Banking Law Prof Blog

Treasury's Inspector General Answers Congressional Questions About the Consumer Financial Protection Bureau

In a letter to House Financial Services Chairman Spencer Bachus and Congresswoman Judy Biggert, who chairs the House Financial Services Committee Subcommittee on Insurance, Housing & Community Opportunity, the Treasury Department's Office of Inspector General (OIG) has answered questions about legal issues concerning operation of the Consumer Financial Protection Bureau, pursuant to provisions of Dodd-Frank. 

Many of the questions addressed have also been raised by opponents of CFPB who question the budget allocated to CFPB and the degree of oversight.

1.  The opinion letter says that both the Treasury's Office of Inspector General and the Federal Reserve Board's Office of Inspector General have oversight authority as does Congress.

2.  Treasury Secretary Geithner has authority to delegate his responsibilities under Dodd-Frank for establishing the CFPB up until the "transfer date" in July 2011 and he has delegated that authority to Professor Elizabeth Warren.  Her responsibility for CFPB is separate from her duties as Special Advisor to the President.

3.  Professor Warren is acting under the oversight of the Treasury Secretary, with whom she meets regularly to review her exercise of delegated authority regarding: policy priorities, the organizational design of the Bureau, resource allocation and budget, and decisions regarding personnel and hiring.

4.  Although Dodd-Frank requires the CFPB to study the cost of credit for small entities, this provision does not become effective until after the "transfer date."

5.  If the CFPB does not have a Senate-confirmed director by the "transfer date," the Treasury Secretary retains authority to operate the CFPB and conduct most of its functions (enumerated in the letter), but cannot prohibit unfair, deceptive or abusive acts or practices, prescribe model disclosure forms, or supervise nondepository financial institutions.

6.  Under Dodd-Frank, CFPB's funding comes from the Federal Reserve rather than appropriated funds.  According to the OIG letter, "Thus far, the Bureau implementation team has made two requests to the Board for funds to support the activities to establish the Bureau – an initial request on August 11, 2010, for $18.4 million and a supplemental request on December 21, 2010, for $14.37 million."

Link to letter:   http://www.treasury.gov/about/organizational-structure/ig/Documents/OIG-CA%2011004%20Committee%20of%20Financial%20Services%20Response%20CFPB.pdf

(ag) Jan. 29, 2011, in Consumer Protection, Financial Regulatory Reform

Federal Open Market Committee Statement From This Week's Meeting

The Federal Open Market Committee (FOMC) of the Board of Governors of the Federal Reserve System issued its Statement from the meeting this week.  Economic measures and information since the last FOMC meeting in December 2010 present little new news:  Economic recovery is continuing although slowly.  Unemployment is high and inflation is low. 

The FOMC voted unanimously to keep the target federal funds range at 0 to 1/4%.  The fact that the vote was unanimous indicates support for Ben Bernanke's plans to encourage recovery by buying government bonds.

What's the function of the FOMC?  The FOMC sets U.S. monetary policy, primarily through establishing the target federal funds rate open market operations (buying and selling government bonds to infuse or remove liquidity from the U.S. economy).  The FOMC meets 8 times a year, with additional meetings as needed.  A statement is issued immediately after each meeting, with minutes available in three weeks.

Who are the members of the FOMC?  The Federal Reserve Governors plus the President of the New York Federal Reserve Bank plus four Presidents of other Federal Reserve Districts who serve a one year term so that all 12 of the Federal Reserve Districts rotate onto the FOMC on a staggered basis.

Members of the FOMC for 2011:

• Ben Bernanke, Chairman of the Board of Governors, Chairman of FOMC
• William C. Dudley, President of the Federal Reserve Bank of New York, Vice-Chairman of FOMC
• Elizabeth Duke, Federal Reserve Board
• Sarah Bloom Raskin, Federal Reserve Board
• Daniel Tarullo,Federal Reserve Board
• Kevin Warsh, Federal Reserve Board
• Janet Yellen, Federal Reserve Board
• Charles Evans, President of the Federal Reserve Bank of Chicago
• Richard Fisher, President of the Federal Reserve Bank of Dallas
• Charles Plosser, President of the Federal Reserve Bank of Philadelphia
•  Narayana Kocherlokata, President of the Federal Reserve Bank of Minneapolis

The next FOMC meeting is scheduled for March 15, 2011.

Link to statement:  http://www.federalreserve.gov/newsevents/press/monetary/20110126a.htm

(ag) Jan. 29, 2011, in Economy

Dow at 12,000 Briefly

The Dow Jones Industrial Average inched above 12,000 for the first time since June 2008 and then dropped back this week.  Some suggest a "State of the Union bump,"  but the stock market if not the economy in general is showing strength.

