Financial Crisis News Center

Treasury Department Issues Cumulative Dividends Report

This story appeared in Bank Digest.

The Treasury Department has released its Cumulative Dividends Report as of March 17, 2010. The report covers the dividends paid by financial institutions that have received assistance from the federal government pursuant to such programs as the Capital Purchase Program, Systemically Significant Failing Institution Program or Automotive Industry Financing Program.

Agencies Guide on Funding and Liquidity Risk Management

This story appeared in Bank Digest.

The federal bank, thrift and credit union regulatory agencies, and the Conference of State Bank Supervisors, have jointly issued a policy statement on funding and liquidity risk management practices. The policy statement emphasizes the importance of cash flow projections, diversified funding sources, stress testing, a cushion of liquid assets and a formal, well-developed contingency funding plan as primary tools for measuring and managing liquidity risk. According to the agencies, financial institutions are to manage funding and liquidity risk using processes and systems that are commensurate with the institution's complexity, risk profile and scope of operations.

An institution's liquidity management process should be sufficient to meet daily funding needs and cover both expected and unexpected deviations from normal operations, the policy statement says. Institutions should have documented strategies for managing liquidity risk and clear policies and procedures for limiting and controlling risk exposures that appropriately reflect the institution's risk tolerances. Institutions also should consider liquidity costs, benefits and risks in strategic planning and budgeting processes. The policy statement addresses the need for intraday liquidity management, the use of diversified funding sources and contingency funding plans.

Capuano and Cleaver Comment on Municipal Bonds

This story appeared in Bank Digest.

“For years municipalities across the country have been forced to pay billions of taxpayer dollars to insure bonds that have nearly no chance of defaulting,” stated Rep. Michael Capuano, D-Mass., in response to Moody's Investor Service changing the way municipal bonds are rated. Previously, Moody's and others rated municipal securities, which historically have had extremely low default rates, on a different scale. As a result, this had the effect of driving up the costs to cities and states. Also issuing support was Rep. Emanuel Cleaver II, D-Mo., who stated that these “general obligation bonds not only carry the full faith and credit of the municipality and its taxpayers, they are used to improve our communities.”

Bachus Requests Hearing on Lehman Collapse

This story appeared in Bank Digest

Rep. Spencer Bachus, R-Ala., has sent a letter to Financial Services Committee Chairman Barney Frank, D-Mass., calling for an investigatory hearing to be held on the bankruptcy of Lehman Brothers, whose collapse contributed to the financial crisis in the fall of 2008. As Ranking Member on the Committee, Bachus called for the hearing on new revelations detailing potential accounting fraud at the investment bank and lax oversight by federal regulators. Bachus said the report from Lehman Brothers' court-appointed bankruptcy examiner shows a failure of government regulators, including the Federal Reserve Board and the Securities and Exchange Commission, to act on evidence of accounting gimmicks used to hide the company's debt and mask its insolvency. “This report casts additional doubts on the ability of the Federal Reserve to effectively perform the expanded supervisory responsibilities called for in House and Senate regulatory reform bills,” Bachus said.

“Jobs” Bill Has Too Much for Wall Street Bankers

This story appeared in Bank Digest.

“This bill isn't targeted nearly enough for small businesses,” stated Finance Committee Ranking Member Sen. Chuck Grassley, R-Iowa, on passage of the Hiring Incentives to Restore Employment (HIRE) Bill (H.R. 2847). The $17.6 billion jobs bill, which passed the Senate by a vote of 68—29 on March 17, 2010, includes a Social Security payroll tax exemption for new workers and an extension of 2008 and 2009 Section 179 expensing thresholds. The legislation allows issuers to elect to convert tax credit bonds to Buy America Bonds, extends highway and transit programs through 2010 and ends annual Highway Trust Fund payments to the General Fund to reimburse tax-exempt users of the highway program. Grassley asserted that he voted against the bill because “it gives a healthy share of taxpayer dollars to Wall Street bankers instead of Main Street employers.”

