Getting loans flowing more normally to creditworthy small businesses will help the economic recovery, Federal Reserve Chairman Ben Bernanke said Thursday. Small businesses -- more so than big companies -- rely on bank loans to expand operations and hire. Small businesses usually help drive job creation during recoveries but credit clogs have hurt hiring.Lending to small businesses is declining even though the economy is improving. Lending has dropped from almost $700 billion in the second quarter of 2008, a period when the country was embroiled in a financial crisis, to $660 billion in the first quarter of this year, Bernanke said in prepared remarks in Detroit. Many lawmakers on Capitol Hill have complained about small businesses wanting to take out loans but having trouble getting them. Bernanke, however, said it's difficult to divine whether the decline in lending to small businesses was being driven more by weaker demand or reduced supply because loans are harder to get. Lenders and borrowers have different perspectives the problem, he said. "For example, some potential borrowers have been turned down because lending terms and conditions remain tighter than before the financial crisis, perhaps reflecting banks' concerns about the effects of the recession on borrowers' economic prospects and balance sheets," Bernanke said. "From the potential borrowers' point of view, particularly a borrower who has been able to obtain loans in the past, these changes may feel like a reduction in the supply of credit," he added. "From the lender's point of view, the problem appears to be a lack of demand from creditworthy borrowers," he said. Getting bank lending flowing more normally again is a delicate dance for the Fed and other banking regulators.
As regulators encourage banks to make loans to sound borrowers, they are also working to make sure banks get back on firmer footing after suffering through the worst financial and economic crises since the 1930s. The Fed has been reaching out to small businesses in an effort to come up with ways to help ease the credit problem. Bernanke's meeting in Detroit was one of a series of such sessions the Fed has been conducting. The findings from the meetings will be presented in a conference at the Fed in the summer. Bernanke didn't talk about the future course of interest rates. The Fed has pledged to hold rates at record lows near zero to support the recovery. It meets next on June 22-23. In separate remarks delivered in Georgia, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said he supports the Fed's current stance on rates. "The conditions that require a change of policy are not yet at hand," he said. However, at some point the Fed will need to start pushing up rates to prevent inflation, he said. Bernanke did observe that the country in now in an "economic expansion, with jobs once more being created rather than destroyed." However, he said persistently high unemployment, now at 9.9 percent, is a "difficult issue" that imposes "heavy costs on workers and their families as well as society as a whole."
Thursday, June 10, 2010
Fed lends $6.64 billion in 'swap' program
The Federal Reserve says it lent $6.64 billion through a program aimed at easing strains from the European debt crisis. Most of the money -- $6.4 billion -- went to the European Central Bank. The rest went to the Bank of Japan.The Fed is lending much-in-demand dollars to other central banks in exchange for their currencies. In turn, the central banks can lend the dollars out to banks in their home countries to prevent the crisis from spreading further. The Fed's "swap" program was revived in May as fears rose that Greece's debt crisis could engulf other European countries. European banks need dollars to lend to companies across the Continent. European companies that have operations in the U.S. pay their employees in dollars and buy raw materials with the U.S. currency.
Regulators shut banks in Illinois, Nebraska and Mississippi
Regulators have shut down banks in Nebraska, Mississippi and Illinois, boosting the number of U.S. bank failures this year to 81. The Federal Deposit Insurance Corp. on Friday took over TierOne Bank, based in Lincoln, Neb., with about $2.8 billion in assets. Great Western Bank, based in Sioux Falls, S.D., agreed to acquire the assets and deposits of the failed bank.The FDIC also seized two small banks: First National Bank, based in Rosedale, Miss., with $60.4 million in assets, and Arcola Homestead Savings Bank in Arcola, Ill., with about $17 million in assets.
