Posted by on July 24, 2012
Sen. Kaufman: From “Aye” on Dodd-Frank to “Will Not Protect Us” in Just 2 Years
For someone who voted for the Dodd-Frank Act, former Senator Ted Kaufman (D-Del.) sure doesn’t have many nice things to say about the massive 2,300-page law.
Marking the two-year anniversary of President Obama’s signing of the Dodd-Frank Act, Senator Kaufman used a guest column in The Hill to level strong criticisms against the law.
As to whether Dodd-Frank ended “too big to fail” (a claim made repeatedly by many supporters of the law), Senator Kaufman is direct in his assessment: Absolutely not.
He writes: “So are our largest banks still too big to fail? Of course they are.”
Not only did Dodd-Frank fail to end “too big to fail,” Senator Kaufman notes that the nation’s five largest banks are bigger today than they were when the financial crisis began.
Senator Kaufman is also dismissive of the much-hyped “living wills” that Dodd-Frank requires of large institutions and that are supposed to spell out how they would be wound down in a crisis. These “would be of little use in the real world.”
In the final analysis, after enshrining “too big to fail” and future bailouts into law, and after “leav[ing] the details” to regulators who “aren’t good at writing both the laws and the regulations,” Senator Kaufman concludes:
“It is clear to me that Dodd-Frank, however good its intentions, has not and will not protect us against another meltdown.”
If that’s the case, then what was the point?
Posted by on July 06, 2012
With this month marking the second anniversary of passage of the Dodd-Frank Act, the Financial Services Committee is focusing attention throughout July on the burdens this law’s 2,300 pages and more than 400 new rules layer on American companies, financial markets and consumers.
Supporters of Dodd-Frank sold it to the public as “tough Wall Street reform,” but in reality its red tape hurts businesses and small town banks far from Wall Street that had nothing to do with the 2008 financial crisis.
Small town banks like Gothenburg State Bank in Gothenburg, Nebraska. This bank is 1,362 miles from Wall Street. But listen to what its chairman and president, Matthew H. Williams, said in testimony to the Committee about the pressures resulting from the “hundreds of new regulations” of Dodd-Frank:
“These pressures are slowly but surely strangling the traditional community banks, and handicapping their ability to meet the credit needs of their communities.”Stay tuned throughout July for more information from the Committee on the consequences of Dodd-Frank…
Posted by on June 27, 2012
The JOBS Act, passed by Congress and signed by the President earlier this year, reduces government barriers to entrepreneurship, innovation and capital formation. It combines six separate proposals that originated in the Financial Services Committee into one bill. These six proposals were part of the Committee’s plan announced in January 2011 to help small companies gain greater access to the capital that is necessary for them to grow and hire workers.
One of those six proposals, the Small Company Capital Formation Act sponsored by Rep. David Schweikert, makes it easier for small companies to raise capital and test the waters for a future initial public offering (IPO). It does this by raising the offering threshold for companies exempted from registration with the Securities and Exchange Commission under Regulation A from $5 million to $50 million. Raising the offering threshold helps small companies gain access to capital markets without the costs and delays associated with the full-scale securities registration process.
While that may sound complex, the result “will be a game changer” for small businesses trying to raise capital, according to a recent column in the Washington Post.
“What this means to small businesses across the country is that they will be able to access needed capital without having to conduct an IPO or complying with the significant restrictions on resale. In addition…there will be a larger pool of potential investors, many of whom will now be less hesitant to invest in smaller offerings.”
BACKGROUND AND NEED FOR LEGISLATION
Section 3 of the Securities Act of 1933 authorizes the Securities and Exchange Commission to exempt small securities offerings from registration. Under Section 3, the SEC promulgated Regulation A, which exempts public offerings of less than $5 million in any 12-month period. The SEC set the threshold at $5 million in 1992, where it had remained until passage of the JOBS Act.
Congress originally authorized the SEC to set the Section 3 threshold at $100,000. It has raised the limit several times since: to $300,000 in 1945; to $500,000 in 1972; to $1,500,000 in 1978; and to $2,000,000, also in 1978. Before 1980, each time that Congress raised the statutory limit, the SEC promptly exercised its authority and raised the Regulation A threshold. Congress established the current level of $5,000,000 in 1980, but the SEC waited 12 years, until 1992, before raising the Regulation A threshold to the statutory limit authorized by Congress.
Since the SEC set the Regulation A threshold at $5 million in 1992, issuers and market participants have pointed out that the offering threshold has been too low to justify the costs of going public under Regulation A. In addition, inflation, which has risen approximately 165% since 1980, when Congress gave the SEC the authority to set the Regulation A offering threshold, has further exacerbated the imbalance between costs and benefits. Between 1995 and 2004, companies have used Regulation A only 78 times; in 2010, only three times. The low number of Regulation A filings—each for the maximum amount of $5 million—demonstrated that a revision to Regulation A was necessary. To increase the use of Regulation A offerings and help make capital available to small companies, Rep. Schweikert introduced the Small Company Capital Formation Act, which increases the offering threshold to $50 million.
