This piece was prepared in collaboration with Drew Vogel
In the two years since the mammoth Dodd–Frank Wall Street Reform and Consumer Protection Act became law, federal regulators have heard overwhelmingly from the biggest banks, according to a new Sunlight Foundation analysis of financial regulatory agency meeting logs. The voices of reform-oriented groups have been much quieter – particularly in the past 12 months.
Since July 21, 2010 (when the president signed Dodd-Frank), regulators at the three major banking regulatory agencies – Treasury, the Fed and the Commodities Futures Trading Commission (CFTC) – have reported meeting with 20 big banks and banking associations on average a combined 12.5 times per week – as compared to on average just 2.3 meetings with reform-oriented groups. The top 20 banks show up 1,298 times in meeting logs at the three agencies, while groups favoring tighter regulations of the financial markets show up just 242 times.
On Sunday, Bloomberg News reported on an estimated $13 billion worth of income that banks gained by taking advantage of the Federal Reserve’s below-market interest rates, which were sometimes as low as 0.01 percent.
The six banks that benefited the most from this “subsidy” – Bank of America, Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley, and Wells Fargo – reaped a combined $4.8 billion of estimated extra income from the below-market loans.
It’s worth pointing out that all six of these banks were major political players.
All six have also averaged at least $2.7 million in lobbying a year for the period 2008-2010. And all six have averaged at least $2 million in campaign contributions for the last two electoral cycles. Four of the six banks rank among the top 100 political contributor organizations for the last two cycles. Two of the six were in the top 100 political lobbying organizations for the period 2008-2010. (We focus on 2008-2010 because although the bulk of the lending took place in late 2008 and early 2009, continued lobbying by the banks may have contributed to keeping these deals undisclosed until now.)
2007-008 & 2009-2010 (Average Per Cycle)
2008-2010 (Average Per Year)
2008-2010 (Average Per Year)
2008-2010 (Average Per Year)
Bank of America
While it’s difficult to infer causality from these numbers, it is fair to say that these companies were no strangers to Washington. And this probably didn’t hurt them when it came to negotiating bail-out deals with the Federal Reserve and keeping these deals undisclosed.
Merchants, retailers, and their trade associations have arrayed a team of former government officials turned lobbyists in one of 2011's biggest lobbying battles as banks and credit unions seek to overturn part of the Dodd-Frank financial reform bill. According to data compiled from the Senate Office of Public Records and the Center for Responsive Politics, merchants and retailers lobbying in support of debit interchange fees rules employed 124 lobbyists with previous government experience.
The Federal Reserve has proposed rules to set limits on the amount that banks can charge retailers every time a customer uses a debit card for a purchase, known as debit interchange fees. These fees, set by electronic networks, including VISA and MasterCard, provide big profits to banks and diminish returns for retailers, often leading to rising prices for consumers.
Retailers lobbied hard to get a limit on interchange fees included in the Dodd-Frank bill and succeeded when retail ally Sen. Dick Durbin, D-Ill., offered an amendment, which was adopted, to the bill requiring the Federal Reserve to write rules governing the fees. The Fed released their rule earlier this year. Much to the dismay of banks and electronic network operators the Fed rules capped interchange fees at 12 cents per swipe, or a more than 70 percent reduction in fees.
Banks and their allies--payment networks and credit unions--have swamped Capitol Hill with lobbyists and the retailers and merchants, including Wal-Mart, have done the same.
Retailers and merchants have largely organized through the Merchant's Payments Coalition. Organizations listed as members of the Merchant's Payments Coalition, all of whom are trade associations, accounted for half of the 124 revolving door lobbyists hired by retailers and merchants. The other half come from supporting companies including Wal-Mart, Home Depot, 7-11, and Best Buy.
Below you'll find a table listing all the revolving door lobbyists affiliated with the retailers and merchants. These are all lobbyists who were specifically listed as lobbying on debit interchange fee rules on their lobbying disclosure forms for 2010 or 2011. Revolving door lobbyists affiliated with the Electronic Payments Coalition can be found here.
A coalition of banks, credit unions, and electronic payment networks have hired a vast team of lobbyists that includes 118 former government officials as they aim to derail the implementation of rules governing the price charged to retail businesses by banks and credit unions every time a customer uses a debit card to pay.
