CCH Financial Reform News Center

Senators Say SEC Action Falls Short of Solving Naked Short Selling Concern

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Senators Ted Kaufman and Johnny Isakson said that the partial action taken by the SEC will neither provide investors with the same protections as the uptick rule nor address the enforcement issues surrounding the current naked short selling rule. The SEC voted 3-2 to require short sellers, if a company’s shares fall 10 percent in one day, to exceed the prevailing bid for the remainder of the trading day and the following day in short sales of that security.

While encouraged that the SEC took some action to protect investors from manipulative short selling, adding that the circuit-breaker/bid test rule is a step forward, the senators said it will be of limited use, helping only in the worst-case scenarios that could occur during a terrorist attack or financial crisis. The uptick rule worked for 70 years as a systemic check on predatory bear raids; they emphasized, and this approach will not provide investors with the same protections as an always-on bid test.

Grassley Seeks Information on Bond Underwriting Fees

This story appeared in Bank Digest.

Senate Finance Committee Ranking Member Chuck Grassley, R-Iowa, has asked Goldman Sachs whether it would collect double-digit underwriting fees for participating in a newly expanded Build America Bonds program that was included in a bill passed by the Senate. “I'm interested in finding out whether the big Wall Street investment banks being so involved in, and profiting from, the Build America Bonds program siphons off a lot of taxpayer dollars that are meant to help cities and states,” Grassley said in his letter.

FHFA Reports Interest Rates

This story appeared in Bank Digest.

The Federal Housing Finance Agency has reported that the average interest rate on conventional 30-year, fixed-rate mortgage loans increased 5 basis points to 5.10 percent in January. The average interest rate on 15-year, fixed-rate loans remained unchanged at 4.54 percent in January. These rates pertain to mortgages closed during the January 25-31 period. Typically, the interest rate is determined 30 to 45 days before the loan is closed. Thus, according to the agency, the reported rates depict market conditions prevailing in mid to late December. Recorded information on this index is available by calling (202) 408-2940. The February index value will be announced on March 30, 2010.

FHFA Reports House Prices Fell for the Year

This story appeared in Bank Digest.

U.S. house prices fell slightly in the fourth quarter of 2009, according to the FHFA's seasonally adjusted purchase-only house price index (HPI). The HPI, calculated using home sales price information from Fannie Mae- and Freddie Mac-acquired mortgages, was 0.1 percent lower on a seasonally adjusted basis in the fourth quarter than in the third quarter of 2009. Over the year ending with the fourth quarter of 2009, seasonally adjusted prices fell 1.2 percent. However, the decline in prices in the fourth quarter was much more significant when measured without seasonal adjustment, the FHFA said.

Thrift Industry Broke Even in 2009

This story appeared in Bank Digest.

U.S. thrift industry earnings showed signs of stabilizing in 2009, the Office of Thrift Supervision said, as the industry posted a profit of $505 million in the fourth quarter and essentially broke even for the year. The industry reported net income of $29 million in 2009, its first positive annual net income since 2006. The industry had net losses of $15.9 billion in 2008 and $649 million in 2007. In 2009, profits in the final two quarters offset losses in the first two quarters, the agency said. Equity capital rose to 10.7 percent of assets at the end of 2009, up from 8.9 percent a year earlier.

Bernanke Says “Grave Mistake” to Strip Fed of Supervisory Authorities

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Stripping the Federal Reserve Board of its supervisory authorities, in light of the recent financial crisis, would be a “grave mistake,” Fed Chairman Ben Bernanke told the Senate Banking Committee Feb. 25, 2010.

In the second day of his semiannual monetary report to Congress, Bernanke argued that large, complex financial firms that pose a threat to the financial system need strong, consolidated supervision. “That means they need to be seen and overseen as a complete company,” Bernanke said in response to questioning from ranking member Sen. Richard Shelby, R-Ala.

Divided Commission Adopted Alternative Uptick Rule for Short Sales

This story appeared in Jim Hamilton's World of Securities Regulation.

In a 3-to-2 vote, the SEC adopted amendments to Rules 200(g) and 201 of Regulation SHO that will restrict short selling in instances where a company’s shares drop 10% or more in value in one day. The Commission originally proposed the alternative uptick rule last April, held a roundtable discussion on it in May and then issued an additional call for comments in August. The agency received more than 4,300 comment letters on the controversial issue.

Commercial Real Estate Loans Probably “Biggest Threat” to Smaller Banks: Bernanke

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Commercial real estate (CRE) loans are probably the “biggest threat” to smaller and regional banks at this time, Federal Reserve Board Chairman Ben Bernanke told Congress February 24, 2010.

Appearing before the House Financial Services Committee, Bernanke told members that CRE “remains probably the biggest credit issue that we still have.” The Fed Chairman said the central bank will be watching small and medium-sized banks “very carefully” in light of their exposure.

SEC Reaffirms Its Commitment to IFRS

This story appeared in Jim Hamilton's World of Securities Regulation.

While noting that incorporating IFRS into the US financial reporting system would involve a significant undertaking, SEC Chair Mary Schapiro reaffirmed the Commission’s support for a single set of global accounting standards. She added that the SEC will carefully consider and deliberate whether such a change is in the best interest of U.S. investors and markets. And, if the Commission decides that such a change best serves these interests, it will provide for a sufficient transition time for those who prepare financial statements and those who use them.

Before the adoption of a global accounting standard, she noted, the convergence projects currently underway between the FASB and the IASB must be successfully completed. Moreover, SEC staff must gather information to aid the Commission as it evaluates the impact that the use of IFRS by U.S. companies would have on our securities market. To this end, the staff has been asked to develop and execute a work plan.

Administration Is Obscuring Cost of Fannie, Freddie's Blank Check

This story appeared in Bank Digest.

During a press conference to announce introduction of the Accurate Accounting of Fannie Mae and Freddie Mac Act, House Financial Services Committee Ranking Member Spencer Bachus, R-Ala., commented that federal budget discussions should include operating expenses associated with government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Bachus cosponsored the Act with Rep. Scott Garrett, R-N.J., asserting that it would bring transparency, accountability and oversight to Fannie Mae and Freddie Mac. “Taxpayers have already contributed over $110 billion to the bailout of these GSEs, and they are on the hook for hundreds of billions more. Taxpayers now own at least 80 percent of the two enterprises and have explicitly guaranteed over $5 trillion in Fannie and Freddie debt, yet their operations are not included in the federal budget,” said Bachus.