Arbitrary Nature of Financial Stability Oversight Council and the "Bail Out Nation "

March 6,2017
the staff of the Ridgewood blog

WASHINGTON DC, The House Financial Services Committee released a staff report which reveals that the Financial Stability Oversight Council (FSOC) acts inconsistently and arbitrarily in exercising its power to designate certain non-bank companies as “too big to fail.”

Based on documents requested by the Committee nearly two years ago and the sworn testimony of Treasury Department officials, both of which were only obtained as the result of a Congressional subpoena, the report shows that not only is FSOC’s analysis inconsistent, FSOC does not even follow its own rules—to the extent that FSOC even has rules that could be consistently followed.

“Today’s FSOC designations are tomorrow’s taxpayer-funded bailouts. The FSOC typifies Washington’s shadow regulatory system of powerful government bureaucrats, secretive meetings, arbitrary rules and unchecked power to punish enemies and reward friends,” said House Financial Services Committee Chairman Jeb Hensarling (R-TX). “The Obama Treasury Department tried to keep Congress and the American people in the dark about how FSOC exercises its sweeping powers. The release of this staff report brings some much-needed transparency and oversight to FSOC, and the information contained in the documents clearly demonstrates the need for the accountability reforms Republican have proposed in the Financial CHOICE Act.”

The staff report – which details the non-public analysis associated with FSOC’s processes to designate certain firms as so-called “systemically important financial institutions” and therefore “too big to fail” – comes in the midst of the FSOC’s appeal after a federal district court overturned FSOC’s designation of MetLife and characterized the designation as “arbitrary and capricious.”

In response to previous concerns that its designation process is arbitrary, FSOC has repeatedly stated that its analysis is based on “industry-specific and company-specific factors” without making clear what that meant in practice. But these documents bring to light that FSOC took into account certain factors when designating one company while refusing to consider those identical factors in the designation of another company.

One instance where FSOC did not treat two companies the same was its evaluation of a company’s vulnerability to material financial distress.

For the four nonbank financial companies that the FSOC designated as systemically important financial institutions (SIFIs), the FSOC did not evaluate the vulnerability to material financial distress of those companies. The FSOC has claimed in court both that it is not required to evaluate the probability or likelihood of material financial distress at a nonbank financial company, and that the FSOC’s own guidance does not state it will do so.

The Committee-obtained FSOC documents reveal that the FSOC evaluated the vulnerability of some companies to material financial distress – and then declined to designate those companies. The FSOC made multiple statements about the vulnerability to financial distress of some companies in their confidential evaluations such as “temporary market disruptions would be unlikely to threaten the imminent solvency” of a company, or for another company that its available liquidity resources “make it less likely for liquidity concerns and maturity mismatches to translate into a viable source of systemic risk.”

The FSOC’s documents neither explained this disparate treatment, nor was it explained to the court. This and other instances of disparate treatment of similar factors at different companies calls into question the entirety of FSOC’s analysis and its reliance on “company-specific” qualitative factors as justification for its designations.

These documents also show that the FSOC does not follow its own rules for the nonbank designation process. The FSOC says that it will “assess the impact of the nonbank financial company’s material financial distress in the context of a period of overall stress in the financial services industry and in a weak macroeconomic environment.”

But the documents that are discussed in the staff report detail a number of companies where the conclusions reached by the FSOC were made based on a scenario of the company failing “in isolation,” as opposed to reaching its conclusions in a scenario where there are “developments that cause distress at [the company] and other firms simultaneously.”. These companies were not designated by the FSOC. The reason the FSOC did not follow its own rule was not explained in the documents or the testimony of Treasury officials.

The Financial CHOICE Act – the Republican plan to replace Dodd-Frank and promote economic growth – includes provisions that eliminate FSOC’s authority to designate certain firms as “too big to fail” and rescinds previous FSOC designations. In addition, the CHOICE Act would require the FSOC to operate with a higher degree of transparency and inclusiveness.

