Archive for the ‘Financial Reform’ Category

Bartlett Naylor co-authored this blog post with Amit Narang.

After two years of studying the proposed Volcker Rule, with 20,000 comments from bankers and the public, hundreds of meetings with Wall Street lobbyists, and 18 months past the rule’s congressionally mandated deadline for enactment, we’re now being told by the American Action Forum (AAF) — a self-described “center right policy institute” — that this was a rush job.

The Volcker Rule figures as a hallmark in the 2010 Dodd-Frank Wall Street Reform Act. It prohibits proprietary trading — gambling — by federally insured financial institutions.

The Volcker rule is about the worst example AAF could have come up with of a so-called rushed rulemaking. The simple and demonstrable truth is that our current regulatory process is far too slow and unwieldy to work effectively for the American public, and the Volcker Rule is the case in point.

Financial agencies missed deadline after deadline as they crafted the Volcker rule. Part of the delay was that they faced an unprecedented lobbying barrage from Wall Street to weaken the rule with loopholes or block it completely. So it is pretty incredible to see AAF try to re-write history and trick the public into believing that the regulators rushed this rule. AAF can distort the record and cherry-pick facts, but it doesn’t change the fact that, although the public and our economy are both far better off with the Volcker rule now in place, it took far too long.

The AAF adds that a new “administration” study reveals “annual” costs could approach $4.3 billion, proof that the regulators didn’t appreciate the ramifications of what they approved.

That $4.3 billion “annual” cost detailed in the administration study largely stems from the high end of losses the biggest banks might suffer shedding some of their high-risk assets, largely hedge funds. It is, in fact, a one-time cost, and the Office of the Comptroller of the Currency (OCC) estimates the cost in a range of $0 to $3.6 billion. The high end of the compliance estimate makes up the balance of the $4.3 billion.

Continue Reading

We just filed a protest at the Federal Energy Regulatory Commission challenging a group of financial institutions’ efforts to create a new loophole. First, a little background:

On February 27, a group of private equity and investment bank lien holders of a collection of US power plants called MACH Gen filed for permission to restructure. The lien holders are the private equity firms Angelo Gordon (through its control of Silver Oak); Cayman Islands-based Solus, and Deutsche Bank.

Deutsche entered into a Total Return Swap with the private equity firm Energy Capital Partners which, among other things, gives Energy Capital Partners the ability to direct and control the way Deutsche’s MACH Gen board member votes. In their own words: “The Applicants do not concede that the indirect interest of ECP Polaris through the TRS equates to ownership or control of the voting securities of a public utility for the purposes of the Commission’s consideration of this . . . Application.”

So Energy Capital Partners, which will in fact control a board seat through its Total Return Swap with Deutsche Bank, is claiming at FERC that this Total Return Swap does not in fact constitute control.

Similarly, Citigroup, through an affiliate it created SOL, entered into a total return swap with Solus, providing Citi with 5.8% of the equity in MACH Gen. But this total return swap does NOT convey control over a board seat.

Determination that a Total Return Swap conveys control of a public utility is important, in part, because the U.S. Executive Branch, the Federal Reserve and Congress are actively engaged in a robust debate about defining and limiting control that certain financial institutions have over energy commodity assets. I first testified before Congress in 2008 about the dangers of financial institutions controlling energy assets, and testified again before the Senate in 2011.  The U.S. Senate Banking Committee held a January 2014 hearing, “Regulating Financial Holding Companies and Physical Commodities,” which included testimony by the Federal Reserve, FERC and the U.S. Commodity Futures Trading Commission.  The U.S. Federal Reserve in January 2014 announced an Advanced Notice of Rulemaking concerning its authority allowing certain financial institutions to control physical energy assets.

If FERC allows this Total Return Swap loophole to stand, Public Citizen predicts expanded use of such financial agreements to undermine various federal government efforts to regulate control over energy assets. Allowing this loophole will establish a dangerous precedent that will harm the public interest.

Tyson Slocum is Director of Public Citizen’s Energy Program. Follow him on Twitter @TysonSlocum

Follow on Twitter

Want to start your week out with some fun?

How about watching a short movie with “The Walking Dead” star, and zombie hunter, Andrew Lincoln, taking on “The City,” London’s version of Wall Street:

Directed by David Yates of Harry Potter movie series fame, the YouTube film packs quite a punch in its short three-plus minutes by satirically highlighting the many positive benefits that could be realized by European nations should a Financial Transactions Tax be finalized. Lincoln is joined by several famous European actors who play bankers in the future looking back on the passage of the Financial Transaction Tax as a triumph.

Though this short film is designed to pressure Britain to join its EU neighbors in signing on to the European version of the tax on financial transactions, we need this important reform just as much stateside.

While Wall Street’s profits continue to rise, the American people deal with the reality of cuts to key programs due to ongoing government budget downgrades. A small tax on financial transactions would both raise revenue for our nation and have the worthwhile benefit of curbing the type of dangerous speculation by investment firms that led to the 2008 financial crisis.

Continue Reading

Ireland, the Netherlands, the Bahamas… No, I’m not planning my next vacation but instead listing some of the better known tax “havens,” or countries that specifically seek to lure companies to “locate” within their borders because of their non-existent or very low corporate tax rates.

The problem is most corporations just create a “letterbox” foreign subsidiary that resides in name only at such locales.  Of course, with bank accounts set to receive transfers via accounting wizardry that books U.S.-made money as generated by the foreign subsidiary.  Under a component of American tax law called deferral, multinational corporations are not required to pay taxes on such income until it is repatriated, or brought back to the United States.  International tax deferral has led to some corporations having an average effective tax rate of 12.6 percent, which is much lower than the statutory rate.

And, because some countries, like Ireland, require management and control of a corporation to be located within its borders in order for it to be taxed, companies like Apple have been allowed to exploit the dueling tax systems and paid no corporate tax while raking in billions in profits.  Smaller businesses and domestic companies are far less competitive than the huge multinational corporations that are able to game the system in this, unfortunately, legal way.

Continue Reading

After months of delay, financial regulators presented a final version of the Volcker rule last week. The rule is a key provision in the Dodd-Frank Wall Street Reform Act that is supposed to prohibit banks from engaging in the kind of risky trading that brought down financial markets in 2008.

The final rule is a huge victory for Public Citizen’s activists.

“Public Citizen’s members and supporters have sent more than 15,000 of the approximately 18,000 total comments that regulators have received. They should be pleased that the final rule is considerably stronger than what regulators initially proposed,” said Micah Hauptman, financial policy counsel for Public Citizen’s Congress Watch division.

Public Citizen’s activists broke the record for the number of comments submitted for rule-makings related to Dodd-Frank, helping to keep regulators’ feet to the fire during the rulemaking process.

Many activists weighed in by bringing financial industry expertise to bear, while many others urged regulators to stand strong against an onslaught of banking industry lobbyists working to weaken the rule.

Continue Reading

© Copyright . All Rights Reserved.