Acting Comptroller of the Currency Keith A. Noreika has taken another swipe at a fellow financial regulator.
Noreika chastised the Federal Deposit Insurance Corporation for what he perceived as inaction on granting deposit insurance for new banks seeking to set up shop. The OCC approves bank charters, but new banks also must obtain deposit insurance from the FDIC. “We, ourselves, since 2001 have chartered 14 institutions, and the FDIC hasn’t acted on a single—any of those 14 applications,” Noreika said in a podcast posted Aug. 4 by the Commodity Futures Trading Commission. “They just let it hang out there forever, so that the organizers wasted all their money trying to get insurance, and then they gave up.” Lawmakers and regulators, particularly Republicans, have pointed to this lack of new bank formation as a reason to deregulate. Requiring new banks to apply to separate agencies is “a significant barrier to entry into the banking business,” Noreika said in prior remarks. “The FDIC’s role in reviewing and approving applications for deposit insurance—and closely monitoring the condition of new banks as they become established—has been an important safeguard of the safety and soundness of our banking system for more than 25 years,” Hagenbaugh said.
A regulator responsible for the safety of banks has a message to senators: Don't listen to bankers telling you that they need lower capital requirements to increase lending, the Washington Examiner reported today. Despite the push from the industry to lower the standards that were ramped up in the wake of the 2008 financial crisis, big banks actually have too little capital, according to Thomas Hoenig, the vice chairman of the Federal Deposit Insurance Corporation. In a letter sent on Monday to Senate Banking Committee Chairman Mike Crapo (R-Idaho), Hoenig argued that if banks want to increase lending, they could do so without lower capital requirements, by retaining earnings rather than paying dividends to shareholders. The 10 biggest banks could boost lending by $1 trillion annually simply by holding onto more earnings, he said. "I can only caution against relaxing current capital requirements and allowing the largest banks to increase their already highly leveraged positions," Hoenig told Crapo and his Democratic counterpart on the committee, Sen. Sherrod Brown of Ohio in the previously unreported letter. "The real economy has little to gain, and much to lose, by doing so."
Ocwen Financial could soon get a big boost in its fight against the Consumer Financial Protection Bureau from a once-unlikely source – the Department of Justice. In defending itself against the CFPB’s claims that Ocwen illegally foreclosed on borrowers, ignored customer complaints, mishandled borrowers’ money, and failed at the most basic of mortgage servicing actions. Ocwen asked a federal judge to declare the CFPB unconstitutional and toss out the CFPB’s lawsuit against the company. The issue raised by Ocwen is the whether the structure of the CFPB is unconstitutional, which is also currently in question in a legal battle between the CFPB and PHH. Both PHH and Ocwen have argued that the CFPB is unconstitutionally structured because the bureau’s director has too much power and that the bureau operates without supervision or oversight. It should be noted that the judge’s ruling simply allows the DOJ to contribute to the case if it chooses to. There’s no guarantee that the DOJ will elect to join the case, but given the agency’s previous declaration that the CFPB is unconstitutionally structured, it is likely that the DOJ will contribute to the Ocwen case and make a similar declaration about the CFPB.
The last financial crisis cleared out an alphabet soup of complex credit products. One type, however, has returned in droves in recent years, although popularity is now threatening their viability, the Wall Street Journal reported on Tuesday. This product is collateralized loan obligations (CLOs), which buy portfolios of risky, leveraged loans often used by private-equity firms in buyouts. In the U.S., new CLO volumes have outstripped pre-crisis totals since 2014, while Europe is catching up to its previous levels fast. But returns from the loans they buy are getting squeezed as money from retail and institutional investors rushes in alongside CLOs to snap up loans. That could bring CLOs to a painful halt again. The biggest CLO managers, such as Blackstone’s GSO Capital Partners, Carlyle Group, Investcorp and Alcentra, run billions of dollars’ worth of deals. Such vehicles own more than 60 percent of the more than $900 billion in outstanding U.S. leveraged loans, according to S&P Global LCD.
On the day the Senate moved on long-promised health-care legislation, President Donald Trump signaled his next priority: overhauling the tax code to push corporate rates down and give middle-class taxpayers a break, even if it means some of the wealthiest pay more, The Wall Street Journal reported yesterday. “The people I care most about are the middle-income people in this country, who have gotten screwed,” President Trump said, reiterating that he wants to bring down the corporate tax rate to 15 percent. “And if there’s upward revision it’s going to be on high-income people.” Sitting behind his desk in the Oval Office, President Trump hopscotched across a variety of policy and personnel topics over the course of the 45-minute interview. The president said his front-runners to be the next chairman of the Federal Reserve board of governors early next year would be the incumbent, Janet Yellen, and Gary Cohn, director of the National Economic Council. Turning to taxes, he echoed some of the populist themes from his presidential campaign. He described twin imperatives in overhauling the tax structure: boosting economic growth and easing the tax burden on middle-class families. “I have wealthy friends that say to me, ‘I don’t mind paying more tax,’” the president said. He added that “we have to take care of middle-income people in this country. They built the country. They started this whole beautiful thing that we have. And we have to take care of them. And people have not taken care of them, and we’re going to.” President Trump’s aides are working with top Republican lawmakers on a proposal that would bring about the first major rewrite of the tax code in 30 years. President Trump and White House officials have been vague on significant middle-class provisions, such as the personal exemption, while promising specific benefits for high-income households such as the repeal of the estate tax and alternative minimum tax.
