Financial Crisis News Center

Hedge Fund Industry Supports EU OTC Derivatives Legislation; Wants CCP Global Competition

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

The hedge fund industry generally supports the broad concepts for derivatives legislation set forth by the European Commission as the EU commits to the passage of legislation this year. In a letter to the UK House of Lords, which is collecting comments to form a broad consensus on the legislation, the Managed Funds Association opposed position limits and expressed concern about the international harmonization of OTC derivatives legislation.

Towns Opens Investigation into Treasury's Mortgage Modification Efforts

This story appeared in Bank Digest.

The House Committee on Oversight and Government Reform has announced that it is investigating the Treasury Department's Making Home Affordable (MHA) program, after receiving “concerning information” about the effectiveness and efficiency of MHA and the extent to which it has assisted struggling homeowners. In a letter to Treasury Secretary Timothy Geithner, Committee Chairman Edolphus Towns, D-N.Y., asked for specific data to help the Committee in its efforts to investigate the Home Affordable Modification Program (HAMP). The letter states, “... it is my understanding that Treasury has thus far refused to reveal in detail how it defines 'net present value,' one of the key criteria for homeowner participation in the mortgage modification program. Moreover, if a homeowner is denied a permanent mortgage modification, the specific reasons for the denial are not revealed. Finally, Treasury has not established a process for homeowners to appeal the denial of a permanent mortgage modification.”

Thrifts Alerted to Policy Statement on Small Business Lending

This story appeared in Bank Digest.

The OTS has alerted thrifts that the Federal Reserve Board, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Conference of State Bank Supervisors and OTS have adopted the Policy Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers. The Statement addresses lending to creditworthy small business borrowers in the current economic environment.

Supplemental Executive Compensation Determination Issued Regarding AIG

This story appeared in Bank Digest.

Kenneth R. Feinberg, Special Master for TARP Executive Compensation, has issued a supplemental executive compensation determination regarding a potential new hire by AIG. The proposed compensation structure was determined not to be contrary to the public interest.

Sen. Shelby Asserts Principles for Financial Reform

This story appeared in Bank Digest.

Sen. Richard Shelby, R-Ala., the ranking member on the Senate Banking Committee, issued a statement regarding the status of financial regulatory reform. Shelby stated, “There are two bedrock principles on which I will not compromise: the safety and soundness of the financial system and taxpayer protection against bailouts. I fully support enhancing both consumer protection and safety and soundness regulation. I will not support a bill that enhances one at the expense of the other, however. In order to strike the appropriate balance they must be integrated with each other, not separated from each other.” He added, “I remain hopeful that a bipartisan agreement can be reached on these and other outstanding issues, including derivatives regulation and corporate governance. I remain willing to work with Chairman Dodd to see whether that is possible.”

GAO Assesses TALF Risks to TARP

This story appeared in Bank Digest.

The Government Accountability Office has issued a report assessing the risk posed by the Term Asset-Backed Securities Loan Facility (TALF) to the Troubled Asset Relief Program (TARP). TALF was created by the Federal Reserve Board to help meet consumer and small business credit needs by supporting issuance of asset-backed securities and commercial mortgage backed securities (CMBS). The GAO report also examines the Treasury Department’s role in decision making for TALF and the condition of securitization markets before and after TALF.

UK FSA Proposes Enhanced Corporate Governance Regime

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

The UK Financial Services Authority has proposed significant enhancements to its corporate governance rules centering on an enhanced role of non-executive directors and board risk committees. Under the Financial Services and Markets Act, the FSA is empowered to regulate persons who have a significant influence on a firm’s affairs. The FSA created the significant influence controlled functions to capture these individuals. The proposals partially implement the FSA-specific recommendations in Sir David Walker’s review of corporate governance published late last year. The consultation period closes on 28 April 2010. The FSA hopes to have final rules in place during the third quarter of 2010.

The proposed approach would extend the scope of the regime and introduces a new, more detailed framework of controlled functions. These would make clearer the exact role an individual is performing within a firm and increases the FSA’s ability to vet and track individuals.

Joint Agency Policy Statement Restates and Elaborates Supervisory Views on Small Business Lending

This story appeared in Bank Digest.

The Office of the Comptroller of the Currency, along with the Federal Reserve Board, Federal Deposit Insurance Corp., Office of Thrift Supervision and the Conference of State Bank Supervisors, have adopted the Policy Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers. The policy statement builds upon principles in existing guidance, including the November 2008 Statement on Meeting the Needs of Creditworthy Borrowers and the October 2009 Statement on Prudent Commercial Real Estate Loan Workouts.

The statement discusses principles of sound underwriting and risk management practices and notes that financial institutions should consider new lending opportunities on the basis of a comprehensive review of a borrower’s financial condition while maintaining prudent lending and concentration risk management standards. Financial institutions should apply the principles of the policy statement in accordance with their internal definitions of small business loans or as appropriate in their loan portfolios. Small business lending includes loans to small businesses and farms, such as working capital lines of credit, secured and unsecured term loans, as well as unsecured revolving credit.

Grassley Asks Whether AIG Bonus Contracts Were Signed After Bailout

This story appeared in Bank Digest.

Senate Finance Committee Ranking Member Chuck Grassley, R-Iowa, has asked Treasury Secretary Tim Geithner for information and documents on the timing of bonus contracts for executives at American International Group (AIG). According to Kenneth Feinberg, the Special Master for TARP Executive Compensation, the recently announced bonuses must be paid because the contracts pre-dated the government bailout. Grassley told Geithner that he believes some of the contracts were, in fact, signed after AIG received government money and even after the law creating TARP was passed. “At a minimum, why should Treasury honor contracts executed in September and October, 2008, after AIG began receiving billions in taxpayer support?,” Grassley asked in his letter. The letter also asks for information on the government's efforts to rein in, and possibly recover, some bonus payments.

Financial Services Committee Plans Hearing on the Future of Housing Finance

This story appeared in Bank Digest.

Financial Services Committee Chairman Barney Frank, D-Mass., has announced that the committee will hold a hearing on March 2, 2010, to begin the process of considering the future of housing finance. The hearing will focus on all the private and public entities that support the mortgage market, including the Federal Housing Administration, Ginnie Mae, Fannie Mae, Freddie Mac, Federal Home Loan Banks, and private lenders and securitizers.