Senate Democrats prepared for the end game on a sweeping financial regulation bill Wednesday, sidestepping some fights and girding themselves for a handful of remaining difficult votes.
The key vote Wednesday would seek to end Senate debate on the financial overhaul and clear the way for final passage later in the week.Republican leaders argued for a delay, saying the bill represented an expansion of federal government. But some in the party were expected to break ranks, including the Senate's newest Republican, Sen. Scott Brown of Massachusetts. If Democrats band together, the vote would remove the last major Senate obstacle to the bill, the broadest rewrite of the rules governing Wall Street since the 1930s. Passage later in the week would represent a major victory for President Barack Obama, but the Senate bill would still have to be reconciled with a House version, which contains some significant differences. Besides the vote on ending debate, the Senate on Wednesday also was scheduled to vote on a proposal that would allow states to impose their interest rate caps on financial institutions that issue credit cards. Currently, banks and credit card companies are only required to charge the interest rate permitted in the state where they are headquartered. Banks, which have flocked to states with the most permissible rates, have vigorously fought the proposal, offered by Sen. Sheldon Whitehouse, D-R.I. Under an agreement with Republicans, the measure will require 60 votes to pass. At the same time, Democratic Sens. Jeff Merkley of Oregon and Carl Levin of Michigan succeeded in getting a vote on their proposal to ban commercial banks from trading in speculative investments with their own accounts. The measure, also opposed by financial institutions, would toughen an existing provision in the bill. While those measures would increase regulations on banks, senators also were scheduled to vote on a measure that would let auto dealers avoid any regulations passed by a proposed consumer protection agency. The Senate was expected to let stand a contentious restriction on the ability of banks to carry out their lucrative business in complex securities known as derivatives. Senate Banking Committee Chairman Christopher decided not to propose a two-year delay on a requirement in the bill that banks spin off their derivatives business into subsidiaries. Dodd had sought to break an impasse over how to regulate derivatives. But Sen. Blanche Lincoln, an Arkansas Democrat who has insisted on the spinoff measure, indicated she would oppose Dodd's effort. And the financial industry promptly signaled it would not support the effort. Republican Sen. Judd Gregg of New Hampshire also blasted Dodd's proposal Wednesday, likening it to a "Mad Hatter's tea party."
The maneuvering came as an exhausted, occasionally cranky Senate turned into the home stretch on a weekslong effort to pass the massive bill that would impose new controls on Wall Street. The legislation would set up a mechanism to watch out for risks in the financial system, create a method to liquidate large failing firms and write new rules for complex securities blamed for helping precipitate the 2008 economic crisis. It also would create a new consumer protection agency, a key point for President Barack Obama. Republicans this week have escalated their attacks on the bill, arguing the bill had grown worse and did not address root causes of the 2008 financial meltdown. The Democratic majority, said Senate Republican Leader Mitch McConnell, "uses this crisis as yet another opportunity to expand the cost and size and reach of government."
Thursday, June 10, 2010
Senate breaks impasse on financial regulation bill
Prodded by national anger at Wall Street, the Senate cleared the way Thursday for the most far-reaching new restraints on big banks since the Great Depression. President Barack Obama cheered from the White House. Breaking a Senate blockade by a single vote, lawmakers voted 60-40 to end debate and advance the massive financial regulation bill, which has become a priority for Obama after the passage of his health care overhaul in March.Obama said the financial industry had tried to stop the new regulations "with hordes of lobbyists and millions of dollars in ads." Noting the near-meltdown of big Wall Street investment banks and the resulting costly bailouts, he said, "Our goal is not to punish the banks but to protect the larger economy and the American people from the kind of upheavals that we've seen in the past few years."
The legislation calls for new ways to watch for risks in the financial system and makes it easier to liquidate large failing financial firms. It also writes new rules for complex securities blamed for helping precipitate the 2008 economic crisis, and it creates a new consumer protection agency.
