Dodd-Frank News Center

CBO Estimates TARP’s Cost at $25 Billion

By J. Preston Carter, J.D., LL.M., Editor, the CCH Federal Banking Law Reporter, CCH Financial Privacy Law Guide, CCH State Banking Law Reporter and Bank Digest.

According to a Congressional Budget Office (CBO) report on transactions completed, outstanding and anticipated under the Troubled Asset Relief Program (TARP) as of Nov. 18, 2010, the estimated cost to the federal government of the TARP's transactions, including grants that have not been made yet for mortgage programs, will amount to $25 billion. That cost stems largely from assistance to American International Group (AIG), aid to the automotive industry and grant programs aimed at avoiding foreclosures. Other transactions with financial institutions will, taken together, yield a net gain to the federal government, the CBO estimates.

The CBO's current estimate of the cost of the TARP's transactions is substantially less than the $66 billion estimate incorporated in the agency's latest baseline budget projections (issued in August 2010) and the $109 billion estimate shown in the agency's previous report on the TARP (issued in March 2010). The reduction stems from several developments: additional repurchases of preferred stock by recipients of TARP funds; a lower estimated cost for assistance to AIG and to the automotive industry; lower expected participation in mortgage programs; and the elimination of the opportunity to use TARP funds for new purposes because of the passage of time and the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Hedge Fund Industry Seeks Fair Market Valuation for Securities in Dodd-Frank Liquidation Authority

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

The hedge fund industry has urged regulators implementing the orderly liquidation provisions of the Dodd-Frank Act to provide for the fair market valuation of securities of failing financial firms rather than the fixed valuations proposed for government securities and contemplated for other securities. In a letter to the Managed Funds Association said that assigning fixed valuations for certain types of assets in advance, as the Proposed Rule contemplates for Treasury and other U.S. government securities, is likely to lead to valuations inconsistent with the statutory standard of fair market value. It could also lead to distortions in market activity.

In the MFA's view, the appropriate valuation of assets is a critical component of any liquidation process. Section 210(a)(3)(D)(ii)(I) of the Dodd-Frank Act treats any portion of a secured claim which exceeds the fair market value of the underlying collateral as an unsecured claim, paid in the same manner as other general unsecured creditors. But Dodd-Frank does not define the term “fair market value” for the purpose of determining the amount of secured claim that will be treated as an unsecured claim. The proposed rules contemplate adopting a regulation establishing a fixed valuation for U.S. government securities, and asks whether valuations should be fixed for other forms of collateral.

OFR Issues Policy Statement on Legal Entity Identification for Financial Contracts

This story appeared in Bank Digest.

The Office of Financial Research (OFR) has issued a statement of policy regarding its preference to adopt through rulemaking a universal standard for identifying parties to financial contracts that is established and implemented by private industry and other relevant stakeholders through a consensus process. Data on these financial contracts will be used by the OFR to support the Financial Stability Oversight Council in identifying connections among market participants and monitoring systemic risk. The statement of policy provides guidance on how the OFR will evaluate whether a standard is adequate for adoption, including its attributes and method of implementation. The OFR seeks comment on the statement of policy, including but not limited to the desired characteristics for a Legal Entity Identifier and the institutional arrangements for issuing and maintaining identifiers and associated reference data.

Domestic Policy Subcommittee to Investigative Fed’s QE2

This story appeared in Bank Digest.

The Domestic Policy Subcommittee of the Oversight and Government Reform Committee has announced a hearing to look into the mechanics, rationale and effect of the Federal Reserve Board's policy referred to as “quantitative easing.” The hearing, scheduled for November 30, will pay particular attention to job creation policies.

GM Sale Proceeds Bring TARP Return to More Than $250 Billion

This story appeared in Bank Digest.

The delivery of $11.7 billion in proceeds from the initial public offering of General Motors brought the total amount of Troubled Asset Relief Program funds returned to taxpayers to more than $250 billion, according to the Treasury Department. The assistance to the automobile industry saved more than one million jobs, Tim Massad, Acting Assistant Secretary for Financial Stability, asserted. The Treasury's most recent public estimate is that the total cost of TARP will be approximately $50 billion.

FSOC Considers Foreclosure Crisis, Financial Market Utilities

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Nov. 24, 2010.

The Financial Stability Oversight Council’s foreclosure task force has found “widespread” and “inexcusable” breakdowns in basic controls in the mortgage foreclosure process, Assistant Treasury Secretary for Financial Institutions Michael Barr said Nov. 23, 2010.

At FSOC’s second meeting Barr stressed that “these problems must be fixed.” He noted that examiners are expected to complete on-site fieldwork by the end of the year, and regulators are targeting to complete work on a report that identifies the range of industry foreclosure practices and common foreclosure governance by late January.

Rep. Miller, House Chairmen Call for Further Investigation into New Threats to Financial System

This story appeared in Bank Digest.

Rep. Brad Miller, D-N.C., Chairman of the Committee on Science and Technology’s Subcommittee on Investigations and Oversight, along with the Chairmen of the House Financial Services and Judiciary Committees and other members of Congress, sent a letter to the Financial Stability Oversight Council (FSOC) calling for further investigation into new threats to the financial system, specifically the stability of the largest banks.

Frank Disappointed by Republican Attacks on Fed Efforts to Boost U.S. Economy

This story appeared in Bank Digest.

House Financial Services Committee Chairman Barney Frank, DMass., said, in a statement issued regarding Republican “attacks” on efforts by the Federal Reserve Board to use monetary policy tools to help boost the U.S. economy, “I was not surprised at the extreme hypocrisy of the Central Bank of China insisting that America—apparently alone among nations—has an obligation to subordinate its own legitimate economic needs to international currency movements…What did disappoint me was to see conservative economists, high-ranking officials of previous Republican administrations, and Republican Congressional leaders share the attack by these foreign banks not simply on the substance of the Federal Reserve’s proposal, but on the very notion that America has a right to give a primary focus to our own economic need for growth at this time.”

ICBA’s Comments to SEC Government-Business Forum on Small Business Capital Formation

This story appeared in Bank Digest.

A letter from the Independent Community Bankers of America (ICBA) to the Securities and Exchange Commission’s Government-Business Forum on Small Business Capital Formation stated that “While the many new banking regulations that will result from the mandates set forth in the Dodd-Frank Act are a primary concern of community banks, the rules of the U.S. Securities and Exchange Commission (the ‘Commission’) applicable to publicly traded financial institutions are also vitally important as they have a direct impact on the small business capital formation.

Bank Earnings Boosted by Lower Loan Loss Provisions

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Nov. 23, 2010.

Lower loan loss provisions helped the banking sector report its fifth consecutive quarter of year-over-year improvement in earnings, the Federal Deposit Insurance Corp. said Nov. 23, 2010. Quarterly provisions for loan losses stood at $34.9 billion in the third quarter, a $28 billion decline from the year before.

“The industry continues making progress in recovering from the financial crisis. Credit performance has been improving, and we remain cautiously optimistic about the outlook,” said FDIC Chairman Sheila Bair.