News: ABA Washington Perspective

Reg Reform Negotiations Continue With Focus on CFPA Alternative
Bipartisan negotiators on the Senate�s regulatory reform legislation had hoped to be able to unveil a consensus bill this week, but efforts to craft an alternative to a stand-alone Consumer Financial Protection Agency continued to slow the process.

The primary issues being hashed out are where to house the agency and how much authority and independence it should have. In a statement released Thursday, Senate Banking Committee Chairman Chris Dodd (D-Conn.) said his focus is on the agency�s powers.

�A lot of attention is being paid to what address the new consumer watchdog will have, but the critical question is will this office have the authority and independence it needs to prevent a replay of the abuses we have seen in recent years that burned so many Americans,� he said.

Though no final decision has been made, a plan to house the consumer agency within the Federal Reserve has gained the most traction. Many Democrats, including House Financial Services Committee Chairman Barney Frank (D-Mass.), have balked at this, saying the Fed has failed to protect consumers in the past. But Dodd emphasized that the proposal would be different than what exists today.

�I am pushing for an office with an independent head, appointed by the President and confirmed by the Senate; that has an independent budget to do its work; autonomy to craft rules; and an ability to enforce those rules.�

Some Republicans want the regulatory agency in which the consumer organization is housed to have veto power over any rules it writes, but Dodd reportedly has said that will not happen. Committee Democratic and Republican staff members are expected to work through the weekend on a compromise proposal.

ABA has consistently opposed creation of a stand-alone CFPA and remains concerned about any proposal that separates consumer and safety and soundness regulation.

— Preserve Thrift Charter. ABA welcomed a letter sent last week by Sen. John Kerry (D-Mass.) asking Senate Banking Committee Chairman Chris Dodd (D-Conn.) and panel ranking member Richard Shelby (R-Ala.) to retain the federal thrift charter in the pending financial regulatory reform legislation.

The draft reform legislation that Dodd unveiled late last year would have preserved existing thrift charters, but prevented granting new charters, �which I believe is the wrong treatment for a vital segment of our nation�s financial system,� Kerry said in a letter. He emphasized that thrift institutions are needed to rebuild and sustain a healthy level of homeownership, since they must hold a certain percentage of their portfolios in housing-related assets.

ABA continues to strongly advocate preservation of the thrift charter as part of its reg reform message.

Staff Contact--Bob Davis (202) 663-5588.

to top

CBO: Customers Would Bear Some Costs of Proposed Bank Tax
�[T]he ultimate cost of a tax or fee is not necessarily borne by the entity that writes the check to the government,� the Congressional Budget Office said yesterday in a letter to Sen. Charles Grassley (R-Iowa) on the administration�s proposed bank tax, which the White House has dubbed the �Financial Crisis Responsibility Fee.�

�The cost of the proposed fee would ultimately be borne to varying degrees by an institution�s customers, employees, and investors � Customers would probably absorb some of the cost in the form of higher borrowing rates and other charges�,� the CBO said. Grassley had asked the CBO to answer a number of questions about the possible effects of the tax proposal, which would apply a 0.15 percent assessment on the total liabilities, minus insured deposits, of financial institutions with at least $50 billion in assets.

The CBO also stated that the tax would not have a �significant impact� on assessed institutions� stability, but could not make a prediction as to whether �the net impact [of the tax] would be to raise or lower the federal government�s costs in the future.�

ABA strongly opposes the bank tax proposal and continues to remind policymakers that taxpayers will actually profit from the bank portion of the Troubled Asset Relief Program.

Staff Contact--Jim Chessen (202) 663-5130.

to top

Administration Sends �Volcker Rule� Language to Hill
The Obama administration this week sent draft legislative language to Congress that is intended to implement the president�s January proposal to cap big banks� future growth. It also would bar them from proprietary trading and from owning, investing in or sponsoring hedge funds or private equity funds.

According to a White House fact sheet, the proposal -- named the �Volcker rule� after former Federal Reserve Chairman Paul Volcker -- would not allow a financial firm to acquire another company if the resulting firm would have more than 10 percent of the financial system�s liabilities.

