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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsSheila Bair: Dodd-Frank really did end taxpayer bailouts
By Mike Konczal
Sheila Bair, the hard-charging former director of the Federal Deposit Insurance Corporation, stands at the center of three of the biggest debates in Dodd-Frank implementation.
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Mike Konczal: To start, how do you think Dodd-Frank is unfolding? Specifically, the rules for Title II and resolution authority.
Sheila Bair: We finalized most of the rules we could write on our own before I left, though they are working on further clarifications. I think the FDIC has come up with a viable strategy for resolving a large complex financial institution. This is their strategy of using a single-point-of-entry. The FDIC will take control of a holding company and put creditors and shareholders into a receivership where they, not taxpayers, will absorb any losses. This will allow the subsidiaries to remain operational, avoiding systemic disruptions, as the overall entity is unwound over time.
I think this is viable, and theyve done a lot of great work, particularly coordinating with the Bank of England on the relative resolution regimes. I think bondholders are starting to wake up to the idea that their money is at risk and that they could take losses, which will result in greater market discipline. If you convince the market TBTF is over, debt spreads will go up for large institutions. And you are seeing that happen a bit already. Theres a lot of work left to be done, but so far Id give implementation a pretty good grade.
It strikes me that coverage of resolution authority is often very political, with many people making up their minds on whether it will work from before the bill even passed. As such, its really difficult to understand if a stronger, versus a weaker, set of rules are being written.
We worked hard to make sure taxpayer bailouts are completely prohibited. I think the language is very tight on that. One of the things that frustrates me with critics of Title II is that they perpetuate the myth of Too Big To Fail by insisting that the government is still going to do bailouts, notwithstanding clear language in Dodd-Frank to the contrary. And that just continues the moral hazard by reinforcing market perceptions that the big institutions wont be allowed to fail.
There are some critics who think just the very act of FDIC being involved, especially with the ability to provide emergency financing, is a de facto bailout and puts taxpayers at risk.
A couple of things. First, the FDIC process is essentially a bankruptcy process. We follow claims priority religiously you would never see the FDIC haircutting secured creditors and bailing out unsecured creditors as they did with the GM bankruptcy. In fact, Dodd-Frank is more harsh than bankruptcy in that key board members and top managers have to be fired with mandatory clawbacks of their pay.
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http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/18/sheila-bair-dodd-frank-really-did-end-taxpayer-bailouts/
These are the new powers given the FDIC under Dodd-Frank.
Under section 121 of the Dodd-Frank Act, if the Board determines that a financial institution poses a grave threat to U.S. financial stability, then the Board, with approval from the Council, shall mitigate that threat.2 The Act offers regulators the flexibility to take a range of actions, including limiting the institutions mergers and acquisitions, restricting or imposing conditions on its products or activities, or ordering it to divest assets or off-balance sheet items.
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http://www.citizen.org/documents/Public-Citizen-Bank-of-America-Petition.pdf
Blair also addresses derivatives regulation, which some members of Congress are trying to gut.
By Travis Waldron
A week after a bipartisan group of lawmakers on the House Financial Services Committee overwhelmingly approved a rollback of certain financial reforms contained in the Dodd-Frank Wall Street Reform Act, one of the Senates biggest consumer advocates is pushing back.
Massachusetts Sen. Elizabeth Warren (D) came out swinging against the repeal of new rules meant to regulate derivatives, the complex financial instruments that were at the center of the storm that caused the financial crisis. The rules shouldnt be weakened or repealed just because big banks want to see them eliminated, Warren argued Thursday, The Hill reports:
The big banks won some battles and lost some battles during the financial regulatory debate in 2009 and 2010, but their tune never changed and their lobbying never let up, she said. It is dangerous for Congress to amend the derivatives provisions of the Dodd-Frank Act without at the same time taking accompanying steps to strengthen reform and maintain the laws equilibrium.
One rule the package of legislation advanced by the House committee would eliminate is a push out provision that would limit derivatives trading at banks that receive federal backing. Similar to the Volcker Rule, another provision Wall Street largely opposes, it is aimed at making taxpayer-backed banks safer to avoid crises similar to the one that thrust the United States into a recession and led to a bailout of major banks in 2008.
