Bull by the Horns

by Sheila Bair

  151. In 2011, the FDIC staff: “The Orderly Liquidation of Lehman Brothers Holdings Inc. Under the Dodd-Frank Act,” FDIC Quarterly 5, no. 2 (2011), www.fdic.gov/bank/analytical/quarterly/2011_vol5_2/lehman.pdf, p.18.

  152. “Congress should also”: “Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation, on Systemic Regulation, Prudential Measures, Resolution Authority and Securitization before the Financial Services Committee, U.S. House of Representatives,” October 29, 2009, www.house.gov/apps/list/hearing/financialsvcs_dem/bair.pdf, p. 7.

  153. “To be credible”: Ibid., pp. 8–9.

  154. Paul Nash immediately received: Paul Nash, email to Sheila Bair re Ex Ante Fund, October 29, 2009.

  155. “gets enormous”: Phil, Mattingly and Benton Ives, “Frank Outlines Possible Adjustments to Financial Regulatory Package,” CQ, November 3, 2009; Mike. Ferullo, “House Panel to Consider Systemic Risk Bill with Amendments on Size Limits, Funding,” November 4, 2009.

  156. Subsequently, his staff: Paul Nash, email to Sheila Bair re Summary of Resolution Bill, October 24, 2009.

  157. Chairman Dodd’s staff was also: Paul Nash, email to Sheila Bair re Dodd Meeting, November 4, 2009.

  158. But Frank was sticking: Paul Nash, email to Sheila Bair re another quote, November 6, 2009.

  159. I received an irate call: Sheila Bair, email to Paul Nash re No Go, December 7, 2009.

  Chapter 18: It’s All About the Compensation

  160. “interagency sharing of data”: SIGTARP, “Exiting TARP: Repayments by the Largest Financial Institutions,” September 29, 2011, www.sigtarp.gov/Audit%20Reports/Exiting_TARP_Repayments_by_the_Largest_Financial_Institutions.pdf, n.p.

  161. “exclusion of such information”: Ibid., p. 3.

  162. “There is nothing”: Louise Story and Eric Dash, “Banks Prepare for Big Bonuses, and Public Wrath,” The New York Times, January 9, 2010, www.nytimes.com/2010/01/10/business/10pay.html.

  163. They were working on a story: Keith Epstein and David Heath, “FDIC Chief Got Bank of America Loans While Working on Its Rescue,” January 21, 2010, www.huffingtonpost.com/2010/01/21/fdic-chief-got-bank-of-am_n_431316.html.

  164. “We saw no evidence”: Office of Inspector General, FDIC, “Evaluation of Allegations Pertaining to the Chairman’s Mortgage Loans with Bank of America,” April 2010, www.fdicoig.gov/reports10/10-003EV.pdf.

  Chapter 19: The Senate’s Orwellian Debate

  165. 13(3) authority: 13(3) is an obscure provision in the Federal Reserve Act authorizing the Fed to lend to a broad range of entities, not just insured banks, in crisis situations. The Fed did not use 13(3) for seventy-eight years—even after the 9/11 terrorist attacks—fearing the kind of precedent it would set and the potential to create moral hazard. However, beginning with the 2008 crisis, the Fed started using 13(3) in unprecedented ways, providing trillions of dollars in loans to a wide variety of institutions.

  166. The term “financial market utility”: Peter Nash, email to Sheila Bair re definition of utility, March 18, 2010. The definition was as follows: “The term financial market utility means any person that manages or operates a multilateral system for the purpose of transferring, clearing, or settling payments, securities, or other financial transactions among financial institutions or between financial institutions and the person.”

  167. “If the Congress accomplishes”: “Remarks by FDIC Chairman Sheila C. Bair to the Independent Community Bankers of America’s 2010 National Convention and Techworld; Orlando, Florida,” March 19, 2010, www.fdic.gov/news/news/speeches/chairman/spmar1910.html.