(ag) Jan. 28, 2011, in Economy

Economic Crisis Threatens the Euro and the European Union

 
 
Princeton economics professor and Nobel Prize winner Paul Krugman discussed the "Economic Failure of the Euro" on NPR this week. Ireland, Greece, Portugal, and Spain are weak links in the European Union, struggling with deflation and high unemployment.  Will they "tough it out" or be forced to go off the Euro? 

Krugman says that having a single currency has obvious advantages for businesses operating throughout Europe, but each country has given up the tools to manage crisis and the European Union lacks a single government to make the single currency workable.  "By giving up its own currency, a country also gives up economic flexibility and the benefit of having its own federal government back it up in times of economic trouble."  Krugman sees the European Union itself threatened by the current crisis.

Link:  http://www.npr.org/2011/01/25/133112932/paul-krugman-the-economic-failure-of-the-euro

(ag) Jan. 27, 2011, in Economy, Global Markets

Financial Crisis Report

The Financial Crisis Inquiry Commission has issued its report but the analysis is nothing new and Republican members of the bipartisan commission have issued a dissenting response.  Furthermore, the window of opportunity for meaningful Congressional response to the crisis with legislative reform closed with passage of Dodd-Frank -- at least until the next economic disaster.  Congress must still address fixing the secondary mortgage market and reassessing the role of Fannie Mae and Freddie Mac going forward, but the Financial Crisis Inquiry Report will be little help.

One key finding of the report is that the financial crisis was avoidable.  There were warning signs that went unheeded.  But have we learned anything that will promote avoidance of the next crisis?

All negatives about the report aside, it should be "required reading" for banking lawyers.

Link to report: http://www.fcic.gov/report/conclusions

(ag) Jan. 27, 2010, in Economy, Financial Regulatory Reform

World Economic Forum Looks to China

For the World Economic Forum meeting in Davos, Switzerland, this week, "China's Role in World Recovery" is a hot topic.

Link:  http://www.weforum.org/

(ag) Jan. 24, 2011, in Economy,Global Markets

Acting Comptroller Discusses Basel III

 
Acting Comptroller of the Currency John Walsh discussed what he called "the two most significant policy initiatives completed during 2010": Tthe Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III capital framework during a speech at the Exchequer Club.

With respect to Basel III, he raised three questions:

1.  Basel III imposes a stricter definition of capital, with greater reliance on common equity.  Should it apply to all US banks?

2.  Basel creates formal regulatory liquidity requirements for the first time.  Should all banks be required to adopt that new framework?

3.  Basel III specifies higher minimum capital requirements, with the prospect of even higher capital required for the world’s largest banks.  How should these requirements be applied in the US banking system?

Link:  http://www.occ.gov/news-issuances/speeches/2011/pub-speech-2011-5.pdf

(ag) Jan. 24, 2011, in Capital

 

Big Bank Trading Revenues Hit All Time High

Bloomberg News reporters Shannon Harrington and Matthew Leising report on brokers leaving small boutique firms and returning to work at the big bank trading operations.  They note that:

"Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup and Morgan Stanley in New York along with Bank of America Corp. of Charlotte, North Carolina, have generated the most revenue in their history during the past two years. They produced a total of $93.7 billion in the first nine months of 2010 from advisory, debt and equity underwriting, and from trading stocks and bonds, after a record $127.8 billion in 2009."

Link to story:  http://www.bloomberg.com/news/2011-01-21/eat-what-you-kill-brokers-starved-as-bailed-out-banks-dominate-bond-market.html

(ag)Jan. 23, 2011, in Securities, Economy

Reexamining Compensation Structure for Mortgage Servicers

The Federal Housing Finance Agency (FHFA), has directed secondary mortgage market GSEs Fannie Mae and Freddie Mac to work with FHFA and the Department of Housing and Urban Development (HUD), to consider alternatives for mortgage servicing structures and servicing compensation for single-family mortgage loans. As it now stands, mortgage servicer compensation is based on a minimum servicing fee tied to the mortgage rate, which decreases the flexibility servicing nonperforming loans from both the borrowers’ and guarantors’ perspectives.

Link to story:  http://nationalmortgageprofessional.com/news23117/fhfa-and-gses-work-consider-alternatives-new-mortgage-servicing-compensation-structure

(ag) Jan. 21, 2011, in Fannie Mae & Freddie Mac/Secondary Mortgage Market, Lending Issues

Financial Stability Oversight Council Study on Concentration

This week, the Financial Stability Oversight Council (FSOC) released its "Study and Recommendations Regarding Concentration Limits on Large Financial Companies."

FSOC was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act to identify and address systemic risk in our financial systems.  Section 622 of Dodd-Frank established a financial sector concentration limit that prohibits financial company mergers or consolidations that would cause the resulting company's consolidated liabilities to exceed 10% of the aggregate consolidated liabilities of all financial companies. The intent of the concentration limit is to address the "Too Big To Fail" problem. 

