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Federal Financial Analytics managing partner Karen Petrou has on a selective basis agreed to serve as an expert witness in litigation germane to matters such as director-and-officer liability related to regulatory requirements, the manner in which financial institutions are resolved, and the role forward-looking regulatory planning plays in M&A transactions, contractual matters, and related corporate actions.

Ms. Petrou’s expert consulting and testimony services have involved matters pending before judicial forums varying from private arbitration to the Appeals Courts.  Services have included advice to counsel unfamiliar with federal banking rule or law, especially as it is applied in situations such as enforcement actions and resolutions.  In one matter, Ms. Petrou was retained in part to substantiate depositions from the CEO of one of the world’s largest banks related to the acquisition of a subsidiary subsequently found improper pursuant to a change in law.  In another, she addressed the extent to which directors and officers of a large failed financial institution could be held liable by a bankruptcy trustee to address responsibilities under law and rule applicable at the time of disputed actions.  Ms. Petrou’s long record of testimony before Congress, continuing advice to federal and state regulators, and her extensive publications have made her expert advice and testimony of particular value. …

Following requests from many banks and municipal-finance officers, the FRB – but not the OCC or FDIC – has decided that general obligation securities (GOs) of a public-sector entity that meet tough criteria are eligible as Level 2B assets for purposes of the liquidity coverage ratio.  However, the eligibility conditions in the final rule track most of the initial proposal,and are so stringent as to result in flexibility being restricted not only to FRB-regulated companies, but also to a limited class of GOs as the authority will be difficult to utilize in practice.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.

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We have reviewed the newly-released documentation for Freddie’s latest risk-share, a deal distinguished by HLTV loans structured into actual-loss risk shares at markedly lower vertical slices for the GSE than prior low-LTV actual-loss deals.  In short, the market’s hot for yield, default risk be damned.

The full report is available to subscription clients.  To find out how you can sign up for the service, click here…

Is Private Possible on a Public Platform?

In this report, we assess comments filed with FHFA on its proposed rewrite of the infrastructure supporting U.S. mortgage securitization. Critical to FHFA’s thinking is that a single platform could support an array of Fannie, Freddie, Ginnie and private-label MBS, thus giving the GSEs a new role as a securitization utility. However, our review of industry comments shows deep concern about the degree to which so large a trampoline is possible, dampening near-term prospects for turning Fannie and Freddie into the securitization utility FHFA contemplates as a post-conservatorship option. Although senior-sub structures for risk-sharing got mixed review, a lot of work is clearly under way on credit-linked notes. …

The House FinServ Committee heard from CFPB Director Cordray today on the agency’s inaugural semi-annual report, which was initially delivered in January to the Senate Banking Committee (see Client Report CONSUMER21).  Committee Members on both sides of the aisle questioned the Director on the pending Qualified Mortgage (QM) rule (see Reports in the MORTGAGE series), but Mr. Cordray generally said issues are under consideration without committing himself to any specific proposal.  The Bureau’s examination policies were also called into question, as Rep. Renacci (R-OH) grilled Mr. Cordray on why enforcement attorneys are needed in this process.  Questions were also raised on a wide range of issues, including the CFPB’s “abusive” standard, mortgage servicing standards and the loan originator compensation rule.  This report analyzes today’s hearing.

The full report is available to retainer clients.  To find out how you can sign up for the service, click here.

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The House Financial Services Committee convened a hearing today with Treasury Secretary Geithner ostensibly to discuss the Eurozone crisis, but the discussion quickly devolved into partisan questioning on a wide range of political issues, including the Volcker Rule (see FSM Report PROPTRADE10), sanctions against Iran (see Reports in the SANCTIONS series), the Federal Insurance Office (see FSM Report INSURANCE23), and international harmonization of financial reform. On the latter issue, Mr. Geithner for the first time strongly refuted the need in the U.S. for express barriers between retail and investment banking along the lines now adopted in the U.K. Going a bit farther than before, Mr. Geithner said that he did not think the current approach to sovereign debt in the Volcker Rule would undermine market liquidity, although he deferred on this to the banking agencies. Republicans repeated longstanding criticism of IMF funding and the Fed’s dollar swap lines.

The full report is available to retainer clients.  To find out how you can sign up for the service, click here.…

Following the Balloon

In this report, we assess the prospects for the trial balloon launched yesterday by the Administration in the Wall Street Journal. The report floated what many call HARP 3.0 – that is, a new effort to refinance under-water borrowers out of PLS and into the arms of what the blog site Naked Capitalism appropriately calls the “stuffees,” i.e., Fannie and Freddie. Because the plan requires a charter change to fly, we think its prospects slim. But, it might score well and, thus, stand a better chance. Regardless, it points to both the politics and policy of the GSE debate sure to come early next year.

The full report is available to subscription clients. To find out how you can sign up for the service, click here

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Hey, guess what – the G-20 is against systemic risk, but should there be any, it’s also against taxpayers paying for it.  For good measure, the G-20 is also against trade imbalances and currency misalignment.  As for me, I’m in favor of being 5’11” and a size two.  The tricky bit is how.

Our favorite bit in the G-20 communiqué is its start, where one finds the ringing declaration that, “We, the Leaders of the G20, are united in our conviction that by working together we can secure a more prosperous future for the citizens of all countries.”  Whew!  We thought for a while they were figuring out ways to argue with each other to promote poverty, war and the forces of evil.

The reasons for this high-level circumlocution is two-fold:  first, communiqués from heads of state rarely say anything unequivocal because most agreements in principle break down in detail.  And, at the Seoul summit, even agreements in principle were hard to find.  The summit blessed Basel III, but little else from the high-faluting initial list of actions planned for them by the Financial Stability Board.

Of course, the FSB didn’t give them anything much to endorse with specificity other than Basel III.  SIFI action is stymied by deep disagreements over what to do about cross-border resolutions and big-bank regulation.  In the midst of the crisis, regulators agreed that SIFIs needed succor.  Now, though, they’ve thought this through, realized how much a global SIFI regime challenges home-country regulations and just …

The Senate Banking Committee today held a hearing on the feasibility of establishing a National Infrastructure Bank (NIB) to handle the financing of regional and national infrastructure projects. President Obama pushed this earlier in September in conjunction with an overall push for infrastructure spending, with the idea based in large part on legislation introduced by Sen. Dodd (D-CT), which is analyzed in FSM Report INFRASTRUCTURE.  Democratic senators, Administration witnesses and a banker supported the NIB, but Sen. Shelby (R-AL) argued tht it is too close to the GSE model.  He prefers the current method of Congressional appropriations that dictate federal spending priorities.  This report summarizes the hearing.  Legislative action in this Congress is not likely and, like other initiatives, its fate in the next Congress will depend on the mid-term election.

The full report is available to retainer clients.  To find out how you can sign up for the service, click here.…

Do the Stress Test Results Scuttle PPIP?
By Stacy Kaper and Joe Adler

The stress test results are raising doubts that the government’s next financial stability project — a plan to let banks get rid of toxic assets — is still needed. Until last week, most expected that the stress tests would reveal a need for significantly more capital at the nation’s 19 largest banks — capital holes that could be filled in part by forcing those institutions to sell assets through the public-private investment program. Instead, the results showed that, of the 10 banks that do need more capital, only a few need to raise sizable amounts, casting doubt on whether they will need to participate in the asset sales program. Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc., said PPIP is still needed because the stress test parameters might guide regulators in examining the rest of the industry, too, putting pressure on banks beyond the top 19 to raise capital.…