The Electronic Payments Coalition is opposed to a new rule proposed by the Federal Reserve that would cap debit interchange fees, the cost per debit card swipe charged to retailers, at 12 cents per swipe. This would amount to a 70 percent reduction in the fee, a boon for retailers and cut in profits for banks.
The lobbying operation consists of some of the biggest names in Washington and keeps growing. Already this year coalition members have registered with five new lobbying firms to lobby on the interchange rules. FIRST Group, Hollier & Associates, and Cornerstone Government Relations are all registered as lobbying for Visa, Covington & Burling is registered with Wells Fargo, and SNR Denton is registered with the Independent Community Bankers Association.
Data recently disclosed by the Federal Reserve shows that one of its emergency lending programs, the Term Asset-Backed loan Facility or TALF, led to the purchasing of assets from 56 organizations--among them seven were also aided by the biggest bailout program, the Troubled Asset Relief Program, or TARP. Those seven financial firms benefited from $25 billion--or 35 percent--of the $71 billion in loans issued through through TALF.
More than two years after the financial crisis was touched off by the collapse of Lehman Brothers, when Congress, the Bush administration and independent agencies like the Federal Reserve took unprecedented actions to prop up bankers, brokers and other financial firms, the public is only now beginning to see detailed information on actions the government took that were considered secret before. While the Federal Reserve has released transaction level detail for TALF purchases, something that was ordered by Congress, it has withheld much of the underlying data for other emergency programs; Bloomberg.com reported that the Fed did not release information on the underlying securities purchased through the Term Securities Lending Facility program (TSLF) or the Term Auction Facility (TAF).
Bank of America was one of several banks that was able to play both sides of a Federal Reserve program launched during the 2008 financial crisis. While Bank of America was selling its assets to firms obtaining loans through the Fed program, the investment firm BlackRock—partially owned by Bank of America—was potentially turning a profit by using those loans to buy assets similar to those sold by Bank of America.
In November 2008, the Federal Reserve announced that, in addition to a series of lending programs intended to keep both the U.S. and world economies liquid, it would begin issuing federally backed loans to entities willing to purchase securities from the troubled financial industry through a program called the Term Asset-Backed Securities Loan Facility or TALF.
The Federal Reserve released a series of key data sets today as required under the Dodd-Frank financial reform law. The data sets show all of the emergency lending programs that the Fed undertook beginning in 2007 as financial firms found themselves awash in toxic assets and unable to borrow or lend money.
Ryan Sibley explained some of what we may find in a blog post yesterday:
If it’s fulfilled as the Dodd-Frank bill requires, we’ll know which banks had to use the secondary credit window, also known as the discount window, which was reserved for banks in poorer health. Information about TALF loans will show us which banks took advantage of federally guaranteed loans as an incentive to buy “toxic assets” and which banks were able to get rid of their bad assets as a result of the program. We’ll also find out which banks the Fed was nice enough to buy so many risky mortgage-backed securities from.
Some of these data sets are likely to hold more interesting revelations than others. Like the cables released by Wikileaks, there are bound to be a number of revelations that are more detailed confirmations of what we already know.
We'll have more on the other data sets in the coming days.
Tomorrow, the Federal Reserve is supposed to release information regarding a suite of programs created to increase lending during height of the financial crisis. Scheduled for release are the amounts, dates, types of loans and loan terms for every entity that took advantage of the emergency lending programs set up by the Fed. Included in that list will be the Term Asset-Backed Securities Loan Facility (TALF), the mortgage backed securities program, Maiden Lane and other programs that provided loans or assistance to financial institutions between December 1, 2007 and July 21, 2010 – the date the Dodd-Frank Wall Street Reform and Consumer Protection Act was put into law.
This information is of interest for a few reasons. If it’s fulfilled as the Dodd-Frank bill requires, we’ll know which banks had to use the secondary credit window, also known as the discount window, which was reserved for banks in poorer health. Information about TALF loans will show us which banks took advantage of federally guaranteed loans as an incentive to buy “toxic assets” and which banks were able to get rid of their bad assets as a result of the program. We’ll also find out which banks the Fed was nice enough to buy so many risky mortgage-backed securities from.
The graphic below shows when spikes in purchases occurred. It visualizes the Fed's growth over time as it took on more and more risk to help the economy.
