Fast Facts: FINANCIAL REPORTING
February 25, 2011
FACT: On January 18, 2011, President Obama signed the “Improving Regulation and Regulatory Review” Executive Order to reduce unnecessary regulatory burdens and ensure that our regulatory system “promotes economic growth, innovation, competitiveness, and job creation.”
FACT: According to a recent Financial Services Roundtable survey, member companies file some combination of more than 185 different reports on a varying basis (e.g. daily, weekly, monthly, quarterly, annually, every five years, and as-needed) with 16 different federal agencies:
- Bureau of Economic Analysis
- Commodity Futures Trading Commission
- Department of Education
- Department of Labor
- Department of Housing and Urban Development
- Department of the Treasury
- Economic and Statistics Administration
- Federal Deposit Insurance Corporation
- Federal Financial Institutions Examination Council
- Federal Reserve Board of Governors
- Federal Trade Commission
- Financial Industry Regulatory Authority
- Municipal Securities Rulemaking Board
- Office of the Comptroller of the Currency
- Office of Thrift Supervision
- Securities and Exchange Commission
FACT: The Roundtable’s survey does not take into account many of the special request reports, such as stress tests, or additional reports that will likely be requested as a result of the Dodd-Frank Act.
FACT: On February 22, 2011, the Roundtable submitted the results of its data survey to President Obama, Cass Sunstein (Administrator of the Office of Information and Regulatory Affairs), and the responsible agency heads.
The Roundtable’s data survey can be found here.
As always, please do not hesitate to contact Abby McCloskey, Director of Research at the Financial Services Roundtable, at Abby@fsround.org, or Scott Talbott, Senior Vice President of Government Affairs, at Scott@fsround.org.
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Fast Facts: GSE Reform
February 17, 2011
Fannie Mae was established as a federal agency in 1938 and was chartered by Congress in 1968 as a private shareholder-owned company. Freddie Mac was chartered by Congress in 1970. Both had the statutory mission to provide liquidity, stability and affordability to the U.S. housing and mortgage markets.
FACT: In September 2008, Fannie Mae and Freddie Mac were placed in government conservatorship under the authority provided by the Housing and Economic Recovery Act of 2008.
- Fannie and Freddie became insolvent as a result of inadequate capital held against their leveraged portfolios that were exposed during the housing crisis.
FACT: Over the course of the financial crisis, the Treasury Department injected $134 billion of taxpayer dollars into Fannie Mae and Freddie Mac to keep them solvent so they could honor their debt and guarantees.
FACT: In examining the role of Fannie Mae and Freddie Mac in the financial crisis, Mark Zandi of Moody’s Analytics reached the following conclusion, “The missteps and failure of the GSEs did not cause the housing market and mortgage finance system to collapse, but they set off a chain of events resulting in the most severe financial crisis and economic downturn since the Great Depression.”
FACT: On February 11, 2011, the Treasury released its 31-page proposal about how to reform the GSEs, as mandated by the Dodd-Frank Act. In the report, the Administration recommends allowing the GSEs’ maximum loan limits to decline to $625,500 from $729,750 on October 1, 2011 and gradually increasing minimum down payments to 10% on loans eligible for purchase by Fannie Mae and Freddie Mac.
- The Administration also presents three options for replacing the GSEs with a new secondary mortgage market structure. A brief description of the three proposed options is attached.
The Housing Policy Council of the Financial Services Roundtable has proposed an alternative plan to maintain consistent, affordable access to 30-year fixed rate mortgages, return private capital to the secondary mortgage market, minimize taxpayer exposure, and provide a catastrophic backstop to maintain liquidity in the mortgage market. For more information, please contact Paul Leonard of the Housing Policy Council at Paul@fsround.org.
As always, please do not hesitate to contact Abby McCloskey, Director of Research at the Financial Services Roundtable, at Abby@fsround.org, or Scott Talbott, Senior Vice President of Government Affairs, at Scott@fsround.org.
Three possible courses for long-term reform
As presented by the Administration in their Feb. 11 report
The full report is available here.
Option 1: “Privatized system of housing finance with the government insurance role limited to FHA, USDA and Department of Veterans’ Affairs’ assistance for narrowly targeted groups of Borrowers”
Under this option, FHA, VA and USDA remain the federal government's actors in the mortgage market, but there will no longer be federal financial backstops available for investors in the event of losses.
Option 2: “Privatized system of housing finance with assistance from FHA, USDA and Department of Veterans’ Affairs for narrowly targeted groups of borrowers and a guarantee mechanism to scale up during times of crisis”
Under this option, FHA, VA and USDA will remain the federal government's actors in the mortgage market, but there will be an unspecified federal backstop that would "scale up" during times of economic crisis but otherwise not be an actor in a private lender-dominated mortgage marketplace.
