Tag: Dodd-Frank

Barney Frank blames crypto panic for his bank’s collapse. Elizabeth Warren blames Trump.

Mary Pat Campbell

Link: https://www.politico.com/news/2023/03/13/barney-frank-signature-bank-collapse-warren-trump-00086765

Excerpt:

From his front-row seat, [Barney Frank] blames Signature’s failure on a panic that began with last year’s cryptocurrency collapse — his bank was one of few that served the industry — compounded by a run triggered by the failure of tech-focused Silicon Valley Bank late last week. Frank disputes that a bipartisan regulatory rollback signed into law by former President Donald Trump in 2018 had anything to do with it, even if it was driven by a desire to ease regulation of mid-size and regional banks like his own.

“I don’t think that had any impact,” Frank said in an interview. “They hadn’t stopped examining banks.”

But Warren, a fellow Massachusetts Democrat who designed landmark consumer safeguards that ended up in Frank’s 2010 banking law, is placing the blame firmly on the Trump-era changes that relaxed oversight of some banks and says Signature is a prime example of the fallout. Warren argues that, had Congress and the Federal Reserve not rolled back stricter oversight, Silicon Valley Bank and Signature would have been better able to withstand financial shocks.

Author(s): ZACHARY WARMBRODT

Publication Date: 13 Mar 2023

Publication Site: Politico

Barney Frank Pushed to Ease Financial Regulations After Joining Signature Bank Board

Mary Pat Campbell

Link: https://www.wsj.com/articles/barney-frank-pushed-to-ease-financial-regulations-after-joining-signature-bank-board-e5c8819c

Excerpt:

Former Rep. Barney Frank co-sponsored the law that tightened banking regulations after the financial crisis, but since leaving office he has been working the other side of the street—as a board member of Signature Bank, which regulators shut down Sunday.

The 2010 Dodd-Frank legislation set tougher regulatory safeguards on banks with more than $50 billion in assets. After leaving office and joining Signature’s board, Mr. Franks, a Massachusetts Democrat, publicly advocated for easing those new standards for smaller banks.

Part of what former President Donald Trump signed into law in 2018 raised the asset threshold to $250 billion, meaning Signature and other regional banks no longer needed to comply with the extra regulation set out in Dodd-Frank. 

After the bill was signed, New York-based Signature more than doubled in size to $110 billion in assets, and $88.6 billion in deposits as of the end of 2022. The stricter requirements, had they been in place, might have prompted bank executives and their overseers to move more quickly to place the lender on sounder financial footing, some industry observers say. 

Mr. Frank, who has earned more than $2.4 million in compensation from Signature Bank since 2015, rejected the idea that the regulatory change abetted Signature’s collapse. 

“Nobody has shown me any evidence of systemic or other kinds of fraud that would have been prevented” without the 2018 rollback, Mr. Frank said.

Author(s): Julie Bykowicz

Publication Date: 13 Mar 2023

Publication Site: WSJ

The Lending Hole at the Bottom of the Homeownership Market

Mary Pat Campbell

Link: https://www.newamerica.org/future-land-housing/reports/the-lending-hole-at-the-bottom-of-the-homeownership-market/

Graphic:

Abstract:

While conventional wisdom maintains that high home prices are to blame for declining homeownership rates, there is another elusive barrier stopping millions of would-be homeowners: banks are increasingly unwilling to write small dollar mortgages. One fifth of owner-occupied homes in the United States cost less than $100,000, but due to unintended consequences of the Dodd-Frank Act, among other factors, banks are opting out of writing small dollar loans. Instead, more than three quarters of small dollar homes are purchased in cash, often by investors or well-off individuals. This lending gap locks millions of low-and-moderate income families out of homeownership, and exacerbates the racial homeownership gap as these small dollar homes are a critical source of homeownership for many first-time buyers in Black and Hispanic communities.

In this report, the Future of Land and Housing program at New America and the Center for the Study of Economic Mobility (CSEM) at Winston-Salem State University (WSSU) focus on three dimensions of this problem: 1) the unavailability of financing for small dollar loans; 2) the catch-22 of “mortgage standards”; and 3) competition with all-cash buyers at a national level and through a local case study of Winston-Salem and Forsyth County, North Carolina.

Author(s): Sabiha Zainulbhai, Zachary D. Blizard, Craig J. Richardson, Yuliya Panfil

Publication Date: 9 Nov 2021

Publication Site: New America

From the Archives: “How Dodd-Frank Locks Out the Least Affluent Homebuyers”

Mary Pat Campbell

Link: https://vpostrel.substack.com/p/from-the-archives-how-dodd-frank?utm_source=substack

Excerpt:

This Axios report on a JPMorgan Chase program giving black and Latino borrowers $5,000 toward down payments or home loan closing costs reminded me of a column I wrote in November [2021].  It’s about one of the most infuriating public policy fiascos I’ve run into in a very long time. Hardly anyone knows about this regulatory devastation of household wealth amog people whose inexpensive homes represented years of thrift and hard work. (The only reason I learned of it is that I happened to meet Craig Richardson at an unrelated conference.) It is absolutely heartbreaking. It reminds me of the famous quote from The Great Gatsby: “They were careless people, Tom and Daisy—they smashed up things and creatures and then retreated back into their money or their vast carelessness or whatever it was that kept them together, and let other people clean up the mess they had made.”