  168. That same day, Dodd announced: See, e.g., Peter Mattingly, “Dodd to Cut ‘Back-Door Bailout’ from Financial Regulation,” March 20, 2010, www.pressherald.com/business/dodd-to-cutback-door-bailout-from-financial-regulation-plan_2010-03-19.html.

  169. He wrote Tim on March 25: Senator Richard Shelby, letter to The Honorable Tim Geithner, March 25, 2010.

  170. In a subsequent letter: Senator Mitch McConnell, letter to Senator Harry Reid, April 16, 2010.

  171. On April 13: Rebecca Christie, “Wolin Says Partisan Fights Shouldn’t Weaken Financial Overhaul,” April 13, 2010.

  172. “Obama administration officials”: Associated Press, “White House Urges Change in U.S. Bank Bill,” www.usatoday.com/news/washington/2010-04-16-obama-financial-reform_N.htm.

  173. I forwarded the story: Email exchange between Rahm Emanuel and Sheila Bair, April 16, 2010.

  174. Polls showed: Washington Post-ABC News Poll, April 26, 2010, www.washingtonpost.com/wp-srv/politics/documents/postpoll_042810.html.

  175. Indeed, there were press reports: On April 12, 2010, Fox News reported that Senator McConnell had met with several hedge fund managers and other Wall Street executives to discuss financial reform, On April 13, McConnell called for dropping the prepaid fund.

  176. “the prepay model”: Andrew Ross Sorkin, “To Prepay for a Crisis, or Not,” May 25, 2010, http://dealbook.nytimes.com/2010/05/25/sorkin-to-prepay-for-a-crisis-or-not/.

  177. “The real question is”: Sheila C. Bair, “The Right Way to Close Down a Failed Bank,” letter to the editor, The Washington Post, May 2, 2010, www.washingtonpost.com/wp-dyn/content/article/2010/05/01/AR2010050102809.html.

  178. Indeed, one actually had: Sheila Bair, letter to Larry Uhlick, May 21, 2010.

  179. “Sen. Collins’ amendment”: David Reilly, “Still a Hill to Climb on Bank Capital,” The Wall Street Journal, May 20, 2010, http://online.wsj.com/article/SB10001424052748703691804575254810469124620.html.

  180. The provision went further: Sheila Bair, letter to Senator Christopher Dodd, May 11, 2010.

  181. an inflammatory analysis: Edward Yingling, letter to Martin Gruenberg re Impact of the Collins Amendment (June 10, 2010).

  182. “You might hear a collective”: Damian Paletta, “Financial Overhaul Likely to Be More Restrictive on Banks’ Capital Requirements,” The Wall Street Journal, June 17, 2010, http://blogs.wsj.com/economics/2010/06/17/financial-overhaul-likely-to-be-more-restrictive-on-banks-capital-requirements/.

  183. at the time a top official: Diamond was subsequently promoted to the position of Chairman and CEO of Barclays, only to resign on July 3, 2012, over a scandal involving Barclay’s efforts to manipulate the London interbank offered rate (Libor) a widely used benchmark for setting interest rates on loans and derivatives contracts. See Ben Protess and Mark Scott, “Barclay’s CEO Resigns as Bank Frames a Defense” The New York Times, July 4, 2012.

  184. “as much as $1.5 trillion”: Meena Thiruvengadam, “DJ Barclay’s President: Collins Plan Could Cut Credit Availability by $1.5T,” June 23, 2010, http://tools.morningstar.co.uk/uk/stockreport/default.aspx?tab=3&vw=story&SecurityToken=0P00007NZP]3]0]E0GBR$$ALL&Id=0P00007NZP&ClientFund=0&CurrencyId=GBP&story=111443663944971.

