ABA Banking Journal - January 2010 - (Page 14) COVER STORY/WaShingTOn OuTlOOk certainty of storms Foggy, with a W The debate over financial reform pits House, Senate, Fed, and Administration views. What emerges will dictate the industry’s future But sometimes, a small percentage can make a big difference. And the House approach to financial regulatory reform—H.R. 4173, “The Wall Street Reform and Consumer Protection Act of 2009”— contains a provision, minor in comparison to the legislation’s overall scope, that is potentially industry-altering. It’s a strong example, and not the only one, of the kind of change that the country could see in financial services, depending on how a final banking law emerges from Congress and the President’s desk. hat’s 5%? In many situations, not much. assessing where things stand The federal government has been considering legislation relating to the financial crisis for a bit more than a year. When that journey began, “there was uncertainty as to whether some institutions would survive into the next quarter, in some instances,” recalls ABA’s Robert Davis, executive vice-president, mortgage finance, risk management, and public policy. “That is not the question now. But the uncertainty is just as great—and, in some ways, even greater—about the viability of certain lines of business that we’ve come to think of as traditional.” Davis says that the pending legislation—which passed the House in mid-December, and which remains pending in different form in the Senate—is on some levels actually “frightening, because you would think that there would be greater certainties regarding the nature of the federal solution—but we don’t have that yet.” Which brings us back to 5%. H.R. 4173 makes 5% a very meaningful number by dictating that institutions that sell loans to secondary markets must retain 5% of the credits sold. The intent is to ensure that lenders have “skin in the game,” and thus pay closer attention to credit quality, rather than going for volume and unloading loans completely on an unsuspecting investor. “The decision to be in a secondary market for any type of loan asset is really up in the air right now,” continued Davis, in an interview featuring himself and fellow ABA officials Floyd Stoner and Wayne Abernathy. Adds Stoner, ABA executive vice-president for congressional relations: “How this turns out will affect all participants in the secondary market process, from loan originators, to securitizers, By Steve Cocheo, executive editor, and Bill Streeter, editor-in-chief 14 january 2010/ABA BANKING JOURNAL to investors. There will be broad implications.” The broadest of all is that which dominates much congressional and presidential rhetoric: credit availability. “Bank portfolios are showing the typical damage that comes from a deep, long recession,” said Wayne Abernathy, executive vice-president, financial institutions policy and regulatory affairs. “But the securities markets have been devastated. And, unfortunately, many of the possible new rules resulting from this legislation may make it very hard for those secondary markets to come back. And without them, banks can’t off-load their loans and turn around that capital to make new ones.” Abernathy predicts that, unchecked, this will lead to a return to the type of smaller, more limited economy of 30-odd years ago. “As a lot of the slack in the economy gets taken up again, the nation will need more financing, and at some point, banks will have to say, ‘We’re financed out’,” posits Abernathy. “And then you’ll see some very serious constraints on the economy.” Megapackage grinds on Mind you, what these ABA lobbyists are discussing is still a bill, not law, but many aspects beyond the 5% issue loom as potentially game changing. Especially because they won’t occur in a vacuum. Going back to the “skin in the game” provision, federal