In this report, FedFin analyzes key financial-industry issues raised by the fiscal year (FY) 2012 budget released today by the Obama Administration. It breaks little new ground on the GSEs following the Administration’s long-awaited white paper in this area released on Friday (see Client Report GSE119), although the Fannie/Freddie discussion strongly suggests they will be subjected to systemic regulation once FSOC finalizes the criteria for nonbank designation. The budget doesn’t address controversial issues like the FDIC’s new assessment scheme (see Client Report DEPOSITINSURANCE95), but factors that count towards the budget calculations provide light on the Administration’s general view of the banking system. Expectations for failing banks are significantly reduced from mid-year assumptions. As anticipated, financial regulatory budgets are significantly boosted (although much of this comes from assessments on financial institutions). The budget assumes a $19.5 billion cost over ten years for some form of systemic rescue, possibly bolstering arguments that banks remain too big to fail even though this cost would be recouped through post-resolution assessments. The Small Business Administration takes a big hit, although program levels are sustained for another year (addressing to some degree lender concerns regarding the 7(a) program).
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