers “still have tough times ahead” as they work to prove that their long-term goals are not being compromised.  The Senate Banking committee, under the leadership of its Chairman Christopher Dodd (D-CT), has proposed a financial rules overhaul that would result in the most significant restructuring of Wall Street oversight since the 1930s.  The Senate bill would limit the Fed to supervising bank holding companies with assets in excess of $50 billion.  Smaller and mid-sized banks would be regulated by other agencies.

According to Warsh, the Fed must act with “consistency” to protect its credibility.  “The Federal Reserve must do its utmost to stay foursquare within its role as liquidity provider,” Warsh said.  “The Fed, as first responder, must strongly resist the temptation to be the ultimate rescuer.”  Warsh believes that even though securitization has become a dirty word, the financial vehicle ultimately will return to the market.

Are Banks Really Too Big To Fail?

Wednesday, April 21st, 2010

Former IMF chief economist opines on whether banks are too big to fail and possible solutions.  Simon Johnson, a professor at M.I.T.’s Sloan School of Management and former chief economist at the International Monetary Fund, raises the question of “As we move closer to a Senate – and presumably national – debate on financial reform, the central technical and political question is:  What would prevent any bank or similar institute from being regarded – ultimately by the government – as so big that it would not be allowed to fail?

Writing in the New York Times, Johnson believes that there is sharp disagreement on what would be needed to end “too big to fail” – or, as he terms it, “T.B.T.F.”  From the viewpoint of Senator Christopher Dodd (D-CT), “creating a ‘resolution authority’ would, at a stroke, effectively remove the perception and the reality that some banks are too big to fail.  The basic idea here, as elaborated by Sheila Bair, the head of the Federal Deposit Insurance Corporation (FDIC) would expand the powers it currently has to ‘resolve’ – i.e., take over and liquidate in an orderly manner – banks with federally insured deposits; it could do this for any financial institution.”

The Republicans, on the other hand, believe that this approach would formalize the existence of T.B.T.F. banks.  They believe that the FDIC lacks the skill to wind down complex financial institutions as this job differs from closing small- and medium-sized banks to protect depositors.  The “counterproposal, which seems to also have the support or Senate Richard Shelby (R-AL), is that we should just allow big financial firms to fail outright, i.e., to run through the usual bankruptcy procedures.  At a rhetorical level, ‘let ’em fail’ has some appeal.  But as a practical matter, it is a complete non-starter,” according to Johnson.

The third suggestion, proposed by Senator Ted Kaufman (D-DE), is quite simple.  “Break up these megabanks.  As even Alan Greenspan said in October 2009,” Johnson says, “‘If they’re too big to fail, they’re too big’.  There is no evidence for economies of scale or scope – or other social benefits – from banks with assets above $100 billion.  Yet our largest banks have balance sheets around $2 trillion.”

Johnson concludes:  “Making our largest banks smaller is not sufficient to ensure financial stability.  There are many other complementary measures that make sense – including higher capital requirements, more transparency for derivatives and generally more effective regulation.  But reducing the size of our largest banks is absolutely necessary if we are to reduce the odds of another major financial catastrophe.”

Financial Reform Legislation Faces Uphill Battle in the Senate

Wednesday, April 14th, 2010

The most sweeping financial reform legislation since the 1930s will be debated in a polarized Senate.  Senator Christopher Dodd (D-CT), chairman of the Senate Banking Committee, introduced revised legislation to regulate the nation’s financial system.  The plan would create a nine-member council, led by the Treasury secretary, to be on the alert for systemic risks, and direct the Federal Reserve to oversee the nation’s largest and most interconnected financial institutions.

The bill, which would be the most comprehensive change in financial rules since the Depression, would preserve much of the existing regulatory system, which has been criticized as being too disjointed.  Additionally, it would rely on a new mechanism for seizing and liquidating large financial companies on the verge of failure.  This would reduce, but not eliminate, the possibility of future bailouts.

The legislation incorporates a version of the Volcker Rule, a proposal from former Federal Reserve Chairman Paul Volcker that would make certain that legislators ban banks from investing in or owning hedge and private-equity funds.  Republicans and Wall Street strongly object to that idea.  Dodd’s legislation takes a fairly tough line with financial firms in general.  The proposed consumer protection agency would be given the authority to write and enforce rules for banks with more than $10 billion in assets.  The oversight also would apply to mortgage companies, credit card issues and other lenders – a move that Republicans oppose.

“Our regulatory structure, constructed in a piecemeal fashion over many decades, remains hopelessly inadequate,” Dodd, who is retiring from the Senate at the end of this term, said.  “There hasn’t been financial reform on the scale that I’m proposing this afternoon since the 1930s….  It is certainly time to act.”