BankThink

Weekly Wrap: Will Wall Street Regret Its Budget-Bill Coup?

Wall Street in Washington: Big banks succeeded in slipping a repeal of a Dodd-Frank swaps provision into the government spending bill—but have they inadvertently shot themselves in the foot? BankThink contributors Cornelius Hurley and Paul H. Kupiec go head to head on the issue, with Hurley arguing that banks have accidentally brought the issue of government subsidies back into popular consciousness. He says the Federal Deposit Insurance Corp. will now have to re-tally the risk that banks' swap businesses pose to the Deposit Insurance Fund, kick-starting a broader discussion about the "too big to fail" problem. In the opposing corner is the American Enterprise Institute's Paul H. Kupiec, who says that allowing banks to keep previously banned swaps in their insured depository subsidies will have little effect on the size of their taxpayer safety net. "With or without the rule, the government protects the swaps contracts of the largest institutions," he writes. He chalks the repeal up as a win for banks, since they'll be able to save money on the cost of operating their swaps businesses.

Twisting the Truth: "There is something strange about reading a congressional report and unexpectedly finding yourself mentioned in it," writes American Banker's deputy D.C. bureau chief, Joe Adler. And it was even stranger for Adler to realize that the House Oversight Committee's report on Operation Choke Point had taken his email conversation with FDIC spokesman David Barr out of context. This casts doubt on the report's credibility, according to Adler. He accuses the committee of cherry-picking evidence in order to promote its own interests (namely, pushing back against regulators who they say are unfairly targeting legal businesses like payday lenders). Readers tended to cast more stones at the FDIC for its role in Operation Choke Point than at Congress. "This adds more fuel to the fire that, while banks certainly are hard to be sympathetic to, their regulators are speaking out of both sides of their mouth," writes "ComplianceGuy." Another commenter, "AllThingsUnderbanked," noted: "To be sure the fog of war can at times make both the source and target of fire hard to determine. What is becoming evermore evident as the smoke clears is the culture of impunity in which the FDIC has said one thing to Congress while doing exactly the opposite in the field execution of its regulatory responsibilities."

Also on the blog: Cliff Rosenthal offers an insider's tale of life inside the Consumer Financial Protection Bureau, where he serves as assistant director. Among his revelations: "The bureau had real enemies, who were — and are — aiming live fire at its new 'plane.' This reinforced an atmosphere of extreme caution, sometimes resulting in delays in policy and regulation-making."

The Federal Housing Finance Agency is violating the law by continuing to hold Fannie and Freddie in conservatorship, according to former FDIC General Counsel Michael Krimminger. He should know: he advised Congress on the Housing and Economic Recovery Act that placed the agencies in the government's hands back in 2008.

Rigid state money transmitter licensing laws make it difficult for payments startups to get their products to market in a timely manner, so a number of entrepreneurs are teaming up with already-established companies. Payments lawyer Judith Rinearson says that's actually a win-win scenario: consumers' funds stay protected, while startups get a chance to test their products and advance the industry.

Financial regulations are designed to curb banks' growth appetites by imposing increasingly demanding rules according to asset size, write Thomas Vartanian and David Ansell, partners in the financial institutions practice at Dechert LLP. Meanwhile, finance professors Roy Smith and Ingo Walter recommend that banks take steps to strengthen internal culture or else risk incurring more regulatory wrath.

It's been one year since news broke of Target's massive data breach, and National Association of Federal Credit Unions head B. Dan Merger says efforts to protect consumers' sensitive information still have a long way to go. At the top of his Christmas wish list: making retailers subject to the same national data security standards and breach notification requirements to which financial institutions must adhere.

For reprint and licensing requests for this article, click here.
Consumer banking Law and regulation Bank technology Community banking
MORE FROM AMERICAN BANKER