….

About one in five U.S. homes are valued at $100,000 or less. And despite their low prices, they’ve gotten extremely hard to sell. When they move at all, these small-dollar properties tend to go for cash. Lenders increasingly won’t write mortgages for them.

“Over the last decade, origination for mortgage loans between $10,000 and $70,000 and between $70,000 and $150,000 has dropped by 38 percent and 26 percent, respectively, while origination for loans exceeding $150,000 rose by a staggering 65 percent,” reports a new study on small-dollar mortgages from the Center for the Study of Economic Mobility at Winston-Salem State University and the Future of Land and Housing program at the New America think tank. The study is scheduled for release on Tuesday [Nov 9, 2021].

The culprits behind the disappearance of small-dollar mortgages are lending restrictions enacted with good intentions and warped by economic blind spots. Designed to protect borrowers and the financial system, the Dodd-Frank Act regulations passed in the wake of the 2008 financial crisis “increased the fixed costs and the per-loan costs of extending a mortgage,” says the study. The regulation-imposed costs made small-dollar mortgages a lousy proposition for lenders.

Compounding the problem, the Consumer Financial Protection Bureau then limited the fees that lenders could charge as closing costs. For profit-oriented lenders, small-dollar mortgages are no longer worth the trouble. At best, they squeeze out the tiniest of margins. At worst, they don’t even cover the fixed cost of processing the loan.

Author(s): Virginia Postrel

Publication Date: 25 June 2022

Publication Site: Virginia’s Newsletter at substack

Robinhood and Redditors: Who’s robbin’ who?

Mary Pat Campbell
Robinhood and Redditors: Who’s robbin’ who?

Excerpt:

Robinhood is a broker. It is a FINRA-regulated broker-dealer. It relies on a clearing house to clear its transactions. The clearing house it uses is the National Securities Clearing Corporation (NSCC), which is a subsidiary of the Depository Trust & Clearing Corporation (DTCC). Thus, Robinhood is a “member” of NSCC. The NSCC is a “designated financial market utility” as defined in the 2010 Dodd-Frank Act. Thus, it is “a financial market utility that the Council has designated as a systemically important.” (“The Council” is a regulatory body created by Dodd-Frank. Its ten voting members include the Treasury Secretary, the Fed chair, and the comptroller of the currency.) NSCC is a provider of “financial market infrastructure” (FMI). As such, it must publicly promulgate rules for the computation of the “Clearing Fund” every “member” must maintain with it. While the FMI is responsible for designing its own rules for determining the clearing fund, they are subject to approval or rejection by the regulatory authorities. In particular, the SEC may prohibit any changes NSCC wants to make in its formula for computing the clearing fund of each member. The Bank for International Settlements (BIS) has promulgated a set of “principles” that member states should adhere to in regulating payment and settlement systems. These include, “An FMI should maintain sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence.” 

Thus, the regulatory authorities require clearing houses to require members to keep a risk-adjusted balance with them as a guard against credit risk. In the case of Robinhood, the short squeeze drove this formulaic value up sharply. Robinhood didn’t really have much of a choice about how to respond. It had to both pony up more money for the clearing fund and act to hold off (to the extent possible) further increases in it. Robinhood had to borrow a lot of money to maintain its clearing fund.

Author(s): Roger Koppl

Publication Date: 2 February 2021

Publication Site: EconLib

Twitter thread on Robinhood halting GME trading

Mary Pat Campbell

Link: https://threadreaderapp.com/thread/1354952686165225478.html

Excerpt:

Robinhood (RH) is a broker. They don’t execute stock orders themselves. They sign up customers, route their orders to executing brokers, and keep track of who owns what. RH is also its own clearing broker, so they directly settle and custody their clients’ securities. 

Yes, RH is paid by Citadel to handle executing some of its order flow. This isn’t as nefarious as it sounds – Citadel Equity Securities is paying to execute retail orders because they aren’t pernicious (like having 500x the size behind them). 

…..

RH offered to open up stock market investing more broadly. They succeeded, clearly. But the regulations didn’t change – there are still pro-Wall St, pro-incumbent rules and capital requirements. It’s one of the most highly regulated industries in our nation. 

So @AOC is right to ask how it can be that Robinhood stopped its clients from buying certain securities. And what she’ll find is that the reason is that Dodd-Frank requires brokers like RH to post collateral to cover their clients’ trading risk pre-settlement. 

Author(s): Silent Cal

Publication Date: 28 January 2021

Publication Site: Twitter