Dueling over debit card fees
Swipe your debit card at the supermarket and you've placed yourself at the heart of a contentious congressional debate. On one side are banks like JPMorgan Chase and Bank of America and credit card networks like Visa and MasterCard. On the other are retailers, including giants like Wal-Mart and Target.At issue: The "swipe" fees banks charge merchants for one of today's most commonplace conveniences. At stake: up to $20 billion in potential bank losses and merchant gains. For consumers, it could mean lower prices at the local store or restaurant, or it could result in higher bank charges, fewer "rewards" for credit card users or even the imposition of an annual debit card fee. The fight over plastic has been raging for years -- a federal appeals court once called it "a clash of commercial titans." Now it's landed in the middle of a massive financial regulatory bill primarily aimed at restraining Wall Street. Both sides have unleashed potent, well-heeled lobbying operations. Their efforts will converge on two weeks or more of negotiations between House and Senate lawmakers who are working to blend two separate financial overhaul bills into one. The Senate bill contains a measure that would require the Federal Reserve to set limits on what fees banks and credit card networks can charge merchants for a debit card payment. The House bill has no such provision. First, a quick lesson in shopping. A debit card payment taps directly into a customer's bank account and, as such, is akin to writing a check. A credit card payment, on the other hand, is in effect a loan from the bank. One carries more risk than the other. As a result, banks and credit card networks generally charge merchants up to 3 percent for credit card use. For debit card use, the charge to merchants is one-fourth to one-half as much. Merchants maintain that the fee charged for debit cards, also called an "interchange" fee, is too high. Banks and Visa and MasterCard say the fee takes into account the cost of setting up and maintaining a secure and sophisticated debit payment system. Last year, $1.21 trillion in purchases were paid with debit cards processed through the Visa and MasterCard networks, generating in $19.7 billion in fees paid by merchants, according to data from The Nilson Report, a trade publication. Most of the fees went to banks that issue debit cards. While the largest banks and the largest retailers have the most dollars riding on the congressional outcome, the two combatants have cast the debate in terms of hurting small community banks and credit unions on one side or small businesses on the other.
The Senate proposal, written by Sen. Dick Durbin, D-Ill., would require the Federal Reserve to set "swipe" fees for debit cards that are "reasonable and proportional" to the cost of processing the transaction. To win votes for it, Durbin exempts banks that have assets of $10 billion or less.
But small banks and credit unions argue they would still be hurt, saying they, too, would have to lower their fees to remain competitive with larger institutions whose fees would be lowered by the Fed. "Currently, the smallest credit union and the largest bank in the world receive the same interchange fee when their respective customer uses their debit card," Fred Becker, president and CEO of the National Association of Federal Credit Unions, wrote last week to Fed Chairman Ben Bernanke. "The interchange amendment, however, destroys this equal footing." Durbin's success in the Senate stunned banks and their lobbyists. Years of lobbying by retailers for limits on credit or debit cards had failed to generate a single House or Senate vote. But banks aren't popular these days and the pressure from home-state retailers tilted the scale. Of the 64 senators who voted for Durbin's proposal, 17 were Republicans -- a strong bipartisan signal to lawmakers blending the larger financial regulations bill. Both sides claim that placing limits on the fees will have direct consequences for consumers -- banks, Visa and MasterCard say it will be for the worse; merchants say it will be for the better. Australia cut credit and debit card fees on merchants by half and debit card holders particularly benefited from the change, according to the Reserve Bank of Australia. But credit card holders saw an increase in their bank fees and a reduction in cardholder rewards, such as fewer points or airline miles. Merchants also started imposing surcharges on some credit card transactions. Banks and credit card networks warn of similar ill effects in the United States, ranging from higher fees on credit cards to service fees on charge accounts. "We are convinced that fees to consumers would go up and services would be reduced," William Sheedy, group president of the Americas for Visa Inc., said in an interview.
Retailers dismiss that claim as a cynical attempt to sway lawmakers. "Their response to being told that they're doing something wrong is to say, 'OK, if you keep us from doing something wrong to this person, we're going to go do something wrong to somebody else,'" said J. Craig Shearman, vice president for government affairs at the National Retail Federation.
The Senate proposal, written by Sen. Dick Durbin, D-Ill., would require the Federal Reserve to set "swipe" fees for debit cards that are "reasonable and proportional" to the cost of processing the transaction. To win votes for it, Durbin exempts banks that have assets of $10 billion or less.
But small banks and credit unions argue they would still be hurt, saying they, too, would have to lower their fees to remain competitive with larger institutions whose fees would be lowered by the Fed. "Currently, the smallest credit union and the largest bank in the world receive the same interchange fee when their respective customer uses their debit card," Fred Becker, president and CEO of the National Association of Federal Credit Unions, wrote last week to Fed Chairman Ben Bernanke. "The interchange amendment, however, destroys this equal footing." Durbin's success in the Senate stunned banks and their lobbyists. Years of lobbying by retailers for limits on credit or debit cards had failed to generate a single House or Senate vote. But banks aren't popular these days and the pressure from home-state retailers tilted the scale. Of the 64 senators who voted for Durbin's proposal, 17 were Republicans -- a strong bipartisan signal to lawmakers blending the larger financial regulations bill. Both sides claim that placing limits on the fees will have direct consequences for consumers -- banks, Visa and MasterCard say it will be for the worse; merchants say it will be for the better. Australia cut credit and debit card fees on merchants by half and debit card holders particularly benefited from the change, according to the Reserve Bank of Australia. But credit card holders saw an increase in their bank fees and a reduction in cardholder rewards, such as fewer points or airline miles. Merchants also started imposing surcharges on some credit card transactions. Banks and credit card networks warn of similar ill effects in the United States, ranging from higher fees on credit cards to service fees on charge accounts. "We are convinced that fees to consumers would go up and services would be reduced," William Sheedy, group president of the Americas for Visa Inc., said in an interview.