  185. Numerous government and academic studies: Samuel Hanson, Anil K. Kashyap, and Jeremy C. Stein, “A Macroprudential Approach to Financial Regulation,” first draft, July 2010, http://web.williams.edu/Economics/seminars/steinJEP.pdf; Macroeconomic Assessment Group, “Interim Report: Assessing the Macroeconomic Impact of the Transition to Stronger Capital and Liquidity Requirements” (Basel, Switzerland: Bank for International Settlements, August 2010), www.bis.org/publ/othp10.pdf; David Miles, Jing Yang, and Gilberto Marcheggiano, “Optimal Bank Capital,” Discussion Paper No. 31: revised and expanded version, Bank of England, April 2011, www.bankofengland.co.uk/publications/Documents/externalmpcpapers/extmpcpaper0031.pdf.

  186. Specifically, Geithner agreed: See, e.g., Alison Vekshin and Phil Mattingly, “Lawmakers Reach Compromise on Financial Regulations,” June 26, 2010, www.bloomberg.com/news/2010-06-25/lawmakers-reach-compromise-on-financial-regulation.html.

  187. “And finally”: “Remarks of the President at Signing of Dodd-Frank Wall Street Reform and Consumer Protection Act,” White House press release, July 21, 2010, www.whitehouse.gov/the-press-office/remarks-president-signing-dodd-frank-wall-street-reform-and-consumer-pro
tection-act.

  188. Senator Dodd had spoken: Author’s interview with Christopher Dodd, February 14, 2012.

  Chapter 20: Dodd-Frank Implementation: The Final Stretch (or So I Thought)

  189. I also instituted: See, e.g., Tim Fernholz, “FDIC’s Sheila Bair Embraces Transparency,” The American Prospect, July 12, 2010, http://web01.prospect.org/article/fdics-sheila-bair-embraces-transparency.

  190. The combined effect: FDIC, “FDIC Board Proposes Implementation of Dodd-Frank Assessment Changes and a Revised Assessment System for Large Institutions,” November 9, 2010, www.fdic.gov/news/news/press/2010/pr10248.html; FDIC, “FDIC Approves Final Rule of Assessments, Dividends, Assessment Base, and Large Bank Pricing,” February 7, 2011, www.fdic.gov/news/news/press/2011/pr11028.html.

  191. in May 2010, we proposed: FDIC, “FDIC Board Approves NPR Regarding Safe Harbor Protection for Securitizations,” May 11, 2010, www.fdic.gov/news/news/press/2010/pr10112.html.

  192. When I did finally: Ben Bernanke, email to Sheila Bair re securitization rulemaking, September 27, 2010.

  193. We also pushed: Email exchange among Sheila Bair, John Walsh, and Daniel Tarullo, January 10, 2010.

  194. Finally, after receiving letters: Yves Smith, email to Sheila Bair re Citizens Call for Tough Regulation of Residential Mortgage Servicers, January 4, 2011.

  195. “By mandating”: Floyd Norris, “A Flaw in New Rules for Mortgages,” The New York Times, March 31, 2011, www.nytimes.com/2011/04/01/business/01norris.html?pagewanted=all.

  196. We finalized it: Board of Governors of the Federal Reserve System, “Agencies Adopt a Final Rule to Establish a Risk-Based Capital Floor,” June 14, 2011, www.federalreserve.gov/newsevents/press/bcreg/20110614a.htm.

  197. In addition, I circulated: Sheila Bair, email to Tim Geithner et al. re Interim Final Regulation, September 17, 2010.

  198. Nevertheless, John Walsh argued: Michael Krimminger, email to Sheila Bair re Consultation Requirement, September 24, 2010.

  199. we waited until October 12: “FDIC Board Issues Proposed Rule on Claims Process,” October 12, 2010.

  200. “Geithner feels that Treasury”: Michael Krimminger, email to Sheila Bair re Heads-up Important, January 12, 2011.

  201. On March 21: Sheila Bair, letter to Timothy Geithner, March 21, 2011.

  Chapter 21: Robo-Signing Erupts

  202. On September 20: See, e.g., David Streitfeld, “GMAC Halts Foreclosures in 23 States for Review,” The New York Times, September 20, 2010, www.nytimes.com/2010/09/21/business/21mortgage.html.