Banks to Donald Trump: Don’t Kill Dodd-Frank

pic CEO of JP Morgan Jamie Dimon

Bankers admit they love the guaranteed bailouts, lack of competition and regulated margins of Dodd-Frank
December 10, 2016
the staff of the Ridgewood blog

Ridgewood NJ, Big banks have an unexpected message for President-elect Donald Trump: Don’t trash the Dodd-Frank Act.“We’re not asking for wholesale throwing out Dodd-Frank,” J.P. Morgan Chase & Co. chief James Dimon said at a financial-services conference this week where he and other big-bank executives spoke, often addressing potential regulatory changes for the first time since the election.

During his presidential campaign, Republican Donald Trump said he would "get rid of" Dodd-Frank — the sweeping legislation passed in 2010 to address problems underlying the 2008-2009 financial crisis. Dodd-Frank a 2200 page monstrosity , was passed by congress like Obamacare without anyone reading the legislation , that is except for former NJ Congressmen Scott Garrett.

Dodd-Frank turned banks into utilities and did nothing to solve the ills that caused the banking crisis in 2008 ,it basically institutionalized the bad behavior that created the problem, put the bad debt in suspended animation and put taxpayers on the hook with its "too big to fail" provisions creating "Bailout Nation".Too big to fail also implies the corollary to big to really succeed.

Former Fed Chair Alan Greenspan called "too big to fail" legislation a "moral hazard" , giving bankers the excuse to engage in activities that would otherwise risk their livelihoods, feeling confident in ever larger government ie taxpayer bailouts.

Some in Washington have called for full repeal of Dodd-Frank, the legislation passed in 2010 that imposed new constraints on banks and created new agencies like the Consumer Financial Protection Bureau. A proposal that would effectively replace Dodd-Frank, by Rep. Jeb Hensarling, the Republican chairman of the House Financial Services Committee, has gained momentum since the election.

The Trump team has talked about dismantling the law, although it has yet to state clearly whether this would involve a repeal of Dodd-Frank. Bank stocks have soared about 20% since the election, partly on the belief President-elect Donald Trump in some way will lighten banks’ regulatory load.

While banks favor a paring back of regulation, they tend to think in practical terms, rather than ideologically. And their core message seems to be: Make regulation simpler and less costly but don’t return banking to the Wild West days that preceded the financial crisis.

In many ways that is understandable. Banks have spent half a dozen years and hundreds of millions of dollars to adapt to the new landscape. This has caused them to exit businesses such as proprietary trading, rejig their corporate structures to make them safer and focus more on clients’ needs. While tearing up Dodd-Frank would seem to unshackle banks, starting with a new regulatory playbook would upend their new business models and divert management.

One of the biggest concerns for banks is that things don’t get worse. “The first thing I would ask for is nothing new, no new rules,” Citigroup Inc. finance chief John Gerspach said at the conference. “If you haven’t figured out yet how all the existing rules work together, don’t put on anything else.”

Banks acknowledge benefits to the new rules, noting they have helped improve the way firms manage risks and view their businesses. U.S. bankers have also said that having been forced to hold more capital, and build it quickly after the financial crisis, made their firms far stronger than troubled European peers.

So what would the big banks like to see changed?

Stress Tests—These annual exercises conducted by the Federal Reserve have become hugely important because they govern the amount of capital banks can return to shareholders, either through buybacks or dividends.

Banks want these to be based more on objective criteria and they want to have more of a view into the testing process and the Fed’s decision-making. And they should take less time and money to comply with, bankers say.

Bill Demchak, CEO of PNC Financial Services Group Inc., said his bank could theoretically get all the benefits of the stress-testing process with “60% of the effort.” He said that to comply with the tests, “you bring the place to a grinding halt once a year.”

The Volcker Rule— Banks say they aren’t eager to get back into the business of speculating on market moves using their own balance sheets. But they want the process around the Volcker Rule to be less burdensome and administered by fewer than five agencies.

