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Inside Washington (05/03/2012)
  • WASHINGTON (5/4/12)--Among the topics addressed in a recent private meeting between the Federal Reserve Board and CEOs of several major U.S. banks were pending regulatory reform laws, the results of stress tests and alternative credit ratings. The Fed made details of the meeting public Wednesday. Many of the issues were related to the Dodd-Frank Act. The Fed's policy is to make public any meeting in which Dodd-Frank is addressed. Bank executives attending the meeting included Lloyd Blankfein of Goldman Sachs, Richard Davis of U.S. Bancorp, Jamie Dimon of JPMorgan Chase & Co., James Gorman of Morgan Stanley, Jay Hooley of State Street Corp. and Brian Moynihan of Bank of America Corp. The meeting was held at the Federal Reserve Bank of New York. In regard to recent stress tests, banks' internal models did not synch with the Fed's models, raising questions from bankers. Among the proposed regulations discussed were a rule that would prohibit banks from participating in proprietary trading, known as the Volcker Rule, and alternatives credit ratings. Bankers said they were concerned that the Fed's proposed alternative credit ratings--required by the Dodd-Frank Act--may overstate the risk of certain assets …
  • WASHINGTON (5/4/12)--Republicans on the House Financial Services Committee issued a letter to the Federal Housing Finance Agency (FHFA) on Monday asking if the agency has the statutory authority to reduce mortgage principal at Fannie Mae and Freddie Mac. In the letter, the Republicans asked Acting FHFA Director Edward DeMarco six questions regarding the possible effects of principal reduction. Although the letter did not provide a specific recommendation on what the agency should do, congressional Republicans previously have sided those who have resisted write-down proposals (American Banker May 3). DeMarco has also expressed doubt about whether FHFA has the authority to mandate the write-downs. Last Friday, an FHFA spokeswoman said a decision on principal reduction will not be made until the agency concludes its principal forgiveness analysis and discussions with the Department of the Treasury …
  • WASHINGTON (5/4/12)--Without implementation of reforms to the financial system, regulators and lawmakers will have lost an opportunity to end "too big to fail," Federal Reserve Board Gov. Daniel Tarullo said Wednesday. Tarullo, speaking before the Council on Foreign Relations in New York, said post-crisis regulatory reform program has been primarily directed at the too-big-to-fail problem, and more generally at enhancing the resiliency of the largest financial firms. The Dodd-Frank Act established the Financial Stability Oversight Council (FSOC), which has the authority to regulate any non-bank financial firm whose failure could be the source of systemic problems, Tarullo said. Dodd-Frank also has mandated capital requirements and liquidation authority, he added. Under liquidation authority, the Federal Deposit Insurance Corp. can impose losses on a failed institution's shareholders and creditors, and replace its management. Tarullo also noted the Basel Committee's framework for calibrating capital surcharges for banks of global systemic importance. Another proposed reform is quantitative liquidity requirements. The Basel Committee generated two such proposals, both of which have been delayed, Tarullo said. "Of one thing I am sure: If we do not complete rigorous implementation of this complementary set of reforms, we will have lost the opportunity to reverse the pre-crisis trajectory of increasing too-big-to-fail risks," Tarullo said  …

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