It also would attempt to define proprietary trading. The fact sheet says such trading is �purchasing or selling, or otherwise acquiring and disposing of, stocks, bonds, options, commodities, derivatives or other financial instruments for the institution's or company's own trading book, and not on behalf of a customer, as part of market making activities, or otherwise in connection with or in facilitation of a customer relationship (including hedging activities related to the foregoing).�

The administration is asking Congress to include the proposal in pending financial regulatory reform legislation, but Senate Banking Committee Chairman Chris Dodd (D-Conn.) has indicated he would prefer to let the regulators address the issues through rulemaking.

Staff Contact--Wayne Abernathy (202) 663-5222.

to top

ABA Supports Continuing Fed�s Role in Financial Supervision
ABA and five other financial services trade groups on Wednesday urged Senate Banking Committee Chairman Chris Dodd (D-Conn.) and ranking member Richard Shelby (R-Ala.) to preserve the Federal Reserve�s role in financial supervision.

The trade groups emphasized that while the Fed�s primary responsibility is monetary policy, regulatory reform legislation should not separate that role from financial supervision. �The hands-on supervisory experience of the Federal Reserve conducted through its 12 regional Federal Reserve Banks directly informs its monetary policy analysis, keeping it closely connected with financial and economic conditions as they develop throughout the country,� the trade groups said in a letter. They added that the experience the Fed gains through its supervisory operations supports its conduct of monetary policy.

The trade groups also backed the Fed�s continued supervision of state-chartered banks that are members of its system. Limiting the Fed to supervising only large, complex institutions in major financial centers would be a mistake, they said. �The Federal Reserve needs a broader regulatory focus to ensure that for both its central bank and regulatory functions it has a clear view of banks of all sizes, from all regions, and from differing types of communities,� the trade groups said.

Staff Contact--Wayne Abernathy (202) 663-5222.

to top

ABA: Overzealous Regulators Hindering Small-Biz Credit
ABA this week sent banking regulators a list of areas in which overzealous examiners are acting contrary to the agencies� recent statement on meeting creditworthy small businesses� credit needs. Regulatory and examination practices that are inconsistent with the new interagency statement -- based on bankers� comments at the recent ABA National Conference of Community Bankers -- are inhibiting bank lending to small businesses and other customers, ABA President and CEO Ed Yingling said in a letter.

�The [examiners�] conduct described by the bankers threatens to exacerbate the decline in credit that was reflected in the FDIC�s most recent Quarterly Banking Profile,� Yingling said. �We firmly believe there are ample opportunities for system-wide improvements in the areas [ABA noted].�

Those areas include capital, asset classification, funding sources, commercial real estate concentrations, exam reporting delays, Real Estate Settlement Procedures Act compliance and FDIC asset disposition practices. Yingling explained the problems overzealous examiners are causing in each area, and outlined ABA-recommended solutions.

He said, for example, many bankers report that examiners are requiring banks to hold capital well above the regulatory minimums and above the �well- capitalized� thresholds in the prompt corrective action rules. �Directives to increase capital ratios often leave a bank with no choice but to shrink, which inevitably means selling assets and curtailing lending,� Yingling said. �These outcomes can be avoided by recognizing that capital is to be used as a buffer in bad times and replenished when conditions improve.�

He then listed five ABA-recommended changes to the capital rules that would avoid inappropriate outcomes, and in many cases could be done quickly for immediate relief.

Staff Contact--Mark Tenhundfeld (202) 663-5042.

to top

Fed Issues Proposed Rule on Card Fees, Interest Rates
The Federal Reserve proposed a rule that would implement 2009 Credit Card Act provisions slated to go into effect Aug. 22. The rule is the third stage in the Fed's implementation of the act. The proposal would, among other things, prohibit card issuers from charging penalty fees that exceed the dollar amount associated with the violation. For example, a consumer couldn't be charged a $39 fee for being late on a $20 minimum payment. Instead the fee couldn't exceed $20.

The proposal also would ban inactivity fees, such as those charged for not using the account to make new purchases; bar charging multiple penalty fees based on a single late payment or other violations of account terms; require that consumers are informed about the reasons for rate increases; and mandate that issuers who have increased rates since Jan. 1, 2009, evaluate whether the reasons for the increase have changed and reduce the rate if appropriate. There will be 30-day comment period on the proposal after its publication in the Federal Register.

