The Center for Public Integrity

A daily round-up of commentary, analysis and news about the Dodd-Frank reform law.

TBTF banks – A senior Federal Deposit Insurance Corp. official says a systemically important bank or financial institution may be required to restructure its operations if it can’t create a plan to unwind its business in an orderly manner.

"Ultimately, a SIFI (systemically important financial institution) could be required to restructure its operations if it cannot demonstrate that it is resolvable in an orderly manner under the bankruptcy code," said Michael Krimminger, the FDIC chief counsel, in prepared testimony.

Krimminger also notes that the lack of an international insolvency framework makes it more difficult to resolve big, complex financial companies with global operations. Krimminger is among those scheduled to testify at a House Financial Services subcommittee hearing today, and his written testimony is posted here.

Hedge funds, insurers suddenly modest – Insurance giant Mass Mutual Financial Group, hedge fund legend Paulson & Co., and influential funds such as Fidelity Investments, BlackRock and PIMCO are among the financial services companies trying to convince federal regulators that they aren’t big enough to pose a threat to the U.S. financial system, the New York Times reports.

A daily round-up of commentary, analysis and news related to the Dodd-Frank law.

Bank of America investigated - The New York attorney general is targeting Bank of America Inc. in a new investigation that questions the validity of "potentially thousands" of mortgage securities and their foreclosures, the Huffington Post reports.

Sources told HuffPo that Attorney General Eric Schneiderman's probe is part of a bigger investigation examining if mortgage companies and Wall Street firms took the necessary steps under New York state law when creating mortgage-backed securities.

If legal steps required for securitization -- like taking mortgage documents from one party to another -- did not comply with New York state law, HuffPo said that the investors who bought the bundled loans could force the companies to buy them back. And state investigators also find that those securities aren't valid financial instruments and take action under state law.

Forums on swaps, capital  – Financial regulators meet this week to clear up confusion over swaps oversight and bank capita requirementsl, two of the most contested areas of reform.

The Federal Deposit Insurance Corp on Tuesday will finalize rules for bank capital requirements. On the same day, the Commodity Futures Trading Commission will discuss missed deadlines in finalizing its new rules to police the swaps market.

The Commodity Futures Trading Commission reaches out to derivatives traders this week to calm their fears about the agency’s failure to finalize dozens of new rules that are required by law to take effect on July 16.

Commissioners will meet Tuesday morning to discuss a broad exemption for over-the-counter derivatives trading, so that the market can continue to operate as usual until regulators complete the new rules. Companies and banks with derivatives contracts, also known as swaps, are worried that any deals done after the missed deadline could be challenged in court.

The Dodd-Frank law, approved nearly one year ago, set specific deadlines for regulators to write and finalize rules policing the multi-trillion-dollar derivatives market. Among them: new requirements to use clearinghouses to guarantee derivatives trades and to improve transparency in the secretive market.

A derivative is a sophisticated financial instrument whose value is derived from the value of another asset. Large companies often use derivatives to hedge against risks in interest rates, oil prices, foreign exchange, or even weather.

The Securities and Exchange Commission, which has a smaller role in regulating the derivatives market, announced on Friday that it would suspend some of the new derivatives rules.

“While such swaps will be subject to provisions addressing fraud and manipulation, the Commission intends to provide temporary relief from certain other provisions of the Exchange Act so that the industry will have time to seek, and the Commission can consider, what if any further guidance or action is required,” the SEC said in a statement.  The agency also estimated that it had either proposed or finalized rules for about two-thirds of more than 90 derivatives-related measures required by the law.

A daily round-up of news, commentary and analysis about the Dodd-Frank financial reform law.

Stress tests – Top U.S. banking regulators on Friday said they will require more banks to hold annual stress tests beginning in 2012 to measure if they are strong enough to raise dividends to shareholders.

The Fed proposal would apply to banks with at least $50 billion in assets -- or about 35 companies -- up from the current 19 banks that are required to do stress testing. Stress tests are computer models run by banks to assess their loans, securities portfolios, and funding operations based on various economic scenarios, including factors such as higher unemployment. 

Senate Republicans take aim at law - Republican senators have introduced three amendments to a U.S. Senate bill in an attempt to rework Dodd-Frank, including one from Jim DeMint of South Carolina that would repeal the entire Dodd-Frank law, reports the Wall Street Journal.

In addition to DeMint's amendment, Jerry Moran of Kansas offered language that would replace the director of the Consumer Financial Protection Bureau with a six-person board, while David Vitter of Louisiana proposed blocking the Federal Reserve from bailing out failing companies. Vitter’s amendment would also strip a council of regulators, known as the Financial Stability Oversight Council, of its authority to decide if a bank is “too big to fail.”

However, the amendments are likely to fail based on the Wednesday vote in the Senate, in which lawmakers rejected an attempt to delay a Dodd-Frank provision capping bank fees on debit card processing.

A daily round-up of news, commentary and analysis related to the Dodd-Frank financial reform law.

Warren aide as CFPB nominee? – President Barack Obama may nominate Raj Date, a former banker with Capital One Financial Corp. and Deutsche Bank AG, to head the Consumer Financial Protection Bureau, Bloomberg News and other media report.

Date has been a top deputy since February to Elizabeth Warren, the presidential advisor charged with setting up the CFPB. Some 44 Senate Republicans recently threatened to veto any nominee for the CFPB top job unless power is stripped from the new agency. Presidential nominees require 60 Senate votes to secure confirmation, which means Obama may have to resort to a recess appointment.