Option 3: “Privatized system of housing finance with FHA, USDA and Department of Veterans’ Affairs assistance for low- and moderate-income borrowers and catastrophic reinsurance behind significant private capital”
Under this option, FHA, VA and USDA will remain the federal government's actors in the mortgage market, but there will be the creation of a government reinsurer that would insure against “catastrophic" losses for soundly underwritten mortgages. This entity will step in only if the private guarantors fail and the reinsurance fund is depleted.
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Fast Facts: THE RISE OF MOBILE BANKING
February 11, 2011
FACT: Mobile banking usage is estimated to grow from 10 million active users in 2009 to over 53 million active users in 2013, representing a compound annual growth rate of 51.8%.
FACT: The number of consumers comfortable using a mobile phone to handle online financial tasks has doubled from two years ago; 34% percent of consumers in 2010 compared to 14 percent in 2008.
FACT: The developed nations of the Far East, North America and Western Europe are forecast to account for over 70% of the mobile banking base in 2011, according to Juniper Research.
FACT: The following companies had mobile banking apps highlighted as “the five best mobile banking apps now” in the American Banker:
- Citigroup: “Tap & Go” Stickers – Enables customers to make payments of up to $50 by touching a sticker on their mobile devices.
- J.P. Morgan Chase: “QuickDeposit” and “QuickPay” - Enables customers to deposit checks by taking pictures of the front and bank of checks with an iPhone.
- State Farm Bank: “Pocket Agent” – The MyTime Deposit feature of Pocket Agent allows customers to deposit checks by taking a picture of the check using an iPhone or Android device.
- MasterCard: “Priceless Picks” and “Overwhelming Offers”- Enables customers to receive recommendations about products from users and receive discounts.
- Wells Fargo: “CEO Mobile” – Enables corporate customers to conduct wire transfers, monitor bank balances, and view transaction details on the iPhone.
FACT: Consumers should only install verified mobile banking software from a trusted institution. Users should protect their phone (it’s a transaction device), use strong passwords and report a lost phone immediately to the bank. View more safety tips here.
BITS is launching a Mobile Special Interest Group on February 24 to discuss cutting-edge mobile financial services, security and fraud issues, and evolving regulatory requirements. If you have questions about these issues or want more information, please contact Ann Patterson at ann@fsround.org.
As always, please do not hesitate to contact Abby McCloskey, Director of Research at the Financial Services Roundtable, at Abby@fsround.org, Scott Talbott, Senior Vice President of Government Affairs, at Scott@fsround.org, or Leigh Williams, President of BITS, at Leigh@fsround.org, if we can be of assistance to you.
Looking for past Fast Facts?
Please visit the Roundtable’s Fast Fact Center at www.fsround.org. Scroll down to Fast Facts.
Fast Facts: BROKERED DEPOSITS
February 4, 2010
On January 13, 2011, the Financial Services Roundtable released a study commissioned through the Cluff Fund and authored by Dr. Clifford Rossi, entitled: Decomposing the Impact of Brokered Deposits on Bank Failure. Below are key takeaways from the report.
FACT: Brokered deposits are large-sum deposits, similar to certificates of deposit, which are sold by a bank to a brokerage company. The brokerage company then divides the brokered deposits into smaller pieces and sells them to the brokerage’s customers.
FACT: Numerous failed banks (during and after the savings & loan crisis of the 1990’s) have had large positions in brokered deposits – leading some observers to believe that brokered deposits are causal to bank failure.
FACT: Prior to the Dodd-Frank Act, the FDIC issued rules, including Section 29 of the Federal Deposit Insurance Act, that eliminated the use of brokered deposits for firms that are not well-capitalized, capped the rates paid on these funding sources, and raised deposit premiums associated with brokered deposits.
FACT: Using quarterly FDIC call report data from 2007-2009, Dr. Clifford Rossi’s study concludes that brokered deposits are not a statistically significant indicator of bank failure.
- Rather, the study concludes aggressive asset growth and risk-taking strategies are leading indicators of bank insolvency.
FACT: The Dodd-Frank Act mandates the FDIC to study the impact of revising the definitions of brokered deposits and core deposits and examine their role in the economy and banking sector of the U.S. The study will be released prior to July 21, 2011.
If you have questions, please do not hesitate to contact Abby McCloskey, Director of Research at the Financial Services Roundtable, at Abby@fsround.org, or Scott Talbott, Senior Vice President of Government Affairs.
Looking for past Fast Facts?
Please visit the Roundtable’s Fast Fact Center at www.fsround.org. Scroll down to Fast Facts.
Fast Facts: FIDUCIARY RESPONSIBILITY
January 28, 2011
The following information is provided by the GAO in their January 2011 Consumer Finance report.
FACT: Between 2000 and 2008, the number of financial planners more than doubled, from 94,000 to 208,400, respectively. By 2018, the number of financial planners could reach 271,200 as millions of retiring Baby Boomers need advisers to assist with their retirement plans.
