“My prediction about the future is that it will be different.” – Washington Post Columnist Joel Achenbach.

A recent thrift-shop acquisition included several mint-quality editions of National Geographic from 1986.  A sample headline: “Soviets in Space: Are They Ahead?”  One imagines nervous readers poring over the story for clues to an unknown future.  These days we check our cell phones on the morning bus to see how the markets opened overseas.  We ponder oracular minutes from Federal Open Market Committee meetings.  We chew at each week’s economic statistics.  And none of those exercises pulls back the curtain on the future with any certainty.  Sometimes we simply have to settle for the fact that the future is likely to be unexpected.
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Louisiana Commissioner Speaks to Banking Students; Says Financial System Better Off

During a speech Tuesday at Louisiana State University's Graduate School of Banking, Louisiana Banking Commissioner John Ducrest declared the problem of “too big to fail” institutions as an important issue in promoting the long-term viability of community banking.

“I believe in a diverse banking system,” said Ducrest.  “I believe in the need for institutions of all sizes and types.  I am a bank supervisor in a community banking state.  While there are many things we can and should do to promote the long-term viability of community banking, one of the most important is to address the problem of ‘too big to fail.’ We need to restore equity to the system.”

Ducrest said he understands the regulatory burden issues of community banks, and concern about the trickling-down effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), but he also stressed what it would mean to repeal the law.

“When people talk about ‘repealing Dodd-Frank,’ that would include all the work that has been done and is being done around financial stability, which is focused on the largest systemically important firms,” Ducrest said.

He told students that in 2008 the financial regulatory system was ill-prepared to manage the crisis.  The system lacked the necessary tools and knowledge of the risks and operations at the largest financial firms.  “We also lacked the ability to monitor and contain non-bank firms that were able to take large risks but had no prudential standards or supervision over certain parts of their operations,” Ducrest said.

But today, while there is still some debate if actions taken after the crisis were the right ones or if they were implemented at the proper time, Ducrest said he is optimistic the regulatory system will be better-informed and coordinated, thanks to the Financial Stability Oversight Council (FSOC).  The FSOC was established under the Dodd-Frank Act for the purpose of identifying risks to the financial system, promoting market discipline, and responding to emerging threats.  “Looking back, it is odd to think that no one in the federal government had this responsibility,” Ducrest said.

“We cannot and should not eliminate risk from the system and we will not prevent future financial crises. But it is in our national interest to ensure a financial system that can withstand the storm, minimize the damage, and serve as a foundation for recovery,” Ducrest concluded.

Ducrest’s speech is available in full here.
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Federal Reserve Board Sets Date to Vote on Basel III Rules

The Federal Reserve Board (FRB) is scheduled to vote next week on a set of proposed rules for implementing an international agreement on higher capital, liquidity and leverage requirements in the U.S., known as Basel III.

In a statement released on its website Wednesday, the FRB announced the meeting will take place June 7, is open to the public, and will be broadcast on the Internet.  The central bank and other federal agencies will put the proposal out for public comment.

Under the agreement, which was devised by international regulators in response to the recent financial crisis, firms will be required to hold at least a 4.5 percent common equity ratio by 2015 and phase in a capital conservation buffer of 2.5 percent by January 2019.

“The rule will ultimately impact the whole industry,” said Conference of State Bank Supervisors’ Senior Executive Vice President Michael Stevens.  “The banks will need to carefully evaluate the proposal and take the time to respond to what I suspect will be numerous questions.   And it is important for the agencies to understand the positive and negative implications from the industry's perspective.” 

Also during next week’s meeting, the FRB will vote separately on a proposal for consolidated capital requirements for savings and loan holding companies and a final interagency rule on market risk capital.

More information on the Federal Reserve Board’s June 7 meeting is available here.
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CFPB Reopens Comment Period on “Ability-to-Repay” Rule

The Consumer Financial Protection Bureau (CFPB) announced Thursday that it is reopening the comment period on its “ability-to-repay” rule based on new data and information that it received after the original comment period closed July 2011.  The new comment period will end July 9, 2012.

According to a statement issued by the CFPB, the agency received data from the Federal Housing Finance Agency (FHFA) tracking the performance of loans purchased or guaranteed by Fannie Mae and Freddie Mac.  The CFPB also obtained data on other securitized mortgage loans through the original comment period.  The new comment period is focused narrowly on these data issues, and does not reopen comment on other aspects of the proposed rule.

