"You're talking about almost 15 degrees above normal," said Kristin Kline, a weather service meteorologist in Mount Holly, N.J. (As quoted by USA Today)
Just a few days ago, workers in the Federal City were wearing multiple layers of clothing and grumbling about the too-cool air conditioning. No more. At midweek the mercury popped up to the middle 90s and, the next day, to 100+ in these baking concrete canyons. Still, we’re generally not setting any new records even if a new definition of “normal” is being written. The Smithsonian’s carousel is delighting young visitors, the fountains on the Mall are splashing as always, and we’re happy to mark the official start of the summer season.
Washington State Regulator Testifies on MSB Supervision on Behalf of CSBS
Deborah Bortner, Director of Non-Depositories at the Washington State Department of Financial Institutions, testified Thursday on behalf of the CSBS before the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee on supervision of money services businesses (MSBs).
In her testimony, Bortner summarized state efforts to supervise MSBs, a term that by federal definition includes money transmission, money orders, travelers checks, check cashing, currency exchange, currency dealing, and prepaid access products. Bortner indicated states have been overseeing MSBs through licensing and by conducting on-site examinations for a number of years. In addition, state regulators – through CSBS and the Money Transmitter Regulatory Association (MTRA) – are currently engaged in efforts to further enhance supervision of these entities.
“The distribution of money is a highly personal transaction for consumers,” Bortner said. “As such, our focus is to protect consumers, ensure businesses operate in a safe and sound manner, and bring those who commit crimes to justice.”
Bortner also indicated state regulators are applying some components of the mortgage regulatory framework to other non-depositories, such as MSBs. In particular, the development and launch of the Nationwide Mortgage Licensing System and Registry (NMLS), coupled with passage of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act), created a comprehensive state-federal approach to licensing and registration of mortgage loan originators. According to Bortner, there are certain elements of the mortgage supervisory framework that could improve supervision of other non-depositories, including MSBs.
Bortner’s written testimony is available here.
Federal Reserve Extends ‘Operation Twist’ Through 2012
The Federal Reserve Board (FRB) and the Federal Open Market Committee (FOMC) announced Wednesday plans to extend efforts to stimulate the economy after economic projections revealed weaker economic growth, higher unemployment and softer inflation over the next few years. The FRB said it would extend “Operation Twist,” a program that aims to keep long-term interest rates low, for an additional six months in an effort to boost the sluggish economy. The $400 billion program was scheduled to end June 30, however, by extending it through the end of the year the program will sell an additional $267 billion in short-term securities.
Following the FOMC’s two-day meeting this week, Federal Reserve Chairman Ben Bernanke held a news conference where he indicated that the FRB is prepared to take further action if progress is not made on the unemployment front.
“If we don't see continued improvement in the labor market we'll be prepared to take additional steps," Bernanke said.
Fed officials also reiterated their plan to keep short-term rates at record lows until at least late 2014. They also repeated a warning that Europe’s financial crisis continues to pose a significant risk to the economy.
The FOMC statement is available here.
Moody’s Downgrades 15 Global Financial Firms
Yesterday, Moody’s Investors Service downgraded the long-term senior debt ratings of 15 banks and securities firms with global capital markets operations. Five of the six largest U.S. firms were downgraded. Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley were all downgraded two notches, while Bank of America Corp. was downgraded one notch. Wells Fargo & Co., the nation’s fourth largest bank, was not reviewed. The downgrades will most likely increase the firms’ borrowing costs and could affect how they raise capital.
“All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities,” said Moody’s Global Banking Managing Director Greg Bauer in a June 21 release. “However, they also engage in other, often market leading business activities that are central to Moody’s assessment of their credit profiles. These activities can provide important ‘shock absorbers’ that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges.”
The announcement concluded a review initiated on Feb. 15, 2012. The review was prompted by Moody’s assessment of the volatility and risks that creditors of firms with global markets operations face and also reflects the size and stability of earnings from non-capital markets activities, capitalization, liquidity buffers, and other considerations, including exposure to the operating environment in Europe, any record of risk management problems, and exposure to U.S. residential mortgages, commercial real estate, or legacy portfolios.
In a public statement, Morgan Stanley said “We believe the ratings still do not fully reflect the key strategic actions we have taken in recent years….With our de-risked balance sheet, stable sources of funding, diverse business mix and strong leadership team, we are well positioned to deliver for clients and shareholders.”
Citigroup’s statement also expressed disapproval of Moody’s ratings. “Citi strongly disagrees with Moody’s analysis of the banking industry and firmly believes its downgrade of Citi is arbitrary and completely unwarranted,” the statement read. “Moody’s approach is backward-looking and fails to recognize Citi’s transformation over the past several years, the strength and diversity of Citi’s franchise, and the substantial improvements in Citi’s risk management, capital levels and liquidity.”