Retailers dismiss that claim as a cynical attempt to sway lawmakers. "Their response to being told that they're doing something wrong is to say, 'OK, if you keep us from doing something wrong to this person, we're going to go do something wrong to somebody else,'" said J. Craig Shearman, vice president for government affairs at the National Retail Federation.
Treasury sets Sterling Bancshares warrant auction
The government said today it will auction 2.62 million warrants it received from Houston-based Sterling Bancshares Inc. as part of its effort to recoup costs of the $700 billion financial bailout.The auction of the warrants will take place on Wednesday, the Treasury Department said. It set a minimum bid price of 85 cents per warrant. A warrant gives the purchaser the right to buy common stock at a fixed price. The government obtained the warrants when it provided Sterling Bancshares with $125.2 million at the height of the financial crisis in December 2008. The bank repaid its bailout in May 2009. Financial institutions have been eager to cut ties to the bailout program, known as the Troubled Asset Relief Program, or TARP, to escape various restrictions imposed on banks receiving support. Those include limits on dividend payments and executive compensation. The government received the warrants as a bonus to taxpayers for rescuing the banks during the financial crisis. By purchasing the warrants, holders have the right to buy an equal amount of shares of Sterling Bancshares at a price of $7.18 per share. Sterling Bancshares stock closed trading Monday at $4.87 per share. Over the past year, the bank's stock has ranged from a low of $4.50 a share to a high of $8.69 per share. Last week, the government raised $2.97 million through an auction of 465,117 warrants of Cincinnati-based First Financial Bancorp. Those warrants sold for $6.70 per warrant.
Swiss lawmakers reject deal with US in UBS tax row
Switzerland's effort to end a tax-evasion dispute with Washington hit a major setback Tuesday when lawmakers blocked a treaty that would have seen the largest Swiss bank give U.S. authorities files on thousands of American clients.The Swiss government and Washington had painstakingly crafted the treaty last August to resolve a long-standing dispute over UBS AG's alleged role in aiding tax evasion, but 104 nationalist and left-wing lawmakers in Switzerland's lower house, the National Council, voted against the deal, compared to 76 in favor, after their demanded amendments were refused. Sixteen lawmakers abstained.The government and industry groups had urged lawmakers to sign off on the treaty to avert harm to the Swiss economy, which is heavily dependent on the country's banking industry."With today's negative decision the National Council has unfortunately done a disservice to Switzerland's standing as an economic and financial center," said the Swiss Bankers Association, which has pushed for the UBS case to be concluded so the industry can move forward.The association called on lawmakers to change their minds and approve the treaty, claiming that failure to do so "would strain even further the important bilateral relations between Switzerland and the United States."U.S. Justice Department spokesman Charles S. Miller declined to comment on the matter. Sen. Carl Levin, a Democrat who has led a congressional investigation of UBS and other banks, criticized the move and called for the U.S. to go ahead in its case against UBS."Rejection of the treaty is an international embarrassment that can be laid at the feet of Swiss legislators who are willing to continue to allow their banks to facilitate U.S. tax evasion," he said. The deal is crucial to UBS, which has faced intense pressure from U.S. authorities since 2007, because it allows the bank to bend Switzerland's strict banking secrecy rules as an exception without committing others to do so. Last year UBS agreed to turn over hundreds of client files and pay a $780 million penalty in return for a deferred prosecution agreement, after admitting that it had for years helped U.S. clients hide money from the International Revenue Service using offshore accounts. Washington has signaled that unless UBS reveals a further 4,450 American names by August as demanded in the U.S.-Swiss agreement, it may face a crippling civil investigation just as the bank is recovering from the subprime crisis and seeking to rebuild its U.S. business. Shares in UBS AG fell 2.2 percent to close at 14.40 Swiss francs ($12.52). The U.S. deal was blocked by lawmakers from Switzerland's two biggest parties, the People's Party and the Social Democrats, and the Greens. The Social Democrats had tied their consent to stricter regulation for big banks and a binding government commitment to tax bankers' bonuses. The People's Party wanted parliament to vote against such a tax before dealing with the U.S. tax treaty. Both parties' demands were rejected by the government. The bill will now be passed back to the upper house for further debate and could be voted on again by the lower house later this month.