“We are committed to gathering solid data to inform this important rule,” said CFPB Director Richard Cordray.  “This notice gives the public an opportunity to comment on the information we have received so far, as well as an opportunity to submit additional data.”

The proposed rule, also known as the qualified mortgage (QM) rule, would establish new underwriting standards that mortgage lenders can rely on to verify a borrower’s ability to repay a mortgage.  Now that the comment period has been extended, the final rule will also be delayed.  According to National Mortgage News, the CFPB will likely issue the final "QM" rule after the 2012 elections.

The CFPB’s notice to reopen the comment period is available here.
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Around the Agencies

FHLBank:  The Federal Home Loan Bank of Atlanta (FHLBank Atlanta) announced new Affordable Housing Program Products that provide funding for the purchase or rehabilitation of a home by veterans or active duty members of any branch of the U.S. military that are currently serving or have served in an overseas military intervention, or their surviving spouses.  "FHLBank Atlanta's mission is to help local financial institutions make home mortgages affordable for homebuyers," said Robert Dozier, Chief Business Officer, FHLBank Atlanta.  "The new Veterans Products will help our military heroes purchase and maintain a home for themselves and their families."  Read more.

FHFA:  The Federal Housing Finance Agency (FHFA) reported that the National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders, used as an index in some adjustable-rate mortgage contracts, was 3.93 percent based on loans closed in April.  Beginning in March, FHFA is calculating interest rates using un-weighted survey data. There was an increase of 0.03 percent from the previous month.  Read more.

FRB:  Jeremy C. Stein and Jerome H. Powell recently took the oath of office as a members of the Board of Governors of the Federal Reserve System.  The oaths were administered by Chairman Ben S. Bernanke, giving the FRB a full board of Governors.  Read more.

FRB:  The FRB on Wednesday announced the approval of a final rule outlining the procedures for securities holding companies (SHCs) to elect to be supervised by the Federal Reserve.  The Dodd-Frank Act eliminated the previous supervisory framework that applied to SHCs under the Securities and Exchange Commission and permitted SHCs to be supervised by the Federal Reserve.  An SHC may seek supervision by the Federal Reserve to meet requirements by a regulator in another country that the firm be subject to comprehensive, consolidated supervision in the United States in order to operate in the country.  Read more.

FRB:  The Federal Reserve System is preparing an inventory of historical materials to enhance transparency through improved web access to records of the Federal Reserve's past.  The initiative is motivated by the 100th anniversary of the signing of the Federal Reserve Act on December 2013 and the 100th anniversary of the opening of the Federal Reserve Banks on November 2014.  The inventory will serve as a resource for researchers, academics, and others interested in studying the history of the nation's central bank.  Read more. 
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Around D.C.

FANNIEMAE:  Fannie Mae’s Help the Homeless (HTH) Program gave funds to 77 of the area’s leading non-profit organizations committed to serving the homeless and those at risk of becoming homeless. In addition, Fannie Mae is introducing HTH to five additional cities with the goal of building the capacity of the following beneficiaries: The Nicholas House in Atlanta; the Chicago Hesed House; The Bridge in Dallas; The Philadelphia Veterans Multi-Service & Education Center; and the United Way of Greater Los Angeles.  Read more.
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Upcoming Events

June 6:  The Financial Institutions and Consumer Credit Subcommittee of the Financial Services Committee will hold a hearing titled “An Examination of the Federal Reserve’s Final Rule on the CARD Act’s ‘Ability to Repay’ Requirement.”  The hearing will be held at the Rayburn House Office Building in Washington DC at 2 p.m. Read more.

June 18-19:  Source Media will host the 3rd Annual Buying & Selling Distressed Mortgage Portfolios Forum is an opportunity to network with bank/mortgage lenders considering distressed asset sales and the investor/buyer considering distressed asset purchases.  The forum will be held at the Crowne Plaza Times Square in Manhattan, New York, NY.  Read more.
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 Closing Comment

“Community bankers are beginning to exercise their muscle. They feel like a threatened species. They're endangered. They're worried about further consolidation in their industry, but that is driven by cost considerations of regulation concern and they will tell you that they feel they are placed at a cost of funding disadvantage to the giants and they are getting on their hind legs. I think that's the probably the most powerful force here."

– Richard Fisher, President of the Federal Reserve Bank of Dallas, crediting community banks with keeping the issue of "too big to fail" alive in an American Banker article on May 22.
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Catherine Woody, Editor
Rockhelle Johnson, Writer
Edward Smith, Contributing Editor