Changes in this area could “probably make it easier to make markets” and improve liquidity, likely benefiting investors and other issuers, said Mr. Dimon.

“You have active market-marking in lumber, rebar, chicken, pork, cotton; we need it in financial instruments, it’s not different,” he said. "I do think a little more liquidity could be good.”

Mr. Gerspach said Citigroup would like less paperwork. “We don’t want to do proprietary trading,” he said. “But I also would love to work with regulators to lessen the burden of proving that we’re not engaging in proprietary trading.”

Capital and Liquidity—Banks say there are so many new rules relating to so many areas of their balance sheets that they too often run the risk of working against each other. And it isn’t clear when enough capital really is enough.

Wells Fargo chief Timothy Sloan cited differences between rules about how much capital a bank must hold and the amount of liquid assets a firm has to keep on hand. The intersections of these rules, bankers argue, hampers lending.

Bankers would also like more clarity around how much capital is enough for banks. Regulators have applied various capital surcharges to the biggest banks and these can change as regulations evolve.

“It’s getting certainty around the ability to have access to your capital return once you’ve met all the hurdles and whether those hurdles move up or down because of various people’s point of view,” said Bank of America Corp. chief Brian Moynihan.

J.P. Morgan’s Mr. Dimon said that regulators’ authority should be “cut back a little bit. It should be more prescriptive in exactly what they’re trying to accomplish.”

For all that, bankers are taking a wait-and-see stance before making any big changes to their businesses. “I think the difference going into 2017 is that we do have hope,” Citigroup’s Mr. Gerspach said. “But…we can’t build a plan on hope.”

The fact that the culprits of the Financial Crisis in 2008 are now opposing the repeal of Dodd-Frank is further evidence that things need to change dramatically . The entire financial sector of the economy has been moribund under Dodd-Franks government imposed socialism . A vital and growing financial sector is paramount to an active and growing economy .

House Committee Approves Garrett Promoted Financial CHOICE Act to end Corporate Bailouts

September 14,2016

the staff of the Ridgewood bog

Washington DC, Legislation to end bailouts for big banks, toughen penalties for wrongdoing on Wall Street, promote economic growth, and provide desperately needed regulatory relief for small community banks and credit unions passed the House Financial Services Committee 30-26 today.

The legislation – the Financial CHOICE Act – ends the Dodd-Frank Act’s taxpayer-funded bailouts of large financial institutions; relieves banks that elect to be strongly capitalized from growth-strangling regulation that slows the economy and harms consumers; imposes tougher penalties on those who commit financial fraud; and demands greater accountability from Washington regulators.

“Democrats just voted against a bill that increases penalties against those who commit financial fraud. They just voted against a bill that ends taxpayer-funded bailouts, and they just voted against legislation that provides relief from Washington’s crushing regulatory burden for small banks, credit unions and consumers,” said Financial Services Committee Chairman Jeb Hensarling (R-TX), the sponsor of the bill.

“The bill holds Wall Street accountable with the toughest, strongest, strictest penalties ever – far greater than those in Dodd-Frank. And as recent headlines attest, obviously stronger penalties are needed. It requires banks to be well capitalized to prevent another financial crisis and puts in place the toughest penalties in history to protect consumers from fraud and deception.

“The Financial CHOICE Act will help grow the economy for all Americans, not just those at the top. It promotes strong and transparent markets to revitalize job creation in our poorest communities and ensures every American has the opportunity to achieve financial independence, no matter where they start out in life.”

The Financial CHOICE Act, which stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs, received strong support from community banks and credit unions, small business groups and conservative organizations. Large financial institutions did not offer their support for the bill.

Democrats on the Committee – despite having spent months criticizing the Financial CHOICE Act – refused to offer a single amendment to the bill.

For more information on the Financial CHOICE Act, visit www.financialservices.house.gov/choice/.

