Banking Law Prof Blog

U.S. Economy: Where Are We Headed?

Great discussion of current recession and why we are not coming out of this faster! JPMorgan Chase Chief Economist Bruce Kasman says "The Fed is our friend." He discusses the Fed's monetary policy and that global effects of monetary policy in China and India weaken the effect of U.S. measures. He calls the decline in the U.S. dollar "constructive."

Kasman sees the housing market bottoming by the end of 2011. He sees the risk of renewed recession at 15% -- a low probability.

He notes that the Fed has limited tools for addressing any additional downturn and sees that as the reason for caution in increasing interest rates. He applauds the Fed's effort to communicate through this week's Press Conference.

Link to WSJ Interview with JPMorgan Chase Chief Economist Bruce Kasman:

http://online.wsj.com/video/jp-morgan-kasman-dollar-drop-is-welcome/DBE37E6C-BA95-4752-8217-02686A9C53F5.html

(ag) April 30, 2011, in Economy, Economy/Interest Rates, Global Markets

 

Canada's Economy Takes a Dip

Canadian Gross Domestic Product (GDP) was lower in February than in January, the first decline in months. The Canadian dollar also declined.  We will be watching our neighbor to the north.

Link:  http://online.wsj.com/article/BT-CO-20110429-706984.html

(ag) April 29, 2011, in Economy, Global Markets

 

New Data Submission Required for Mortgage Originators

The Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR), are launching the Nationwide Mortgage Licensing System & Registry (NMLS) Mortgage Call Report.  This new Call Report is authorized by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act).

All state-licensed mortgage companies and mortgage loan originators must submit the first NMLS Mortgage Call Report by May 15, 2011.  CSBS calls the new quarterly Call Report "the first standardized information collection for the residential mortgage industry."  Information submitted in the Call Report will represent comprehensive, uniform data about the financial condition and mortgage loan volumes by type of loan and by state.  Regulators will be able to better monitor mortgage activities.

Link to CSBS Examiner:  http://www.csbs.org/news/csbs-examiner/Pages/042911.aspx

(ag) April 29, 2011, in Lending Issues 

The Fed's First News Conference

 
Yesterday afternoon, Federal Reserve Board Chairman Ben Bernanke held the Federal Reserve Board's first scheduled press conference, slated to be a quarterly event.  The consensus is that Bernanke delivered news from the Federal Open Market Committee meeting of April 26 and 27, 2011, and general economic news that was unsurprising.  The stock market rose slightly in response to the Bernanke press conference.  These press conferences are designed to increase transparency and general knowledge of the operations of the Federal Reserve Board in managing economic issues. 

The FOMC voted to maintain the target federal funds rate (a key determining factor in short-term interest rates in the general economy) at 0 to 1/4%.  The Fed has maintained this extremely low interest rate since December 2008 and expects to keep interest rates low for an extended period of time.

Bernanke discussed gasoline prices, noting that the Fed cannot really affect them although high gas prices are a significant drag on the U.S. economy.  He also addressed questions about the fact that the Fed's maintenance of low interest rates and infusion of liquidity into the economy have not improved unemployment enough by recognizing that the Fed's strategies were not "a panacea."

Link to video of the Press Conference and Link to FOMC Statement:  http://www.federalreserve.gov/

(ag) April 28, 2011, in Economy/Interest Rates

Federal Reserve Projections of Inflation, Unemployment and Gross Domestic Product

This afternoon, the Federal Reserve Board and the Federal Open Market Committee (FOMC) issued a press release with a table summarizing the economic projections made by Federal Reserve Board members and Federal Reserve Bank presidents for the two-day meeting on Tuesday, April 26 and Wednesday, April 27 meeting of the FOMC.  The projections go through 2013 and longer term and indicate assumptions about inflation, unemployment, and Gross Domestic Product.