  203. The OCC and Fed: Michael Krimminger, email to Sheila Bair re SBC Meeting on “robo-signing” issue, October 18, 2010.

  204. HUD and the Treasury Department: Michael Krimminger, email to Sheila Bair re Draft Joint Statement for Wednesday Inter-agency Meeting, October 19, 2010.

  205. “Given the continued”: Sheila Bair, letter to Ben Bernanke, November 5, 2010.

  206. I sent a similar letter: Sheila Bair, letter to John Walsh, November 5, 2010.

  207. The disagreements came to a head: “Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation, on Problems in Mortgage Servicing from Modification to Foreclosure, Part II, Committee on Banking, Housing, and Urban Affairs,” December 1, 2010, http://banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=318beba2-a775-4a7b-98b8-14aff84c07ab.

  208. “While quite preliminary”: Statement by Daniel K. Tarullo, Member, Board of Governors of the Federal Reserve System, before the Committee on Banking, Housing and Urban Affairs, United States Senate, Washington, D.C.,” December 1, 2010, www.federalreserve.gov/newsevents/testimony/tarullo20101201a.pdf, pp. 4–5.

  209. The day after the hearing: Sheila Bair, email to Daniel Tarullo re OCC, December 2, 2010.

  210. “This will give us”: Sheila Bair, email to John Walsh re Foreclosure Examinations, December 17, 2010.

  211. Walsh responded: Email exchange between Sheila Bair and John Walsh re Foreclosure Examinations, December 19, 2010.

  212. which I had advocated: Opening Address by FDIC Chairman Sheila C. Bair, Summit on Residential Mortgage Servicing for the 21st Century, sponsored by the Mortgage Bankers Association, Washington, D.C., Wednesday, January 19, 2011, http://fdic.gov/news/news/speeches/archives/2011/spjan1911.html.

  213. As numerous studies have documented: See, e.g., Fitch Ratings, “Global Rating Criteria for Structured Finance Servicers,” New York, August 2010, pp. 1, 2, 7; Barclays Capital, “Evolution of Loan Modification Performance,” New York, June 2010, pp. 1, 3, 5; Standard & Poor’s,. “Servicer Evaluation: Quantum Servicing Corp,” New York, December 2007, p. 10; Moody’s Investors Service. Rating Methodology and Housing Research. Moody’s Housing Finance, New York, September 2007, p. 86.

  214. “If we are”: “Opening Address by FDIC Chairman Sheila Bair, Summit on Residential Mortgage Servicing for the 21st Century, Sponsored by the Mortgage Bankers Association; Washington, D.C.,” January 19, 2011, www.fdic.gov/news/news/speeches/chairman/spjan1911.html.

  215. “this would be”: Ibid.

  216. A number of influential members: Senator Jack Reed, letter to Timothy Geithner, January 5, 2011.

  217. On February 7: The five biggest servicers are BofA, JPMorgan Chase, Wells Fargo, Citigroup, and GMAC. See Sheila Bair, email to Timothy Geithner re FSOC Statement, February 7, 2011.

  218. one of the servicers: J. Cave, email to Sheila Bair re Foreclosure Exams, January 25, 2010.

  219. I issued a separate statement: “FDIC Statement on Enforcement Orders Against Large Servicers Related to Foreclosure Practices,” April 13, 2011, www.fdic.gov/news/news/press/2011/pr11069.html.

  220. In early June: Sheila Bair, email to John Walsh, Daniel Tarullo, and John Bowman re Look-Back Reviews, June 6, 2011.

  221. At the end of June: Office of the Comptroller of the Treasury, To: Chief Executive Officers of All National Banks, Department and Division Heads, and All Examining Personnel, Description: Supervisory Guidance, Subject: Foreclosure Management, OCC 2011-29, June 30, 2011, www.occ.treas.gov/news-issuances/bulletins/2011/bulletin-2011-29.html.