The FSOC Study, which was commissioned by Dodd-Frank, examines "the extent to which the concentration limit would affect financial stability, moral hazard in the financial system, the efficiency and competitiveness of United States financial firms and financial markets, and the cost and availability of credit and other financial services to households and businesses in the United States."

The study concludes that the concentration limit imposed by Dodd-Frank will have a positive impact on U.S. financial stability.  Contrary to industry arguments that limiting concentration will impair the competitive standing of U.S. financial institutions globally, the study concludes that the concentration limits will enhance competitiveness.     

Link to study:  http://www.treasury.gov/initiatives/Documents/Study%20on%20Concentration%20Limits%20on%20Large%20Firms%2001-17-11.pdf

(ag) Jan. 21, 2011, in Financial Reform, Too Big To Fail

Optimism for Community Banks

The American Banker reports optimism about community banks in advance of the 4th quarter financials that will soon be coming in.  According to today's article, industry analysts believe that credit quality at community banks could be getting better because many banks restructured their balance sheets to dispose of nonperforming assets in 2010.

Link to story:  http://www.bankinvestmentconsultant.com/news/community-banks-quarterly-results-2670960-1.html?zkPrintable=1&nopagination=1 

(ag) Jan. 18, 2011, in Banking/Economy

Banks Sell Advertising to Appear in Online Banking Accounts

Seeking to generate revenue, banks are beginning to sell advertising to outside businesses such as McDonalds or Macy's.  Then if you use your debit card to pay, a coupon will pop up.  Banks say that customer account information will remain secure on the banks' servers and will not be available to companies that buy advertising rights.

Link to story:  http://www.washingtonpost.com/wp-dyn/content/article/2011/01/16/AR2011011603387.html?wpisrc=nl_headline

(ag) Jan. 17, 2011, in Banking, Consumer Protection

Bernanke Sees Economic Recovery

 
In testimony before Congress last week, Federal Reserve Chairman Ben Bernanke said, "We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold."  He did say that it would take four to five years for the labor market to get back to normal.

Link to Story: http://www.reuters.com/article/idUSTRE7060UW20110107

(ag) Jan. 12, 2011, in Economy 

New Overdraft Rules

The American Banker reports that:  "The FDIC’s new guidance on overdraft protection programs (FIL 81-2010) has left institutions, and technology vendors that support them, with many more questions than answers when it comes to implementation.  Sources say more clarification from the FDIC is likely, but the rules aren’t likely to be modified and the July 1 deadline will hold firm.

American Banker is sponsoring a web seminar Feb. 8, 2011 to address some open questions, including: 

• What are the regulatory requirements regarding excessive use of ODP? What are the broader implications of the regulatory position on excessive use?
• How must check-clearing procedures be changed to pass muster? Is high-to-low payment processing dead?
• What are the additional changes that must be implemented (for example, daily fee limits and de minimus limits)?
• Are there “best practices” and contingency plans banks should put in place?
• (ag) Jan. 12, 2011, in Banking/FDIC

Goldman Sachs Releases Report Commissioned After SEC Lawsuit

Reuters reports that Goldman Sachs released a self-study report it commissioned after the SEC sued the company for placing its own interests above investors and selling mortgage bonds without full disclosure.

According to the article:

Goldman "pledged to be more open about how it makes money and to put the interests of clients ahead of its own in an effort to rebut criticism it acted more like a hedge fund than a bank during the credit boom and misled investors.  Goldman revealed for the first time how much it made from trading and investing on its own behalf, which many investors have suspected is a key source of the bank's profits, during the first three quarters of the year.  The bank also made structural changes to its divisions, but there was no major management shake-up, leaving in place Chief Executive Lloyd Blankfein."

Link to Story:  http://news.yahoo.com/s/nm/20110111/bs_nm/us_goldmansachs_report

(ag) Jan. 11, 2011, in Economy

Federal Reserve Inflation Hawks

CNN Money reports on "The Attack of the Inflation Hawks."  The Federal Reserve's Open Market Committee includes four regional Federal Reserve Bank Presidents, who rotate onto the committee.

FROM CNN: 

"This year, three of the four voting positions go to so-called inflation hawks who have been outspoken with their criticism of the Fed's latest stimulus plan. The big concern is that the Fed is essentially "printing money" with the bond purchases, which could devalue the dollar.

Fisher is an admitted inflation hawk, as is Philadelphia Fed President Charles Plosser, who separately spoke about his doubts about QE2 Tuesday morning.

The third inflation hawk is Minneapolis Fed President Narayana Kocherlakota, who was appointed to his post a little over a year ago and is new to the voting rotation. However, Kocherlakota hinted in an interview with The Wall Street Journal this week that he may not dissent.