FACT: Consumers generally do not understand the distinction between different types of financial planners (broker-dealers versus investment advisors) and different standards of care (suitability versus fiduciary), according to a 2008 RAND survey cited in the GAO study.
FACT: There are three main types of financial planners outlined in the GAO study:
1. Investment Advisers: Give advice about securities.
- Governed by the Investment Advisers Act of 1940, rules from SEC, and state securities laws.
- Have fiduciary duty to render services solely in the best interest of clients and disclose conflicts of interest.
2. Broker-Dealers: Recommend, purchase, and sell securities.
- Governed by the Securities and Exchange Act of 1934, rules of SEC, FINRA, and state securities laws.
- Have suitability rules requiring that recommendations are suitable for customers.
3. Insurance Agents: Recommend and sell insurance products.
- Governed by state insurance laws.
- Have suitability rules that vary by product and state insurance law.
FACT: The Department of Labor has proposed rules changing who is considered an ERISA/IRA fiduciary, and the SEC has issued a staff study addressing whether to implement uniform standards of care for broker-dealers and investment advisers when providing personalized investment advice to retail customers.
FACT: On January 22, 2011, the SEC submitted this study to Congress in answer to Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which charged the SEC to study the obligations of broker-dealers and investment advisers. The SEC study was accompanied with this statement by Commissioners Casey and Pardes.
If you have questions, please do not hesitate to contact Abby McCloskey, Director of Research at the Financial Services Roundtable, at Abby@fsround.org, Scott Talbott, Senior Vice President of Government Affairs, at Scott@fsround.org, or Brad Ipema, Senior Counsel for Legal & Regulatory Affairs, at Brad.ipema@fsround.org.
Looking for past Fast Facts?
Please visit the Roundtable’s Fast Fact Center at www.fsround.org. Scroll down to Fast Facts.
Fast Facts: FINANCIAL STABILITY OVERSIGHT COUNCIL
January 21, 2011
The Financial Stability Oversight Council (FSOC) is a new federal entity created by the Dodd-Frank Act. The FSOC is chaired by Secretary Geithner and charged with identifying threats to the financial stability of the United States, promoting market discipline, and responding to emerging risks to financial stability.
FACT: The Dodd-Frank Act directs the FSOC to designate financial companies whose failure could pose a threat to the financial stability of the United States as systemically important financial institutions (or “SIFIs”).
FACT: Once designated as a SIFI, the Federal Reserve can apply heightened prudential standards such as risk-based capital and leverage limits; liquidity requirements; overall risk management requirements; resolution plans; and new loan concentration limits.
FACT: Under the Dodd-Frank Act, 36 bank holding companies with over $50 billion in assets are automatically designated as SIFIs.
FACT: On January 18, 2011 the FSOC released a notice of proposed rulemaking about which non-bank financial companies could be designated as SIFIs and subject to heightened prudential standards.
- The proposed designation framework is organized around six broad categories: (1) Size; (2) Lack of substitutes for the financial services and products the company provides; (3) Interconnectedness with other financial firms; (4) Leverage; (5) Liquidity risk and maturity mismatch; and (6) Existing regulatory scrutiny.
FACT: Designation requires a two-thirds vote of the FSOC members and a concurring vote of the Secretary of the Treasury. After designations are announced, which are expected this spring, companies are given 30 days to contest their standing on the basis of the decision being “arbitrary and capricious.”
If you have questions, please do not hesitate to contact Abby McCloskey, Director of Research at the Financial Services Roundtable, at Abby@fsround.org, Scott Talbott, Senior Vice President of Government Affairs, at Scott@fsround.org, or Brad Ipema, Senior Counsel for Legal & Regulatory Affairs, at Brad.ipema@fsround.org.
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To learn more about the FSOC and its activities:
Please view the official FSOC website and the Roundtable’s white paper about the Financial Stability Oversight Council.
Additionally, the FSOC recently released the following studies that may be of interest: The FSOC’s Study and Recommendations Regarding Implementation of the Volcker Rule, and The FSOC’s Report on the Concentration Limit on Large Financial Companies.
Fast Facts: ECONOMIC OUTLOOK 2011
January 14, 2011
FACT: The Congressional Budget Office estimates that 2011 will be a time of growth that will accelerate going into 2012-2014.
- The economy (nominal GDP) is predicted to grow by 3.1% in 2011 and 5.6% in 2012-2014.
- The unemployment rate is predicted to be 9% in 2011 and drop to 6.7% from 2012-2014.
FACT: By a two-to-one margin, Americans think that the economy will be better this year than last year, according to Gallup. Forty-four percent think their personal financial situation will be better in 2011.
FACT: The private sector has been accumulating resources that could be deployed when economic conditions improve.