"We'll soon have in place the strongest consumer protections in history," Obama declaring, covering credit cards, student loans, mortgages and more. Senate Majority Leader Harry Reid, D-Nev., expressed hope of completing the legislation late Thursday. Two amendments stood between the bill and final Senate passage. One would ban commercial banks from carrying out speculative trades with their own money. The other would exempt auto dealers from oversight by a new consumer protection bureau. Those proposals were to be combined, but support for each came from a different faction in the Senate, with some overlap. That meant that senators who wanted to exclude car dealers from the rules of a consumer protection bureau, mostly Republicans, would have to accept the bank trading limits, a Democratic proposal. The Obama administration expressed support for the trading restriction, but said it would accept its demise if that meant killing the auto dealer measure it opposes. Three Republicans -- Scott Brown of Massachusetts and Olympia Snowe and Susan Collins of Maine -- voted to end debate and move ahead on the bill. Two Democrats -- Russ Feingold of Wisconsin and Maria Cantwell of Washington -- voted with other Republicans against it. Democrats succeeded in breaking through the Republican block by winning Brown's backing. The Massachusetts Republican, who had voted against ending debate on Wednesday, met with Reid Thursday morning to voice his concerns regarding the bill's effect on Massachusetts banks such as State Street and insurance firms such as MassMutual. House Financial Services Committee chairman Barney Frank, also of Massachusetts, weighed in Thursday with letters to Reid offering his own guarantees that the final bill would resolve Brown's concerns. Cantwell and Feingold continued to object to the bill. Cantwell protested her inability to get a vote on an amendment that she said would toughen regulation of complex securities known as derivatives. Feingold has said the bill does not go far enough to restrain Wall Street.
The legislation calls for new ways to watch for risks in the financial system and makes it easier to liquidate large failing financial firms. It also writes new rules for complex securities blamed for helping precipitate the 2008 economic crisis, and it creates a new consumer protection agency.
"We'll soon have in place the strongest consumer protections in history," Obama declaring, covering credit cards, student loans, mortgages and more. Senate Majority Leader Harry Reid, D-Nev., expressed hope of completing the legislation late Thursday. Two amendments stood between the bill and final Senate passage. One would ban commercial banks from carrying out speculative trades with their own money. The other would exempt auto dealers from oversight by a new consumer protection bureau. Those proposals were to be combined, but support for each came from a different faction in the Senate, with some overlap. That meant that senators who wanted to exclude car dealers from the rules of a consumer protection bureau, mostly Republicans, would have to accept the bank trading limits, a Democratic proposal. The Obama administration expressed support for the trading restriction, but said it would accept its demise if that meant killing the auto dealer measure it opposes. Three Republicans -- Scott Brown of Massachusetts and Olympia Snowe and Susan Collins of Maine -- voted to end debate and move ahead on the bill. Two Democrats -- Russ Feingold of Wisconsin and Maria Cantwell of Washington -- voted with other Republicans against it. Democrats succeeded in breaking through the Republican block by winning Brown's backing. The Massachusetts Republican, who had voted against ending debate on Wednesday, met with Reid Thursday morning to voice his concerns regarding the bill's effect on Massachusetts banks such as State Street and insurance firms such as MassMutual. House Financial Services Committee chairman Barney Frank, also of Massachusetts, weighed in Thursday with letters to Reid offering his own guarantees that the final bill would resolve Brown's concerns. Cantwell and Feingold continued to object to the bill. Cantwell protested her inability to get a vote on an amendment that she said would toughen regulation of complex securities known as derivatives. Feingold has said the bill does not go far enough to restrain Wall Street.
Lower U.S. estimate of bailout cost is questionable
The Treasury Department indicated Friday it expects taxpayers will lose billions less from the financial bailouts than earlier estimated. The problem is, its revised forecast assumes Treasury's shares of bailed-out companies are gaining value despite this week's plunge in stock prices.
Treasury predicts the bailouts will cost taxpayers $105.4 billion, according to a letter to lawmakers from Assistant Secretary Herb Allison. That's down $11.4 billion from a February projection by the Obama administration.Most of the expected cost savings depend on Treasury's ability to profit once it sells its stakes in Citigroup Inc., General Motors and Chrysler, Allison wrote. Treasury received those investments in exchange for pumping billions into the companies to rescue them. Treasury's analysis is based on market conditions as of March 31. That was weeks before a European debt crisis roiled global markets. The broad tumble in stock prices makes Treasury's projected gains appear far less likely. For example, Allison notes that Treasury's shares of Citigroup were worth $4.05 on March 31 -- 80 cents more than Treasury paid for them. But by Thursday's close, Citigroup shares were trading at $3.63. At that price, Treasury's gain is only 38 cents per share. If Treasury sold all its shares at Thursday's price, its estimate would undercount the cost of the bailouts by $924 million. Treasury is one of several agencies that have produced conflicting estimates of the bailouts' cost. The Congressional Budget Office said in March that the final cost would be $109 billion. That was well below the White House budget office's number. The new forecast assumes Treasury's stakes in the automakers will be worth more than earlier estimates because the auto industry has begun to recover. Still, the biggest bailout losses will come from the rescues of the automakers and insurance giant American International Group Inc. Administration programs to help homeowners avoid foreclosure also will cost billions. Treasury has made more money than it expected on dividends, fees and other proceeds from banks that took bailout money.