A Geithner critique – Treasury Secretary Tim Geithner is "simply wrong" in believing that tougher capital requirements aren't needed for megabanks because of the Dodd-Frank law's new bank resolution mechanism, writes economist Simon Johnson in the Baseline Scenario blog.

In a speech earlier this week, Geithner expressed faith that the Federal Deposit Insurance Corp's new resolution powers can adequately handle the collapse of a megabank by imposing losses on creditors. But there is no cross-border resolution mechanism to handle the failure of an international bank like a Citigroup or Goldman Sachs, says Johnson, who was recently named to the FDIC's resolution advisory panel.

A daily round-up of analyses, columns and news related to the dodd-Frank financial reform law.

JPMorgan complains – Need further evidence that financial reform stifles growth? Just look the recent headlines announcing weak economic growth, slow hiring, and increased unemployment, JPMorgan Chase & Co. CEO Jamie Dimon told Federal Reserve Chairman Ben Bernanke.

Dimon, a critic of many of the Dodd-Frank reforms, asked Bernanke at a financial conference in Atlanta whether anyone had studied the effect that stricter banking regulations had on economic growth. Bernanke responded, “I can't pretend that anybody really has. You know, it's -- it's just too complicated. We don't really have the quantitative tools to do that." 

The concern that banks may face new costs in order to comply with Dodd-Frank regulations has been repeatedly raised by House Republican lawmakers, but Dimon's comments marked the first time a major bank executive sounded off on the issue. Bloomberg has a clip of the Bernanke-Dimon exchange here.

Interim derivatives rules – The Commodity Futures Trading Commission promised to soon clarify its timeline for finalizing regulation of the multi-trillion-dollar derivatives market, the Wall Street Journal reports.

At a Tuesday public meeting, CFTC members will discuss whether to allow the derivatives market to operate as usual until regulators finalize the rules, which won't be ready by the July deadline.

A daily round-up of analyses, columns and news related to the Dodd-Frank financial reform law.

Death by Delay – Nearly half the financial regulations required by the Dodd-Frank law are behind schedule, a pace that reflects some lawmakers’ attempts to effectively kill the act before the next election cycle, the New York Times reports.

So far, 28 of the financial overhaul rule-making deadlines have been missed, according to law firm Davis Polk. Of the 385 new rules to be written, regulators have completed only 24 so far, well behind the 41 rules that should have been completed by now. The setbacks affect rules ranging from a limit on debit card fees, to regulation of derivatives contracts trading, to bank capital requirements.

Says Bart Chilton, a Democrat on the Commodity Futures Trading Commission: "It's going a lot slower than I had envisioned."

Consumer Financial Protection Bureau – Although critics claim it will strangle financial innovation, the new CFPB may prove a boon to businesses by encouraging competition and efficient markets, reports The New Yorker.  

It’s Economics 101 – a consumer bureau that arms buyers with better information will encourage comparison shopping, thereby improving the efficiency of financial markets. Currently, many consumers are confused by pages of tiny-script legalese on mortgage or credit-card agreements and often unaware of how much they are paying and why. At a time when Americans "profoundly distrust" banks, the CFPB could help the industry create better credit products for customers.

A daily round-up of analyses and news related to the Dodd-Frank financial reform law.

Goldman Sachs backlash – Goldman Sachs Group Inc. aims to discredit a U.S. Senate subcommittee’s 639-page report that lies at the heart of a New York investigation into the bank's role in the U.S. credit crisis.

Goldman may release documents about its 2007 mortgage bets to show that the Senate’s report is based on “sloppy math and incomplete analysis,” the Wall Street Journal reported on Monday. The New York district attorney subpoenaed Goldman last week based on information provided by the Senate Permanent Subcommittee on Investigations, led by Michigan Democrat Carl Levin, that claimed the firm misled clients on mortgage-backed securities.

SEC may rebuke Lehman - The Securities and Exchange Commission may issue a rare public rebuke of Lehman Brothers Holdings Inc. and its former executives, unnamed sources told Bloomberg.

The rebuke -- more formally known as a 21(a) report of investigation -- could be issued in place of a lawsuit if SEC lawyers believe they are unlikely to win a suit attacking Lehman's accounting practices before its 2008 failure. The 21(a) reports lay out allegations of misconduct without imposing penalties, and only six have been issued by the SEC in the past decade.

The so-called Too Big To Fail banks will weigh in this week on a Federal Deposit Insurance Corp. proposal that would require each to compose a living will detailing how it could go out of business in an orderly manner without threatening the rest of the U.S. financial system. 

Friday is the deadline for comments from TBTF banks – those with $50 billion or more in assets – and from the rest of the public. The proposed rule requiring the contingency plans would also apply to non-bank financial companies that are supervised by the Fed.

Under the proposal, each mega-bank would be required to annually file a living will that has been approved by its board of directors. Each living will must include derivatives and hedging instruments used by a bank; a detailed inventory of its management information systems and applications; a map of its subsidiaries and interdependencies; and quarterly updates of a bank’s credit exposure.

"The ability to plan in advance for the orderly resolution of a systemic entity is key to ending Too Big To Fail,” FDIC Chairman Sheila Bair said in late March when she announced the proposal. “These plans will be instructive to institutions as a way for them to better understand how their business lines interact and how to mitigate the effects of failure risk."

Bair's term as FDIC chairman expires early next month, and no successor has yet been nominated by the Obama administration.

Other Congressional hearings, rulemaking deadlines and events related to the Dodd-Frank reform law this week:

Monday, June 6

Forex exemption - Deadline for public comments on the Treasury Department's proposal to exempt of forex swaps and forwards from derivatives regulations.