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Three years after passage of the Dodd-Frank Act, many bankers are still anxious as they wait for some rules to be written and others to be implemented. Yet a new set of regulatory and legislative challenges looms.
September 23 -
The top leaders of the Senate Banking Committee said Thursday that they intend to reach a bipartisan agreement by yearend on a bill to revamp the mortgage finance system despite fears that the issue is losing momentum.
September 12 -
A draft of the bill from Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., has begun circulating on Capitol Hill. The legislation would set up a new housing finance system and calls for the dissolution of Fannie Mae and Freddie Mac.
June 6
WASHINGTON Sen. Bob Corker offered a window Tuesday into what it's like to conduct high-powered negotiations over complex banking legislation on Capitol Hill.
Speaking at American Banker's Regulatory Symposium in Washington, the co-author of a bill to overhaul the mortgage finance market tried to keep things upbeat, conciliatory and simple. Yet he took a stroll down the wonky side to firmly defend a requirement that private capital take at least 10% of the first loss on mortgage-backed securities.
"I know many of you are going to try to dwindle that down," the Tennessee Republican warned the banking industry. "I hope all of you are very unsuccessful and we keep it as it is. I understand how everybody wants to figure out a way to do business without putting any capital up. I understand that when you put zero capital up the returns are infinite, and the more capital up, the less those returns are."
Corker and Sen. Mark Warner, D-Va., co-wrote a bill that would unwind Fannie Mae and Freddie Mac and establish a secondary market backed by an explicit government guarantee. Corker reiterated Tuesday that the leaders of the Senate Banking Committee have agreed to take up the issue this fall and hope to produce legislation. Staffers involved with the Corker-Warner effort are now meeting regularly with the offices of Chairman Tim Johnson, D-S.D., and Sen. Mike Crapo of Idaho, the panel's ranking Republican, Corker said in a follow-up interview.
"The staff of all ten of the cosponsors now are being invited to every meeting when people are coming in and talking about the strengths and weaknesses of the legislation," Corker said. "Obviously we'd like to see the pace move ahead a little more quickly than it is, but I do think that every resource on both sides of the aisle on the Banking Committee is being utilized towards coming up with an appropriate solution on housing finance, so that's pretty heartening."
He added during his remarks that the lawmakers are still working to find additional cosponsors to the legislation as well.
"This week we hope to gain additional sponsorship and are meeting with people on both sides of the aisle to broaden the base," he said.
Corker sought to address head-on the criticism of the 10% capital requirement, which has been hotly debated since the bill was introduced in June.
"With 10% we've set something up that works really well. One of the criticisms that people make about having any kind of federal government guarantee is, does the government have the ability to price risk appropriately? And candidly, it probably doesn't, if you want to know the truth," he said. "But again with 10% private capital up front in advance of any government guarantee, it's less worrisome to me if the pricing isn't exactly right."
He predicted it was "unlikely" that the number would come down.
Others made different predictions during a discussion about housing finance reform at the conference on Monday, when several analysts estimated that the number is likely to be pushed down to 5% or even lower in the final legislation.
Paul Miller, managing director and head of financial institutions research at FBR Capital Markets, argued on Monday that the 10% capital provision is likely to instead be defined as debt, because "there's just not that much capital in the system to keep the liquidity flowing."
"The 10% sounds really good to get a lot of the Republicans and some of the fiscal conservative people in line here, but the 10% capital we think is going to be adjusted down," Miller said. "The actual equity would be much lower, in the 3-5% level."
But in all, Corker remained optimistic during his speech on Tuesday about the prospects for legislation in both chambers of Congress.
He downplayed concerns that Senate Majority Leader Harry Reid could be an obstacle to getting a bill to the Senate floor after the Nevada Democrat
"I think that Sen. Reid had not been really even aware that there was a bill moving in the Banking Committee," Corker said. "I don't think his staff had briefed him relative to the contents of it, and I don't see Sen. Reid as a roadblock to keep this from coming to the floor."
Corker also discussed the prospects for legislation in the House, suggesting that any successful bill is likely to move closer to the Senate's version. Rep. Jeb Hensarling, R-Texas, the chairman of the House Financial Services Committee, passed a bill out of the banking panel in July that also would roll back the GSEs but does not provide the secondary market with a government guarantee a key requirement for many in the industry.
"On the Senate side, again the biggest responsibility we have right now is to pass something out of the committee, and I think if we do that, the House they'll actually try to craft a bill that they believe can get 218 votes out of the House," he said. "I think that it will be something that moves somewhat in the direction of" the Corker-Warner legislation.