Targeting government regulations, the Republican-led House on voted to nullify a rule that would let consumers join together to sue their banks or credit card companies rather than use an arbitrator to resolve a dispute, The Associated Press reported yesterday. The repeal resolution passed by a vote of 231-190. The Consumer Financial Protection Bureau finalized the rule just two weeks ago. It bans most type of mandatory arbitration clauses, which are often found in the fine print of contracts governing the terms of millions of credit card and checking accounts. Republican lawmakers, cheered on by the banking sector and other leading business groups, wasted no time seeking to undo the rule before it goes into effect next year. They'll succeed if they can get a simple majority of both chambers of Congress to approve the legislation and President Donald Trump to sign it. The numbers are likely on their side, just as they were earlier this year when Republicans led efforts to upend 14 Obama-era rules. GOP lawmakers described the rule as a bad deal for consumers but a big win for trial lawyers. They said the average payout for participants in a class-action lawsuit was just $32 in the financial disputes the consumer bureau studied. "How is that pro-consumer?" asked Rep. Keith Rothfus (R-Pa.). Meanwhile, Rothfus said the average payout for the attorneys in the class-action cases amounted to nearly $1 million. Democratic lawmakers fought to keep the rule. They said they're not opposed to arbitration. It just shouldn't be the only option consumers have.
Wall Street is getting worried about the debt-ceiling debate in Washington, The Wall Street Journal reported yesterday. Bond traders, concerned about protracted sparring over the federal government’s borrowing limit, are pushing up the yields on short-term Treasurys. The three-month yield now pays more than a note whose term is twice as long. It’s a rare “inversion” that hasn’t happened in this corner of the market since the throes of the financial crisis. A brief default on government debt would hit short-term T-bills first, so they’ve typically turned volatile ahead of deadlines in Washington for lifting the government’s cap on borrowing. But the magnitude and timing of the moves — well before October, the Congressional Budget Office’s estimated deadline for a deal — suggest that investors are on edge about what’s to come. To be sure, analysts say that yields in the $1.7 trillion T-bill market can become jumbled up for reasons besides a debt debacle, such as when the Federal Reserve is in a cycle of lifting rates, as is currently taking place. When rates are rising, pushing up short-term yields relative to their longer-term counterparts, they are already more disposed to become inverted. But this is the first time these yields have inverted on a closing basis since the central bank began lifting rates in late 2015.
In August 2012, the federal government abruptly changed the terms of the bailout provided to Fannie Mae and Freddie Mac, The New York Times reported on Sunday. Instead of continuing to receive payments on the taxpayer assistance, Treasury officials decided to begin seizing all the profits both companies generated every quarter. It was an unusual move, but it was necessary to protect taxpayers from likely future losses in their operations. Newly unsealed documents show that as early as December 2011, high-level Treasury officials knew that Fannie and Freddie would soon become profitable again. The materials also show that government officials involved in the decision to divert the profits knew the change would most likely generate more money for Treasury than the original rescue terms, which required the companies to pay taxpayers 10 percent annually on the bailout assistance they had received. The 17-page memo shows that the idea to extract all of Fannie’s and Freddie’s profits coincided with their anticipated turnaround. Another unsealed document, a draft memorandum circulated before the profit sweep, shows that federal officials recognized it would generate more money than the original bailout terms. Net income generated by Fannie and Freddie and paid to the government “will likely exceed the amount that would have been paid if the 10 percent was still in effect,” it stated.
Americans, reputed to be the most litigious people in the world, are filing far fewer lawsuits, The Wall Street Journal reported yesterday. Fewer than two in 1,000 people — the alleged victims of inattentive motorists, medical malpractice, faulty products and other civil wrongs — filed tort lawsuits in 2015, an analysis of the latest available data collected by the National Center for State Courts shows. This is down sharply from 1993, when about 10 in 1,000 Americans filed such suits. A host of factors are fueling the decline, including state restrictions on litigation, the increasing cost of bringing suits, improved auto safety and a long campaign by businesses to turn public opinion against plaintiffs and their lawyers. The nationwide ebb in lawsuits, which confounds the public perception of courts choked with tort claims, has broad ramifications for businesses, doctors, patients, lawyers and the courts themselves. Companies and insurers on the receiving end of such lawsuits welcome the decline of what they regard as a lawsuit culture in which lawyer-driven litigation increases costs to both business and consumers. Trade groups that represent these firms have long pushed for laws to raise the bar for filing lawsuits and rein in damages, portraying a large chunk of tort litigation as a drag on the economy that burns scarce judicial resources. At the same time, the falling number of tort filings, coupled with the broader decline in civil jury trials, has some judges concerned that Americans with garden-variety cases no longer see courts as an affordable way to seek redress for their injuries.
A new federal regulation that would make it easier for Americans to bring class-action lawsuits against banks and other financial institutions might be scrapped before it ever takes effect. Republican lawmakers had vowed to kill the rule, released by the Consumer Financial Protection Bureau just two weeks ago, and took the first step toward doing so Tuesday with a vote in the House of Representatives. The bureau, created by the Dodd-Frank Wall Street Reform Act in the wake of the financial crisis, is deeply unpopular with many Republicans, who deride it as an overreaching and unaccountable agency. Democrats largely support the bureau and its embattled director, Richard Cordray, calling it an effective enforcer of rules aimed at protecting consumers. The new rule would ban a common feature of contracts that consumers sign when they open bank accounts or use other financial products and services. Those contracts often include an arbitration clause — an agreement that customers will settle issues with the institution in private arbitration rather than in court.