When states received $2.5 billion from big banks in a mortgage-foreclosure settlement earlier this year, the expectation was that most of it would be used to aid distressed homeowners, but a new report claims that less than half of the money has been designated for that cause so far, the Wall Street Journal reported today. States used much of the settlement money to help close budget gaps, says a report scheduled for release Thursday. In March, 49 states reached a $25 billion settlement with five of the nation's largest mortgage lenders over charges that they had improperly processed foreclosures. The agreement allowed the banks—Ally Financial Inc., Bank of America Corp., Citibank Inc., JPMorgan Chase & Co. and Wells Fargo & Co.—to pay $20 billion of the settlement in the form of relief to distressed homeowners. The states received $2.5 billion of the total. Only about $1 billion of the state funds have been designated for some type of homeowner aid, while $1 billion will go toward state general funds. States haven't decided how to spend the remaining $500 million, according to the report by Enterprise Community Partners, a housing nonprofit. Only 14 states plan to spend their entire allotment on housing relief, according to the report. Read more. (Subscription required.)
DUELING REPORTS LEAVE CONGRESS CONTINUING TO FIGHT OVER "TOO BIG TO FAIL"
Republican and Democratic leaders on the House Financial Services Committee are continuing their battle over the Dodd-Frank financial reform law in a pair of competing reports, The Hill reported yesterday. Nearly two and half years after the Wall Street overhaul was signed into law, the two parties remain entrenched on one of its fundamental questions: Does the law end the problem of firms being "too big to fail" and requiring bailouts? Rep. Barney Frank (D-Mass.), a key author of the law and top Democrat on the committee, on Monday released a report intended to rebut GOP arguments that Dodd-Frank codifies "too big to fail" and explicitly identifies banks as such. “The Wall Street Reform and Consumer Protection Act clearly establishes a framework that allows large financial firms to fail while preventing catastrophic harm to the broader economy," according to the report, compiled by Democratic committee staff. Just two days later, Committee Chairman Spencer Bachus (R-Ala.) fired back with a report of his own. While shorter, this report contended that the law actually codified essential firms that the government would have to bail out. One provision of the law allows regulators to identify banks and other institutions as "systemically significant." Republicans contend that this label hands out an advantage to the singled-out firms and that the government has effectively identified them as "too big to fail." But the Democrats contend in their study that this designation comes with increased regulation and oversight, as well as a requirement that the institutions establish "living wills" that would detail how they could be unraveled if they were on the brink of collapse. Read more.
COMMENTARY: WHY THE FDIC'S APPROACH TO FINANCIAL FAILURES MAKES SENSE
The FDIC's single receivership approach offers a better way to avoid an uncoordinated and destabilizing series of insolvencies for systemically important financial institutions, according to a commentary in yesterday's New York Times DealBook blog by Michael H. Krimminger, the former general counsel of the Federal Deposit Insurance Corp. The agency proposes, if it is appointed and where possible, to close the financial holding company, but keep the viable subsidiaries operating. Subsidiaries that are not viable would be closed and gradually wound down to prevent a sudden collapse, as occurred in the case of Lehman, according to Krimminger. The holding company would be restructured into a bridge entity that can continue to provide financing to viable subsidiaries. Access to funding is critical to continued operations. Dodd-Frank provides for this financing from an "orderly liquidation fund," and it must be paid back from the sale of the subsidiaries or from assessments from the industry. The shareholders and creditors of the holding company – which owned the subsidiaries – bear the losses for the failure as no losses can be borne by taxpayers, according to Krimminger's commentary. Read more.
REGULATORS PROPOSE CAPITAL RULES FOR DERIVATIVES TRADING
Federal authorities moved a step closer to overhauling the derivatives market yesterday, as regulators proposed tougher standards for the nation's biggest banks, the New York Times DealBook blog reported. Firms like Goldman Sachs and JPMorgan Chase would have to bolster their capital cushion and post additional collateral for certain derivatives trades. The Securities and Exchange Commission proposed the crackdown as part of a broader effort to rein in the opaque derivatives business, a main player in the financial crisis. "These rules are intended to make the financial system safer, and the derivative markets fairer, more efficient, and more transparent," SEC chair Mary L. Schapiro said. Schapiro and the agency's commissioners voted unanimously, 5-0, to advance the plan. It now enters a 60-day public comment period, after which the SEC and other federal regulators must finalize the rules. Read more.
MEMBERS WILL NOT WANT TO MISS ABI'S PROGRAM AT NCBJ'S ANNUAL MEETING ON OCT. 26
Members planning to attend the 86th Annual NCBJ Annual Conference in San Diego from Oct. 24-27 will not want to miss the exciting line-up scheduled for the ABI program track on Oct. 26. In addition to roundtable discussions on the hottest consumer and business bankruptcy topics, ABI will be hosting a ticketed luncheon that will feature the presentation of the 7th Annual Judge William L. Norton, Jr. Judicial Excellence Award and entertainment by Apollo Robbins, a sleight-of hand artist, security consultant and self-described gentleman thief. Click here to register for the Conference.
To view the list of ABI programs on Oct. 26 and the full NCBJ Annual Conference schedule, please click here.
ABI's Chapter 11 Reform Commission will also be holding a public hearing on Oct. 26 from 2:30-4:30 p.m. PT at the San Diego Marriott. Interested parties have the opportunity to submit testimony at the hearing. For further information, please contact ABI Executive Director Samuel J. Gerdano at [email protected]
LATEST CASE SUMMARY ON VOLO: IN RE GLEASON (11TH CIR.)
Summarized by Michael Pugh of Thompson, O'Brien, Kemp & Nasuti, PC
The U.S. Court of Appeals for the Eleventh Circuit affirmed the order entered by the bankruptcy court and upheld on appeal by the U.S. District Court for the Southern District of Florida that suspended an attorney who practiced bankruptcy law from practice before the bankruptcy court for 60 days. The Court of Appeals ruled that the sanctions order did not violate the attorney's First Amendment right to free speech or Fifth Amendment right to due process, and that the bankruptcy court did not clearly err in determining that the attorney's actions amounted to bad faith that warranted the imposition of sanctions.
There are more than 650 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:AIDING AND ABETTING CLAIMS IN PONZI CASES ARE STILL ALIVE AND WELL
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines how aiding and abetting claims against banks in Ponzi scheme cases continue to gain traction in the case law.
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.
ABI Quick Poll
Section 523(a)(8) should be amended to allow private student loans to be discharged in bankruptcy.
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ABI/ST. JOHN'S "BANKRUPTCY AND RACE: IS THERE A RELATION?" SYMPOSIUM
Oct. 19, 2012 Register Today!