But lawmakers also decided Tuesday to put any eventual compromise to a popular referendum, making a further delay likely. A spokesman for UBS would not say what the bank would do if a second vote goes against it as well. "We wait for the vote, let parliament decide, and then we will see further," said Serge Steiner. Hans Geiger, an emeritus professor of banking at Zurich University, said UBS would likely have a backup plan. "They will not just sit on their hands and wait till the good guys from Bern help them," Geiger said. One possibility would be for UBS to simply refuse to hand over the names of suspected tax cheats to the IRS, and risk prosecution, he said. Geiger, a critic of the government's decision to negotiate the treaty with Washington, also warned that the one-off exception to Swiss banking secrecy foreseen in the treaty could become the norm. "If parliament agrees then it's a sign that you can blackmail Switzerland and other countries will try the same," he said. Switzerland has made many compromises in recent years to fend off demands by Germany, France, the United States and others for an end to its treasured banking secrecy rules, but the treaty that failed Tuesday would have gone far beyond those measures. Last year, the government agreed to do away with the difference between tax evasion and tax fraud -- a key legal distinction that has allowed foreigners with accounts in Switzerland to avoid having their details handed over to investigators back home.
But lawmakers also decided Tuesday to put any eventual compromise to a popular referendum, making a further delay likely. A spokesman for UBS would not say what the bank would do if a second vote goes against it as well. "We wait for the vote, let parliament decide, and then we will see further," said Serge Steiner. Hans Geiger, an emeritus professor of banking at Zurich University, said UBS would likely have a backup plan. "They will not just sit on their hands and wait till the good guys from Bern help them," Geiger said. One possibility would be for UBS to simply refuse to hand over the names of suspected tax cheats to the IRS, and risk prosecution, he said. Geiger, a critic of the government's decision to negotiate the treaty with Washington, also warned that the one-off exception to Swiss banking secrecy foreseen in the treaty could become the norm. "If parliament agrees then it's a sign that you can blackmail Switzerland and other countries will try the same," he said. Switzerland has made many compromises in recent years to fend off demands by Germany, France, the United States and others for an end to its treasured banking secrecy rules, but the treaty that failed Tuesday would have gone far beyond those measures. Last year, the government agreed to do away with the difference between tax evasion and tax fraud -- a key legal distinction that has allowed foreigners with accounts in Switzerland to avoid having their details handed over to investigators back home.
Lawmakers begin merging Wall Street regulatory bills
House and Senate lawmakers began assembling a massive financial regulation bill on Thursday, dividing sharply along partisan lines as Democrats vowed to fend off efforts to weaken its major provisions."This is a very strong bill and it is time we get it to the president's desk for his signature," Senate Banking Committee Chairman Christopher Dodd said, kicking off a meeting of lawmakers selected to blend House and Senate versions into one bill.Such a House-Senate panel, called a conference committee, is a relatively rare occurrence in Congress. Though it is the textbook means of reconciling competing bills, congressional leaders in recent years generally have bypassed conferences and worked out legislative differences in private.
With Democrats aiming to wrap up their work before the end of the month, banks, retailers, consumer groups -- even car dealers -- all mustered a final lobbying thrust to influence the 1,900-page legislation.The Obama administration, meanwhile, looked for quick completion of the bill, eager to have a House-Senate agreement in time for President Barack Obama's trip to Toronto later this month to meet with the Group of 20 nations. The world's largest economies are working to coordinate their financial regulatory schemes.Expedience could run headlong into a potentially chaotic process. Rep. Barney Frank, D-Mass., who will chair the conference committee, promised efficiency."I will put forward one qualification for this job -- my impatience," he joked. "I think it will serve us all very well."The far-reaching regulatory bills aim to prevent a recurrence of the financial crisis that precipitated the 2008 recession from which the country is only now recovering.The bills would allow regulators to liquidate large, failing financial companies, create a new consumer protection entity to safeguard borrowers and impose new regulations over complex securities that had previously traded in shadow markets.
Republicans cast the bill as an overreaching effort to control the private marketplace and complained that Democrats failed to include any regulation on the giant, government affiliated mortgage companies Fannie Mae and Freddie Mac."The American economy will once again become the laboratory for another grand Democrat experiment in big government and central management," Sen. Richard Shelby, R-Ala., said.Much of what ends up in the final bill will still be negotiated behind closed doors, mainly by Democrats. But Dodd and Frank vowed to hold public votes on final changes in the legislation.From the outset, though, House and Senate Democrats privately worked out the base bill, relying mainly on the Senate-passed version, adding technical changes and incorporating some provisions from the House bill. None of the changes affected the central elements of the legislation.Among the additions was a House-approved mortgage lending bill that prohibits lenders from steering borrowers into higher cost loans. The measure would extend protections for tenants in foreclosed properties from December 2012 to December 2014. Displaying the influence of black lawmakers, the House additions also would require federal financial agencies to set up an office of Women and Minority Inclusion to promote diversity.