Link:  http://www.federalreserve.gov/newsevents/press/monetary/fomcprojtabl20110427.pdf

(ag) April 27, 2011, in Economy

Kickbacks Alleged in Foreclosure Cases

The Florida law firm of Ben-Ezra & Katz is named as a defendant in a federal lawsuit with class action potential, alleging that the firm and others paid kickbacks to a foreclosure processing company in order to obtain legal work.  Allegedly, the kickback expense was passed along as chargesto homeowners struggling in foreclosure procedings.  This would constitute an illegal fee-splitting arrangement under federal bankruptcy law.

Link:  http://www.abajournal.com/news/article/suit_alleges_ben-ezra_katz_was_part_of_law_firm_network/

Related articles:

ABAJournal.com: "Judge Axes Foreclosure, Bans Do-Over, Holds Lawyer in Contempt; Fannie Mae Pulls Files from Firm"

ABAJournal.com: "Layoffs of Hundreds Follow Foreclosure Firm’s Loss of Fannie Mae Files"

ABAJournal.com: "Fed’l Judge Says Chase Must Post $4M Surety Bond to Get Its Foreclosure Files Back From Law Firm"

 

(ag) April 26, 2011, in Lending Issues

Our Declining Dollar

Today's Wall Street Journal reports that:  "The dollar fell nearly 1% against a broad basket of currencies this week, following a drop of similar size last week. The ICE U.S. Dollar Index closed at its lowest level since August 2008, before the financial crisis intensified.'

Low interest rates and inflation concerns are major reasons for the dollar's declining value, but the Federal Reserve's Open Market Committee (FOMC) which meets next week is not expected to raise the target federal funds rate.  International concerns about how the U.S. is managing its national debt (or not managing it) are also affecting the dollar in international markets.  China is threatening to divest dollar holdings.  Europe and Japan are struggling with economic concerns of their own.

Link:  http://online.wsj.com/article/SB10001424052748703907004576279321350926848.html?mod=googlenews_wsj

(ag) April 26, 2011, in Economy, Global Markets

 

Anticipating the Berkshire Hathaway Annual Meeting

The annual meeting of Berkshire Hathaway shareholders will be held this weekend in Omaha, Nebraska.  Reuters reporter Ben Berkowitz raises questions about whether Warren Buffett should consider stepping down.  Despite his stature as a financial wizard, he is eighty years old, Berkshire Hathaway's performance has been less than stellar in the past couple of years, and the David Sokol scandal has resulted in a shareholder lawsuit filed this month.  Sokol had been viewed as a potential successor to Buffett.

Link:  http://www.reuters.com/article/2011/04/25/us-buffett-idUSTRE73O2BH20110425

(ag) April 25, 2011, in Economy

Paying Interest on Demand Deposits

FDIC has proposed a rule to implement the Dodd-Frank provisions that end the prohibition against paying interest on demand deposits, effective July 21, 2011.  The rule is applicable to all state-chartered banks that are not members of the Federal Reserve.  The comment period is open until May 16, 2011.

Link:  http://www.fdic.gov/news/news/financial/2011/fil11023.html

(ag) April 25, 2011, in Deposit Regulation, FDIC

Comment Period is Open - Interface of U.S. Bankruptcy Code with Systemically Important Institutions

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Federal Reserveto conduct a study regarding the resolution of financial companies under Chapter 7 or Chapter 11 of the
United States Bankruptcy Code.  Dodd-Frank also requires a study of international coordination in resolution of systemically important financial companies under the Bankruptcy Code and applicable foreign law. 

Specific areas of focus are:

1. How effective are Chapter 7 and Chapter 11 of the U.S. Bankruptcy Code
   in facilitating the orderly resolution or reorganization of systemic financial
   companies?
2. Should a special financial resolution court or panel of special masters
   or judges be established to oversee cases involving financial companies being liquidated under the Bankruptcy Code in order to minimize adverse impacts on financial markets without creating
   moral hazard?
3. Should the Bankruptcy Code be amended to enhance resolution of financial companies? 
4. Should insolvency laws be amended to address the treatment of qualified financial contracts of financial companies?
5. What are the implications, challenges, and benefits to creating a new chapterof the Bankruptcy Code to deal with financial companies?

