Dodd-Frank News Center

Bank Earnings At Highest Level Since 2007; Loan Balances Slip

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

Federal Deposit Insurance Corporation-insured banks earned $35.3 billion in net income for the first quarter of 2012, the highest level seen since the second quarter of 2007, and the eleventh consecutive year-over-year quarterly improvement. Loan balances, however, fell for the first time in four quarters.

First quarter net income rose 22.9 percent from the year-earlier period, as the average return on assets rose above the one percent level for only the second time since the second quarter of 2007. Over two thirds of all banks reported an improvement in their quarterly earnings, with only 10.3 percent unprofitable in the first quarter.

Treasury’s Massad Responds to New York Times Column Criticizing Bailout Appraisal

This story appeared in Bank Digest.

The Treasury Department’s Assistant Secretary for Financial Stability, Timothy G. Massad, has submitted a letter to the editor of the New York Times responding to a May 19, 2012, column by Gretchen Morgenson asserting that: the Treasury Department should calculate the “opportunity cost” of what a private investor would have charged and exclude income from the Federal Reserve Board when analyzing the direct fiscal costs of its financial stability programs; and Treasury has not clearly demonstrated that those initiatives had an overall positive impact on the economy. 

President to Congress: Move Forward, Not Back On Wall Street Reform

This story appeared in Bank Digest.

In his weekly address, President Obama discussed Wall Street reform in light of the recent news that JPMorgan Chase & Co. lost over $2 billion in trading. He noted that, although JPMorgan “can handle a loss of that size, other banks may not have been able to. And without Wall Street reform, we could have found ourselves with the taxpayers once again on the hook for Wall Street’s mistakes.” The president added, “[w]e can’t afford to go back to that brand of ‘you’re-on-your-own’ economics” and urged Congress “to finish implementing these reforms so that we can prevent excessive risk-taking and help create an economy that is built to last.” 

Community Bankers Warn of Regulatory Burden Risks

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

Community bankers outlined for Congress the growing regulatory burden they face in the wake of the Dodd-Frank Act, which is forcing their institutions to redirect capital towards rising compliance costs rather than new products and services. 

At a May 9, 2012 hearing of the House Financial Institutions and Consumer Credit Subcommittee (webcast), chairman Rep. Shelley Moore Capito, R-W.V., told members that pressure on small institutions is growing across the country. Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, added that “every day we find a new problem with Dodd-Frank” with respect to community banks.

Fed Working Paper Links Monetary Policy Effects and Financial Crisis

This story appeared in Bank Digest.

The Fed has published a working paper that examines the link between the federal funds and repo markets, before, during and emerging from the financial crisis that began in August 2007. According to the authors, the paper provides a tool that could be used in the future when the Fed begins to tighten monetary policy. The paper noted three main findings:

• Pass-through from the federal funds rate to the repo deteriorated somewhat during the zero lower bound period;
• During the early part of the crisis, the pricing of federal funds indicated a marked jump in perceived credit risk; and
• The liquidity effect for the federal funds rate weakened greatly with the increase in supply of these balances over the crisis, implying a non-linear demand for federal funds.

President Vows Rigorous Oversight in Signing JOBS Act

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and Author of Jim Hamilton's World of Securities Regulation.

In a statement accompanying the signing of the Jumpstart Our Business Startups (JOBS) Act, President Obama said that, for business owners who want to take their companies to the next level, the measure will make it easier for them to go public. And that is a big deal, he said, because going public is a major step towards expanding and hiring more workers. It is also a big deal for investors as well, because public companies operate with greater oversight and greater transparency.

FHFA Mortgage Modification Analysis Questioned

This story appeared in Bank Digest.

Acting Director of the Federal Housing Finance Agency Edward DeMarco has been asked to provide Congress with an accurate analysis of the effects on taxpayers of using principal forgiveness versus other mortgage modification options such as principal forbearance for loans backed by Fannie Mae and Freddie Mac. In a letter to DeMarco, 30 Senators pointed out a series of flaws in the agency's previous analysis and asked for an accurate analysis within 30 days, calling it “not only part of your responsibility as conservator to conserve taxpayer assets, but also part of your statutory responsibility to maximize assistance for homeowners to minimize foreclosures.”

Cordray Discusses Oversight

This story appeared in Bank Digest.

“[T]hough over-regulation can indeed stifle entrepreneurship, under-regulation can also lead to terribly anti-business results,” stated CFPB Director Richard Cordray in remarks before the Chamber of Commerce. According to Cordray, “to foster true competition, we need evenhanded and reasonable oversight of the marketplace.”

Cordray added, “We will not always agree on everything, but I believe we can certainly agree on the basic principles of fair play and the need for an umpire that will call out those who seek an unfair competitive advantage by violating the law. Upstanding businesses will benefit the most when those that cheat their customers are held accountable. Within those boundaries, businesses can compete aggressively with one another, and if they do then we are confident that their customers will reap the benefits through improved products and services.”

Garrett Discusses Threats to American Capital Markets

This story appeared in Bank Digest.

Rep. Scott Garrett, R-N.J., Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, discussed job creation and capital market competitiveness in remarks before the Chamber of Commerce.

In regards to the financial crisis, Garrett stated, “The real source of the recent crisis and the breakdown in free market capitalism was the injection of government subsidies into the market and the failure of regulators to do their job, not the capitalist elements which remain despite the best efforts of bureaucrats to eradicate them … In short, the freedom of the U.S. capital markets is under attack.” 

Key Senators Would Amend the JOBS Act to Add Provisions Creating US Covered Bond Market

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and Author of Jim Hamilton's World of Securities Regulation.

Senators Kay R. Hagan (D-NC) and Bob Corker (R-TN) have introduced an amendment, SA 1832, to the JOBS Act, HR 3606, being considered by the Senate that would establish a US covered bond market to add liquidity to the capital markets and provide a stable source of private capital. The amendment is based on the United States Covered Bond Act, S 1835, which was introduced in 2011 by the Senators to provide a legislative framework that expands funding options for U.S. financial institutions. The U.S. lags behind its global peers in the development of a covered bond market because we lack a legislative framework for issuers and investors,” said Senator Hagan, a member of the Banking Committee. With a legislative framework in place, she added, U.S. financial institutions will have a powerful tool that can be used to fund loans to small businesses and households.