- According to the Federal Reserve, nonfarm, nonfinancial businesses are holding $1.9 trillion dollars of liquid assets – an 8% increase from the end of 2009 and 38% over 2008 levels.
FACT: The Mortgage Bankers Association predicts that the housing market will continue to improve.
- Sales of existing homes are expected to increase 12% by the end of 2011 and 33% for new homes, compared to 2010.
FACT: Banks are continuing to increase access to loans. The most recent Federal Reserve Senior Loan Officer survey indicated that, on net, banks are easing standards on loans to both large and small businesses and consumers.
FACT: In his first testimony to the new Congress on January 7, 2011, Chairman Bernanke told the Senate Budget Committee, “We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold… Overall, the pace of economic recovery seems likely to be moderately stronger in 2011 than it was in 2010.”
If you have questions, please do not hesitate to contact Abby McCloskey, Director of Research at the Financial Services Roundtable, at Abby@fsround.org, or Scott Talbott, Senior Vice President of Government Affairs, at Scott@fsround.org.
Fast Facts: DEBIT CARD INTERCHANGE FEES – PART 2
In the next several months, the Federal Reserve will establish price controls on 35% of all noncash payments with no Congressional hearing, independent analysis, or any guarantee that the price controls will not harm consumers.
FACT: On December 16, 2010, the Federal Reserve proposed a rule to fix the price of debit interchange, reducing fees by an average of 84%.
FACT: The Federal Reserve’s proposal to cap debit interchange fees at $0.07 to $0.12 per transaction will force financial institutions to process debit card transactions well below the cost of providing them.
- The proposal does not take into account funding costs, overdraft losses, billing and collection, customer service, data processing, protection of customer data and fraud losses that relate to supporting debit services – nor does it take into account the investment and development costs borne by financial institutions to create these electronic payment networks.
- According to the Federal Reserve’s previous work on this issue, “determining an appropriate regulated value for the interchange fee can be quite challenging…and calculation of that fee requires knowledge of social costs and benefits that are difficult, if not impossible, to measure accurately.”
FACT: It costs $300 to $350 annually per customer to maintain a checking account. If fees are significantly reduced, financial institutions will have to recover these costs elsewhere.
- According to the GAO, when Australia capped interchange fees, consumers received fewer benefits and paid more for their cards.
FACT: Low and moderate-income consumers will be disproportionately hurt from increasing fees. “Many low-income Americans will be unable to qualify for free checking under the new <debit> fee regime, meaning they will have to pay higher fees or drop out of the banking system” to payday lenders and loan sharks, according to Professor Todd Zywicki of George Mason University.
FACT: Consumers won’t necessarily benefit from lower prices at the store. “Many industry participants acknowledged that it would be difficult to prove a direct link between lower interchange fees and lower consumer prices,” according to GAO.
FACT: Merchants receive a variety of benefits—primarily, increased sales—from accepting card payments. These benefits are not reflected in the Federal Reserve’s proposal nor were they discussed at the December 16 meeting.
FACT: The routing and exclusivity rules are significant changes from the original amendment in May and have not been reviewed by the full legislature and/or the payments industry.
- These provisions will pick winners and losers among networks, thereby reducing the number of networks in the US and significantly undermining network competition and innovation.
FACT: The routing rules effectively give retailers (not consumers) the power to control every debit transaction.
- According a survey of debit card users, 67 percent oppose giving retailers the choice about which network to route their transactions. 86 percent of consumers don’t want an unfamiliar network processing their debit transaction.
FACT: Federal Reserve Governors expressed hesitation about the impact of their proposed rule and requested public comment at the December 16 meeting:
“Sometimes when we submit a proposed rule we’re pretty convinced we have it basically right…<The proposal> suggests to me that we should be more open than usual to a variety of comments.” Governor Tarullo
“I think we should be particularly keen to listen to comments and people’s perspectives. I would be particularly interested in comments on whether there is a more viable, pro-competitive alternative to setting prices.” Governor Warsh
“We will be interested in reviewing commenters' input on the proposal as we determine what refinements should be made when it is adopted as a final rule.” Vice Chairman Yellen
If you have questions, please do not hesitate to contact Abby McCloskey, Director of Research at the Financial Services Roundtable, at Abby@fsround.org, Brian Tate, Vice President for Banking and Securities, at Brian@fsround.org, or Scott Talbott, Senior Vice President of Government Affairs, at Scott@fsround.org.
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For more information, please review:
Regulating Debt Cards: The Case of Ad Valorem Fees, by Zhu Wang, Federal Reserve Bank of Kansas City, Economic Review, First Quarter 2010
Interchange Fees and Payment Card Networks Economics, Industry Developments, and Policy Issues, by Prager, Manuszak, Kiser, Borzekowski, Federal Reserve, Finance and Economics Discussion Series: 2009-23.