Warren isnt alone in her opposition to the rollback. The Obama administration has long opposed the repeal of the derivatives rules, and former Federal Deposit Insurance Commission chair Sheila Bair has said the swaps and derivatives rules need to be strengthened rather than weakened. Whether the rules will face a repeal vote in the Senate isnt clear: the House passed similar legislation in 2012, only to see it die in the Senate without a vote.
http://thinkprogress.org/economy/2013/05/17/2029651/elizabeth-warren-slams-dangerous-legislation-that-would-weaken-wall-street-reform/
The House bill has a Senate counterpart.
By Douwe Miedema and Sarah N. Lynch
WASHINGTON (Reuters) - A bipartisan group of 12 senators is seeking to exempt non-financial companies from new rules to make banking safer, breathing new life into efforts to reduce the scope of the Dodd-Frank overhaul of Wall Street.
The plans are squarely at odds with a warning from Treasury Secretary Jack Lew, who urged the Republican-controlled House of Representatives this week not to make any changes to the broad law drawn up after the 2007-09 credit meltdown.
"These reforms should not be weakened or repealed," Lew said in a letter to Representative Jeb Hensarling, chairman of the House Committee on Financial Services, referring to a raft of bills the panel has since adopted.
Now two senators have introduced a proposal to exempt companies using derivatives to protect against losses - and not to speculate on markets - from rules that would require them to pay high safety margins.
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http://www.reuters.com/article/2013/05/08/us-swap-rules-senate-idUSBRE94716P20130508
(U.S. SENATE) - U.S. Senators Mike Johanns (R-Neb.) and Jon Tester (D-Mont.) are leading a bipartisan group of Senators in introducing a bill to clarify the exemption for farmers, ranchers, manufacturers and small businesses from margin requirements included in the Dodd-Frank financial legislation. These exempted groups, known as end-users, use derivatives to manage their risk and insure against extreme price fluctuations for commodities and inputs - like seed and fertilizer - critical to their business operations.
Joining Johanns and Tester to introduce the bill are Senators Roy Blunt (R-Mo.), Mike Crapo (R-Idaho), Joe Donnelly (D-Ind.), Kay Hagan (D-N.C.), Heidi Heitkamp (D-N.D.), Amy Klobuchar (D-Minn.), Jerry Moran (R-Kan.), Richard Shelby (R-Ala.), Pat Toomey (R-Pa.), and Mark Warner (D-Va.).
The bill introduced by the senators is identical to H.R. 634, which today unanimously passed the House of Representatives' Financial Services Committee. It clarifies current law by making explicit that commercial end-users are not subject to costly margin requirements, consistent with Congress' intent in Dodd-Frank.
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http://www.tester.senate.gov/?p=press_release&id=2889
Wall Street reform was a huge achievement, but while its implementation is being ignored by supporters, its opponents are doing everything in their power to delay or weaken it.
Anyone paying attention saw this coming in 2011.
Bedrock Consumer Protections Once Were Flogged as Exceedingly Dangerous, Monstrous Systems That Would Cripple the Economy
WASHINGTON, D.C. As the nation approaches the first anniversary of the Dodd-Frank financial reform law, opponents are claiming that the new measure is extraordinarily damaging, especially to Main Street. But industrys alarmist rhetoric bears striking resemblance to the last time it faced sweeping new safeguards: during the New Deal reforms. The parallels between the language used both then and now are detailed in a report released today by Public Citizen and the Cry Wolf Project.
In the decades since the Great Depression, Americans acknowledged the necessity of having safeguards in place to prevent another crash of the financial markets, including the creation of the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC), and laws requiring public companies to accurately disclose their financial affairs. Although these are now seen as bedrock protections when they were first introduced, Wall Street cried foul, the new report, Industry Repeats Itself: The Financial Reform Fight, found.
The business communitys wildly inaccurate forecasts about the New Deal reforms devalue the credibility of the ominous predictions they are making today, said Taylor Lincoln, research director of Public Citizens Congress Watch division and author of the report. If history comes close to repeating itself, industry is going to look very silly for its hand-wringing over Dodd-Frank when people look back.