After its approval by the Financial Services Committee on June 22, 2011, the House voted 421-1 for the Small Company Capital Formation Act on November 2. It was later incorporated into the JOBS Act along with five other bills from the Committee, which became law on April 5, 2012.
Small businesses are critical to job growth in the United States. Information released in January 2011 from the Small Business Administration states that 65 percent of all net new jobs created in the United States during the previous 17 years came from small businesses. Amending Regulation A to make it viable for small companies to access capital will permit greater investment in these companies, resulting in economic growth and more jobs. By reducing the regulatory burden and expense of raising capital from the investing public, Regulation A reform will boost the flow of capital to small businesses and fuel America’s most vigorous job-creation machine.
Posted by on April 30, 2012
The bipartisan JOBS Act arrives just in time to help small, community banks as they are “struggling to stay profitable in a period of low interest rates, stagnant lending and rising compliance costs from other new regulations,” the Wall Street Journal reports.
The JOBS (Jumpstart Our Business Startups) Act originated in the Financial Services Committee and is the culmination of an initiative started by Chairman Spencer Bachus last year to promote small business capital formation.
The Wall Street Journal article takes particular note of one provision of the JOBS Act that raises the number of shareholders at which small banks must register with the SEC from 500 shareholders to 2,000.
The change frees up small banks to raise capital by attracting new investors without taking on the red tape burdens that come with mandatory SEC registration and reporting. Filing quarterly and annual financial reports alone with the SEC can cost small banks as much as $200,000 a year.
This Wall Street Journal report follows:
Small Banks Get a Freer Hand
By ROBIN SIDEL
Jim Stein no longer has to worry when one of his shareholders dies or gets divorced.
As chief executive of Bank of Houston, Mr. Stein used to fret about tripping a regulation that required the community bank to register with the Securities and Exchange Commission if it has more than 500 shareholders. The bank, a unit of BOH Holdings Inc., carefully maintained its shareholder count at 350 because it wanted to avoid the cost and hassle of registering. But the level was always at risk of rising.
"One shareholder could turn into four through unexpected consequences," Mr. Stein said.
Now, Mr. Stein and other small-bank CEOs can stop counting shareholders as closely and turning potential investors away at the door. The JOBS Act signed into law this month includes a provision that raises the number of shareholders at which small banks must register with the SEC to 2,000. The JOBS Act aims to increase jobs by reducing regulations on companies.
The change means that small banks are free to raise capital by attracting new investors without taking on regulatory burdens that are associated with the SEC filings. It also could breathe some new life into bank mergers and acquisitions, which last year stood at the second-lowest level since 1980.
"This will create opportunities for us that didn't exist before," said Mr. Stein. The 7-year-old bank, which has six branches, wants to expand in the Houston area and potentially find a merger partner.
The new rule comes at a time when community institutions are struggling to stay profitable in a period of low interest rates, stagnant lending and rising compliance costs from other new regulations. Returns on assets at institutions with $1 billion or less in assets was a third less than the industry average in 2011, according to the Federal Deposit Insurance Corp.
The move potentially could affect hundreds of community banks around the country. Just 16% of the nation's roughly 7,400 banks and thrifts are publicly traded, according to research firm SNL Financial. Many of those are thinly traded, but most are required to file quarterly and annual financial reports with the securities agency.
The JOBS Act also makes it easier for small banks to deregister with the SEC, permitting them to do so with 1,200 shareholders, compared with the current threshold of 300.
Many banks aren't likely to raise their shareholder base; community banks are often closely held among a small group, especially those that are family-run institutions. Some, however, are eager to attract more capital and investors, especially if they can now avoid the expense, which could be as much as $200,000 a year, of filing quarterly and annual financial reports with the SEC.
Maintaining the shareholder numbers game has been tough for Roland Williams, who monitors the 492 holders at Post Oak Bank in Houston. As chief executive of the seven-branch bank, a unit of Post Oak Bancshares Inc., he already had resigned himself to breaking through 500 shareholders this year because the bank is planning to raise up to $20 million of capital.
"You just can't have enough capital," he said.
The new rule isn't expected to threaten the safety and soundness of the community-bank industry; banks of all sizes must regularly file financial data with the FDIC and submit to examinations from national and state regulators.
Industry consultants say the raising of the 500-shareholder rule could fuel new life in the strapped sector by giving banks flexibility to build new branches or pursue growth through mergers and acquisitions. Some industry observers have long said that the U.S. banking system would be more efficient with fewer institutions even though the number of commercial banks and thrifts already has dropped 60% since 1985.
