WASHINGTON — House Financial Services Committee members are working on changes to the regulatory reform package due for a critical vote next week that would address some of the banking industry's major concerns.
In separate interviews, Reps. Brad Miller, D-N.C., and Ed Perlmutter, D-Colo., said they were drafting amendments which would address provisions forcing secured creditors to take a haircut in systemic resolutions and subjecting large institutions to consumer protection exams and enforcement by a new agency.
The full House is scheduled to begin debate on the reform package Wednesday, with a final vote by Friday.
Miller dismissed the controversy that has erupted over his amendment to let the Federal Deposit Insurance Corp. force creditors to take a 20% haircut when resolving a failing systemically important institution.
While the Federal Home Loan banks have said they would be captured under the amendment, Miller said that was not true. He said it is only designed to prevent secured creditors providing short-term lending to systemically important nonbanks to be made whole if the lending is provided within a month of the firm's collapse.
"I think the Home Loan banks are misapprehending what the amendment does," Miller said. "This provision only applies to the systemically significant institutions that are not already subject to the FDIC's resolution authority so it doesn't apply to depository institutions. The institutions that they lend to — their borrowers — are not subject to this regulation. So we are talking to the Federal Home Loan banks and trying to get them to calm down, and I hope that they will see that it doesn't apply to them."
Still, Miller said he is consulting with the FDIC, the Home Loan banks and the Treasury Department to consider revising the provision to explicitly exempt both the Home Loan banks and Treasury securities.
"We may clarify that it doesn't apply to the Home Loan banks," he said. "We may exempt Treasuries securities and really then it would limit the effect to more exotic kinds of securities like mortgage-backed securities, etc."
Miller said that the provision's goal is purely to protect the taxpayer and should not affect long-term credit.
"In terms of longer-term credit lending to a systemically significant firm that gets itself in trouble, this is not going to affect it," he said.
"All of the lending we are talking about really is lending for less than 30 days. It is for the existing creditors who demand more and more collateral as they see their borrower in a death spiral. … It limits the demands for collateral by existing creditors that distorts the resolution, giving them an unfair priority."
Though Miller's effort could ease broad concerns about the cost of bank debt, Perlmutter said he is tackling another controversial issue: the scope of a separate consumer financial protection agency.
He said he is drafting an amendment that would exempt the largest institutions from enforcement by a new consumer protection agency if they already have a permanent in-house bank examiner. Those banks would continue to be overseen by their primary bank regulator.
Under language added by Miller in the committee, the bill would already exempt community banks of up to $10 billion of assets from enforcement by the new agency.
Both the Miller language that is in the bill and the language that Perlmutter is proposing would still subject all banks to new rules written by the consumer agency.
"I hope we consider one on the consumer protection bill where we have the exam based on whether there is an audit team already stationed at the financial institution," he said. "You add a consumer protection person to the audit team so there is no extra complication or duplication. I think it makes more sense."
Perlmutter said his measure is intended to exempt the 17 largest national banks, six largest thrifts, 12 largest state nonmember banks and the 14 largest state member banks.
That list would cover credit card issuers like American Express Co. and Discover Financial Services as well as investment banks that became bank holding companies last year like Goldman Sachs Group Inc. and Morgan Stanley.