Staff Contact--Nessa Feddis (202) 663-5433.

to top

ABA Urges Changes to Capital Rules Concerning Loan Sales
ABA urged banking regulators to modify risk-based capital rules starting at the end of the coming quarter because there are technical problems with using the Financial Accounting Standards Board�s Statement No. 166 as a basis for regulatory compliance. FAS 166 (Accounting for Transfers of Financial Assets), which is effective for transactions after Dec. 31, 2009, is noted for its effect on securitization structures, but it also changes the requirements to attain sale accounting and can have a big impact on loan participations, ABA EVP Bob Davis explained in a letter.

The association cited LIFO (last-in, first-out) loan participations and the sales of Small Business Administration-guaranteed loans as examples of how using FAS 166 for regulatory purposes will restrain lending by artificially hurting banks� capital as well as their compliance with legal lending limits. Under FAS 166, LIFO participations would not qualify for sale accounting and the sales of the guaranteed portions of most SBA loans would be deferred for 90 days. Without sale accounting treatment, such loans would remain on banks� books.

ABA recommended, among other things, that the agencies clarify regulations on legal lending limits, and assign a zero risk-weighting to those portions of LIFO participations and SBA loans that would have attained sale accounting prior to FAS 166, but now remain on the books.

Staff Contact--Michael Gullette (202) 663-4986.

to top

ABA Continues Advocacy to Boost Small-Business Lending
ABA this week continued its year-long advocacy, which includes testifying at nine congressional hearings, for policies that can help banks increase the flow of credit to small business.

Testifying before the Senate Banking panel�s Economic Policy Subcommittee on Tuesday, ABA Chairman Art Johnson, among other things, called for enhancements to Small Business Administration initiatives, and he cautioned that overly conservative examiners are having a chilling effect on bank lending.

Johnson, who is chairman and CEO of United Bank of Michigan, a $428 million bank in Grand Rapids, Mich., also expressed appreciation for the president�s initiative to use Troubled Asset Relief Program funds to provide additional capital to small banks that volunteer to use it to increase small-business lending. The key factor is removing it from Troubled Asset Relief Program-like restrictions, since those were an impediment to community bank participation, he said.

Johnson also cited two programs in his home state of Michigan -- the Capital Access Program and the Michigan Collateral Support Program -- that could be adapted nationally to help small businesses in local markets.

Sen. Carl Levin (D-Mich.) also referenced these programs during the hearing and proposed a reserve fund that a bank could use when a small-business borrower�s collateral dropped in value. A small-business borrower would pledge 3.5 percent to 7 percent of a loan's value as collateral into a reserve account at the lending bank, and that would be matched by state and federal funding.

The concept is reportedly similar to a bill (H.R. 4629) that Levin�s brother, Rep. Sander Levin (D- Mich.), introduced last week that would provide $20 billion of repaid TARP funds to help manufacturers obtain credit by addressing cash flow and collateral shortfalls. House Financial Services Committee Chairman Barney Frank (D-Mass.) is one of the bill�s co-sponsors.

— SBA Program Enhancements Extended. The unemployment benefits extension bill (H.R. 4691) that the president signed into law Tuesday includes an ABA-backed provision that reauthorizes the expired 90-percent guarantee on the Small Business Administration�s 7(a) loan program through March 28. The legislation also provides $60 million to fund the higher guarantee and the elimination of borrower fees for the SBA's 7(a) and 504 loan programs.

Staff Contact--James Ballentine (202) 663-5359.

to top

ABA Urges House Leaders to Oppose CU Business-Loan Changes
ABA strongly urged House Speaker Nancy Pelosi (D-Calif.) and Minority Leader John Boehner (R-Ohio) to oppose a bill (H.R. 3380) that would unnecessarily expand credit union business-lending authority requirements, and it also urged them to oppose efforts to include the measure in any future jobs legislation.

H.R. 3380 would increase the business lending cap from 12.25 percent of a credit union�s total assets to 25 percent, raise the business-loan de minimis level to $250,000 and exclude other loans from the cap.

Increasing the business-lending cap and expanding credit unions� already broad authority would substantially increase credit unions� risk exposure, affect only a handful of credit unions and therefore have only a minimal impact on lending, Floyd Stoner, ABA EVP for congressional relations, said in a letter that also was sent to all House members.

�In fact, only 37 of the nearly 7,600 credit unions, or about one-half of one percent of all credit unions, would be directly impacted because they are at or near their congressionally mandated 12.25 percent lending cap,� Stoner explained.

