Financial Services Weekly Update

Regulatory Developments

SEC: On Monday, the SEC extended the expiration dates in the interim final rules that provide exemptions for security-based swaps from provisions of the Securities Act and registration requirements of the Exchange Act, among other activities. Eligible instruments include security-based swaps which, as of July 16, 2011, were defined as “securities” under the Securities Act and the Exchange Act solely based on provisions of the Dodd-Frank Act. Under the amendment, the expiration date in the interim final rules will be extended to February 11, 2017 and is effective immediately.

FINRA: On Thursday, FINRA’s Board of Governors approved a proposed rule to prohibit firms and associated persons from conditioning the settlements of customer disputes on an agreement not to oppose a request to expunge information from the Central Registration Depository (CRD) record of an associated person. The proposal is designed to help ensure that the CRD system contains critical information for investor protection. Review and comment on the proposed rule will be done by the SEC.

 

NIST: The National Institute of Standards and Technology published voluntary guidelines on Wednesday to assist companies and organizations in protecting information systems and physical assets from cyber attack. The guidelines, Framework for Improving Critical Infrastructure Cybersecurity, are intended to be regularly update as threats and knowledge change. The banking industry has praised the guidelines as Congress looks at ways to improve safeguards in the wake of the Target cyberattack.

In the News

Yellen on the Hill: In her first appearance in front of Congress since her confirmation as Federal Reserve Chair, Janet Yellen’s debut was more about “staying the course” than making headlines. Continuity of policy was her theme, and throughout the six hour hearing Yellen emphasized that the pace of tapering asset purchases will remain a data-driven decision. Yellen also stressed that the recent disappointing jobs reports for December and January may be more about the weather than any slow-down in the economy and Congress should not expect a taper halt based on the two reports. One piece of news was Yellen’s pledge that the Fed will make changes to its oversight of banks’ activities in the commodities’ markets. The financial markets liked what they heard from Yellen, with the Dow Jones rising 1.2% and 10-year Treasury bonds yields increasing 0.04 points to 2.719%. Her parallel testimony to the Senate Banking Committee was delayed due to the snow storm. A new date has not yet been announced.

Capital Requirements to be Eased on Smaller Foreign Banks: According to inside sources, the Federal Reserve is planning on increasing the asset threshold for requiring foreign banks to have local U.S. holding companies. The original proposal, set out in 2012, was $10 billion in assets, but reports indicate that the number will be raised to $50 billion. It is anticipated that the new asset requirement will mean that only 17 non-U.S. headquartered banks will have to form U.S. holding companies and comply with the higher capital requirements that will follow. The foreign lender umbrella rules will still affect over 100 institutions that do business within the U.S., but this change will exclude most of those institutions from the local holding company mandate.

EU Swaps Trading Given Dodd-Frank Registration Reprieve: This week, the CFTC and EU officials announced a joint agreement that grants relief to European swaps-trading platforms from the requirement to register in the U.S. Interest rate swaps will still be required to trade on swap execution facilities and be governed by CFTC rules.

Senior Republican on Financial Services to Retire:

Rep. Gary Miller, Republican vice chairman of the House Financial Services, will not seek reelection this year, citing “family circumstances” as his reason for retirement. With this retirement, there are currently 18 members of the House of Representatives that will, voluntarily, not be returning after the November election. Rep. Miller’s seat will be a likely Democrat pick-up, and his departure will create an opportunity for advancement on the Republican side of the Financial Services committee.

GSE Reform Necessary and Possible: In Wednesday’s conversation with Politico’s Morning Money, HUD Secretary Shaun Donovan stated that he is optimistic and encouraged by Congress’s work to reach a bipartisan solution for Fannie Mae and Freddie Mac. He expects that a bipartisan bill will emerge from the Senate Banking Committee in the next few weeks. The Administration is working with the Senate Banking Chairman, Tim Johnson, and Ranking Member, Mike Crapo, to craft a plan that would replace Fannie and Freddie with a new agency. Secretary Donovan stated that he considered GSE reform one of his most important goals for his time at HUD.

ABA to Drop its Volcker Rule Lawsuit: Citing recent regulatory action that addressed the issue of collateralized debt obligations held by smaller banks, the American Bankers Association has decided to drop its lawsuit on the Volcker Rule. The ABA stated that it will continue to work with banking regulators to ensure that small banks are protected. The lawsuit was originally focused on delaying the implementation of the Rule in terms of its requirements on smaller institutions, specifically with regards to CDOs.

Better Markets Challenges the JPMorgan Deal: Better Markets filed a lawsuit this week suing the Department of Justice to overturn last year’s $13 billion settlement with JPMorgan regarding the firm’s overstatement of the quality of its mortgage securities. Challenging the constitutionality of the settlement, Better Markets seeks to have the deal be subject to judicial review.

Obama to Nominate Fed and Citigroup Economist to Treasury Spot: The former Federal Reserve and Citigroup economist, Nathan Sheets, will be nominated to become the undersecretary for international affairs. As the top international official at Treasury, Mr. Sheets will be the point person on China and the EU, pushing for revamping of their economic systems and advocating U.S. financial and currency positions. Mr. Sheets worked for the Fed for 18 years before joining Citigroup as the global head of international economics. The White House also announced that Mark Sobel, currently the deputy assistant secretary for international monetary and financial policy at Treasury, to be the U.S. executive director at the IMF.

Fed Requested to Review Delegation of Enforcement Authority: In a letter to new Fed Chair Janet Yellen, Senator Elizabeth Warren and Rep. Elijah Cummings expressed their concern over the current state of the delegation authority within the Federal Reserve. The letter specifically cited the recent $9.3 billion settlement with mortgage servicers and the $5.7 billion of lender “credits” within the settlement that could be earned by lenders for writing down loan balances for homeowners. The settlement, which was not approved by the Board, did not require a dollar for dollar credit between write-downs and mortgage relief. A $15,000 write-down gained the mortgage lender a $500,000 credit within the settlement. Warren and Cummings requested the Fed take several actions in reviewing delegation authority, including formal notification of Federal Reserve Board members before a consent decree is entered into; all consent decrees above $1 million be approved by formal vote of the Board; and each Governor be given the necessary staffing capacity to review and analyze pending enforcement actions.

Upcoming Meetings and Hearings

The House and the Senate are in recess