Several bank executives said the 500-shareholder barrier prevented them from pursuing mergers because they didn't want to issue new shares.
The 500-shareholder bar "has been something on the mind of every board in every merger discussion," said Curtis Carpenter, managing director at Sheshunoff & Co., an Austin, Texas, investment firm that focuses on the banking industry.
The new threshold also is likely to trigger a wave of community-bank stock offerings, according to Mindi McClure, managing principal at Bear Cos., an investment firm in Arlington, Va., that specializes in community banks.
"Having an additional way for banks to get more shareholders is a real positive," she said.
Jack Hartings, chief executive at Peoples Bank Co. in Coldwater, Ohio, already had warned his 465 shareholders that the bank might have to pursue a reverse stock split in order to avoid tripping the 500-shareholder barrier. Mr. Hartings, whose bank is a unit of Peoples Holding Co., also dissuaded potential investors from buying stock, telling them, "We appreciate your confidence in the bank, but right now we are not seeking new shareholders."
Mr. Hartings said the bank has no immediate plans to expand its shareholder base as a result of the law even though "everyone likes to own a piece of a company that they see in town."
"We have willing buyers, but not many willing sellers," he said.
Posted by on March 21, 2012
Not to be missed is Wednesday’s Chicago Tribune editorial on the JOBS Act, a package of six bills from the Financial Services Committee that will promote innovation, economic growth and jobs.
The JOBS Act – short for Jumpstart Our Business Startups – is a “rare example of bipartisanship” in today’s Washington, the newspaper writes, that would cut red tape for small businesses and emerging growth companies.
Even though the JOBS Act passed the House of Representatives on March 8 by a vote of 390-23 and has the backing of President Obama, some Democrats in the Senate are intent on delaying action or killing it outright.
The Tribune asks: “Would the Senate really bury a jobs-creation bill that had such broad support in the House? We sure hope not.”
Small business owners, entrepreneurs – and millions of out-of-work Americans – hope not, too.
The editorial comes just two days after more than 5,000 entrepreneurs, investors and job-creators publicly called on the Senate to pass the JOBS Act without delay and without weakening amendments.
“Kauffman Foundation studies show that all net new job growth in the past decade has come from companies that are less than 5 years old. This act will encourage the creation and growth of these young companies by providing them with new sources of capital.”
Their letter continues: “These measures will also ease some of the regulations that slow the growth of these young companies and impede them from creating new jobs in the U.S.”
The six bills that make up the JOBS Act originated and were first considered and approved by the Financial Services Committee over the course of the past year. The measures include strong investor protections while removing unnecessary and outdated government barriers that hinder the ability of small companies to access the financing they need to start up, expand and create jobs.
Instead of trying to throw up roadblocks to passage of this much-needed bill, the Senate should listen to these 5,000+ job-creators and pass the JOBS Act immediately.
Posted by on March 06, 2012
What happens when you don’t pay your mortgage? Apparently, nothing for a long time due, in part, to government programs and policies that can drag out the foreclosure process for years. The result is a growing backlog of foreclosures and a weak-to-nonexistent recovery in home prices.
That’s what readers of the Washington Post learned over the weekend in a story about a Maryland couple who have lived in a $1.3 million dollar mansion for five years but have never once made a mortgage payment on the custom-built, 4,900 square foot, five bedroom “manse along the Potomac River” described in the story as “a showstopper”. The owners have been able to keep it for so long by repeatedly filing for bankruptcy and by “exploiting changes” in laws designed to help delinquent homeowners avoid foreclosure, according to the Post.
While no one would defend the practices of some lenders, this story is an example of how the foreclosure process has become broken and is sometimes abused by those who are determined to drag out the process. And the Administration’s ever-shifting strategies and massive spending of taxpayer dollars on foreclosure mitigation programs have impeded, rather than promoted, a housing recovery.
NOT GOING FAST!
This custom-built, “showstopper” $1.3 million mansion features 5 BRs, incredible views of the Potomac River, Palladian windows, “magnificent sunroom” and a dining room chandelier from Europe. And you can live in it for FREE for at least 5 years thanks to the broken foreclosure process! Read the Washington Post for details.
Posted by on March 01, 2012
An electric utility in Texas.
A housing authority in Connecticut.
A water treatment project on the banks of the Potomac River.
What do all three have in common?
They all could be harmed by the Volcker Rule.
While the Volcker Rule is touted as a central part of Washington’s effort to get “tough” on Wall Street, it’s become the latest example of how the Dodd-Frank Act and its 400+ regulations have spawned a multitude of unintended consequences.
What kind of unintended consequences?
“State and local officials say the new regulation, known as the Volcker Rule, could make it more expensive for them to raise money from investors to pay, for instance, for environmental cleanup and housing assistance,” reports the Washington Post.