  222. “considering guidance”: “Testimony of Julie Williams, First Senior Deputy and Comptroller and Chief Counsel, Office of the Comptroller of the Currency, Before the Subcommittee on Housing, Transportation, and Community Development of the Committee on Banking, Housing, and Urban Affairs, United States Senate,” December 13, 2011, http://banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=58a4114b-0e86-4cbf-ad4b-70852d55253d.

  223. The Fed did not let: Jason Cave, email to Sheila Bair re CBNA Dividend, December 1, 2010.

  Chapter 22: The Return to Basel

  224. The work was reinforced: “Leaders’ Statement, The Pittsburgh Summit, Leaders Statement, September 24–25, 2009,” www.g20ys.org/docs/Pittsburgh0.pdf.

  225. In his public pronouncements: U.S. Department of the Treasury, “Principles for Reforming the U.S. and International Regulatory Capital Framework for Banking Firms,” September 3, 2009, www.treasury.gov/press-center/press-releases/Documents/capital-statement_090309.pdf.

  226. He reported back: J. Cave, email to Sheila Bair re Basel Mtg, June 1, 2010.

  227. The IIF had already circulated: IIF June 2010 Interim Report on the Cumulative Impact on the Global Economy of Proposed Changes in the Banking Regulatory Framework, available at http://www.iif.com/press/press+151.php.

  228. Philipp Hildebrand: Hildebrand resigned in January of 2012 amid a controversy surrounding his wife’s currency trading.

  229. One research report showed: Barclays Capital Research, “Can You Trust Risk Weightings at European Banks?” April 6, 2011.

  230. “If we fail”: Sheila Bair, “Road to Safer Banks Runs Through Basel,” August 23, 2010, www.ft.com/cms/s/0/a1dfbd02-aee8-11df-8e45-00144feabdc0.html#axzz1vYHHAxtv.

  231. Her report of the meeting: George French, email to Sheila Bair Re Treasury Meeting Summary, July 23, 2010.

  232. Then, on Aug
ust 6: As secretary of the Treasury, Tim was responsible for recommending candidates for all major financial regulatory positions, including the new consumer agency. Many CFPB proponents, including Dodd, had urged the administration to fill the job quickly with a bipartisan candidate, fearing that any delay would play into the hands of opponents of the new agency. Tim failed to recommend a candidate, and in fact, a nominee was not submitted to the Senate until the summer of 2011. In the interim, Republicans have become entrenched in their opposition and there is no prospect that the agency will have a confirmed head before the 2012 presidential elections.

  233. “lobbied me intensely”: Sheila Bair, memo to the file re TF MTG-new low, August 6, 2010.

  234. “reduce the probability”: Christian Vits and Gabi Thesing, “ECB’s Weber Says Raising Banks’ Capital Ratios Won’t Slow Economic Growth,” September 8, 2010, wwwbloomberg.com/news/2010-09-08/ecb-s-weber-says-tougher-bank-capital-rules-won-t-harm-economic-growth.html.

  235. a separate press release: Board of Governors of the Federal Reserve System, “U.S. Banking Agencies Express Support for Basel Agreement,” September 12, 2010, www.federalreserve.gov/newsevents/press/bcreg/20100912a.htm.

  236. My suspicions were heightened: Jason Cave, email to Sheila Bair Re Treasury Cap Surcharge Position, June 16, 2011.

  237. “Why weren’t we in the loop?”: Sheila Bair, email to Daniel Tarullo Re Treasury Cap Surcharge Position, June 16, 2011.

  238. In the meantime Walsh: Donna Borak, “OCC’s Walsh Signals Discord Among U.S. Regulators on SIFI Surcharge,” American Banker, June 20, 2011, www.americanbanker.com/issues/176_118/occ-john-walsh-signals-discord-regulators-1039160-1.html.

  239. Several influential Democratic senators: See, e.g., Ronald D. Orol, “Bank Regulator Draws Ire of Democrats,” June 23, 2011, http://articles.marketwatch.com/2011-06-23/economy/30738324_1_capital-requirements-large-national-banks-bank-capital.