It seems as though the requirement inserted into the Dodd-Frank bill will satisfy the Freedom of Information act request filed by Bloomberg back in 2008. Bloomberg and many other news outlets and government watchdogs, including the Sunlight Foundation, wanted to know details about the collateral being pledged to the Fed in exchange for loans to help banks remain liquid. That FOIA was denied claiming the information was confidential commercial information and therefore did not have to be released.
The Fed claimed that releasing the information could have the effect of stigmatizing the struggling banks, thus hurting them even more. The data that is supposed to be released now, however, will be as much as two years old in some cases. Therefore the current state of banks that might have once been in trouble will still be unknown.
To learn more about the Fed's steps to help the economy and how it strayed from its primary job of setting the interest rate, read here.
Here is the text from the Dodd-Frank bill as enacted:
"PUBLICATION OF BOARD ACTIONS.—Notwithstanding any
other provision of law, the Board of Governors shall publish on
its website, not later than December 1, 2010, with respect to all
loans and other financial assistance provided during the period
beginning on December 1, 2007 and ending on the date of enactment
of this Act under the Asset-Backed Commercial Paper Money
Market Mutual Fund Liquidity Facility, the Term Asset-Backed
Securities Loan Facility, the Primary Dealer Credit Facility, the
Commercial Paper Funding Facility, the Term Securities Lending
Facility, the Term Auction Facility, Maiden Lane, Maiden Lane
II, Maiden Lane III, the agency Mortgage-Backed Securities program,
foreign currency liquidity swap lines, and any other program
created as a result of section 13(3) of the Federal Reserve Act
(as so designated by this title)—
(1) the identity of each business, individual, entity, or foreign
central bank to which the Board of Governors or a Federal
reserve bank has provided such assistance;
(2) the type of financial assistance provided to that business,
individual, entity, or foreign central bank;
(3) the value or amount of that financial assistance;
(4) the date on which the financial assistance was provided;
(5) the specific terms of any repayment expected, including
the repayment time period, interest charges, collateral, limitations
on executive compensation or dividends, and other material
(6) the specific rationale for each such facility or program."
Here's an interesting development in the world of secret holds: the Nobel Prize committee just awarded Peter Diamond the Nobel Prize in Economics. Earlier this year Diamond was appointed to the Federal Reserve Board by President Obama. His nomination has since been returned to the President due to a secret hold placed by unnamed Republicans.
This functionally means that Diamond's nomination was rejected due to the intransigence of unknown elected representatives. He was approved by the overseeing committee, but his nomination was refused time to come to the floor as Republicans offered objections based on the stated objection of someone within their caucus.
(Tyler Cowen has a good run-down on Diamond's work here.)
Casting aside the merits of the nomination, it does not seem fair to either the nominee, the President or the people who elect senators to have decisions made in this opaque and clouded manner. The nominee deserves a fair and open hearing. The President, historically, has largely been given leeway in his appointments. And the people of this nation deserve to have an open and honest debate over legislation and nominations that does not involve secret senators blocking action for unknown reasons. That simply breeds mistrust and confusion.
The Sunlight Foundation has repeatedly called on the elimination of the secret hold from the Senate rules. The bipartisan Grassley-Wyden legislation is the best vehicle to end this abusive practice and is supported by nearly 70 senators. Yet the Senate refuses a vote on the legislation and continues to allow bills and nominations to be the scuttled based on the secret objections of unnamed senators. Is this any way to govern?
David Waldman has offered another solution to the whole secret hold mess. Declare that there are no secret holds by proclaiming the objecting senator, whether they say they are objecting on behalf of someone else or not, as the holding senator. Thus, whomever comes to the floor to object is the senator who is responsible for said objection and the blocking of the legislative process. This is also a novel approach that deserves to be looked at.
The House Financial Services Committee is holding a hearing on the Fed Transparency bill. The legislation started as a pet project of Federal Reserve gadfly, Rep. Ron Paul, but since the Fed's massive intrusion into the market and expansion of responsibilities has attracted so many cosponsors to force a hearing and likely a vote in Congress. If ever there was a doubt that Congress responded to public concerns, this should show that they clearly do. Watch here. (And especially watch for Rep. Alan Grayson's dollar sign tie. I also suggest The New Republic profile of Grayson.)