With respect to international insolvency laws, the Federal Reserve asks for comments in the following areas:

1. The extent to which international coordination currently exists;
2. Current structures for facilitating international cooperation;
3. Barriers to effective international coordination; and
4. Ways to increase effective international coordination for resolution of financial companies, in order to minimize the impact on the financial system without creating moral hazard.

The comment period will remain open for 30 days following publication in the Federal Register.

Link to request for comments:  http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110421a1.pdf

(ag) April 24, 2011, in Economy, Global Markets

Is Europe "At the Precipice" of Financial Disaster?

CNN Money thinks so.  Greece, Portugal, and Ireland are struggling with huge national debts and declining economies.  Over the past year, the European Union has focused on bailing out weak member nations and their large banks, but has failed to address the root problem of low productivity and financial interconnectedness with high systemic risk. The Euro is currently trading at $1.46, but could drop to parity with the dollar -- or fall even farther. 

Colin Barr opines in an April 22, 2011, article that:

"The unhappy math starts with the banks. In a replay of the subprime crisis here, the banks in Europe are politically powerful -- but financially weak, largely opaque and highly exposed to the worst case scenario, in this case a sovereign default.

. . . .

"The problems start with weak capitalization and a lot of interconnectedness, which means problems in one place can easily become systemic," says Daniel Gros, director of the Center for European Policy Studies in Brussels. "But it's hard to put a number on exactly how bad it is."

Confidence in the banks hasn't been helped by regulators' failure to include a sovereign default in the stress tests they are running again this spring. Fears about what the banks really look like could kindle a flare-up of the sovereign debt crisis into a regional headache into a Continent-wide contagion."

Link to article:  http://finance.fortune.cnn.com/2011/04/22/europe-at-the-precipice/

(ag) April 23, 2011, in Economy, Global Markets

Richard Fisher Speaks about Fiscal & Monetary Policy -- and includes references to St. Peter, Calvin Coolidge, and Winston Churchill

 
Richard Fisher, President of the Dallas Federal Reserve Bank, has a unique speechwriting capability of making economic topics enlightening, understandable -- and interesting. His recent remarks before the Society of American Business Editors and Writers Annual Conference are well worth reading.  The speech is entitled:  "Is America's Decline Exaggerated or Inevitable?' The Role of Monetary and Fiscal Policy
(With Reference to St. Peter, Calvin Coolidge, Walter Bagehot, Paul Volcker, Winston Churchill and T.R. Fehrenbach)."

Fisher reviews the Fed's actions to avert financial crisis from 2008 to present and concludes: 

"Imagine that! A government agency that (a) devised programs that actually worked, (b) shut most of them down when they had done their job and (c) made money for the taxpayer in the process.

This is not to say there was no cost to what we accomplished. There were trade-offs and unintended consequences, some of which were distinctly unpleasant.

In saving the system, for example, it can be argued that we protected imprudent lenders and investors from the consequences of their decisions; we rescued sinners and penalized the virtuous.

Postcrisis, the “too big to fail” financial behemoths that had placed our economy in jeopardy have ended up with even greater financial power. (And, adding insult to injury, by the grace of their shareholders, most of their leaders retain their posts and few, if any, have suffered financial setbacks). This concentration of power comes at the expense of community and regional banks, an imbalance that the Federal Reserve and other authorities must now address through tough-minded, clear-eyed regulation."

Link to the full speech (check it out in full!):  http://www.dallasfed.org/news/speeches/fisher/2011/fs110408.cfm

(ag) April 22, 2011, in Economy

 

 

There's A "Month" for Almost Everything

It's not too late to recognize that April is Financial Literacy Month . . . at least according to FDIC.  Here's a link to their consumer resources page.  FDIC suggests that now (or for that matter, any time) is "a good opportunity to learn more about personal finance – and perhaps review your spending plan, order and review your free credit report, and make sure you aren’t paying avoidable, unnecessary fees for banking or other services."

