REPUBLICANS DEMAND CONSUMER REGULATOR'S DOCUMENTS IN WAKE OF SUPREME COURT CASE
Republicans on Capitol Hill are demanding that a U.S. consumer-finance regulator produce a comprehensive list of actions that could be vulnerable to a legal challenge in the wake of a Supreme Court ruling on recess appointments last month, the Wall Street Journal reported today. The request on Tuesday by Sen. Mike Crapo (R-Idaho) and Rep. Jeb Hensarling (R-Texas) comes after the Supreme Court in June invalidated President Barack Obama's appointment of three federal labor panel members during a Senate break. Although the court ruling did not mention the Consumer Financial Protection Bureau, Republicans say that the regulator could be vulnerable to a lawsuit similar to the case that resulted in the Supreme Court ruling. That's because the agency's director, Richard Cordray, was initially installed without congressional approval on the same day as the labor nominees. Cordray served as a recess appointee from January 2012 until July 2013, when he was confirmed by the Senate. "The Supreme Court confirmed what we already knew: the President acted beyond his legal authority with this recess appointment," Crapo said. "Now, we need to know how the invalid CFPB recess appointment could affect past Bureau actions and regulations." Crapo and Hensarling, the top Republicans on congressional committees focusing on banking issues, said that they want to understand how potential litigation could impact the CFPB. Read more. (Subscription required.)
"TOO BIG TO FAIL" REPORT HEDGES ON BIG BANKS' FUNDING EDGE
A new report from the Government Accountability Office today found that while large banks might still have an advantage over small banks due to the perception that they are "too big to fail," that edge "may have declined or reversed" since the 2008 financial crisis, the Wall Street Journal reported today. The GAO focused in part on the borrowing costs of big financial firms, which would be lower than smaller firms' funding costs if creditors believed that the big banks would be bailed out by the U.S. before going bankrupt. Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.) requested the report and issued a joint release today saying that the GAO's findings prove that the subsidy, while diminished now, could come back if economic conditions worsen or low borrowing costs across the economy begin to rise. Rob Nichols, president of the Financial Services Forum, an industry group representing the chief executives of large financial companies, said in a statement that "the GAO report confirms what we have seen in many recent studies: Any cost-of-funding differential that large banks once had has been dramatically reduced, if not eliminated. Any very small difference remaining is consistent with cost-of-funding differentials seen in larger businesses across all sectors of the economy." Read more. (Subscription required.)
ANALYSIS: ARGENTINA FINDS RELENTLESS FOE IN PAUL SINGER'S HEDGE FUND
The hedge fund firm of billionaire Paul E. Singer has about 300 employees, yet it has managed to force Argentina, a nation of 41 million people, into a position where it now has to contemplate a humbling surrender, the New York Times reported today. Argentina yesterday failed to make scheduled payments on its government bonds. The country has the money to pay the bonds, but a federal court in Manhattan has ruled that unless Argentina settles its debt dispute with Singer's firm, Elliott Management, it is barred from paying its main bondholders. While Singer's firm has yet to collect any money from Argentina, some debt market experts say that the battle might already have shifted the balance of power toward creditors in the enormous debt markets that countries regularly tap into to fund their deficits. Countries in crisis could now find it harder to gain relief from creditors after defaulting on their debt, they assert. Legal filings indicate that the face value of its Argentinian government bonds was around $170 million, but the firm most likely acquired many of them for much less than that. Elliott and other investors are now seeking more than $1.5 billion, which includes years of unpaid interest. Read more.
HOUSE PANEL PASSES BILL TO EASE CAPITAL REQUIREMENTS ON MORTGAGE SERVICING RIGHTS
One of the bills passed yesterday by the House Financial Services Committee is designed to ease capital requirements on mortgage servicing rights (MSRs) held by small institutions, American Banker reported today. The legislation, sponsored by Rep. Blaine Luetkemeyer (R-Mo.), won substantial bipartisan support, passing the panel by a vote of 44 to 9. It would delay implementation of a provision of Basel III capital rules that establishes higher requirements on MSRs. The delay would only apply to institutions with less than $50 billion of assets, or those not considered systemically important under the Dodd-Frank Act. The legislation would give the regulators six months to complete a study on the "appropriate capital requirements" for MSRs and require them to implement new capital requirements within three months after that stage. At issue is a provision in the Basel package of rules finalized a year ago that limits mortgage-servicing assets to 10 percent of a bank's Tier 1 common equity, with additional holdings deducted from the Tier 1 capital account. Assets under the 10 percent cap would eventually be risk-weighted at 250 percent, while combined holdings of mortgage-servicing and several other assets could not exceed 15 percent. Community banks and credit union representatives have argued that the new rules are far too harsh and will force them to sell their MSRs. Read more. (Subscription required.)
COMMENTARY: WE DON'T NEED TO END "TOO BIG TO FAIL"
While the Dodd-Frank Act celebrated its fourth birthday last week, the Republican staff of the House Committee on Financial Services on July 21 issued a report -- called "Failing to End 'Too Big to Fail'" -- saying that the act has sown the seeds for another round of bailouts by encouraging banks to grow too big to fail, according to a commentary on Slate.com yesterday. Despite the Dodd-Frank Act's imperfections, it was a significant achievement, and the House report's criticisms are seriously muddled, according to the commentary. The report's main complaint is that the Dodd-Frank Act institutionalizes a government commitment to rescue firms hit by financial panic. But a no-bailouts goal is foolish, according to the commentary, as the government's power to make emergency loans during a financial panic is essential. In the best case, the knowledge that the government will intervene can stop panics from starting in the first place. But if not, only government intervention can prevent a financial panic from shutting down the economy. It's true that the government backstop gives banks perverse incentives to take risks and grow too large, but that's why, according to the commentary, those hundreds of rules are necessary. Read more.
DISCUSS THIRD PARTY RELEASES IN CHAPTER 11 ON THE UNSECURED TRADE CREDITORS CONFERENCE CALL ON AUG. 6 -- ALL MEMBERS WELCOME!
The Unsecured Trade Creditors Committee will hold its bi-monthly committee call on Wednesday, August 6th, at 4 pm ET to discuss third-party releases in chapter 11. The call will be moderated by Lisa Gretchko of Howard & Howard Attorneys PLLC in Royal Oak, Mich. Lisa will be joined by Scott Wolfson of Wolfson Bolton PLLC in Troy, Mich. The UTC Committee has been holding bi-monthly committee calls since 2012 on a wide variety of topics. These bi-monthly committee calls are free and open to all ABI members. Previous call recordings can be found on the committee's website. For more information, please click here.
NEW CASE SUMMARY ON VOLO: THOMAS V. FEDERAL NATIONAL MORTGAGE (IN RE THOMAS; 10TH CIR.)
Summarized by Steven Mulligan of Bieging Shapiro & Barber LLP
The Tenth Circuit ruled that the holder of a promissory note made a sufficient showing that it had possession of the original note to confer standing to seek an order under 11 U.S.C. § 362(j).
There are more than 1,300 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.
NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: GAUGING THE SITUATION IN ARGENTINA
While S&P determined Argentina to be in default, a recent blog post examines the current situation between the country and its bondholders and potential outcomes in courts and global debt markets.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
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Consumer collateral should be valued at liquidation value in chapter 13 confirmations, even when the debtor retains the property.
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