All three will have a chance to vote on January 24, when the Federal Open Market Committee finishes a two-day monetary policy meeting. The question is, will any of the hawks be willing to be an official dissenter?"

LInk to story: http://finance.yahoo.com/news/Federal-Reserve-Attack-of-the-cnnm-1122389222.html?x=0&.v=4

(ag) Jan. 11, 2010, in Economy/Interest Rates 

 

Holly Petraeus to Head CFPB's Office of Servicemember Affairs

 
Holly Petraeus has been named head of the Consumer Financial Protection Bureau's new Office of Servicemember Affairs.  She recently served as Cirector of the Better Business Bureau’s Military Line program, a partnership with the Department of Defense Financial Readiness Campaign to provide consumer education to active and retired service members and their families. She is the wife of Army General David Petraeus, the current Commander of the International Security Assistance Force in Afghanistan. 

From the White House press release about the need for the Office of Servicemember Affairs:

"Recently-enlisted servicemembers often experience their first steady paycheck and their first opportunity to be lured into easy credit offers.  Far too many also get tangled in debt traps.  A recent online survey commissioned by the FINRA Foundation found that almost one in four of the enlisted personnel or junior NCO respondents had used a high-cost alternative borrowing method, such as a payday or auto title loan, in the previous five years.  The same survey found that mainstream credit products can also pose problems: in the previous year, 53 percent of the enlisted personnel and junior NCOs had made only the minimum payment on a credit card, and 30 percent had made a late payment."

Link to White House announcement:  http://www.whitehouse.gov/blog/2011/01/06/welcoming-holly-petraeus-consumer-financial-protection-bureau-implementation-team 

(ag) Jan. 10, 2010, in Consumer Protection

State Financial Institution Regulators Cooperate With Consumer Financial Protection Bureau

The Conference of State Bank Supervisors (CSBS) has signed a Memorandum of Understanding with the Consumer Financial Protection Bureau (CFPB).  This agreement will establish a foundation for coordination among state and federal supervisors of consumer financial products and services. 

CSBS reports that:  "Specifically, state regulators and the CFPB will endeavor to promote consistent examination procedures and effective enforcement of state and federal consumer laws, to minimize regulatory burden and to efficiently deploy supervisory resources.  The MOU also calls for state regulators and the CFPB to consult each other regarding the standards, procedures, and practices for conducting compliance examinations of providers of consumer financial products and services, including non-depository mortgage lenders, mortgage servicers, private student lenders, and payday lenders."

(ag) Jan. 10, 2010, in Consumer Protection 

B of A and Ally Settle with Fannie & Freddie

Since the first of the year, the Federal Housing Finance Agency (FHFA) has approved three separate agreements reached by Fannie Mae and Freddie Mac with two counterparties – Ally Financial and Bank of America – to resolve claims based on mortgages B of A and Ally sold to them.

“Combined, the agreements provide $3.3 billion in recovery to the Enterprises and, thereby, to taxpayers,” said FHFA Acting Director Edward J. DeMarco. “The agreements also reflect FHFA's ongoing efforts to ensure the Enterprises enforce claims for violations of representations and warranties incurred by the Enterprises or breaches of other legal obligations.”“While these agreements are an important step, the Enterprises have other outstanding claims across a range of counterparties and they are being pursued,” said DeMarco.

LInk to FHFA Press Release: http://www.fhfa.gov/webfiles/19627/Agreement1311F.pdf

(ag) Jan. 9, 2011, in Fannie Mae/Freddie Mac

 

 

US Bancorp & Wells Fargo Lose a Significant Mortgage Foreclosure Case

Two major lenders lost a key case in Massachusett's highest state court.  Stock prices for US Bancorp and Wells Fargo fell in response to this loss.

The case was not all bad news for the banks and other financial institutions.  Although the lower court had voided forclosures because of a failure to show transfer and ownership of the mortgages by the entity forclosing, the latest Massachusetts decision suggested the possibility of securitization documents properly transferring mortgages.

The opinion said that securitization documents, along with “a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to be proof that the assignment was made by a party that itself held the mortgage.  However, there must be proof that the assignment was made by a party that itself held the mortgage.”

The case is U.S. Bank v. Ibanez, 10694, Supreme Judicial Court of Massachusetts (Boston). The lower-court cases are U.S. Bank National Association v. Ibanez, 08-Misc-384283, and Wells Fargo Bank NA v. LaRace, 08-Misc-386755, Commonwealth of Massachusetts, Trial Court, Land Court Department (Boston).

LInk to story:  http://www.bloomberg.com/news/2011-01-07/us-bancorp-wells-fargo-lose-pivotal-massachusetts-foreclosure-case.html

(ag) Jan. 7, 2011, in Lending Issues