Link:  http://www.fdic.gov/consumers/consumer/information/literacy.html

 (ag) April 22, 2011 in Consumer Protection

 

Fed Proposes "Ability to Repay" Rules - Comment Period is Open

This week, the Federal Reserve Board issued a controversial proposed regulation amending Regulation Z, which implements the Truth in Lending Act (TILA).  The proposal follows the requirements of the Dodd-Frank Act.  According to the proposal, consumer lenders would be required to determine a consumer's ability to repay a mortgage before making the loan and to meet minimum mortgage underwriting standards.  

The proposed regulation offers four options for complying with the ability-to-repay requirement:

1. By considering and verifying specified underwriting factors, such as the consumer's income or asset;
2. By making a "qualified mortgage," which provides the creditor with a safe harbor from liability IF the loan does not have certain features, such as negative amortization, IF the fees are within specified limits, and IF the lender underwrites the mortgage payment using the maximum interest rate in the first five years; (The difficulty here is in defining a "qualified mortgage.")
3. A lender in rural or underserved areas can make a balloon-payment qualified mortgage; (The purpose of this option is to encourage access to credit in locales where banks tend to hold loans in their own portfolios and use balloon payments to hedge their interest rate risk.) 
4. By refinancing a "non-standard mortgage" with risky features into a more stable "standard mortgage" with a lower monthly payment. 

The comment period is open until July 22, 2011.  This regulation will be finalized by the Consumer Financial Protection Bureau, which takes over this rule-making authority on July 21.

Link to proposed regulation:  http://www.federalreserve.gov/newsevents/press/bcreg/20110419a.htm

(ag) April 21, 2011, in Truth in Lending, FRB, Consumer Protection

 

JPMorgan Chase Settles with Lehman Brothers Bankruptcy Trustee

JPMorgan Chase, clearing bank for the now-bankrupt Lehman Brothers Holdings, agreed to return $861 Million in cash and securities to the Bankruptcy Trustee for eventual distribution to customers of the defunct brokerage firm.  

Reuters quotes a lawyer for the Bankruptcy Trustee as saying, "This is the biggest affirmative settlement we have had for customers" and "several thousand" of them could ultimately share in proceeds."

In a separate lawsuit, Lehman's parent company sued JPMorgan, alleging that JPMorgan used inside information gained as Lehman's clearing bank "to extract $8.6 billion of desperately needed assets in the last few days before the bankruptcy."

Link to article:  http://www.reuters.com/article/2011/04/21/us-lehman-jpmorgan-settlement-idUSTRE73K79E20110421

(ag) April 21, 2011, in Economy

Wells Fargo's Stock Price Drops Even As the Company Reports a Net Income Increase of 48%

Today's Washington Post carries an article by Dakin Cambell, "Wells Fargo Slides as First-Quarter Revenue, Lending Decline."  Wells Fargo is the largest U.S. home lender.  Although the holding company reported a first-quarter profit, its stock price dropped because, although profit met or exceeded most analysts' estimates, it fell short of some analysts' expectations. 

Net income rose 48 percent to a record $3.76 billion.The problem is that revenue fell 5.2 percent. Like other banking organizations, Wells Fargo has relied on the release of loan loss reserves to increase profit. This is not earned revenue.  Weak loan demand and new federal regulations are realities that must be addressed.

Link to story: http://washpost.bloomberg.com/Story?docId=1376-LJV0O31A74E901-1FAVD83D38E8NO8NUJS6U8D4FV

(ag) April 20, 2011, in Banking, Economy 

What If the Lehman Brothers Collapse Had Been Handled Through the Dodd-Frank Orderly Liquidation Provisions?

FDIC released a report yesterday that examines how the FDIC could have structured an orderly resolution of Lehman Brothers Holdings Inc. under the orderly liquidation authority of Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act IF that law been in effect at the time.

FDIC finds that "the powers provided to the FDIC under the Dodd-Frank Act to act decisively to preserve asset value and structure a transaction to sell Lehman's valuable operations to interested buyers -- which are drawn from those long used by the FDIC in resolving failing banks -- could have promoted systemic stability while recovering substantially more for creditors than the bankruptcy proceedings -- and at no cost to taxpayers."