And when state and local governments say the Volcker Rule could make it more expensive “for them” to raise money, what they mean is it will be more expensive for the taxpayers.
How does a measure promoted as “Wall Street reform” end up making it harder for cities and states to afford thing like environmental cleanup projects?
The complex Volcker Rule “creates these bifurcations now in the municipal markets where you’re going to have authorities, enterprise funds, and water utilities paying more to issue their bonds simply because of how they’re structured,” says Timothy L. Firestine, the vice chairman of the D.C. Water and Sewer Authority.
It’s not only governments here in the United States that have come out against the Volcker Rule. Foreign government have “unleashed a torrent of criticism” against it on the grounds it could make Europe’s debt problems even worse.
“European governments warn that the regulation could further aggravate their debt crisis, which is already roiling global financial markets.”
This is the same European debt crisis that poses a threat to America’s economic recovery, Federal Reserve Chairman Ben Bernanke recently told Congress.
Posted by on February 22, 2012
The 2,300-page Dodd-Frank Act is a disastrous piece of legislation that is burdening the economy, increasing the size and scope of the Federal bureaucracy, and making the American financial system less transparent and less functional.
That is the conclusion of an in-depth article in The Economist titled “Too Big Not to Fail” that appears in the magazine’s Feb. 18 edition and is part of its cover story “Over-regulated America”.
Echoing the concerns Financial Services Committee Republicans have raised since Congress hastily debated and passed Dodd-Frank in 2010, The Economist article highlights the tragic consequences of the overly complex and burdensome piece of legislation.
At a time when Americans are still suffering under a sluggish economy, the last thing their government should be doing is increasing the costs of doing business in America and killing innovation. Unfortunately, The Economist says this is exactly what Dodd-Frank does.
Noting that “the scope and structure” of Dodd-Frank is “fundamentally different” from previous Federal law, the article goes on to explain how the Act expands Federal power in unpredictable ways:
“‘Laws classically provide people with rules. Dodd-Frank is not directed
The Economist also highlights the impact these new regulatory burdens can have on the country as a whole:
“But the really big issue that Dodd-Frank raises isn’t about the institutions it
Though The Economist has no objections to addressing the causes of the 2008 financial crisis through legislation, it can find little to praise in the new law:
The article also reminds us that the full extent of the damage is still impossible to determine as “only 93 of the 400 rule-making requirements mandated by Dodd-Frank have been finalized.” The Economist does not need to wait for the additional 307 pieces of red tape to lay judgment on the “Dodd-Frankenstein monster.”
“Ambition is often welcome; but in this case it is leaving the roots of the
Posted by on February 13, 2012
Posted by on February 03, 2012
By Rep. Lynn Westmoreland
On Wednesday, the House Financial Services Committee held a hearing on H.R. 3461, a bill to improve the examination of depository institutions, and featured testimony from representatives from the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, and the National Credit Union Administration, as well as testimony from several bank executives.
I’ve sat in many of these hearings and listened to these Washington regulators claim they are working to resolve their problems or just had them pass the buck over and over again. Not surprisingly, they took the opportunity to do it once again at this hearing. Members of the committee were told this bipartisan legislation could not be supported by the regulators present because it would mess up their regulations that are already in place. And we wouldn’t want to do that, right? I mean those regulations in place have been so successful.
I don’t think so.
Every week we see new banks failures across the country, and it’s rarely the larger banks who created much of the financial mess of 2008. Instead, it’s the small, community banks that pay the price. Community banks are the economic engine of many small towns, driving growth with investments in small businesses or home loans. When community banks fail, we see that economic growth dry up. That’s why you see a much higher unemployment rate in the states with the highest bank failure rates.
In Georgia, we lead the nation with 75 bank failures since the problems started in 2008. That’s not really a statistic where you want to come in at number one. I’m not sure how the FDIC would define the term ‘success,’ but I think even a child can see that this isn’t anywhere close to it.
Whether they like it or not, these regulators are going to have to accept that the old way of doing things just doesn’t work anymore. If it did, we wouldn’t still see the same problems we are seeing today.
When I talk to my bankers back home in Georgia, they tell me one of the biggest issues they are facing is the inconsistency of what they are being told and what the regulators on the ground are actually doing. That’s why a bipartisan group of members of the Financial Services Committee drafted H.R. 3461: to stop the inconsistencies between what’s being said in Washington and what’s actually happening on the ground. These regulators can tell me the inconsistencies don’t exist, but I believe my constituents because the evidence is on their side and because I’ve never met a bureaucrat who wasn’t fluent in double talk.
In fact, I don’t know about you, but I’ve about had it up to here with Washington double talk. And I am sick and tired of these bureaucrats fighting members of the Financial Services Committee tooth and nail for trying to help save our community banks. So, in order to avoid any mixed messages on my part, let me be clear. These Washington regulators either need to help us save these banks or get out of our way.