banking capital rules designed long ago didn’t contemplate such an outcome. If there was any way a loan or package of them could come back to a bank, a sale hadn’t really taken place for capital purposes. If that weren’t enough, pending accounting rule changes make the final outcome worrisome for lenders as well. “Statements of Financial Accounting 166 and 167 are bringing things that were formerly off-balance-sheet back on balance sheet,” said Davis. “We’re arguing strenuously that capital rules can’t be applied as if sales would be done as an on-off switch. But the regulators and the accounting profession haven’t really synched up yet, to let bankers know clearly what the real capital requirements are going to be.” One of the positives of H.R. 4173, in ABA’s view, is that the House’s proposed “Financial Stability Council” will be empowered to review accounting standards and policies as they impinge on systemic risk. Abernathy sees this as a critical counterbalance to the Financial Accounting Standards Board. “The board has acted as if they believe, ‘Our model is Truth’,” Subscribe at www.ababj.com http://www.ababj.com Table of Contents for the Digital Edition of ABA Banking Journal - January 2010 ABA Banking Journal - January 2010 Contents Editor's Column Briefing ABA Resources ABA Chairman's Position Community Banking Cover Story: Foggy, with a Certainity of Storms Pass the Aspirin Troubled Times Make For Wary Partners Retail Topics Compliance Clinic Mailbox The Economy ABA Banking Journal - January 2010 ABA Banking Journal - January 2010 - ABA Banking Journal - January 2010 (Page Cover1) ABA Banking Journal - January 2010 - ABA Banking Journal - January 2010 (Page Cover2) ABA Banking Journal - January 2010 - Contents (Page 1) ABA Banking Journal - January 2010 - Editor's Column (Page 2) ABA Banking Journal - January 2010 - Editor's Column (Page 3) ABA Banking Journal - January 2010 - Briefing (Page 4) ABA Banking Journal - January 2010 - Briefing (Page 5) ABA Banking Journal - January 2010 - Briefing (Page 6) ABA Banking Journal - January 2010 - ABA Resources (Page 7) ABA Banking Journal - January 2010 - ABA Chairman's Position (Page 8) ABA Banking Journal - January 2010 - Community Banking (Page 9) ABA Banking Journal - January 2010 - Community Banking (Page 10) ABA Banking Journal - January 2010 - Community Banking (Page 11) ABA Banking Journal - January 2010 - Community Banking (Page 12) ABA Banking Journal - January 2010 - Community Banking (Page 13) ABA Banking Journal - January 2010 - Pass the Aspirin (Page 14) ABA Banking Journal - January 2010 - Pass the Aspirin (Page 15) ABA Banking Journal - January 2010 - Pass the Aspirin (Page 16) ABA Banking Journal - January 2010 - Pass the Aspirin (Page 17) ABA Banking Journal - January 2010 - Troubled Times Make For Wary Partners (Page 18) ABA Banking Journal - January 2010 - Troubled Times Make For Wary Partners (Page 19) ABA Banking Journal - January 2010 - Troubled Times Make For Wary Partners (Page 20) ABA Banking Journal - January 2010 - Troubled Times Make For Wary Partners (Page 21) ABA Banking Journal - January 2010 - Retail Topics (Page 22) ABA Banking Journal - January 2010 - Retail Topics (Page 23) ABA Banking Journal - January 2010 - Retail Topics (Page 24) ABA Banking Journal - January 2010 - Retail Topics (Page 25) ABA Banking Journal - January 2010 - Retail Topics (Page 26) ABA Banking Journal - January 2010 - Compliance Clinic (Page 27) ABA Banking Journal - January 2010 - Compliance Clinic (Page 28) ABA Banking Journal - January 2010 - Mailbox (Page 29) ABA Banking Journal - January 2010 - Mailbox (Page 30) ABA Banking Journal - January 2010 - Mailbox (Page 31) ABA Banking Journal - January 2010 - The Economy (Page 32) ABA Banking Journal - January 2010 - The Economy (Page Cover3) ABA Banking Journal - January 2010 - The