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In fact, the Dodd-Frank Wall Street Reform and Consumer Protection Act is designed to prevent another Wall Street crash, which really made it tough on everyone by causing massive job loss and severely hurting corner butchers and bakers, as well as retirees, families with mortgages and others. The Dodd-Frank law increases transparency (particularly in derivatives markets); creates a new Consumer Financial Protection Bureau to ensure that consumers receive straightforward information about financial products and to police abusive practices; improves corporate governance; increases capital requirements for banks; deters particularly large financial institutions from providing incentives for employees to take undue risks; and gives the government the ability to take failed investment institutions into receivership, similar to the FDICs authority regarding commercial banks. Much of it has yet to be implemented.
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http://www.commondreams.org/newswire/2011/07/12-0
ProSense
(116,464 posts)interest?
FarCenter
(19,429 posts)If Bernanke can't keep buying enough MBSs and the housing market turns down, the taxpayers will be on the hook for hundreds of billions.
"Not really, Fannie and Freddie are TBTF and still backed by taxpayer money."
...W(hen)TF did "Fannie and Freddie" become members of the largest commericial financial institutions?
"If Bernanke can't keep buying enough MBSs and the housing market turns down, the taxpayers will be on the hook for hundreds of billions."
Is there any other issue you want to conflate with the OP?
FarCenter
(19,429 posts)Both were put into government receivership in '08 during the mortgage collapse. They are still in receivership.
"Fannie became a private corp in '68. Freddie started as a private corp in '70 Both were put into government receivership in '08 during the mortgage collapse. They are still in receivership."
...Bank of America and Citi in "receivership"?
I'm fully aware of Fannie's status: http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=433&topic_id=609303&mesg_id=609392
Obama Administration Plan Provides Path Forward for Reforming Americas Housing Finance Market, Winding down Fannie Mae and Freddie Mac
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=433&topic_id=609303&mesg_id=609303
by Mark Memmott
The government-controlled mortgage giant Fannie Mae, which needed a $116 billion federal bailout after the housing bubble burst in 2007, said Tuesday that it earned a record $7.6 billion in fourth-quarter 2012 and $17.2 billion for the year.
That allowed it to pay $11.6 billion in dividends to the U.S. Treasury Department last year, Fannie Mae says. Since 2008, it has "paid taxpayers $35.6 billion in dividends." Looking ahead, "we expect our earnings to remain strong over the next few years," Timothy Mayopoulos, president and chief executive officer, said in a statement.
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http://www.npr.org/blogs/thetwo-way/2013/04/02/176011012/fannie-mae-posts-record-profit-paid-taxpayers-11-6-billion-in-2012
FarCenter
(19,429 posts)ProSense
(116,464 posts)"So long as Bernanke can keep things puffed up, all is well."
...want to rail against Fannie and Freddie, start a relevant thread. This one is about Dodd-Frank and too big to fail.
Bank of America (US)
Bank of New York Mellon (US)
Citigroup (US)
Goldman Sachs (US)
J.P. Morgan (US)
Morgan Stanley (US)
State Street (US)
Wells Fargo (US)
BNP Paribas SA (France)
Banque Populaire (France)
Crédit Agricole SA (France)
Société Générale SA (France)
Barclays PLC (UK)
HSBC Holdings PLC (UK)
Lloyds Banking Group PLC (UK)
Royal Bank of Scotland PLC (UK)
Mitsubishi UFJ FG (Japan)
Mizuho FG (Japan)
Sumitomo Mitsui FG (Japan)
Commerzbank AG (Germany)
Deutsche Bank AG (Germany)
UBS AG (Switzerland)
Credit Suisse AG (Switzerland)
Dexia SA (Belgium)
Bank of China (China)
Unicredit Group SA (Italy)
ING Groep NV (Netherlands)
Banco Santander SA (Spain)
Nordea AB (Sweden)
http://www.theatlantic.com/business/archive/2011/11/here-are-the-worlds-29-too-big-to-fail-banks/247932/
FarCenter
(19,429 posts)And if one of them fails, how does it prevent a cascading failure due to off-shore derivatives markets in London and elsewhere?
How does it prevent cascading failures due to the failure of off-shore special investment vehicles, which may or may not be carried on the books of the US bank or US subs of foreign banks?
ProSense
(116,464 posts)"How does Dodd Frank solve the problem of the last 21 banks on the list? And if one of them fails, how does it prevent a cascading failure due to off-shore derivatives markets in London and elsewhere?"
...you should read the OP.
At least you're now focusing on the issue instead attempting to deflect.
I mean, you appear to support ending too big to fail as you relate it to Fannie, but you're confused about how the law relates to big banks.