Treasury predicts the bailouts will cost taxpayers $105.4 billion, according to a letter to lawmakers from Assistant Secretary Herb Allison. That's down $11.4 billion from a February projection by the Obama administration.Most of the expected cost savings depend on Treasury's ability to profit once it sells its stakes in Citigroup Inc., General Motors and Chrysler, Allison wrote. Treasury received those investments in exchange for pumping billions into the companies to rescue them. Treasury's analysis is based on market conditions as of March 31. That was weeks before a European debt crisis roiled global markets. The broad tumble in stock prices makes Treasury's projected gains appear far less likely. For example, Allison notes that Treasury's shares of Citigroup were worth $4.05 on March 31 -- 80 cents more than Treasury paid for them. But by Thursday's close, Citigroup shares were trading at $3.63. At that price, Treasury's gain is only 38 cents per share. If Treasury sold all its shares at Thursday's price, its estimate would undercount the cost of the bailouts by $924 million. Treasury is one of several agencies that have produced conflicting estimates of the bailouts' cost. The Congressional Budget Office said in March that the final cost would be $109 billion. That was well below the White House budget office's number. The new forecast assumes Treasury's stakes in the automakers will be worth more than earlier estimates because the auto industry has begun to recover. Still, the biggest bailout losses will come from the rescues of the automakers and insurance giant American International Group Inc. Administration programs to help homeowners avoid foreclosure also will cost billions. Treasury has made more money than it expected on dividends, fees and other proceeds from banks that took bailout money.
Regulators shut small Minnesota bank
Regulators have shut down a small bank in Minnesota, bringing the number of U.S. bank failures this year to 73. The Federal Deposit Insurance Corp. on Friday took over Pinehurst Bank, based in St. Paul, Minn., with $61.2 million in assets and $58.3 million in deposits. Coulee Bank, based in La Crosse, Wis., agreed to assume the assets and deposits of the failed bank. The failure of Pinehurst Bank is expected to cost the deposit insurance fund about $6 million.
Thrifts post first-quarter net income of $1.82 billion
U.S. thrifts posted a first-quarter profit in the latest sign the industry is stabilizing as the economy recovers, the government reported Monday. The federal Office of Thrift Supervision said savings and loans had net income of $1.82 billion in the January-March period. That compared with a net loss of $1.62 billion a year earlier.It was the thrift industry's third profitable quarter in a row. The Treasury Department agency said the industry's net income in the latest quarter was the highest since the April-June quarter of 2007. The OTS, which oversees 757 institutions, said about 60 percent of thrifts posted an increase in net income compared with the previous three months. But it said the number of "problem" thrifts rose to 50 as of March 31 from 43 three months earlier. The industry's improvement came despite high unemployment and soured loans as many Americans struggle to pay their mortgages. "The health of the thrift industry is improving but we cannot say the industry has fully recovered from the financial crisis," the agency's acting director, John Bowman, said in a statement. "Until America gets back to full employment and more families are able to pay their monthly mortgages on time, the thrift industry will continue to face significant challenges." Thrifts' troubled assets -- loans that are overdue and repossessed property -- slipped to 3.27 percent of total industry assets in the first quarter from 3.29 percent in last year's fourth quarter. Thrifts differ from banks in that they are required by law to have at least 65 percent of their lending in mortgages and other consumer loans. That has made them particularly vulnerable to the housing slump and high unemployment. The first-quarter report by OTS also showed:
--New mortgage loans extended by thrifts during the quarter totaled $32.4 billion, only about a third of the level a year earlier, $96.1 billion, and down 20 percent from $40.7 billion in the fourth quarter. That compares with the $553 billion in mortgage loans provided by thrifts at the peak of the housing boom in 2006.
--The thrift industry set aside $2.7 billion in reserves to offset expected losses, down sharply from $3.9 billion in the fourth quarter. Setting aside large amounts in reserves depresses the industry's earnings.
--The industry's assets fell to $949.8 billion from $1.2 trillion a year earlier.
Last week the Federal Deposit Insurance Corp. reported that the number of troubled U.S. banks -- including thrifts -- on its confidential list jumped to 775 in the first quarter from 702 three months earlier.