Shelby complained that that House-Senate agreement came with no Republican participation.
"It appears we're off to a rocky start," he said.One of the key issues facing the conference is a tough provision that would force banks to spin off their lucrative derivatives business. Its leading proponent is Sen. Blanche Lincoln, D-Ark., a member of the conference.Obama administration officials and a number of banking regulators say Lincoln's provision goes too far. But on Thursday Lincoln delivered a strong defense of her proposal, which primarily would strike at the nation's largest financial institutions, including Goldman Sachs and other firms that dominate Wall Street."It is this economic activity that contributed to these institutions growing so large that taxpayers had no choice but to bail them out to prevent total economic ruin," she said. "This provision makes clear that derivatives dealing is not central to the business of banking."
Frank and Dodd have voiced a preference for strengthening other limits of bank activity. But Lincoln's support is key in the conference. With the Senate represented by five Republicans and seven Democrats, a single Democratic defection would stall the bill.Lincoln is coming off a surprise primary election victory this week over a Democratic opponent backed by liberal groups and labor unions. Lincoln campaigned by highlighting her opposition to Wall Street, and her success appears to have given her proposal new life.
With Democrats aiming to wrap up their work before the end of the month, banks, retailers, consumer groups -- even car dealers -- all mustered a final lobbying thrust to influence the 1,900-page legislation.The Obama administration, meanwhile, looked for quick completion of the bill, eager to have a House-Senate agreement in time for President Barack Obama's trip to Toronto later this month to meet with the Group of 20 nations. The world's largest economies are working to coordinate their financial regulatory schemes.Expedience could run headlong into a potentially chaotic process. Rep. Barney Frank, D-Mass., who will chair the conference committee, promised efficiency."I will put forward one qualification for this job -- my impatience," he joked. "I think it will serve us all very well."The far-reaching regulatory bills aim to prevent a recurrence of the financial crisis that precipitated the 2008 recession from which the country is only now recovering.The bills would allow regulators to liquidate large, failing financial companies, create a new consumer protection entity to safeguard borrowers and impose new regulations over complex securities that had previously traded in shadow markets.
Republicans cast the bill as an overreaching effort to control the private marketplace and complained that Democrats failed to include any regulation on the giant, government affiliated mortgage companies Fannie Mae and Freddie Mac."The American economy will once again become the laboratory for another grand Democrat experiment in big government and central management," Sen. Richard Shelby, R-Ala., said.Much of what ends up in the final bill will still be negotiated behind closed doors, mainly by Democrats. But Dodd and Frank vowed to hold public votes on final changes in the legislation.From the outset, though, House and Senate Democrats privately worked out the base bill, relying mainly on the Senate-passed version, adding technical changes and incorporating some provisions from the House bill. None of the changes affected the central elements of the legislation.Among the additions was a House-approved mortgage lending bill that prohibits lenders from steering borrowers into higher cost loans. The measure would extend protections for tenants in foreclosed properties from December 2012 to December 2014. Displaying the influence of black lawmakers, the House additions also would require federal financial agencies to set up an office of Women and Minority Inclusion to promote diversity.
Shelby complained that that House-Senate agreement came with no Republican participation.
"It appears we're off to a rocky start," he said.One of the key issues facing the conference is a tough provision that would force banks to spin off their lucrative derivatives business. Its leading proponent is Sen. Blanche Lincoln, D-Ark., a member of the conference.Obama administration officials and a number of banking regulators say Lincoln's provision goes too far. But on Thursday Lincoln delivered a strong defense of her proposal, which primarily would strike at the nation's largest financial institutions, including Goldman Sachs and other firms that dominate Wall Street."It is this economic activity that contributed to these institutions growing so large that taxpayers had no choice but to bail them out to prevent total economic ruin," she said. "This provision makes clear that derivatives dealing is not central to the business of banking."
Frank and Dodd have voiced a preference for strengthening other limits of bank activity. But Lincoln's support is key in the conference. With the Senate represented by five Republicans and seven Democrats, a single Democratic defection would stall the bill.Lincoln is coming off a surprise primary election victory this week over a Democratic opponent backed by liberal groups and labor unions. Lincoln campaigned by highlighting her opposition to Wall Street, and her success appears to have given her proposal new life.
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