Organizations offering praise for the Financial CHOICE Act include the following:

“The [Financial CHOICE Act] would provide meaningful regulatory relief to help community banks foster economic and job growth in their local communities.” — Independent Community Bankers of America

“This bill provides significant regulatory relief essential to restoring economic growth. Republican members of Congress have repeatedly promised to get rid of Dodd-Frank and stop taxpayer funded bailouts. Now they have the opportunity to fulfill that promise by bringing the Financial Choice Act to a vote in the House and Senate, and sending the bill to the President’s desk.” — Heritage Action

“Chairman Hensarling’s CHOICE Act would be a win for Main Street consumers, workers and small businesses. Since Dodd-Frank was passed in 2010, access to free-checking has decreased while lobbyists’ importance has increased. The CHOICE Act helps reverse this trend.” — Main Street Growth Project

“Americans for Prosperity applauds your leadership in reining in the overbearing financial regulations that threaten growth and threaten consumer financial stability. Repealing and replacing the failed policies established in the Dodd-Frank Act will mean that Americans will have greater access to capital, which will lead to greater job growth, personal wealth, and overall economic prosperity. We are proud to support the CHOICE Act, and we urge your colleagues to support it.” — Americans for Prosperity

“….[the Financial CHOICE Act] is precisely the right combination to get the American economy moving again. The CHOICE Act offers sensible regulatory relief for qualifying institutions, protects the American taxpayer and consumer from another Wall Street meltdown, and holds federal financial regulatory agencies accountable.” — Independent Bankers Association of Texas

“….several components of this legislation target reforms specifically to facilitate investment in small business. The inclusion of these provisions and others will provide regulatory relief and modernization that will allow the private sector to fuel economic growth in our 21st century economy.” — Small Business Investor Alliance

“This is an important bill that will truly reform rules governing the financial system, encourage innovation across the system, vastly improve access to capital for entrepreneurs and small businesses, and transform a regulatory structure that lacks accountability, is too secretive, and ignores its responsibilities concerning small businesses.” — Small Business & Entrepreneurship Council

“We greatly appreciate the Chairman’s efforts in Title III of the bill to reform the Consumer Financial Protection Bureau (CFPB or Bureau). This title will help to ensure the Bureau serves as a non-partisan regulator that operates within the framework of the law by giving Congress more oversight authority, taking into account the opinions of all stakeholders, and properly weighing the impact its regulations have on the availability of credit.” — Consumer Bankers Association

“NAR is pleased that the FCA [Financial CHOICE Act] includes provisions that will enhance transparency, accountability and fairness in our financial system. As a result, the FCA will help expand financial product choice and promote economic opportunity. These provisions are an important step towards making property ownership a reality for hardworking Americans and U.S. businesses.” – National Association of Realtors

“If we want the economy to improve — if we want to give all Americans the chance to prosper again — we need to put an end to Washington’s destructive regulatory agenda once and for all. Thankfully, an increasing number of elected officials in Washington are fighting against the harmful effects and unintended consequences of these onerous regulations. Leading the fight in Congress has been House Financial Services Committee Chairman Jeb Hensarling (R-TX), who recently outlined a comprehensive plan to turbocharge the American economy. His new legislation, The Financial CHOICE Act, aims to curb regulations to create opportunity and choice for investors, consumers, and entrepreneurs nationwide.” — Conservative Coalition Letter of Support

“If signed into law, the bill would end the era of too big to fail, and would move banking and financial decisions away from Beltway and back to Main Street. This bill is balanced, meets key conservative criteria, and should continue to move through the House to final passage.” — FreedomWorks

“….[the Financial CHOICE Act] would begin the process of implementing sensible, necessary reforms to the U.S. financial system. That system has been saddled with an ineffective regulatory structure and an array of conflicting legislative and regulatory requirements that, individually or collectively, constrain growth. The Chamber believes the Financial Choice Act is a positive first step for unlocking the capital markets to better facilitate the financing of America’s economic growth and job creation.” — U.S. Chamber of Commerce