Link to Report:  http://www.fdic.gov/news/news/press/2011/pr11076.html

(ag) April 20, 2011, in FDIC

Government Responds to S&P's Negative Credit Outlook

Standard & Poors (S&P), the U.S. credit rating agency, has revised its long-term outlook on the U.S.'s AAA credit rating on its sovreign debt from "stable" to "negative."  This could have disastrous consequences.  A Washington Post blog editorial today by calls it the beginning of "the Armageddon scenario."  If the Congress does not raise the debt ceiling, international confidence would falter and the rating could get worse. Even the current downgrade could negatively affect U.S. business borrowing rates abroad.  

The Government response came from Treasury Secretary Timothy Geithner in the form of reassurance that the U.S. would not lose its AAA rating and that a deficit reduction plan could be in place relatively quickly.

Link to Washington Post editorial:   http://www.washingtonpost.com/blogs/political-economy/post/us-credit-rating-downgrade-the-armageddon-scenario/2011/04/19/AFnE0n5D_blog.html

Link to NY Times report of government resonse:  http://www.nytimes.com/2011/04/20/business/global/20markets.html?_r=1&ref=business

(ag) April 19, 2011, in Economy

Fed GC Outlines Risk Retention Provisions of Dodd Frank & New Rules

Scott Alvarez, General Counsel of the Federal Reserve, testified last week before the Subcommittee on Capital Markets and Government Sponsored Enterprises, House Committee on Financial Services.

His testimony provides a clear discussion of the implementation of the risk retention requirements of section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd–Frank Act).

He said, "This provision seeks to promote sustainable availability of credit by requiring that securitizers generally retain some of the credit risk of the assets they securitize (sometimes referred to as "skin in the game"). Retaining credit risk creates incentives for securitizers to better monitor the credit quality of assets they securitize and ultimately discourages unsafe and unsound underwriting practices by originators....I will discuss problems associated with the securitization process that became prominent during the crisis and how the risk retention requirements of the Dodd-Frank Act may help both to alleviate these problems and to provide positive incentives to market participants. I will also describe elements of the rules proposed by the Federal Reserve and other agencies and discuss how these rules can achieve the goals of risk retention without causing undue market disruption or negative effects on the availability of credit to consumers and businesses."

Link to testimony:  http://www.federalreserve.gov/newsevents/testimony/alvarez20110414a.htm

(ag) April 18, 2011, in Secondary Mortgage Market, FRB

FCIC's Phil Angelides Rips Wall Street and Alan Greenspan

Phil Angelides, Chairman of the Financial Crisis Inquiry Commission (FCIC), spoke last week at the 20th Annual Hyman P. Minsky Conference on "Financial Reform and the Real Economy," sponsored by the Levy Economics Institute of Bard College.

According to an April 15, 2011, article in the American Banker by Heather Landy, Levy said,"There is now an effort, I believe, by many on Wall Street and in Washington to wipe away the memory of what has occurred."  

The American Banker article notes that, calling attention "the return of bumper pay packages, the increased concentrations of big banks and industry efforts to roll back new regulations, Angelides argued that financial executives have not been held anywhere close to fully accountable for their actions."

"Wall Street has its own unique form of the law of gravity that's back in full force," Angelides is quoted as saying.

According to the article, "Angelides rejected the notion that the crisis resulted from a "perfect storm" that could not have been anticipated, and he took to task the officials who presided over the build-up, saving some of his harshest criticism for former Federal Reserve Chairman Alan Greenspan. He accused Greenspan's Fed of taking little more than a token stab at curbing subprime lending abuses that were evident years before the crisis. And he compared Greenspan, who in March sharply criticized the Dodd-Frank Act on CNBC and in the Financial Times, to someone who "had his foot on the gas pedal as we drove over the cliff, and now he wants to give the nation driving lessons once again."

Link to article:  http://www.americanbanker.com/issues/176_73/angelides-crisis-not-normal-part-cycle-1036048-1.html?ET=americanbanker:e6501:2278207a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=AB_Morning_Scan_041811

Link to conference audio: http://www.levyinstitute.org/news/?event=32 

(ag) April 18, 2011, in Economy