�Furthermore, the National Credit Union Administration reported that the number of credit unions offering any business loans fell by 14.3 percent since the beginning of the year to 1,674 credit unions. Therefore, raising the cap would have very little impact on lending to businesses,� he said.

ABA continues to encourage bankers to contact their House members to express opposition to the credit union provisions. Click here for key points to share with your representative.

Staff Contact--Keith Leggett (202) 663-5506.

to top

FHFA Extends Refinance Program as ABA, Trade Groups Requested
The Federal Housing Finance Agency this week extended to June 30, 2011, the Home Affordable Refinance Program administered by Fannie Mae and Freddie Mac that was slated to expire on June 10 of this year. ABA and four housing finance trade groups asked for the extension in a Feb. 18 letter to Treasury Secretary Timothy Geithner and FHFA Acting Director Ed DeMarco.

The trade groups emphasized that HARP is just as critical today as it was when it was introduced last year. �It allows current borrowers to refinance loans owned by Fannie Mae or Freddie Mac with LTVs up to 125 percent,� they said. �This helps avoid unnecessary foreclosures and helps keep families in their homes by improving mortgage affordability.�

Staff Contact--Rod Alba (202) 663-5592.

to top

ABA Responds to HUD Proposed Rule of SAFE Act

ABA joined in a letter with other key organizations representing mortgage lenders to oppose parts of a HUD proposal to implement the Secure and Fair Enforcement for Mortgage Licensing Act. ABA expressed particular concern about the undue expansion of SAFE requirements through the rulemaking.

�[T]he �purpose� provisions of the rule should expressly state HUD�s role of reviewing compliance with minimum standards and should not indicate that HUD has overall responsibility for interpretation, implementation and compliance with SAFE,� the letter said. For example, the rulemaking �should conform to the statutory definitions, avoid being overly broad, and be consistent with the federal banking agencies� definitions.� Concern also was expressed that the process of serving troubled borrowers could be hampered by ill-founded registration requirements for bank employees and licensing requirements for other lenders.

Staff Contact--Bob Davis (202) 663-5588.

to top

Selected Short Subjects

Fed�s Kohn to Step Down. Federal Reserve Board Vice Chairman Donald Kohn said this week that he will resign on June 23, the day his term as vice chair ends. Kohn, 67, whose Fed career spans 40 years, has been a board member since August 2002 and has served as vice chairman since June 2006. President Obama now has three Fed vacancies to fill, including two of seven governor positions that have been open since before he took office.
Accounting Panel. ABA banker Paul Limbert, president and CEO of Wesbanco Inc., a $5.1 billion bank holding company in Wheeling, W.Va., has been appointed to a blue-ribbon panel that will address how U.S. accounting standards can best meet the needs of those who use private-company financial statements. After reviewing issues affecting the current system of standard-setting for private companies, the panel will issue recommendations to the Financial Accounting Foundation�s board of trustees, which oversees the Financial Accounting Standards Board. Limbert has served on the ABA Accounting Administrative Committee and is a certified public accountant.
TARP. The Treasury Department on Wednesday auctioned its Bank of America Corp. warrants, received under the Troubled Asset Relief Program, for $1.54 billion -- considerably more than Treasury had expected. The government so far has raised about $4 billion by selling warrants in more than 35 banks.
Employer-Provided Retirement Programs. ABA and more than 200 other trade groups and companies last Friday sent a letter urging all House and Senate members to maintain and strengthen the current voluntary, flexible employer-provided retirement system in the wake of concerns about employment security. The groups pointed out that private-sector employers participate in a wide variety of retirement arrangements, and that variety demonstrates the need for flexibility to meet the needs of various workforces.
Ways and Means. Rep. Sander Levin (D-Mich.) became acting chairman of the House Ways and Means Committee following a decision by Charles Rangel (D-N.Y.) to take a leave of absence from the post while the House Ethics Committee completes investigations involving his travel, finances and disclosures.

to top

Looking for a past issue of Washington Perspective? Recent issues are archived here.

ABA Washington Perspective is published Mondays by the American Bankers Association as a service to its members.

For more information on this publication and other services provided by ABA, e-mail the editor Jim Eberle, or write to: Jim Eberle, American Bankers Association, 1120 Connecticut Avenue, NW, Washington, DC 20036.

- Members Only Content