Economy (Page Cover4) http://www.nxtbook.com/nxtbooks/sb/ababj0513 http://www.nxtbook.com/nxtbooks/sb/ababj0413 http://www.nxtbook.com/nxtbooks/sb/ababj0313 http://www.nxtbook.com/nxtbooks/sb/ababj0213 http://www.nxtbook.com/nxtbooks/sb/ababj0113 http://www.nxtbook.com/nxtbooks/sb/ababj1212 http://www.nxtbook.com/nxtbooks/sb/ababj1112 http://www.nxtbook.com/nxtbooks/sb/ababj1012 http://www.nxtbook.com/nxtbooks/sb/ababj0912 http://www.nxtbook.com/nxtbooks/sb/ababj0812 http://www.nxtbook.com/nxtbooks/sb/ababj0712 http://www.nxtbook.com/nxtbooks/sb/ababj0612 http://www.nxtbook.com/nxtbooks/sb/ababj0512 http://www.nxtbook.com/nxtbooks/sb/ababj0412 http://www.nxtbook.com/nxtbooks/sb/ababj0312 http://www.nxtbook.com/nxtbooks/sb/ababj0212 http://www.nxtbook.com/nxtbooks/sb/ababj0112 http://www.nxtbook.com/nxtbooks/sb/ababj1211 http://www.nxtbook.com/nxtbooks/sb/ababj1111 http://www.nxtbook.com/nxtbooks/sb/ababj1011 http://www.nxtbook.com/nxtbooks/sb/ababj0911 http://www.nxtbook.com/nxtbooks/sb/ababj0811 http://www.nxtbook.com/nxtbooks/sb/ababj0711 http://www.nxtbook.com/nxtbooks/sb/ababj0611 http://www.nxtbook.com/nxtbooks/sb/ababj0511 http://www.nxtbook.com/nxtbooks/sb/ababj0411 http://www.nxtbook.com/nxtbooks/sb/ababj0311 http://www.nxtbook.com/nxtbooks/sb/ababj0211 http://www.nxtbook.com/nxtbooks/sb/ababj0111 http://www.nxtbook.com/nxtbooks/sb/ababj1210 http://www.nxtbook.com/nxtbooks/sb/ababj1110 http://www.nxtbook.com/nxtbooks/sb/ababj1010 http://www.nxtbook.com/nxtbooks/sb/ababj0910 http://www.nxtbook.com/nxtbooks/sb/ababj0810 http://www.nxtbook.com/nxtbooks/sb/ababj0710 http://www.nxtbook.com/nxtbooks/sb/ababj0610 http://www.nxtbook.com/nxtbooks/sb/ababj0510 http://www.nxtbook.com/nxtbooks/sb/ababj0410 http://www.nxtbook.com/nxtbooks/sb/ababj0310 http://www.nxtbook.com/nxtbooks/sb/ababj0210 http://www.nxtbook.com/nxtbooks/sb/ababj0110 http://www.nxtbook.com/nxtbooks/sb/ababj1209 http://www.nxtbook.com/nxtbooks/sb/ababj1109 http://www.nxtbook.com/nxtbooks/sb/ababj1009 http://www.nxtbook.com/nxtbooks/sb/ababj0909 http://www.nxtbook.com/nxtbooks/sb/ababj0809 http://www.nxtbook.com/nxtbooks/sb/ababj0709 http://www.nxtbook.com/nxtbooks/sb/ababj0609 http://www.nxtbook.com/nxtbooks/sb/ababj0509 http://www.nxtbook.com/nxtbooks/sb/ababj0409 http://www.nxtbook.com/nxtbooks/sb/ababj0309 http://www.nxtbook.com/nxtbooks/sb/ababj0209 http://www.nxtbook.com/nxtbooks/sb/ababj0109 http://www.nxtbook.com/nxtbooks/sb/ababj1208 http://www.nxtbook.com/nxtbooks/sb/ababj1108 http://www.nxtbook.com/nxtbooks/sb/ababj1008 http://www.nxtbook.com/nxtbooks/sb/ababj0908 http://www.nxtbook.com/nxtbooks/sb/ababj0808 http://www.nxtbook.com/nxtbooks/sb/ababj0708 http://www.nxtbook.com/nxtbooks/sb/ababj0608 http://www.nxtbook.com/nxtbooks/sb/ababj0508 http://www.nxtbook.com/nxtbooks/sb/ababj0408 http://www.nxtbook.com/nxtbooks/sb/ababj0308 http://www.nxtbook.com/nxtbooks/sb/ababj0208 http://www.nxtbook.com/nxtbooks/sb/ababj-compsurv08 http://www.nxtbook.com/nxtbooks/sb/ababj0108 http://www.nxtbook.com/nxtbooks/sb/ababj1207 http://www.nxtbook.com/nxtbooks/sb/ababj1107 http://www.nxtbook.com/nxtbooks/sb/ababj1007 http://www.nxtbook.com/nxtbooks/sb/ababj0907 http://www.nxtbook.com/nxtbooks/sb/ababj0807 http://www.nxtbook.com/nxtbooks/sb/ababj0707 http://www.nxtbook.com/nxtbooks/sb/ababj0607 http://www.nxtbook.com/nxtbooks/sb/ababj-jackhenry http://www.nxtbook.com/nxtbooks/sb/ababj0507 http://www.nxtbook.com/nxtbooks/sb/ababj0407 http://www.nxtbook.com/nxtbooks/sb/ababj0307 http://www.nxtbook.com/nxtbooks/sb/ababj-compsurv07 http://www.nxtbook.com/nxtbooks/sb/ababj0207 http://www.nxtbook.com/nxtbooks/sb/ababj0107 http://www.nxtbook.com/nxtbooks/sb/ababj1206 http://www.nxtbook.com/nxtbooks/sb/ababj06corebanking http://www.nxtbook.com/nxtbooks/sb/ababjcompsurv2006 http://www.nxtbookMEDIA.com
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