Around the States
FL: Florida Office of Financial Regulation Interim Commissioner Linda Charity was appointed to the National Association of State Credit Union Supervisors’ (NASCUS) Board of Directors by NASCUS Chairman Orla Beth Peck. “NASCUS is pleased to welcome Linda to the NASCUS Board of Directors,” said Peck, the supervisor of credit unions for the Utah Department of Financial Institutions. “She is a respected veteran of state financial regulation, and we are grateful to have her wealth of experience on the NASCUS Board.” Charity is filling the unexpired term held by Kathy Stewart, previously of the Kentucky Department of Financial Institutions. Charity's term will end September 2013.
Around the Agencies
AGENCIES: The Consumer Financial Protection Bureau (CFPB) along with the prudential regulators – the FRB, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) − issued joint guidance to address mortgage servicer practices that may pose risks to homeowners who are serving in the military. The guidance, which is intended to ensure compliance with applicable consumer laws and regulations, pertains to military homeowners who have received Permanent Change of Station (PCS) orders. The interagency guidance addresses practices such as failing to provide servicemembers with accurate, clear, and readily understandable information about available assistance options for which the homeowner may qualify. Read more.
CFPB: The CFPB announced several changes to senior leadership positions within the agency this week. Most notably was the promotion of Steven L. Antonakes from Assistant Director of Large Bank Supervision to the Associate Director for Supervision, Enforcement, and Fair Lending. Before joining the CFPB, Antonakes was Commissioner of the Massachusetts Division of Banks, Vice Chairman of CSBS, and a founding member of the State Regulatory Registry (SRR), the CSBS affiliate that operates NMLS on behalf of state regulators. Read more.
CFPB: The CFPB launched a public Consumer Complaint Database on credit cards this week. The CFPB also released a snapshot of the complaints it has received on credit cards, mortgages, private student loans, and bank products through June 1. Read more.
FHFA: Federal Housing Finance Agency (FHFA) Acting Director Edward J. DeMarco announced changes to short sale policies that will make it easier for military homeowners with Fannie Mae and Freddie Mac loans to honor their financial commitments when they are required to move as part of their duty. At a news conference with CFPB Director Richard Cordray, CFPB Assistant Director of Servicemember Affairs Holly Petraeus, and Deputy Assistant Secretary of Defense for Military Community and Family Policy Robert L. Gordon III, DeMarco announced that military homeowners who receive PCS orders will be eligible to sell their homes in a short sale even if they are current on their mortgage. Read more.
FHFA: The FHFA has announced an initiative to complement current fraud reporting by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. FHFA is taking this additional step to ensure the regulated entities are not exposed to unnecessary risk from doing business with individuals or businesses with a demonstrated history of fraudulent conduct. The initiative, called the Suspended Counterparty Program, will require Fannie Mae, Freddie Mac and the Federal Home Loan Banks to notify FHFA whenever an individual or company with whom they do business is adjudicated to have engaged in fraud or other financial misconduct. Likewise, FHFA will consider information received from other government sources. Read more.
OCC: The OCC has adopted an interim final rule amending its lending limit rule to apply to certain credit exposures arising from derivative transactions and securities financing transactions. Effective July 21, section 610 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 revises the statutory definition of loans and extensions of credit for purposes of the lending limit to include certain credit exposures arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction. The interim final rule adopted by the OCC implements this statutory change which applies to both national banks and savings associations. State banks are subject to separate restrictions under section 611 of the Dodd-Frank Act. National banks and savings associations have through January 1, 2013, to comply with the rule’s requirements as to derivative transactions and securities financing transactions. Read more.
DOJ: Seven individuals and four check cashing businesses were charged this week in the Eastern District of New York and the Central District of California for their alleged roles in separate schemes to violate the Bank Secrecy Act (BSA). The defendants allegedly failed to follow reporting and anti-money laundering requirements for transactions totaling more than $50 million. Under the BSA, financial institutions, including check cashers, are required to file a CTR with the Department of Treasury for any transaction involving more than $10,000 in currency. The BSA also requires financial institutions, including check cashing businesses, to maintain an effective anti-money laundering (AML) program. Read more.
June 25-29: The CSBS Education Foundation will host “Senior School,” a week-long program designed to meet the specific leadership training needs of state financial regulators who are rising into supervisory and/or management positions within their departments, serve as an examiner-in-charge in the field, or currently hold a managerial position within the agency. Read more.
July 30 – Aug. 1: The CSBS Education Foundation will host “Deputy Seminar” in New Orleans. The Deputy Seminar is an opportunity for key banking department officials to gather to learn about upcoming issues, share challenges, and learn potential solutions. Read more.
“Against the backdrop of renewed market tensions, Euro area members of the G-20 will take all necessary measures to safeguard the integrity and stability of the area, improve the functioning of financial markets and break the feedback loop between sovereigns and banks.”
– Excerpt from a joint statement issued by the G-20 leaders on June 19, following their summit in Los Cabos, Mexico.
Catherine Woody, Editor
Rockhelle Johnson, Writer
Edward Smith, Contributing Editor