“….the CHOICE Act offers a strong alternative to Dodd-Frank and the regulatory morass it created. Rather than creating a flurry of complex rules in response to the financial crisis, Congress should have mandated higher capital requirements for financial institutions. That is why NTU is enthusiastic about the CHOICE Act’s “off ramp” from the bulk of the current Dodd Frank regulatory regime.” — National Taxpayers Union

“….the CHOICE Act and the substantial regulatory relief it provides…will generate meaningful economic and job growth in our communities.” — Mid-Size Bank Coalition of America

“….[the Financial CHOICE Act] address[es] the challenging credit conditions that home builders and home buyers continue to experience as a result of an overly zealous regulatory response to the financial crisis. NAHB appreciates your efforts to initiate regulatory reform to support a more robust recovery.” — National Association of Home Builders

“….it is vital that we take heed of any policy that claims to “fix” the voluntary actions of consumers. Price controls go against everything we stand for as a country and do nothing but redistribute wealth, damaging the lives of hardworking Americans. The first step forward is reform. The Financial CHOICE Act is that first step.” — Red State

“….the Financial Choice Act if passed will restore competition in the marketplace by removing arbitrary government price caps. Additionally, it will allow banks the ability to recoup the money they spend on fraud protection from the retailers that reap the benefit of the use of debit cards. Consumers will once again have affordable access to basic banking services, and small businesses will have the freedom to negotiate processing fees that make sense based on the type of goods they sell. In short, all true conservatives in Congress should rally behind Neugebauer and Hensarling’s bill, because it will cut back on big government red tape and allow the free market to thrive again.” — Liberty Unyielding

http://theridgewoodblog.net/house-committee-approves-garrett-promoted-financial-choice-act-to-end-corporate-bailouts/

too big to fail? Or perhaps a better question is, has there become a total abdication of accountability?

So how big is too big to fail? Or perhaps a better question is, has there become a total abdication of accountability? For some time it has appeared that regulators were more interested in protecting vested interests in the industry than joe average investor. The answer to everything has been to blame the lowly retail stock broker for everything up to the imminent demise of western civilization.
But the facts seem to suggest otherwise. Your broker at the end of the day for better or worse is the only person beside yourself that is responsible for what goes on in your account. Basically he or she has to pick up the phone.

Account representatives are held accountable thru two major rules 1) know your customer and 2) suitability. It is amazing that you and your broker are the only ones held to these standards. Yes firms have supervisory responsibilities but lets face it in the era of Sarbanes Oxley they seem to be falling far short .Basically applying different standards to large political contributors such as Fannie Mae and Freddie Mac .Given Sarbanes Oxley and industry grips about implementation costs It is incomprehensible that large firms like Lehman Brothers can have such opaque balance sheets.

The main focus of every investor right now should be financial transparency and again accountability. Over times firms that come clean and stay clean will be rewarded and like or not you may want to start with your local broker who is already sticking his neck out

Fed chair reiterates the “too big to fail policy”

Fed chair reiterates the “too big to fail policy” and avoids the big interest rate decisions till next year ,or “as long as emergency conditions prevail” .Again the current economic dilemma’s has been created more by continued poor policy judgment and much less by the forces of supply and demand.

The very congress that seems so out of touch on the sub prime mess continues to look to act on more regulation of the financial sector and throw in enough tax increases to go around consequences be damned ….humm sounds like the Carter Era to me and remember investment banks may be too big to fail but your portfolio isn’t .

As this current correction runs its coarse dust off your white suit and look to slowly add back the same sectors; energy, Ag and metals, with particular attention to natural gas and drillers. Like the 1990’s the sectors that led the market higher will lead the market when it comes out of a tail spin unless there is some major change in policy direction.

Given the inherent political opportunities with “global warming” and the current government penchant for raising taxes and over regulation “global warming” offers politicians a goldmine of unlimited chances to tax and regulate the human condition recognizing that all living activity results in the explosion of CO2 gases. This blogger however hopeful that sanity may prevail is rather dubious that any leadership will be exhibited from Washington.