Bernanke Argues for Broad Fed Bank Supervisory Role

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

Federal Reserve Board Chairman Ben Bernanke told Congress that the central bank’s role in supervising financial institutions of all sizes “significantly increases” its effectiveness in making monetary policy and fostering financial stability.

Appearing March 17, 2010, before the House Financial Services Committee, Bernanke said legislation passed last December by the House would preserve the supervisory authority that it needs to carry out is central banking functions effectively.

However, Bernanke told members that the Fed is “quite concerned by proposals to make the Fed a regulator only of the biggest banks. It makes us essentially the too-big-to-fail regulator. We don’t want that responsibility, we want to have a connection to Main Street as well as to Wall Street,” Bernanke said.

TARP Executive Compensation Rulings Issued

This story appeared in Bank Digest.

The Special Master for TARP Executive Compensation has issued a supplemental determination that compensation changes proposed by Chrysler Group LLC will not, by virtue of their structural design or the amounts potentially payable under them, result in payments inconsistent with the public interest standard.

Troika Forecast Touches On Regulatory Reform

This story appeared in Bank Digest.

The Treasury Department has released a joint statement by Treasury Secretary Timothy F. Geithner, Director of the Congressional Budget Office Peter R. Orzag, and Chair of the White House Council of Economic Advisers Christina D. Romer before the House Appropriations Committee hearing on the “Troika” forecast for the American economy and the Obama administration's economic agenda. Noting that a “healthy financial system is crucial for sustainable growth, job creation, and broad-based prosperity,” the statement urged financial regulatory reform that would: ensure financial institutions maintain enough capital to absorb their own losses; prevent firms from taking risks that threaten the entire economy; arm consumers with better financial information and protect them from unfair and fraudulent practices; and provide the federal government with authority to break apart and unwind failing firms to limit damage to the system as a whole.

Fed Funds Rate Unchanged

This story appeared in Bank Digest.

The Federal Open Market Committee (FOMC) has announced that it will maintain the target federal funds rate at a range between 0 and 0.25 percent “for an extended period.” While it had been generally expected that the FOMC would not raise the target federal funds rate at the March 16, 2010, meeting, there had been some anticipation in the markets that the FOMC would signal its intention to do so in the future. However, by noting that rates would remain low for an extended period, the FOMC offered no new guidance. The Committee explained that the economy has continued to strengthen, but, although the labor market is stabilizing, employers are reluctant to hire, and consumers are faced with lower housing wealth and tight credit conditions. Thus, the pace of economic recovery is likely to be moderate, with substantial resource slack restraining cost pressures and keeping inflation subdued, the FOMC concluded. As at the last FOMC meeting, there was one dissenting vote by Federal Reserve Bank of Kansas City President Thomas M. Hoenig, “who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.”

Former Bank President Charged with TARP Fraud

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.

The United States Attorney for the Southern District of New York has announced the arrest of Charles J. Antonucci Sr., the former President and Chief Executive Officer of The Park Avenue Bank, on allegations of self-dealing, bank bribery, embezzlement of bank funds and fraud, among others. Antonucci also was alleged to have attempted to fraudulently obtain more than $11 million worth of taxpayer rescue funds from the Troubled Asset Relief Program (TARP). He is the first defendant to be charged with attempting to defraud TARP.

According to U.S. Attorney Preet Bhara, “Charles Antonucci allegedly put his personal greed ahead of his professional duty, deliberately and repeatedly deceived regulators, and even attempted to obtain through fraud $11 million in taxpayer rescue funds from the Troubled Asset Relief Program. Regulators simply cannot do their job if financial institutions obstruct them. Lying to financial regulators is the economic equivalent of obstruction of justice. This Office will continue to work through President Obama's Financial Fraud Enforcement Task Force with all of our agency partners to investigate and prosecute corrupt professionals in the financial services industry.”