Bank failures are expected to peak this year and exceed the 140 that fell in 2009. That would mark the highest annual tally since 1992, at the height of the savings and loan crisis. So far this year, 73 banks have collapsed. The two biggest bank failures, which occurred in 2008, both involved thrifts. Big California lender IndyMac Bank, with about $30.2 billion in assets, failed in July; Seattle-based Washington Mutual collapsed in September, the largest U.S. bank failure ever with $307 billion in assets. Many lawmakers and consumer advocates have criticized the OTS for what they say was lax oversight of the thrift industry in the run-up to the financial crisis. The previous OTS director, Scott Polakoff, was put on leave pending an investigation into improper backdating of cash infusions at six thrifts including IndyMac. He later left the government. Sweeping legislation to overhaul financial regulations that passed the Senate last week calls for abolishing the OTS.
--New mortgage loans extended by thrifts during the quarter totaled $32.4 billion, only about a third of the level a year earlier, $96.1 billion, and down 20 percent from $40.7 billion in the fourth quarter. That compares with the $553 billion in mortgage loans provided by thrifts at the peak of the housing boom in 2006.
--The thrift industry set aside $2.7 billion in reserves to offset expected losses, down sharply from $3.9 billion in the fourth quarter. Setting aside large amounts in reserves depresses the industry's earnings.
--The industry's assets fell to $949.8 billion from $1.2 trillion a year earlier.
Last week the Federal Deposit Insurance Corp. reported that the number of troubled U.S. banks -- including thrifts -- on its confidential list jumped to 775 in the first quarter from 702 three months earlier.
Bank failures are expected to peak this year and exceed the 140 that fell in 2009. That would mark the highest annual tally since 1992, at the height of the savings and loan crisis. So far this year, 73 banks have collapsed. The two biggest bank failures, which occurred in 2008, both involved thrifts. Big California lender IndyMac Bank, with about $30.2 billion in assets, failed in July; Seattle-based Washington Mutual collapsed in September, the largest U.S. bank failure ever with $307 billion in assets. Many lawmakers and consumer advocates have criticized the OTS for what they say was lax oversight of the thrift industry in the run-up to the financial crisis. The previous OTS director, Scott Polakoff, was put on leave pending an investigation into improper backdating of cash infusions at six thrifts including IndyMac. He later left the government. Sweeping legislation to overhaul financial regulations that passed the Senate last week calls for abolishing the OTS.
Treasury gets $6.2 billion from Citigroup sales
The Treasury Department said Wednesday it raised $6.2 billion from the sale of 1.5 billion shares of Citigroup stock it received as part of the government's rescue of the bank. The government sold the shares at a profit as it seeks to recoup the costs of the $700 billion financial bailout.The sales took place over the past month and represented 19.5 percent of the government's holdings of Citigroup common stock. Treasury said it has triggered a second round of stock sales through its agent, Morgan Stanley. That will involve an additional 1.5 billion shares. The government said it would not sell shares during the blackout period set by Citigroup in advance of its second quarter earnings release. That period is expected to begin on July 1. Treasury has previously said it hopes to sell all of its Citigroup shares this year. The stock sold for an average price per share of around $4.33, Treasury said, which would represent a profit from the $3.25 price Treasury paid to obtain the shares. Citi stock finished at $3.86 in regular trading Wednesday, up 8 cents from Tuesday's close. The stock has traded in a range of $2.55 to $5.43 over the past 52 weeks. The Financial Times reported Wednesday that the Qatar Investment Authority was considering buying a portion of Treasury's stake in Citi. Treasury purchased the common stock in the summer of 2009 at a share price of $3.25. It received the original 7.7 billion shares of Citigroup common stock, which amounted to 27 percent of the company, in return for an investment of $25 billion in the company. Citi, one of the hardest-hit banks during the financial crisis, received $45 billion in bailout money. That was one of the largest rescues by the government. Of the $45 billion, $25 billion was converted to a government ownership stake in Citi last summer. The bank repaid the other $20 billion in December.
Lehman Brothers estate sues JPMorgan Chase
The estate of Lehman Brothers has sued JPMorganChase, claiming JPMorgan helped drive Lehman into bankruptcy by forcingit into giving up needed cash reserves. Lehman alleges that JPMorgan forced the now-failed bank to put up billions of dollars incollateral that sapped Lehman of the cash it needed to stay afloat. Lehman filed for bankruptcy in September 2008, helping spark one of the worst financial crisis in U.S. history. A spokesman for JPMorgan said lawsuit is without merit and JPMorgan plans to defend itself from the claims. Abankruptcy examiner's report released earlier this year pins the blamefor Lehman's collapse on executives and the bank for taking too manyrisks and misrepresenting its financial health.
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